18 Questions
What triggers index maintenance?
Corporate actions
Who takes the final decision on the inclusion or removal of a security from an index?
Index Committee
What is the purpose of index revision?
To capture the most vibrant lot of securities in the market
Which of the following is NOT a major equity index in India?
NASDAQ
Why were indices traditionally used?
To measure the overall direction of the stock market
How are stocks chosen for inclusion in an index?
Based on pre-determined qualitative and quantitative parameters
What is the primary responsibility of specialized agencies like Asia Index Pvt Ltd and NSE Indices Limited?
Managing index construction, maintenance, and revision
In index management, what does revision of an index primarily involve?
Replacing existing stocks with new ones due to market changes
How does diversification impact risk reduction in an index?
Beyond a certain point, increasing stocks in an index provides little additional risk reduction
What is the purpose of adjusting an index for corporate actions such as bonus issues or mergers?
To maintain the accuracy of the index
What is the trade-off involved in creating a good index?
Diversification over risk
What is the impact of going beyond 100 stocks in an index on risk reduction, according to the text?
Risk reduction becomes negligible
What is the main purpose of financial indices?
To represent the overall behavior of different types of financial securities
Why is percentage change more important than the actual numeric value when discussing indices?
Because it provides a clearer picture of market movement
How is a stock index typically used as a benchmark by portfolio managers?
To measure and evaluate their portfolio's performance
What is one major application of stock indices in financial markets?
To serve as an indicator of overall market performance
Why are broad indices expected to capture the overall behavior of the equity market?
Because they represent the return obtained by typical portfolios in the country
What methodology classifies each stock in a market capitalization weighted index?
According to their market capitalization
Learn how to calculate the ideal price for buying shares and determine the impact cost for a specific quantity of shares. Understand the formula to calculate the actual buy price and the percentage of impact cost incurred.
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