Tutorials Chapter 1: Financial Markets

Multiple Choice Questions

1. There is a relationship between risk and return:
a. When risk increases, return increases
b. When risk decreases, return increases
c. When risk decreases, return is unchanged
d. When risk increases, return decreases
e. None of the above

2. Individuals or companies that prefer low-risk, low-return investments are:

a. Risk neutral
b. Risk-taking
c. Risk-averse
d. Risk-loving
e. None of the above

3. Which of the following orders instructs the broker to sell at or below a specified
price? 
a. Limit-Sell order
b. Stop-Loss order
c. Limit-Buy order
d. Stop buy order
e. None of the above
4. Which of the following functions of the financial system facilitates conversion
of investment in stocks, bonds, debentures, etc into money?
a. Savings function.
b. Liquidity function.
c. Payment function.
d. Risk function.
e. None of the above.
5. The market price of a share of common stock is determined by:

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 a. The board of directors of the firm
b. The stock exchange on which the stock is listed
c. The president of the company
d. Individuals buying and selling the stock.
e. None of the above.
6.A 30-year bond issued by Gary's Plaid Pants Warehouse, Inc., in 1997 would
now trade in the
a. Primary money market
b. Secondary money market
c. Primary capital market
d. Secondary capital market
e. None of the above

7. The purpose of financial markets is to:

a. Increase the price of common stocks
b. Lower the yield of bonds
c. Allocate savings efficiently
d. Control inflation
e. None of the above

Exercise 8:
There are two sell limit orders in the order book for a security: 200 shares at Rs 11.00
and 200 shares at Rs 10.00. A buy limit order for 400 shares is entered at Rs 11.00. How
do the buyer and seller conclude their transactions?

Exercise 9:
On the stock exchange a seller places two sell limit orders for a security: 200 shares at
Rs 11.00 and 200 shares at Rs 12.00. A buyer places a buy limit order of 400 shares at
Rs 11.00. How does the buyer and seller conclude their transactions?

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 Buy Orders Sell Orders
Number of sharesPrice Price Number of Shares
400 Rs 11.00 Rs 11.00 200
Rs 12.00 200
Exercise 10:
A buyer places a buy market order for 400 shares. The following sell orders have been
made on the stock exchange:
Sell Order
Price Number of Shares
Rs 10.0060
Rs 11.00100
Rs 12.00100
Rs 13.00140

Exercise 11: Market Capitalisation:

The following companies were listed on the SEM – 7 at 30.12.2015. The share prices at
the 30.12.2005 and the number of shares outstanding at the same date are available.
Price (Rs)No. ofMarket
at Shares Capitalization at
30.12.2015 Outstanding 30.12.2015 (Rs)
Mauritius Commercial Bank LtdRs 50.00 282,110,456 14,105,522,800
State Bank of Mauritius Ltd Rs 30.50 382,414,470 ?
New Mauritius Hotels Ltd Rs 72.50 161,423,536 11,703,206,360
Sun Resorts Ltd Rs 66.00 94,574,657 6,241,927,362
Rogers and Company Ltd Rs 143.00 25,204,530 3,604,247,790
Naïde Resorts Ltd Rs 44.90 86,256,873 ?
Mon Trésor Mon Désert Ltd Rs 45.00 67,012,404 3,015,558,180

What is the market value of Naïde Resorts as at 30.12.2015?

What is the market value of State Bank of Mauritius Ltd as at 30.12.2015?
Calculate the total market value of the company shares (or the market capitalization of
the shares) listed on the SEM-7.

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