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Exam Papers for Financial Markets and Institutions in BBA
(With Answers)
PAPER # 1

**Time: 2 hours**
**Instructions:**
- Answer all questions
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- Write your answers in the space provided
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**Part A: Multiple Choice Questions (1 point each)**
Choose the correct option for each of the following questions
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Which of the following is not a money market instrument?
a) Treasury bills
b) Corporate bonds
c) Commercial paper
d) Certificates of deposit

Answer: b) Corporate bonds

2
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What is the primary function of an investment bank?
a) Providing retail banking services
b) Managing insurance products
c) Facilitating the issuance of securities
d) Regulating financial markets

Answer: c) Facilitating the issuance of securities

4
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What is the role of a stock exchange in financial markets?
a) Raising capital for companies
b) Providing loans to individuals
c) Regulating the banking sector
d) Facilitating the trading of stocks and securities

Answer: d) Facilitating the trading of stocks and securities

**Part B: Short Answer Questions (10 points each)**

6
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Answer: Moral hazard refers to the risk that a party may take because it does not
have to bear the full consequences of its actions
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This can lead to reckless behavior and poor decision-making, as the party taking
risks is not fully accountable for the negative outcomes
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Describe the key functions of a central bank in a country's financial system
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- Banking supervision: Regulating and supervising commercial banks to ensure their
soundness and stability
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- Foreign exchange management: Managing foreign exchange reserves and
stabilizing exchange rates
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**Part C: Essay Question (20 points)**

8
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Provide examples and explain how these advancements have influenced
the industry
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Technology has transformed the way financial services
are delivered, traded, and managed
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High-frequency trading (HFT) algorithms have increased the speed
and efficiency of market transactions
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Blockchain technology and cryptocurrencies have
introduced new forms of digital assets and payment systems
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**Answers to Part B and Part C will vary based on the knowledge and understanding of
the student
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1
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Which of the following is NOT a type of financial market?
(a) Money market (b) Capital market (c) Derivative market (d) Primary market
Answer: (d)
3
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(b) Primary markets are for institutional investors
only, while secondary markets are for retail investors only
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(d) All of the above
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What is the role of financial intermediaries?
(a) To channel funds from savers to borrowers (b) To reduce information asymmetry
and transaction costs (c) To provide diversification and liquidity to investors (d) All of the
above
Answer: (d)
5
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1
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Debt instruments represent a loan to a borrower, while equity instruments
represent ownership in a company
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Some common types of equity instruments include stocks,
shares, and options
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What are the main functions of financial markets?
Answer: Financial markets serve a number of important functions, including:
 Providing a forum for businesses to raise capital
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Allowing investors to trade financial assets

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Facilitating the transfer of wealth between savers and borrowers

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Hedging against risk

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Promoting economic growth and development

3
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Discuss the role of financial markets in the economy
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Explain the different types of financial instruments and their characteristics
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Evaluate the importance of financial intermediaries in the financial system
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Financial markets play a vital role in the economy by facilitating the flow of funds from
savers to borrowers
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Financial markets also help to promote economic efficiency by allocating resources to
their most productive uses
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This information helps businesses to make better
investment decisions, which ultimately benefits the economy as a whole
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This liquidity is important for businesses and
individuals alike, as it allows them to meet their financial obligations and take advantage
of new opportunities
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Answers:
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Section A: (a), (b), (c), (d), (d)
Section B: 1
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2

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