Interview questions for Stock market

1. What Do You Understand By Securities Market? What Are The Different Types Of Securities Market?

Security market is a market where securities are issued and traded. It is the market for different types of securities namely: Debt, Equity and Derivatives.
Debt market is further divided into three parts:
o Government securities market
o Money market
o Corporate Debt market
Equity market is divided into two parts:
o Primary market
o Secondary market
Derivatives market is also divided into two parts:
o Options market
o Futures market

2. What do you understand by Stock market indices? Name the major stock market indices?

Stock market indices are used to measure the general movement of the stock market. It is used as a proxy for overall market movement. The major stock market indices are:

– Bombay Stock Exchange Sensitive Index (BSE) popularly known as Sensex. It reflects the movements of 30 sensitive shares from specified and non specified groups.

– S and P CNX nifty, known as Nifty Index. It reflects the movements of 50 scrips selected on the basis of market capitalization and liquidity.

3. What is the difference between Bombay Stock Exchange and National Stock Exchange?

– Bombay Stock Exchange index or Sensex was started in 1986 whereas National Stock Exchange index namely Nifty started in 1995.
– The base year for the sensex is 1978-79 and base value is 100 whereas the base year for nifty is 1994 and base value is 1000.
– BSE consists of 30 scrips whereas NSE consists of 50 scrips.
– BSE is screen based trading whereas NSE is ringless, national, computerized exchange.
– BSE has adopted both quote driven system and order driven system whereas NSE has opted for an order driven system.

4. What are the different types of Equity Market?

Equity market consists of primary market and secondary market.

Primary equity market – is also called new issues market as securities are issued to public for the very first time. In this market the new issues are made in following four ways:

– Public issue
– Rights issue
– Private placements
– Preferential allotment

Secondary equity market – also known as Stock exchanges which are an important part of capital market. It is an organized market place where securities are traded. These securities are issued by government, semi-government bodies, public sector undertakings, joint stock companies etc.

5. What Are The Advantages Of Derivatives?

o Increased hedge for investors in cash market.
o Enhance price discovery process.
o Increases volume of transactions.
o Lower transaction costs.
o Increased liquidity for investors and growth of savings flowing into these markets.
o Leads to faster execution of trades and arbitrage and hedge against risk.

6. What Is Beta Of An Asset?

Beta of an asset is a way of measuring systematic risk of an asset. It shows how price of a security responds to changes in market price. It indicates the extent of movement of the returns of the stock with respect to the movement of market returns. Assets that are riskier than average will have Betas that exceed 1 and assets that are safer than average will have Betas lower than 1. The riskless asset will have a value of Beta=0. The Beta of the market portfolio or the average of Betas across al assets in the market is 1.

7. What Do You Mean By Derivatives? Give An Example.

The word derivative refers to a variable which has been derived from another variable. Thus derivatives have no value of their own as they derive their value from the value of some other assets which is known as underlying asset. They are specialized contracts which signify an agreement to buy or sell the underlying asset of the derivate up to a certain time in the future at a predetermined price. The value of the contract depends on the expiry period and also on the price of the underlying asset. For example – Derivative contract on crude oil depends on the price of crude oil.

8. What are the important macroeconomic indicators that influence stock market?

Following are the macroeconomic indicators that influence stock market:

– GDP Growth Rate
– Behaviour of monsoon and performance of agriculture
– Trends in public investment and savings
– Monetary and fiscal policy
– Economic and political stability
– Inflation
– Infrastructural facilities and arrangements

9. What is efficient market hypothesis?

Efficient market is one where the market price of the security is an unbiased estimate of its intrinsic value. The efficient market hypothesis is based on following assumptions:

– Market is perfect and free without any trade restrictions.
– Market absorbs all the information quickly and efficiently.
– Information is free and costless and is freely available to all at the same time.
– Information is fair and correct.
– Market players can analyze the information quickly and it is absorbed in the market through buy and sell signals.

10. Explain what is equity funding?

Insurance policy paid for by a mutual fund is referred as equity funding. The value of the mutual fund shares pay the premiums of the insurance policy, enabling individual investors to have a benefit of a traditional mutual fund investment.

11. Explain what is weighted average rating factor?

The technique of calculating, analysing and communicating the overall risk of a portfolio of investments is known as weighted average rating factor.

12. Explain can you judge whether the stock is expensive by looking at its price?

Looking just at its price you cannot judge the stock price, a $200 stock can be cheap if the company’s earnings prospects are high enough, while a $10 stock can be expensive if earning potential is low. The P/E ratio is the correct judge of the valuation of the stock.

13. What Is The Difference Between Bombay Stock Exchange And National Stock Exchange?

o Bombay Stock Exchange index or Sensex was started in 1986 whereas National Stock Exchange index namely Nifty started in 1995.
o The base year for the sensex is 1978-79 and base value is 100 whereas the base year for nifty is 1994 and base value is 1000.
o BSE consists of 30 scrips whereas NSE consists of 50 scrips.
o BSE is screen based trading whereas NSE is ringless, national, computerized exchange.
o BSE has adopted both quote driven system and order driven system whereas NSE has opted for an order driven system.