Securities Markets Foundation (Series XII): 30 practice questions with answers

Our own questions on the subjects of this examination, under 8 topic headings. Try each before opening its answer.

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How to use this page

Read a question, choose your answer, and only then open "Show the answer". Each answer has a line of explanation; if it surprises you, find the topic in NISM's workbook and read that part again. The questions are written by us in the four kinds a multiple choice paper uses: definitions, roles, rules of principle and calculations. They are not NISM's questions and the real paper will word things differently, so learn the idea, not the sentence. We have left out figures that the regulator or the exchanges revise, such as tax rates, limits, timings and margins: take those from the current workbook. The real paper has 100 questions in 120 minutes with a pass mark of 60%; there is no negative marking.

The questions

Securities markets

1. The market in which a company issues new securities to investors for the first time is the

1. derivatives market
2. money market
3. primary market
4. secondary market

2. In the secondary market, an investor who sells shares receives money from

1. SEBI
2. the buyer, through the exchange settlement system
3. the registrar
4. the company

3. An equity share represents

1. part ownership of the company
2. a loan to the company
3. a guarantee of dividend
4. a deposit with the company

4. Which security pays a fixed rate of interest and returns the principal at maturity?

1. Index future
2. Bond or debenture
3. Call option
4. Equity share

5. The regulator of the securities markets in India is

1. the Ministry of Commerce
2. the Securities and Exchange Board of India
3. the stock exchanges
4. the Reserve Bank of India

Primary market

6. An Initial Public Offer is

1. a bonus issue
2. a buy-back of shares
3. the first sale of a company's shares to the public
4. a rights issue

7. An issue of new shares offered to existing shareholders in proportion to their holding is a

1. bonus issue
2. rights issue
3. private placement
4. offer for sale

8. The offer document issued by a company for a public issue is the

1. balance sheet
2. prospectus
3. contract note
4. account statement

Secondary market

9. A document given by a stock broker to a client confirming the trades done on a day is the

1. contract note
2. delivery instruction slip
3. prospectus
4. allotment advice

10. An order to buy or sell at the best price currently available is a

1. limit order
2. good-till-cancelled order
3. market order
4. stop-loss order

11. Holding securities in electronic form is known as

1. dematerialisation
2. pledging
3. rematerialisation
4. transmission

12. A depository participant is

1. an agent of the depository through whom investors hold demat accounts
2. a stock exchange
3. a mutual fund
4. a credit rating agency

13. Market capitalisation of a company is

1. its total assets
2. its paid-up capital
3. its annual profit
4. the market price per share multiplied by the number of shares

Corporate actions

14. When a company issues bonus shares in the ratio 1:1, a shareholder with 100 shares will hold

1. 100 shares
2. 150 shares
3. 200 shares
4. 50 shares

15. A share of face value ₹10 is split into shares of face value ₹2. A holder of 1 old share gets

1. 5 shares
2. 10 shares
3. 2 shares
4. 20 shares

16. A dividend is

1. a fee paid to the broker
2. interest on debentures
3. a tax on shares
4. a part of profit distributed to shareholders

Debt securities

17. A bond with a face value of ₹1,000 pays an annual coupon of ₹80. If its market price is ₹800, the current yield is

1. 10%
2. 8%
3. 12.5%
4. 6.4%

18. When market interest rates fall, the price of an existing fixed-rate bond will generally

1. not change
2. fall
3. become equal to face value
4. rise

19. A credit rating indicates

1. an opinion on the issuer's ability to repay its debt on time
2. the expected return on a share
3. the dividend policy
4. the liquidity of a share

20. Treasury bills are

1. short-term borrowing instruments of the central government
2. long-term corporate bonds
3. mutual fund units
4. equity shares of banks

Mutual funds

21. The price at which units of an open-ended mutual fund scheme are bought and redeemed is based on the

1. issue price
2. market capitalisation
3. face value
4. net asset value

22. An Exchange Traded Fund is

1. a fund whose units are listed and traded on a stock exchange
2. a derivative contract
3. a fixed deposit
4. an insurance plan

Derivatives

23. A futures contract is an agreement to

1. receive dividends
2. insure a portfolio
3. buy or sell an asset at a future date at a price agreed today
4. lend money at a fixed rate

24. The seller of an option is also called the

1. holder
2. writer
3. hedger
4. custodian

Financial planning

25. The first step in financial planning is to

1. buy shares
2. sell old investments
3. take a loan
4. identify goals and assess the present financial position

26. An emergency fund should be kept in

1. real estate
2. long-term locked-in products
3. liquid, low-risk instruments
4. small cap shares

27. Diversification reduces

1. all risk
2. inflation
3. taxes
4. the risk specific to individual securities

28. The power of compounding means that

1. returns are guaranteed
2. risk disappears with time
3. earnings themselves earn returns over time
4. taxes are avoided

29. ₹1,00,000 invested at 10% a year compounded annually becomes, after two years,

1. ₹1,20,000
2. ₹1,21,000
3. ₹1,10,000
4. ₹1,25,000

30. An investor with a long time horizon and high risk tolerance would generally have a higher allocation to

1. equity
2. cash
3. savings account
4. treasury bills

What next

When you can answer these without hesitation, take them in timed test mode, where the order of questions and options is shuffled. Then return to the workbook for every topic where you slipped. See also how to prepare and exam day.

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An independent practice site. NISM is the National Institute of Securities Markets. This site is not connected with, approved by or paid by NISM or SEBI, and uses none of their logos. The questions are our own; none is taken from NISM's question bank, workbooks or mock tests, and a score here does not predict a result. Examination facts were read on nism.ac.in on 12 November 2026 and can change: check the page of your module on nism.ac.in before you pay or prepare. Nothing here is investment advice.