NISM Certification Overview
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Questions and Answers

What is the primary aim of NISM certification programs?

  • To enhance the quality and standards in financial services. (correct)
  • To eliminate all regulatory requirements.
  • To provide free financial education.
  • To reduce the number of financial professionals.

Which area does NISM NOT focus on according to its certification examinations?

  • Equities
  • Compliance
  • Operations
  • Social Media Marketing (correct)

How does NISM contribute to the financial market?

  • By reducing the number of financial educators.
  • By restricting access to financial information.
  • Through capacity building among securities market stakeholders. (correct)
  • By establishing a monopoly in financial education.

What aspect of financial education does NISM focus on?

<p>Enhancing governance standards (A)</p> Signup and view all the answers

Which of the following is NOT a function of NISM’s School for Certification of Intermediaries?

<p>Conducting financial literacy campaigns (A)</p> Signup and view all the answers

What do NISM's certification examinations aim to ensure for professionals?

<p>Meeting a defined minimum knowledge benchmark. (A)</p> Signup and view all the answers

Which sector does NISM collaborate with for enhancing financial education?

<p>All financial sector regulators (C)</p> Signup and view all the answers

What type of programs does NISM conduct alongside certification examinations?

<p>Continuing Professional Education programs (A)</p> Signup and view all the answers

What is the primary role of securities markets in the financial market system?

<p>Providing a regulated framework for capital flow (C)</p> Signup and view all the answers

Which of the following is NOT a participant in the securities market?

<p>Real estate agents (A)</p> Signup and view all the answers

What main components make up the financial market?

<p>Money market, debt market, and securities market (D)</p> Signup and view all the answers

What is the role of regulatory bodies like SEBI and RBI in securities markets?

<p>Overseeing transactions and ensuring market integrity (A)</p> Signup and view all the answers

Which statement best explains the structure of securities markets?

<p>It includes issuers, investors, intermediaries, and regulatory authorities. (C)</p> Signup and view all the answers

What type of capital flow do securities markets primarily facilitate?

<p>Equity and debt capital from investors to businesses (C)</p> Signup and view all the answers

Which of these markets is primarily included in the financial market?

<p>Securities market (D)</p> Signup and view all the answers

How does the securities market contribute to the allocation of capital?

<p>By allowing efficient pricing and transactions of securities (D)</p> Signup and view all the answers

Which of the following best describes derivatives as defined by SCRA?

<p>A contract deriving its value from underlying securities prices. (A)</p> Signup and view all the answers

What is the primary benefit for investors purchasing securities?

<p>To convert savings into financial assets that provide returns. (B)</p> Signup and view all the answers

Which of the following statements about the issuer of a security is true?

<p>The issuer raises capital through regulated contracts. (B)</p> Signup and view all the answers

How are securities categorized in terms of risk and return?

<p>Risk and return characteristics differ significantly between equity and debt securities. (B)</p> Signup and view all the answers

What primary benefit does a certificate of deposit (CD) provide compared to a fixed deposit?

<p>A CD can be transferred before maturity. (C)</p> Signup and view all the answers

Why do companies list securities on a stock exchange?

<p>To provide liquidity and transparency to investors. (C)</p> Signup and view all the answers

What role does the investor play in the context of securities?

<p>The investor has a claim to rights represented by the securities. (C)</p> Signup and view all the answers

What is a key risk associated with investing in securities?

<p>Companies may default on interest or principal repayments. (D)</p> Signup and view all the answers

What characterizes a bond as a debt security?

<p>It represents a borrowing by the issuer. (C)</p> Signup and view all the answers

How can investors evaluate risks associated with securities?

<p>By obtaining information about the company. (C)</p> Signup and view all the answers

What is a key feature of securities markets?

<p>They allow for mutual satisfaction of investor and issuer goals. (B)</p> Signup and view all the answers

What is a characteristic of a fixed deposit receipt?

<p>It is not transferable. (D)</p> Signup and view all the answers

What does the term 'liquid market' refer to in the context of securities?

<p>A market that allows investors to sell securities easily. (C)</p> Signup and view all the answers

What must investors do if they wish to access their funds before a fixed deposit matures?

<p>Break the deposit which may incur penalties. (D)</p> Signup and view all the answers

Which of the following accurately describes a standard security?

<p>It is a pre-defined security with accepted terms. (A)</p> Signup and view all the answers

What is the main difference between a one-to-one transaction and a standard security?

<p>One-to-one transactions involve negotiations, while standard securities do not. (B)</p> Signup and view all the answers

What is the primary focus of the top-down approach in equity analysis?

<p>Identification of macro trends to inform sector selection (B)</p> Signup and view all the answers

Which of the following is NOT a source of information for equity analysis?

<p>Personal investment blogs (A)</p> Signup and view all the answers

What do relative valuation models strive to achieve in equity analysis?

<p>Assess fair value by comparing with similar assets (C)</p> Signup and view all the answers

What is a potential limitation of relative valuation models?

<p>They can incorporate errors from market price valuations (D)</p> Signup and view all the answers

Which model relies primarily on an understanding of the business’s earnings, growth, and dividends?

<p>Discounted cash flow models (C)</p> Signup and view all the answers

What does the economy-industry-company (EIC) framework describe?

<p>The process of analyzing market and macro factors (C)</p> Signup and view all the answers

Which of the following actions is a part of equity analysis?

<p>Estimating future cash flows for valuation (D)</p> Signup and view all the answers

How do bottom-up approaches in equity analysis differ from top-down approaches?

<p>They focus first on individual stock potential before considering macro indicators. (C)</p> Signup and view all the answers

What does the principal of a debt security represent?

<p>The amount of money borrowed by the issuer (C)</p> Signup and view all the answers

Which of the following factors does NOT influence the coupon rate of a debt security?

<p>The investor's credit score (D)</p> Signup and view all the answers

What is the primary difference between a bond and a debenture in the context of Indian securities markets?

<p>Bonds are typically issued by government or public sector organizations (A)</p> Signup and view all the answers

What happens to a bond once it is redeemed or repaid?

<p>It ceases to exist (A)</p> Signup and view all the answers

What rights do investors have when they hold secured debt securities?

<p>The right to the issuer’s assets if there is a default (D)</p> Signup and view all the answers

Which of the following statements regarding unlisted securities is correct?

<p>They must be held until maturity. (B)</p> Signup and view all the answers

Which of the following is a feature of all debt securities?

<p>They provide the investor with the right to coupon payments and principal repayment as per the contract. (C)</p> Signup and view all the answers

How is the interest from a debt security typically expressed?

<p>As a percentage of the face value (C)</p> Signup and view all the answers

Flashcards

NISM

National Institute of Securities Markets, a leading provider of professional education, certifications, and research in financial markets.

SCI

NISM's School for Certification of Intermediaries - a division of NISM that develops and conducts certification exams and Continuing Professional Education (CPE) programs.

NISM Certification programs

Structured learning paths and career development opportunities offered by NISM for professionals in the securities markets.

NISM Certifications

Benchmarks of knowledge for various market products and functions such as equities, mutual funds, derivatives, compliance, operations, advisory and research.

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CPE

Continuing Professional Education (CPE) programs provide ongoing training and development opportunities for professionals in securities markets.

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NISM's engagement with financial sector regulators

NISM works with regulators in the financial sector to promote financial education.

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Financial literacy

NISM's efforts to make people understand financial concepts and improve their knowledge about financial markets.

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NISM's aim

NISM's goal is to raise the standards and quality of professionals working in the financial services sector.

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Securities Markets

A regulated platform where investors (buyers) and businesses (issuers) exchange funds, facilitating the flow of capital in the financial system.

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Securities

Investment instruments that represent ownership (equity) or debt claims on a company or government.

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Intermediaries in Securities markets

Organisations that match buyers and sellers of securities and facilitate trading activities.

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Role of Securities Markets in Capital Allocation

The process of allocating funds from investors to businesses, allowing businesses to grow and expand.

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Money Market

A market where short-term debt instruments are traded.

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Debt Market

A market where long-term debt instruments like bonds are traded.

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Securities Market

A market where equity, debt and derivatives are traded.

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Derivatives Market

A market where financial instruments derived from underlying assets are traded. They can be used to manage risk or speculate on future market movements.

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What is a security?

A legal document that outlines the terms of an exchange of money between two parties. It represents a financial claim on assets or ownership in a company.

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What is security issuance?

The process of a company issuing new securities to raise capital from investors.

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What are the investor rights with securities?

Investors who purchase securities gain ownership rights, including participation in management or claims on assets.

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How are securities classified?

Securities are divided into two main categories: equity and debt. These categories differ in their terms, risks, and returns.

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What are equity securities?

A type of security representing ownership in a company. Shareholders have voting rights and receive dividends, but they also share in the company's risks.

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What are debt securities?

A type of security that represents a loan to a company or government. Bondholders receive interest payments and the principal amount is repaid at maturity.

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What is risk in securities?

The potential for an investment's actual return to differ from the expected return. It's the risk of losing money.

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What is return in securities?

The benefit received by an investor from their investment. It can be in the form of interest payments, dividends, or capital appreciation.

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Principal (Debt Security)

The amount borrowed by an issuer, which is repaid to the investors on maturity.

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Coupon (Debt Security)

The interest rate paid by the borrower, usually expressed as a percentage of the face value.

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Maturity (Debt Security)

The date on which the borrower is required to repay the principal amount.

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Debenture

A debt instrument issued by a private corporation for borrowing money.

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Bond (Debt Security)

A debt instrument issued by the government or a public sector entity for borrowing money.

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Secured Debt

Debt securities that provide investors with rights over the issuer's assets in case of default.

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Unsecured Debt

Debt securities that do not give investors any rights to the issuer's assets in case of default.

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Listed Debt Securities

Debt securities listed on stock exchanges and traded in the secondary market.

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Security

A financial instrument that represents a loan from an investor to a borrower, typically a company. It promises a fixed rate of return (interest) over a specified period and repayment of the principal at maturity.

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Default risk

The risk that the borrower, e.g., a company, will be unable to repay the borrowed money (principal) or the interest due on the security.

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Transferring risk

The process of an investor selling their security to another investor before its maturity date.

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One-to-one transaction

A direct transaction between two parties, where the terms are individually negotiated and agreed upon.

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Standard security

A standardized financial instrument with pre-defined terms and conditions, accepted by both buyer and seller, offering uniform risk-return profiles.

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Fixed deposit

A deposit that can be withdrawn only after a predetermined period, typically with a fixed interest rate.

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Certificate of deposit (CD)

A security issued by a bank that represents a fixed deposit, allowing the holder to either hold it until maturity or transfer it to another party.

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Transferability

The right of the holder of a security to sell it to another investor before maturity.

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EIC framework

Analyzing a company's potential by understanding its industry and broader economic environment.

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Top-down approach

Starting with broad economic trends and narrowing down to specific sectors and stocks based on those trends.

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Bottom-up approach

Focusing on individual company fundamentals and then checking if they align with industry and economic conditions.

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Discounted cash flow model

Estimating a company's future cash flows and discounting them to the present using a chosen discount rate.

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Relative valuation model

Comparing the company to its peers in the same industry to assess its relative value.

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Audited financial statements

Information derived from public company filings, like balance sheets and income statements.

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Analyst meetings and interactions

Data collected through direct communication with company management, like conference calls and meetings.

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Industry reports and analytics

Reports and data published by industry experts, offering insights into trends and competitive landscapes.

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Study Notes

NISM-Series-XII Workbook

  • This workbook is for preparing for the National Institute of Securities Markets (NISM) Certification Examination for Securities Markets Foundation.
  • It was published in May 2019.
  • The National Institute of Securities Markets (NISM) published it.
  • The address of the publisher is Plot 82, Sector 17, Vashi, Navi Mumbai – 400 703, India.
  • Reproduction of this workbook in any form, without permission from the publishers, is strictly prohibited.

Foreword

  • NISM provides high-end professional education, certifications, training, and research in financial markets.
  • NISM builds capacity among stakeholders in the securities markets through professional education, enhancing governance standards, and fostering policy research.
  • NISM works closely with financial sector regulators and develops programs catered to various segments of financial professionals.

Disclaimer

  • The content of the workbook does not imply endorsement, recommendation, or favoring by NISM or SEBI.
  • The workbook is for general reading and educational purposes only.
  • NISM and SEBI have no responsibility for actions or wrong moves based on information presented in this workbook.
  • The information is based on the understanding of reliable sources, however, the material does not provide any guarantee about the accuracy of the information.

About NISM

  • NISM was established by the Securities and Exchange Board of India (SEBI) in February 2005.
  • SEBI's goal for establishing NISM was to promote securities market education and research.
  • NISM caters to various constituencies – investors, researchers, intermediaries, regulatory staff, and policy makers.
  • NISM provides financial and securities education at various levels and across various segments in India and abroad.

About the Workbook

  • This workbook aids NISM-Series-XII candidates in understanding the Indian securities markets.
  • It details the schemes and products in Mutual Funds and Derivatives Markets in India.
  • It covers the essentials of financial planning processes.

About the Certification Examination for Securities Markets Foundation

  • The examination is meant for entry-level professionals who wish to pursue a career in securities markets.
  • This certification examination is suitable for those wanting a basic knowledge of the Indian securities markets, including: entry-level professionals, employees in the securities industry, professionals from other industries interested in learning about securities markets, students, homemakers, and teachers.

Contents

  • The workbook has chapters on understanding securities markets, securities types and concepts, primary markets, secondary markets, mutual funds, derivative markets, financial planning and securities markets.

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NISM-Series-XII Securities Markets Foundation Certification Examination PDF

Description

This quiz explores various aspects of the NISM certification programs, including their primary aims, contributions to financial education, and roles in the financial market. Test your knowledge on the functions of NISM, securities markets, and regulatory bodies like SEBI and RBI.

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