FINANCE QUESTIONS ASKED IN INTERVIEWS

FINANCE:

1. Finance is concerned with resource allocation as well as resource management, acquisition and investment. Simply, finance deals with matters related to money and the markets.

2. it involves the raising of money through the issuance and sale of debt and/or equity.

Finance is often defined simply as the management of money or “funds” management.

FUND: fund is the process of Funding, or providing capital (funds) or other resources for a transaction, a project, a person, a business or other private or public institutions

PORTFOLIO is a financial term denoting a collection of investments held by an investment company, hedge fund, financial institution or individual.

PORTFOLIO MANAGEMENT is the management of the collection of investments held by an investment company, hedge fund, financial institution or individual.

EQUITY: In accounting and finance, equity is the residual claim or interest of the most junior class of investors in assets, after all liabilities are paid. If liability exceeds assets, negative equity exists.

SHAREHOLDERS EQUITY: In an accounting context, Shareholders' equity (or stockholders' equity, shareholders' funds, shareholders' capital or similar terms) represents the remaining interest in assets of a company, spread among individual shareholders of common or preferred stock.

A STOCK MARKET OREQUITY MARKET is a public entity (a loose network of economic transactions, not a physical facility or discrete entity) for the trading of company stock (shares) and derivatives at an agreed price; these are securities listed on a stock exchange as well as those only traded privately.

INVESTMENT

Investment is putting money into something with the expectation of gain, based on a thorough analysis, and which has a high degree of security for the principal amount, as well as security of return, within an expected period of time. In contrast putting money into something with an expectation of gain without a thorough analysis, without the security of principal amount as well as without security of return is known as speculation or gambling. Management of the invested money or funds is known as investment management

A DERIVATIVE instrument is a contract between two parties that specifies conditions (especially the dates, resulting values of the underlying variables, and notional amounts) under which payments, or payoffs, are to be made between the parties.

Over-the-counter(OTC) derivatives are contracts that are traded (and privately negotiated) directly between two parties, without going through an exchange or other intermediary. Products such as swaps, forward rate agreements, exotic options - and other exotic derivatives - are almost always traded in this way. The OTC derivative market is the largest market for derivatives, and is largely unregulated with respect to disclosure of information between the parties, since the OTC market is made up of banks and other highly sophisticated parties, such as hedge funds.

Exchange-tradedderivative contracts (ETD) are those derivatives instruments that are traded via specialized derivatives exchanges or other exchanges. A derivatives exchange is a market where individuals trade standardized contracts that have been defined by the exchange.^[15] A derivatives exchange acts as an intermediary to all related transactions, and takes initial margin from both sides of the trade to act as a guarantee.

Some of the common variants of derivative contractsare as follows:

1. Forwards: A tailored or designed contract between two parties, where payment takes place at a specific time in the future at today's pre-determined price.
2. Futures: are contracts to buy or sell an asset on or before a future date at a price specified today. A futures contract differs from a forward contract in that, while the former is a standardized contract written by a clearing house that operates an exchange where the contract can be bought and sold, the latter is a non-standardized contract written by the parties themselves.
3. Options are contracts that give the owner the right, but not the obligation, to buy (in the case of a call option) or sell (in the case of a put option) an asset. The price at which the sale takes place is known as the strike price, and is specified at the time the parties enter into the option. The option contract also specifies a maturity date. In the case of a European option, the owner has the right to require the sale to take place on (but not before) the maturity date; in the case of an American option, the owner can require the sale to take place at any time up to the maturity date. If the owner of the contract exercises this right, the counter-party has the obligation to carry out the transaction.
4. Options are of two types: call option and put option. The buyer of a Call option although has a right to buy a certain quantity of the underlying asset, at a specified price on or before a given date in the future, he however has no obligation whatsoever to carry out this right. Similarly, the buyer of a Put option although has the right to sell a certain quantity of an underlying asset, at a specified price on or before a given date in the future, he however has no obligation whatsoever to carry out this right.
5. Warrants: Apart from the commonly used short-dated options which have a maximum maturity period of 1 year, there exists certain long-dated options as well, known as Warrant (finance). These are generally traded over-the-counter.

Swaps are contracts to exchange cash (flows) on or before a specified future date based on the underlying value of currencies exchange rates, bonds/interest rates, commodities exchange, stocks or other assets. Another term which is commonly associated to Swap is Swaption which is basically an option on the forward Swap. Similar to a Call and Put option, a Swaption is of two kinds: a receiver Swaption and a payer Swaption. While on one hand, in case of a receiver Swaption there is an option wherein you can receive fixed and pay floating, a payer swaption on the other hand is an option to pay fixed and receive floating.

A MUTUAL FUND is a type of professionally-managed type collective investment scheme that pools money from many investors.

In other words, mutual funds are collective investment schemes that are regulated, available to the general public and open-end in nature that are sold in units.

The main PARTICIPANTS IN FINANCIAL MARKET are commercial banks, financial institutions (both domestic and foreign), stock exchanges (both national & regional), lenders savers, borrowers and regulatory bodies.

CAPITAL MARKET deals with medium & long term securities while money market deals with only short term securities which have a maturity period of less than one year. Capital market is further classified into equity market (ownership securities), debt market (debentures) and derivative market (forward futures, option swaps)

MONEY MARKET facilitates short term liquidity it meets the working capital requirement of the industry, trade and commerce. Reserve bank of India plays a major role in the functioning of money market.

The INSTRUMENTS TRADEDIN MONEY MARKET consist of call money treasury bills, commercial papers, certificate of deposit and repurchase agreement (REPO) all and NOTICE MARKET is the market for short term funds up to 14 days. TREASURY BILLS are short term debt instrument of the central Govt. that are issued at a discount and redeemed at par. COMMERCIAL PAPERS are short term unsecured borrowings issued and redeemed at par. CERTIFICATE OF DEPOSIT is normally issued by banks and financial institution that represent short term deposits transferable from one person to another.

COMMODITY MARKETS are markets where raw or primary products are exchanged. These raw commodities are traded on regulated commodities exchanges, in which they are bought and sold in standardized contracts.

NCDEX is a public limited company incorporated on 23 April 2003 under the Companies Act, 1956. NCDEX is regulated by Forward Market Commission (FMC) in respect of futures trading in commodities. Besides, NCDEX is subjected to various laws of the land like the Companies Act, Stamp Act, Contracts Act, Forward Commission (Regulation) Act and various other legislations, which impinge on its working. On 3 February 2006, the FMC found NCDEX guilty of violating settlement price norms and ordered the exchange to fire one of their executive.

NCDEX is located in Mumbai and offers facilities in more than 550 centres in India.

Commodities Traded

NCDEX currently facilitates trading of 57 commodities -

Agri-based commodities - Castor Seed
Chana
Chilli
Coffee - Arabica, Coffee - Robusta
Cotton Seed Oilcake
Crude Palm Oil
Expeller Mustard Oil
Groundnut (in shell)
Groundnut Expeller Oil
Guar gum
Guar Seeds
Gur, Jeera
Jute sacking bags
Kidney Beans
Indian 28 mm Cotton
Indian 31 mm Cotton
Masoor Grain Bold
Medium Staple Cotton
Mentha Oil
Mulberry Green Cocoons
Mulberry Raw Silk
Rapeseed - Mustard Seed
Pepper
Raw Jute
RBD Palmolein
Refined Soy Oil
Rubber
Sesame Seeds
Soy Bean
Sugar - Small
Sugar - Medium
Turmeric
Urad (Black Matpe)
V-797 Kapas
Yellow Peas
Yellow Red Maize
Yellow Soybean Meal.

Bullion -
Gold 1 KG
Gold 100gm
Silver 30 KG
Silver 5 KG

Energy -
Brent Crude Oil
Furnace Oil
Light Sweet Crude Oil.

Ferrous metals
Mild Steel Ingot

Plastics
Polypropylene
Linear Low Density Polyethylene
Polyvinyl Chloride.

Non-ferrous metals
Aluminum Ingot,
Copper Cathode
Nickel Ingot
Zinc Cathode