Chapter 24: Investment Management (JAIIB – Paper 4)
1. Which of the following is considered an element of investment?
A. Market volatility only
B. Risk, return, liquidity, and time horizon
C. Only capital appreciation
D. Only government bonds
The key elements of investment include risk, expected return, liquidity, and the investment time horizon.
2. Investment management primarily aims to:
A. Increase taxes for investors
B. Ensure inflation remains low
C. Regulate stock markets
D. Optimize returns while managing risk
Investment management focuses on maximizing returns for investors while controlling and managing the associated risks.
3. What is the first step in the investment management process?
A. Defining investment objectives
B. Selecting securities
C. Portfolio evaluation
D. Risk assessment
The investment process begins with defining clear investment objectives based on the investor's risk profile and financial goals.
4. Full-service investment banks typically offer the following services EXCEPT:
A. Underwriting new issues
B. Advisory services for mergers & acquisitions
C. Printing of currency notes
D. Asset management services
Investment banks provide underwriting, advisory, and asset management services, but they are not involved in printing currency, which is a central bank function.
5. Which of the following BEST describes investment banking?
A. Only trading in stocks and bonds
B. Assisting companies in raising capital and providing advisory services
C. Providing personal loans to customers
D. Insurance underwriting
Investment banks help firms raise capital through equity/debt issues and advise on mergers, acquisitions, and restructuring.
6. Which of the following is NOT a step in investment management?
A. Asset allocation
B. Security selection
C. Portfolio monitoring
D. Printing financial statements
Investment management involves asset allocation, selecting securities, and monitoring the portfolio; printing statements is not part of this process.
7. Liquidity in investment refers to:
A. How easily an investment can be converted into cash without significant loss
B. Total returns from an investment
C. Legal compliance of an investment
D. Long-term growth potential
Liquidity measures how quickly and easily an asset can be sold in the market without impacting its price significantly.
8. Which service is typically offered by a full-service investment bank to corporate clients?
A. Retail deposit accounts
B. Personal wealth management
C. Corporate financing advisory
D. ATM services
Full-service investment banks provide corporate clients with advisory on financing, mergers, and capital raising activities.
9. Which of the following is NOT a typical division in an investment bank?
A. Sales and Trading
B. Retail Lending Branch
C. Investment Banking Advisory
D. Research and Asset Management
Investment banks typically have divisions like trading, investment banking advisory, research, and asset management; retail lending branches are part of commercial banks, not investment banks.
10. Which of the following BEST differentiates investment management from investment banking?
A. Investment management deals with underwriting IPOs
B. Investment banking manages individual portfolios
C. Investment banking provides personal loans
D. Investment management focuses on managing client assets while investment banking focuses on raising capital and advisory services
Investment management primarily manages client portfolios, while investment banking helps companies raise funds and provides advisory services.
11. Portfolio management involves:
A. Selecting a mix of assets to achieve specific investment goals
B. Only trading derivatives
C. Issuing new securities
D. Lending funds to corporations
Portfolio management is about constructing and managing a mix of investment assets to meet the client’s risk-return objectives.
12. One of the primary objectives of portfolio management is:
A. Maximizing tax liabilities
B. Achieving an optimal balance between risk and return
C. Guaranteeing fixed returns
D. Avoiding regulatory compliance
The main goal of portfolio management is to create a portfolio that provides the best possible return for a given level of risk, aligning with investor objectives.
13. Which of the following BEST describes the role of the research division in an investment bank?
A. Providing retail banking services
B. Conducting audits of client accounts
C. Analyzing market trends and recommending investment opportunities
D. Printing currency notes
The research division analyzes market conditions, financial statements, and trends to provide investment recommendations for clients and traders.
14. Which type of portfolio aims to reduce risk by diversifying across asset classes?
A. Aggressive portfolio
B. Speculative portfolio
C. Single-asset portfolio
D. Diversified portfolio
A diversified portfolio spreads investments across different asset classes to minimize risk while aiming for reasonable returns.
15. Investment banking differs from portfolio management in that investment banking primarily:
A. Helps companies raise capital through equity and debt issues
B. Manages individual retirement accounts
C. Focuses on personal budgeting
D. Provides insurance advisory
Investment banks focus on corporate finance activities like raising capital and advising on mergers, while portfolio management focuses on managing client investments.
16. Which of the following is considered a key element of portfolio management?
A. Printing financial statements
B. Retail loan disbursement
C. Asset allocation, diversification, risk-return trade-off
D. Only tax saving
The key elements of portfolio management include asset allocation, diversification, and balancing the risk-return trade-off according to investor objectives.
17. Which of the following BEST differentiates portfolio management from investment banking?
A. Portfolio management provides IPO underwriting
B. Portfolio management focuses on managing client investments, while investment banking focuses on raising capital and advisory services
C. Portfolio management lends funds to corporates
D. Investment banking manages retirement accounts
Portfolio management handles the selection and monitoring of assets for clients, while investment banking assists companies with capital raising and advisory.
18. The primary role of a portfolio manager is to:
A. Grant loans to clients
B. Issue equity shares
C. Audit client accounts
D. Construct and manage a portfolio to meet client objectives
A portfolio manager is responsible for selecting investments and managing the portfolio in line with the client’s risk-return profile and investment goals.
19. Which of the following is a key difference between Portfolio Management Services (PMS) and Mutual Funds (MFs)?
A. PMS pools funds from multiple investors like MFs
B. PMS offers personalized investment portfolios, while MFs offer a pooled investment scheme
C. PMS is regulated by SEBI, MFs are not
D. PMS guarantees fixed returns
PMS provides tailor-made portfolios for individual clients, whereas mutual funds pool investor money to invest in a common portfolio.
20. Which of the following BEST describes the risk-return principle in portfolio management?
A. Higher potential returns usually come with higher risk
B. Lower returns always mean higher risk
C. Risk and return are unrelated
D. Diversification eliminates all risk
The risk-return trade-off implies that investors seeking higher returns must accept higher levels of risk, and diversification can help manage but not eliminate risk.
21. In PMS, the investment strategy is typically:
A. Same for all clients
B. Limited to fixed deposits only
C. Customized according to individual client objectives
D. Decided by government regulations only
PMS strategies are tailored to the client’s financial goals, risk appetite, and investment horizon, unlike mutual funds which follow a fixed scheme.
22. Which of the following is an advantage of using a portfolio manager over investing in mutual funds?
23. Which of the following statements is TRUE about Portfolio Management Services?
A. PMS invests only in government bonds
B. PMS guarantees capital protection
C. PMS is unregulated
D. PMS is regulated by SEBI and offers customized investment solutions
PMS is regulated by SEBI, and the service is tailored to meet the specific investment goals and risk profile of each client.
24. Which of the following is NOT a type of Portfolio Management Service (PMS)?
A. Discretionary PMS
B. Non-discretionary PMS
C. Fixed Deposit PMS
D. Advisory PMS
The main types of PMS are Discretionary, Non-discretionary, and Advisory; there is no "Fixed Deposit PMS" type.
25. What is the first step in the Portfolio Management Process?
A. Defining investor objectives and risk profile
B. Selecting securities
C. Portfolio evaluation
D. Monitoring returns
The process starts with understanding the investor's objectives, risk tolerance, and investment horizon to tailor the portfolio.
26. Which of the following is an advantage of using PMS?
A. Fixed returns guaranteed
B. No professional management
C. Limited investment options
D. Personalized investment portfolio based on risk and goals
PMS provides professional, customized portfolio management tailored to the investor’s goals and risk profile.
27. Which of the following is a disadvantage of PMS?
A. Lack of professional expertise
B. Higher fees compared to mutual funds
C. Limited diversification options
D. Not regulated by SEBI
PMS usually charges higher fees than mutual funds due to personalized management and advisory services.
28. Which of the following is a recent development in PMS in India?
A. Increased focus on technology-enabled PMS platforms
B. Elimination of SEBI regulations
C. PMS is now offered only to banks
D. Fixed returns mandated by regulators
Recent developments include technology-driven PMS, better transparency, and increased access for high-net-worth investors.
29. In Advisory PMS, the portfolio manager:
A. Directly manages and trades the client’s funds
B. Guarantees fixed returns
C. Provides investment advice but client executes trades
D. Provides banking loans
In Advisory PMS, the manager recommends investments, but the client retains control and executes the trades.
30. Discretionary PMS differs from Non-Discretionary PMS in that:
A. Discretionary PMS only invests in government bonds
B. Non-Discretionary PMS provides guaranteed returns
C. Non-Discretionary PMS is unregulated
D. In Discretionary PMS, the portfolio manager makes investment decisions on behalf of the client
Discretionary PMS allows the portfolio manager to make investment decisions directly, whereas Non-Discretionary PMS requires client approval for each transaction.
