📊 NISM Series XVChapter 2 of 15⚖ 2 marks weightageCase-Based ✓
Ch.2: Introduction to Securities Market
Practice questions for NISM-Series-XV: Research Analyst Certification Examination
(mandated by SEBI under the Research Analysts Regulations, 2014).
Chapter 2 carries 2 out of 100 marks
in the final examination. The exam has 80 MCQs + 5 case-based sets, 120-minute duration,
60% passing score, and −0.25 negative marking per wrong answer.
25
MCQ
1
Case Sets
29
Total Qs
2
Exam Marks
60%
Pass Score
−0.25
Neg. Marking
What You Will Learn in This Chapter
Know the structure of Indian securities markets
Understand different financial instruments and market participants
Understand dematerialisation, settlement and trading processes
What is the primary function of the securities market, as formally stated in the provided text?
✓To provide channels for conversion of savings into investments.
BTo solely facilitate short-term borrowing for companies.
CTo manage the taxation of financial assets for investors.
DTo regulate international currency exchange rates.
💡 The text states: 'To state formally, securities market provides channels for conversion of savings into investments.'
Q2MCQMediumFinancial Market Components
Which of the following is NOT explicitly listed as a broad component of the Financial Market in the provided text?
AInvestors/Providers of funds
BBorrowers/Seekers of funds
✓Auditing Firms
DRegulatory bodies
💡 The text lists 'Investors/Providers of funds', 'Borrowers/Seekers of funds', 'Intermediaries', and 'Regulatory bodies' as components of the Financial Market. Auditing firms are not explicitly listed as a broad component.
Q3MCQMediumEquity Shares
What do equity shares primarily represent in a business venture, as stated in the text?
AA fixed debt obligation.
✓Fractional ownership.
CA guaranteed return.
DA short-term loan.
💡 The text states: 'Equity shares represent the form of fractional ownership in a business venture.'
Q4MCQEasySecondary Market Function
What key benefit does the secondary market provide to investors regarding their rights/interests in securities?
✓It allows investors to transfer their rights/interests to other investors without impacting the issuers.
BIt directly facilitates the initial public offering (IPO) of new securities.
CIt guarantees that all securities can be sold at a profit.
DIt ensures that securities can only be held until their maturity date.
💡 The text mentions, 'Raising fund through issue of securities also allows the investors to transfer their rights / interests to other Investors, through the secondary market, without impacting the issuers.'
Q5MCQMediumMarket Indices
Which of the following factors are considered when choosing stocks for leading market indices like Nifty 50 or S&P BSE Sensex, according to the text?
AOnly the company's historical profitability and management's tenure.
BThe dividend yield, the company's social responsibility initiatives, and the number of subsidiaries.
✓Liquidity, availability of floating stock, and size of market capitalization.
DThe total number of employees, the age of the company, and its geographical presence.
💡 The text states: 'The shares included in these indices are chosen based on factors such as liquidity, availability of floating stock and size of market capitalization.'
Q6MCQEasyWarrants
What is the nature of the right granted by a Warrant to its holder, as described in the text?
AAn obligation to sell equity shares at a pre-determined price.
✓The right, but not the obligation, to buy equity shares after a specified period at a pre-determined price.
CAn immediate and unconditional right to receive dividends.
DA guaranteed conversion into preference shares after one year.
💡 The text states: 'Warrants provide the right, but not the obligation, to the warrant holder to buy equity shares of the issuer company after a specified period of time, and at a pre-determined price.'
Q7MCQMediumSCRA Definition of Securities
As per the Section 2(h) of the Securities Contracts (Regulation) Act, 1956 (SCRA), which of the following is explicitly *excluded* from the definition of 'securities'?
AShares, scrips, stocks, bonds, debentures of an incorporated company.
BUnits or any other instrument issued by any collective investment scheme.
✓Any unit linked insurance policy (ULIP) issued by an insurer.
DGovernment securities or Electronic Gold Receipts.
💡 The text explicitly states: 'securities" shall not include any unit linked insurance policy or scrips or any such instrument or unit, by whatever name called, which provides a combined benefit risk on the life of the persons and investment by such persons and issued by an insurer'.
Q8MCQHardBond Classification
An Indian company issues a bond in Germany, and this bond is denominated in Japanese Yen. According to the classification provided in the text, what type of bond is this?
ADomestic Bond
BForeign Bond
✓Euro Bond
DMasala Bond
💡 The text defines a 'Euro Bond' as an external bond issued in a foreign country (Germany) in a currency which is not the local currency of that foreign country (Japanese Yen is not Germany's local currency). The example provided in the text is 'when an Indian company issues an external bond in Germany, denominated in Japanese Yen, then it is called a Euro Yen Bond, or the issue is called a Euro Issue.'
Q9MCQEasyMarket Indices
What is the primary purpose of a market index?
ATo provide investment advice to individual investors.
✓To track market movement by using the prices of a specific number of shares chosen as a representative sample.
CTo serve as a regulatory body for stock exchanges.
DTo directly issue new securities to the public.
💡 The text states: 'A market index tracks the market movement by using the prices of a specific number of shares chosen as a representative sample.'
Q10MCQMediumWarrants
What right do Warrants provide to the holder?
AThe obligation to sell equity shares.
✓The right, but not the obligation, to buy equity shares.
CA guaranteed dividend payment.
DA fixed interest payment.
💡 The text states: 'Warrants provide the right, but not the obligation, to the warrant holder to buy equity shares of the issuer company after a specified period of time, and at a pre-determined price.'
Q11MCQEasySecurities Definition
According to the text, what do securities primarily represent?
✓Transferable financial claims or contracts evidencing indebtedness/promise or ownership interest.
BOnly ownership interests in incorporated entities, without any debt component.
CNon-transferable financial instruments for short-term government financing.
DGuaranteed income streams from real estate investments.
💡 The text states, 'Securities are transferrable financial claims or contracts that evidence the indebtedness/promise of the creator/sellers... or ownership interest in assets of an incorporated entity.'
Q12MCQEasySecurities Definition
According to the provided text, which of the following best describes 'securities'?
ANon-transferable financial claims that exclusively represent ownership interest in an incorporated entity.
✓Transferable financial claims or contracts that evidence indebtedness/promise or ownership interest in an incorporated entity.
CFinancial assets exclusively issued by the government to raise short-term funds for public projects.
DInstruments that allow investors to convert their savings into non-financial assets with guaranteed returns.
💡 The text states: 'Securities are transferrable financial claims or contracts that evidence the indebtedness/promise of the creator/sellers... or ownership interest in assets of an incorporated entity.'
Q13MCQHardExternal Bonds Classification
An Indian company issues an external bond in Germany, denominated in Japanese Yen. According to the text's classification, what type of bond is this?
ADomestic Bond
BForeign Bond
✓Euro Bond
DMasala Bond
💡 The text defines a 'Euro Bond' as: 'When an external bond is issued in a foreign country, and in a currency which is not the local currency of that foreign country, then it is a 'Euro Bond'.' Here, Germany is the foreign country, and JPY is not its local currency (Euro).
Q14MCQMediumBond Terminology
Based on the text, how are 'Bonds' and 'Debentures' generally distinguished in terms of their typical usage and issuers?
ABonds are exclusively unsecured, while Debentures are always secured by collateral.
✓Bonds are an umbrella term in the US, often related to government issuers and longer maturities, whereas Debentures are common in the UK and more related to corporates.
CDebentures are typically issued for periods beyond 10 years, while Bonds are for shorter and medium terms.
DBonds are issued only by Special Purpose Vehicles (SPVs), and Debentures only by financial institutions.
💡 The text states: 'Bonds is an umbrella term in US, and Debentures in UK... Bonds are more related to government as an issuer with longer maturities beyond 10 years... Debentures more related to corporates.'
Q15MCQHardSecurities Market Functions
How does an efficient securities market contribute to the movement of capital and what is its formal role, according to the text?
AIt restricts the number of buyers and sellers to maintain price stability, formally converting investments into savings.
BIt allows investors to only exit long-term securities at their original issue price, formally guaranteeing returns.
✓It brings together many buyers and sellers, creating liquidity, and formally provides channels for conversion of savings into investments.
DIt primarily facilitates government borrowing at zero cost, formally bypassing private investors.
💡 The text states: 'Securities market brings together many buyers and sellers and thus creates liquidity... To state formally, securities market provides channels for conversion of savings into investments.'
Q16MCQHardMasala Bonds
What is a key characteristic of Masala bonds regarding currency risk, as described in the text?
AThey eliminate all currency risk for the issuer.
✓They transfer the currency risk to the foreign investor.
CThey are always denominated in Euro currency.
DThey are issued exclusively in India.
💡 The text states: 'As against foreign currency bonds issued by Indian entities, which create currency risk for the issuer, masala bonds transfer the currency risk to the foreign investor.'
Q17MCQEasyDefinition of Securities (Exclusions)
According to the explanation in Section 2(h) of the Securities Contracts (Regulation) Act, 1956 (SCRA) mentioned in the text, which of the following is specifically excluded from the definition of 'securities'?
AShares, scrips, stocks, bonds, debentures
BDerivatives
CUnits or any other instrument issued by any mutual fund scheme
✓Any unit linked insurance policy (ULIP) issued by an insurer
💡 The text explicitly states: 'For the removal of doubts, it is hereby declared that securities' shall not include any unit linked insurance policy or scrips or any such instrument or unit... which provides a combined benefit risk on the life of the persons and investment by such persons and issued by an insurer...'
Q18MCQEasyDefinition of Securities
According to the text, who are typically the creators/sellers of securities?
ARegulatory bodies.
BIntermediaries.
✓Business entities.
DIndividual investors.
💡 The text defines securities as 'financial claims or contracts that evidence the indebtedness/promise of the creator/sellers (typically business entities)'.
Q19MCQMediumMasala Bonds
What significant risk characteristic do Masala bonds possess, according to the provided text?
AThey create significant foreign currency risk for the Indian issuer.
BThey are exclusively issued in the domestic Indian market.
✓They transfer the currency risk to the foreign investor.
DThey are always fully convertible into equity shares upon maturity.
💡 The text states: 'As against foreign currency bonds issued by Indian entities, which create currency risk for the issuer, masala bonds transfer the currency risk to the foreign investor.'
Q20MCQHardForeign Bonds vs. Euro Bonds
An Indian company issues a bond in the US, denominated in US Dollars. According to the text, what type of bond is this?
AEuro Bond.
BMasala Bond.
CDomestic Bond.
✓Foreign Bond.
💡 The text provides this exact example for a 'Foreign Bond': 'If an external bond is issued in a foreign country, and in the local currency of that foreign country, then it is a “Foreign Bond”. For example, an Indian company issuing bond in US, denominated in US Dollars.'
Q21MCQMediumFinancial Market Components
Which of the following is NOT listed as a broad component of the Financial Market in the provided text?
AInvestors/Providers of funds.
BBorrowers/Seekers of funds.
✓Market Analysts.
DRegulatory bodies.
💡 The text lists Investors, Borrowers, Intermediaries, and Regulatory bodies as components of the Financial Market, but not Market Analysts.
Q22MCQMediumDomestic Bonds
A Domestic Bond is characterized by being issued by authorized entities of a country, in the bond markets of their home country, and denominated in what currency?
AAny foreign currency.
BThe currency of the issuing entity's operations.
✓Their own home currency.
DA currency agreed upon by international regulators.
💡 The text defines Domestic Bonds as 'issued by authorised entities of a country, in the bond markets of their home country, denominated in their own home currency.'
Q23MCQMediumDebentures/Bonds
Which statement accurately describes a characteristic of Non-Convertible Debentures (NCDs) according to the text?
AThey are fully convertible into ordinary shares of the issuing company under specified terms.
BThey provide the right, but not the obligation, to buy equity shares at a pre-determined price.
✓They are pure debt instruments without a feature of conversion and are repayable/redeemable on maturity.
DThey are typically issued by governments with maturities beyond 10 years and are known as GILTs.
💡 The text states: 'Non-Convertible Debentures (NCDs) are pure debt instruments without a feature of conversion. The NCDs are repayable/redeemable on maturity.' Option A describes Fully Convertible Debentures, Option B describes Warrants, and Option D describes Bonds (specifically government bonds).
Q24MCQEasyFinancial Market Components
Which of the following is NOT listed as a broad component of the Financial Market in the provided text?
AInvestors/Providers of funds
BBorrowers/Seekers of funds
CIntermediaries (providing infrastructure)
✓Public relations agencies
💡 The text lists 'Investors/Providers of funds', 'Borrowers/Seekers of funds', 'Intermediaries', and 'Regulatory bodies' as components of the Financial Market. Public relations agencies are not mentioned.
Q25MCQEasySCRA Definition of Securities
Which of the following is explicitly stated as NOT included in the definition of 'securities' under the Securities Contracts (Regulation) Act, 1956 (SCRA), as per the provided text?
AShares.
BDerivatives.
✓Units linked insurance policies.
DGovernment securities.
💡 The text's explanation for the SCRA definition states: 'securities" shall not include any unit linked insurance policy'.
Case-Based Questions (1 sets)
Case 1Case-BasedIntroduction to Securities Market and Products
Alpha Investments, a newly established financial advisory firm, is preparing to launch its services in the Indian market. The firm aims to cater to a diverse clientele, ranging from retail investors seeking long-term growth to institutional clients interested in debt instruments and international exposure. As part of their initial training, the research team is meticulously reviewing the fundamental concepts of the securities market and the wide array of financial products available in India. They are particularly keen on understanding how different securities are defined under the SCRA, their distinct characteristics, and the crucial roles played by various market participants, including investors, borrowers, intermediaries, and regulatory bodies. The team is analyzing several potential investment avenues, including equity shares, different types of debentures and bonds (both domestic and external), warrants, and the significance of market indices, to build a comprehensive portfolio strategy tailored to varying risk appetites. They also need to grasp the regulatory landscape and the mechanisms that facilitate efficient capital movement and liquidity within the market.
Medium Sub-question 1
A retail investor, seeking potentially higher returns with a specific right, asks Alpha Investments about 'warrants'. What key characteristic of a warrant should the firm highlight to the investor?
AIt represents fractional ownership in a company, similar to equity shares.
BIt provides the holder with an obligation to buy shares at a pre-determined price.
✓It offers the right, but not the obligation, to buy equity shares at a specified price and time.
DIt is a pure debt instrument with no conversion feature into equity.
💡 Warrants provide the right, but not the obligation, to the warrant holder to buy equity shares of the issuer company after a specified period of time, and at a pre-determined price.
Hard Sub-question 2
During their review, Alpha Investments' legal team is clarifying what constitutes a 'security' as per the Securities Contracts (Regulation) Act, 1956 (SCRA). Which of the following instruments, despite being a financial product, is explicitly excluded from the definition of 'securities' under SCRA, as mentioned in the chapter?
AShares, scrips, stocks, bonds, debentures
BUnits or any other instrument issued by a mutual fund scheme
✓Unit Linked Insurance Policy (ULIP)
DElectronic Gold Receipts (EGRs)
💡 The text explicitly states that 'securities' shall not include any unit linked insurance policy or scrips or any such instrument or unit, by whatever name called, which provides a combined benefit risk on the life of the persons and investment by such persons and issued by an insurer.
Easy Sub-question 3
Alpha Investments is explaining the basic purpose of the securities market to a new intern. Which of the following best describes a primary function of the securities market?
✓To facilitate the conversion of savings into investments.
BTo solely provide short-term financing for government projects.
CTo exclusively serve as a platform for buying and selling physical commodities.
DTo regulate interest rates in the economy.
💡 The securities market primarily provides channels for the conversion of savings into investments, allowing idle resources to be utilized productively.
Medium Sub-question 4
An institutional client approaches Alpha Investments, interested in an Indian company's bond issued in the US, denominated in US Dollars. Based on the NISM definition provided, how would Alpha Investments classify this bond?
AEuro Bond
BMasala Bond
✓Foreign Bond
DDomestic Bond
💡 A 'Foreign Bond' is an external bond issued in a foreign country and denominated in the local currency of that foreign country. An Indian company issuing a bond in the US denominated in US Dollars fits this definition.
About this content: These practice questions are based on the
NISM-Series-XV: Research Analyst Certification Examination Workbook (February 2026)
published by the National Institute of Securities Markets (NISM), Mumbai.
NISM is a SEBI-established institution. Questions cover Introduction to Securities Market with verified answers and explanations.
BullWiser is an independent exam preparation platform — not affiliated with NISM or SEBI.
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