SEBI GRADE A

2020
Model Test Paper

SEBI GRADE A 2020 EXAM

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SEBI Grade A 2020 Exam

Model Test Paper

1. Which of the following is not included in the scope of management

accounting?

(1) Financial accounting

(2) Cost accounting
(3) Tax accounting
(4) Accounting Information Systems.
(5) None of these

Answer key: 5
Solution:

• The main purpose of management accounting is to utilize the

accounting information in solving the business problems and taking
scientific decisions.
• The scope of management accounting is very wide & includes every
possible aspect related to decision making
• All the data of financial accounting, cost accounting, tax accounting &
Information Systems are used by the management accountants for
analysis.

2. A process costing system is used by a company that:

(1) Produces heterogeneous products

(2) Produces items by special request of customers
(3) Produces homogenous products
(4) Accumulates costs by job
(5) All the above

Answer key: 3
Solution:
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• Process costing is an accounting methodology that traces and

accumulates direct costs and allocates indirect costs of a manufacturing
process.
• Costs are assigned to products, usually in a large batch, which might
include an entire month's production.
• If products are heterogeneous i.e., dissimilar, job costing is applicable
which is customer specific.
• Costs are accumulated job wise in job costing
• Examples of companies that use process costing include Chevron
Corporation (petroleum products), the Wrigley Company (chewing
gum), and Pittsburgh Paints (paint).

3. The loss incurred on an incomplete contract is transferred to

__________account.

(1) Costing profit and loss account

(2) profit and loss account
(3) trading account
(4) Deferred to next year
(5) Balance sheet

Answer key: 2
Solution:
• In contract costing, since the completion of a contract takes more one
year, profits are estimated and transferred to profit & loss based on the
percentage of contract completion
• No profit should be taken into consideration if the amount of work
certified is less than 1/4th of the contract price because in such a case
it is not possible to foresee the future clearly.
• the amount of work certified is 1/4th or more but less than 1/2 of the
contract price,
Profit =1/3 x Notional Profit x {Cash received / Work certified}
• If the amount of work certified is 1/2 or more of the contract price,
Profit= 2/3 x Notional Profit x {Cash received / Work certified}
• In case the contract is very much near to completion,
Profit=Estimated total profit x {Work certified / Contract price}
• The whole of loss, if any, should be transferred to the profit and loss
account.
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• That part of the profit which is not credited to the profit and loss
account is treated as a reserve against contingencies and is deducted
from the amount of work-in-progress for balance sheet purpose.

4. In standard costing, the standards should be set for:

(1) Direct material

(2) Direct labor
(3) Direct Expenses
(4) Overheads
(5) All of the above

Answer key: 5
Solution:
• Standard costing is the practice of estimating the expense of a
production process. It is a branch of cost accounting that's used by a
manufacturer, for example, to plan their costs for the coming year on
various expenses such as direct material, direct labor or overhead.
Since Direct material, Direct labor, Direct Expenses & Overheads are all
cost drivers, standard costs are set for all such costs.

5. Flexible budgets change with __________.

(1) previous year balance

(2) cost benefit analysis
(3) the functional budget
(4) the level of activity
(5) profitability

Answer key: 4
Solution:
• A flexible budget is a budget that adjusts to the activity or volume levels
of a company. Unlike a static budget, which does not change from the
amounts established when the budget was created, a flexible budget
continuously "flexes" with a business's variations in costs.
• For costs that vary with volume or activity, the flexible budget will flex
because the budget will include a variable rate per unit of activity
instead of one fixed total amount.
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• Since cost per unit is the basis of flexible budgets, the same used for
budget calculation at various activity levels.
• For example, cost per unit is available at say, 60% production capacity.
The same cost per unit can be used to arrive at say, 80% production
capacity.

6. The following is (are) the prerequisite(s) for JIT.

(1) Quality
(2) Multi skilled workers
(3) Vendor should produce defect free
(4) Worker should be empowered his own decision
(5) All of the above

Answer key: 5
Solution:
• The just-in-time (JIT) inventory system is a management strategy that
aligns raw-material orders from suppliers directly with production
schedules.
• It is a methodology aimed primarily at reducing times within the
production system as well as response times from suppliers and to
customers.
• Examples of the Just-In-Time (JIT) Inventory Process:
(WMT) schedule their seasonal merchandise to arrive just as demand is
beginning to pick up for specific items. As the season draws to a close
and demand wanes, shelves are cleared to make room for the next
season's items.
• To achieve, JIT purchase & production, quality & vendor should be
reliable, workers should be multi skilled. Hence, all the above points are
the pre-requisites of JIT.

7. Six Sigma strategies seek to improve the quality of the output of a

process by

(1) identifying the causes of defects

(2) removing the causes of defects
(3) minimizing variability in manufacturing
(4) improving value addition
(5) all of the above
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Answer key: 5
Solution:
• Six Sigma is a method that provides organizations tools to improve the
capability of their business processes.
• This increase in performance and decrease in process variation helps
lead to defect reduction and improvement in profits, employee morale,
and quality of products or services.
• The Six Sigma DMAIC method is usually used for the advancement of an
existing process.
• Potential DMAIC examples include the development of a manufacturing
shop floor yield process or improving evidence-based care objectives for
a hospital. The DMADV approach is used when designing a new process.

8. The law of demand states that the quantity of a good demanded varies

(1) directly with population

(2) inversely with its price
(3) directly with its price
(4) directly with income
(5) inversely with the price of substitute goods

Answer key: 2
Solution:
• The law of demand states that quantity purchased varies inversely with
price.
• The higher the price, the lower the quantity demanded.
• This occurs because of diminishing marginal utility. That is, consumers
use the first units of an economic good they purchase to serve their
most urgent needs first and use each additional unit of the good to serve
successively lower valued ends.
• Changes in price can be reflected in movement along a demand curve,
but do not by themselves increase or decrease demand.

9. An Indian farmer produces wheat without incurring cost of inputs all

sells for Rs. 1,000 to a miller who grinds wheat into flour and sells for Rs
1,200 to baker. The baker sells bread to consumers for Rs. 1,600. Total
value added is
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(1) Rs.1,600
(2) Rs.2,200
(3) Rs.1,000
(4) Rs.1,400
(5) Rs.1,200

Answer key: 1
Solution:
Particulars Total value Value addition
Farmer 1,000 1,000
Miller 1,200 200
Baker 1,600 400
Total value added 1,600

• Product or value-added method is a way of computing the national

income of a country.
• This system is also known as output or inventory method
• This method calculates national income by adding value to a product at
every stage of its production.

10. A Monopolist is a

(1) price-maker
(2) price-taker
(3) price-adjuster
(4) price-simplifier
(5) price-emulsifier

Answer key: 1
Solution:
• Monopoly is a market structure characterized by a single seller, selling
a unique product in the market. In a monopoly market, the seller faces
no competition, as he is the sole seller of goods with no close substitute.
• Examples: Microsoft and Windows, local natural gas company.
• Features of monopoly are:
a) Single Seller of the Product
b) Entry Restrictions
c) No Close Substitutes
d) Price Maker
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11.The term business cycle refers to

(1) the ups and downs in production of commodities

(2) the fluctuating levels of economic activity over a period of time
(3) decline in economic activities over prolonged period of time
(4) increasing unemployment rate and diminishing rate of savings
(5) decreasing unemployment over a period of time

Answer key: 2
Solution:
• Business cycles are a type of fluctuation found in the aggregate
economic activity of nations
• A cycle consists of expansions occurring at about the same time in many
economic activities, followed by similarly general recessions
• This sequence of changes is recurrent but not periodic. i.e. has no
definite time period
• Business cycles are comprised of concerted cyclical upswings and
downswings in the broad measures of economic activity—output,
employment, income, and sales.
• The alternating phases of the business cycle are expansions and
contractions (also called recessions). Recessions start at the peak of the
business cycle—when an expansion ends—and end at the trough of the
business cycle, when the next expansion begins.
• The severity of a recession is measured by the three D’s: depth,
diffusion, and duration, and the strength of an expansion by how
pronounced, pervasive, and persistent it is.

12. According to Keynes, Transaction demand for money, L is:

(1) L = (r)
(2) L = k (Y) + I (r)
(3) L = k (Y)
(4) L=Y–1
(5) L=I

Answer key: 3
Solution:
The Transactions Motive:
• This refers to the requirement of cash for all our day-to-day transactions.
• Transaction motive is further divided into
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i) Income motive (Individuals demand money due to difference in timing of

payment and receipt)
ii) Business/Trade motive (Businesses demand money due to difference in
timing of payment and receipt)
• Transactions demand for money depends directly on income. The equation for
Transactions Demand is given below:
Lr = kY

Where
Lr → Transactions demand for money
K → ratio of earnings kept for transactions
Y → Earnings/Income

• Keynes considered the aggregate demand for money for transaction purposes as
the sum of individual demand and therefore, the aggregate transaction demand
for money is a function of national income.

13. What do we call the rate at which the Reserve Bank of India lends money
to commercial banks?

(1) Reverse Repo Rate

(2) Repo Rate
(3) CRR
(4) SLR
(5) Lending rate

Answer key: 2
Solution:
• Repo rate is the rate at which the central bank of a country (Reserve
Bank of India in case of India) lends money to commercial banks in the
event of any shortfall of funds. Repo rate is used by monetary
authorities to control inflation.
• Reverse repo rate is the rate at which the central bank of a country
(Reserve Bank of India in case of India) borrows money from commercial
banks within the country. It is a monetary policy instrument which can
be used to control the money supply in the country.
• Cash Reserve Ratio (CRR) The Central Bank controls the liquidity in the
Banking system with CRR. In the case of SLR, the securities are kept with
the banks themselves, which they need to maintain in the form of liquid
assets. In CRR, the cash reserve is maintained by the banks with the
Reserve Bank of India.
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14.Unemployment when productivity is low and too many workers are

filling too few jobs is:

(1) Cyclical unemployment

(2) Under employment
(3) Institutional unemployment
(4) Disguised unemployment
(5) Frictional unemployment

Answer key: 4
Solution:
• Disguised unemployment is unemployment that does not affect
aggregate economic output. It occurs when productivity is low and too
many workers are filling too few jobs. It can refer to any part of the
population that is not employed at full capacity.
• Cyclical unemployment is the component of overall unemployment that
results directly from cycles of economic upturn and downturn.
• Underemployment occurs when a person does not work full time or
takes a job that does not reflect their actual training and financial needs.
That is, their job does not use all their skills and education, or provides
less than full time work. This is not the same as unemployment.
• Frictional unemployment is the time spent unemployed when a worker
is searching for a job or transferring from one job to another.
• Institutional unemployment is unemployment that results from long-
term or permanent institutional factors like banking system and
incentives in the economy.

15. Cash flow example from a financing activity is

(1) Receipt of Dividend on Investment

(2) Cash Received from Customers
(3) Payment of Dividends
(4) Purchase of Fixed Asset
(5) Purchase of Raw Materials for Cash

Answer key: 3
Solution:
• Receipt of Dividend on Investment is investing activity
• Cash Received from Customers is operation activity as it is due to sale
of goods
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• Payment of Dividends is a financing activity because dividends area

issued on shares issued which is a financing activity
• Purchase of Fixed Asset is an investment activity
• Purchase of Raw Materials for Cash is an operating activity

16.What is the journal entry passed when the company receives

Application Money?

(1) Share application account debit, bank account credit

(2) Bank account debit; share application account credit
(3) Share capital account debit, Share application account credit
(4) Shareholders’ account debit; share capital account credit
(5) Bank account debit; share capital account credit

Answer key: 2
Solution:
• Company gets liquid asset, so bank account is debited. Share application
is the creditor account which be later transferred to share capital
account on allotment of shares to shareholders.

17.Which among the below is a directly attributable cost as per AS 10?

(1) Inauguration cost

(2) Advertising cost
(3) Staff training cost
(4) Assembly cost
(5) Administration cost

Answer key: 4
Solution:
The cost of an item of property, plant and equipment comprises:
▪ (a) its purchase price, including import duties and non –refundable
purchase taxes, after deducting trade discounts and rebates.
▪ (b) any costs directly attributable to bringing the asset to the
location and condition necessary for it to be capable of operating in
the manner intended by management.
▪ (c) the initial estimate of the costs of dismantling, removing the item
and restoring the site on which it is located, referred to as
decommissioning, restoration and similar liabilities’, the obligation
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for which an enterprise incurs either when the item is acquired or as

a consequence of having used the item during a particular period for
purposes other than to produce inventories during that period.
▪ Examples of directly attributable costs are: (a) costs of employee
benefits (as defined in AS 15, Employee Benefits) arising directly
from the construction or acquisition of the item of property, plant
and equipment; (b) costs of site preparation; (c) initial delivery and
handling costs; (d) installation and assembly costs; (e) costs of
testing whether the asset is functioning properly, after deducting
the net proceeds from selling any items produced while bringing the
asset to that location and condition (such as samples produced
when testing equipment); and (f) professional fees.

18. Identify the condition/s for Rights issue of shares

(1) authorised by AOA

(2) renunciation of rights is allowed unless otherwise prohibited
(3) the issue is open for at least 15 days
(4) the board of directors may dispose of the shares which are not subscribed
for
(5) all the above
Answer key: 5

Solution:
Conditions for the offer of Right Share to existing equity shareholders are:
a.Unless the articles of the company otherwise provide, the notice of offer shall
contain a statement of right to renounce.
b. Check if the offer specifies the number of shares offered and confirms that
the issue is open for at least 15 days and is not kept open for more than 30 days
c. Check if the clause pertaining to non-acceptance of offer within a specified
time, would be deemed to be denial of offer is put in the offer letter
d. Check if the offer includes a right to renounce the shares in favour of any
other person
e. Check if the offer states that, in case the shares are declined after the expiry
of the time mentioned in the notice or by an earlier intimation from the person
to whom the notice was given, the board of directors may dispose of the shares
in a manner not disadvantageous to the shareholders and the company.
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19.No fresh issue of shares is allowed within a period of six months from
the date of buy back except in case of:
(1) bonus issue
(2) stock option schemes
(3) sweat equity
(4) conversion of preference shares into equity shares
(5) all the above

Answer key: 5
Solution:
As per the provisions of the Companies Act, Where a company completes a buy-
back of its shares or other specified securities, it shall not make a further issue of
the same kind of shares or other securities including allotment of new shares under
clause (a) of sub-section (1) of section 62 or other specified securities within a
period of six months except by way of a bonus issue or in the discharge of
subsisting obligations such as conversion of warrants, stock option schemes, sweat
equity or conversion of preference shares or debentures into equity shares.

20.Determine Working capital turnover ratio if, Current assets is Rs

1,50,000, current liabilities is Rs 1,00,000 and net sales is Rs 3,00,000.

(1) 5 times
(2) 3 times
(3) 6 times
(4) 1.5 times
(5) 4 times
Answer key: 3
Solution:
Working Capital Turnover Ratio = Net Sales / Working Capital =3,00,000/
50,000 = 6 times

working capital = current assets – current liabilities = 150000 -100000 =

50,000.
This ratio indicates to what extent the working capital funds have been
employed in the business towards sales.

21.Which of the following statement/s are true about movement of funds?

(1) Funds flow in a transaction between current assets and fixed assets.
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(2) Funds flow in a transaction between current asset and capital

(3) Funds flow in a transaction between fixed assets and current liabilities
(4) Funds flow in a transaction between current liabilities and capital
(5) All the above

Answer key: 5
Solution:
• Movement of funds means inflow and outflow of funds
• A Funds Flow Statement is a financial document that analyses a
company's Balance Sheet of two years to validate the movement of
funds from the previous financial year to the current year.
• With the help of this statement, financial analysts can assess the fund
flow of an organization in the near future.
• A Funds Flow Statement is prepared to explain the changes in the
Working Capital Position of a Company whereby current assets and
current liabilities are calculated and analysed
• Since, sources and application of funds contains all the transactions
related to current assets, current liabilities, fixed assets, capital, funds
flow is a transaction between each of them.

22. If a prospectus is issued in contravention of the provisions of the

Companies Act, the consequences are:

(1) the company shall be punishable with fine upto 3 lakhs

(2) imprisonment upto 3 years
(3) both the above
(4) company is prohibited making any business thereafter
(5) the company will be delisted in the stock exchange

Answer: 3
Solution:
If a prospectus is issued in contravention of the provisions of this section, the
company shall be punishable with fine which shall not be less than fifty
thousand rupees but which may extend to three lakh rupees and every person
who is knowingly a party to the issue of such prospectus shall be punishable
with imprisonment for a term which may extend to three years or with fine
which shall not be less than fifty thousand rupees but which may extend to
three lakh rupees, or with both.
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23.What is the equity shareholder’s limit of voting in case of Nidhi

company?

(1) 2% of total voting rights

(2) 3% of total voting rights
(3) 4% of total voting rights
(4) 5% of total voting rights
(5) 6% of total voting rights

Answer key: 4
Solution:
• A Nidhi company is a type of company in the Indian non-banking finance
sector, recognized under section 406 of the Companies Act, 2013. Their
core business is borrowing and lending money between their members.
They are also known as Permanent Fund, Benefit Funds, Mutual Benefit
Funds and Mutual Benefit Company.
• Section 47 governs the voting right of members. Accordingly,
• (a) every member of a company limited by shares and holding equity share
capital therein, shall have a right to vote on every resolution placed before
the company; and
• (b) his voting right on a poll shall be in proportion to his share in the paid-
up equity share capital of the company but in case of Nidhi company, clause
(b) of sub section (1) of section 47 shall apply, subject to the modification
that no member shall exercise voting rights on poll in excess of 5% of total
voting rights of equity shareholders.

24. As per the provisions of the Companies Act, a company can declare
profits out of accumulated profits, subject to a maximum of _________
of its paid-up share capital & free reserves

(1) 5%
(2) 10%
(3) 15%
(4) 18%
(5) None of the above

Answer key: 2
Solution:
As per Second Proviso to Section 123 (1), in the event of inadequacy or absence of
profits in any financial year, a company may declare dividend out of the
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accumulated profits of previous years which have been transferred to the free
reserves. However, such declaration shall be subject to the following conditions.

(a) The rate of dividend declared shall not exceed the average of the rates at
which dividend was declared by the company in the immediately preceding
three years.
However, this condition shall not apply if the company has not declared any
dividend in each of the three preceding financial year.
(b) The total amount to be drawn from such accumulated profits shall not
exceed 10% of its paid-up share capital and free reserves as appearing in
the latest audited financial statement.
(c) The amount so drawn shall first be utilised to set off the losses incurred in
the financial year in which dividend is declared and only thereafter, any
dividend in respect of equity shares shall be declared.
(d) The balance of reserves after such withdrawal shall not fall below 15% of
its paid-up share capital as appearing in the latest audited financial
statement

25.Which of the below companies are mandatorily required to form an

audit committee?

(1) Public companies with a paid-up capital of ten crores or more

(2) Public companies with an authorised capital of fifty crores or more
(3) Private companies with an issued capital of fifteen crores or more
(4) Private companies with an authorised capital of twenty crores or more
(5) All the above

Answer key: 1
Solution:
• For the purpose of constitution of Audit Committee, section 177 of the
Act, read with Companies (Meetings of Board and its Powers) Rules,
2014 provides that:
• The Board of directors of every listed companies and the following
classes of companies shall constitute an Audit Committee-
i. all public companies with a paid-up capital of ten crore rupees or
more.
ii. all public companies having turnover of one hundred crore
rupees or more.
iii. all public companies, having in aggregate, outstanding loans or
borrowings or debentures or deposits exceeding fifty crore
rupees or more.
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• Explanation: The paid up share capital or turnover or outstanding loans,

or borrowings or debentures or deposits, as the case may be, as existing
on the date of last audited financial statements shall be taken into
account for the purposes of this rule.

26.What is the minimum number of directors in case of a Private company?

(1) 1
(2) 2
(3) 3
(4) 4
(5) None of the above

Answer key: 2
Solution
• According to section 149(1), every company shall have a Board of
Directors consisting of individuals as directors. Thus, any person other
than individuals like a body corporate, firm or association of persons
cannot be appointed as directors
• Every company shall have-
• (a) minimum number of directors:
1. In case public company – 3.
2. In case private company – 2.
3. In case of One-person company – 1.
(b) maximum number of directors: 15

• However, more than 15 directors can be appointed after passing a special

resolution

27.How many minimum board meetings are required to be conducted by

an OPC company per calendar year?

(1) None- as it has only one director

(2) 1
(3) 2
(4) 3
(5) 4

Answer key: 3
Solution:
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o In case of One Person Company, small company or a dormant company, the

provision regarding conducting of four board meetings every year is not
applicable. These entities are required to conduct One Board meeting in
each half of a calendar year and the gap between two meeting must not be
less than 90 days.

28.Any person aggrieved by the decision of NCLT may prefer an appeal to

____________

(1) Supreme court

(2) High court
(3) Central government
(4) NCLAT
(5) National Company Law Tribunal

Answer key: 4
Solution:
▪ Any person aggrieved by an order of the Tribunal may prefer an
appeal to the Appellate Tribunal (NCLAT).
▪ No appeal shall lie to the Appellate Tribunal from an order made by
the Tribunal with the consent of parties.
▪ Every appeal under sub-section (1) shall be filed within a period of
forty-five days from the date on which a copy of the order of the
Tribunal is made available to the person aggrieved and shall be in
such form, and accompanied by such fees, as may be prescribed:
▪ Provided that the Appellate Tribunal may entertain an appeal after
the expiry of the said period of forty-five days from the date
aforesaid, but within a further period not exceeding forty-five days,
if it is satisfied that the appellant was prevented by sufficient cause
from filing the appeal within that period.
▪ On the receipt of an appeal under sub-section (1), the Appellate
Tribunal shall, after giving the parties to the appeal a reasonable
opportunity of being heard, pass such orders thereon as it thinks fit,
confirming, modifying or setting aside the order appealed against.
▪ The Appellate Tribunal shall send a copy of every order made by it
to the Tribunal and the parties to appeal.

29. Who heads the committee constituted by Insurance Regulatory and

Development Authority of India (IRDAI) on index-linked products following
requests for permission from life insurers to introduce such products.
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(1) Dinesh Pant

(2) Anil Kumar Singh
(3) Manish Kumar
(4) Deepak Kumar
(5) None of the baove

Answer key: 1
Solution:
• The Insurance Regulator, IRDAI has formed a committee to discuss approval of
Index-Linked Life Insurance products in the market amidst applications from
various stakeholders.
• Index linked life insurance means the sum assured (or sum insured – the total
amount your life insurance will pay out if you pass away) gets a boost year-after-
year to keep it in-line with the Retail Price Index (RPI).

30. Reserve Bank has come up with revised Long Format Audit Report (LFAR)
norms. Now, within how many days the banks are required to send a copy of
the LFAR and the relative agenda note, together with the Board's views or
directions, to the Reserve Bank after the submission of the LFAR by the
statutory auditors.

(1) 30
(2) 45
(3) 60
(4) 90
(5) 120

Answer key: 3
Solution:
• The Reserve Bank came up with revised long format audit report (LFAR) norms with
a view to improving efficacy of internal audit and risk management systems.
• The revised LFAR format will be put into operation for the period covering 2020-
21 and onwards.
• Under the new norms, the banks would be required to send a copy the LFAR and
the relative agenda note, together with the Board's views or directions, to the
Reserve Bank within 60 days of submission of the LFAR by the statutory auditors.

31. _________ Mutual Fund has unveiled Magnum Children’s Benefit Fund -
Investment Plan.
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(1) Punjab National Bank

(2) HDFC
(3) ICICI
(4) State Bank of India
(5) None of these

Answer key: 4
Solution:
• SBI Mutual Fund has unveiled Magnum Children's Benefit Fund - Investment Plan,
an open-ended fund for parents to invest for their children.
• The scheme, open for subscription from September 8, is a part of SBI Magnum
Children's Benefit Fund that currently has Savings Plan, a predominantly debt-
oriented offering.
• The scheme will have an equity allocation of 65-100%. It will be taxed as an
equity scheme.
• This means that for holding periods of less than one-year, short-term capital
gains tax of 15% will apply and for longer holding periods, long-term capital gains
tax of 10% will apply.
• The expense ratio for the scheme is capped at 2.25% of the assets.

32. Based on the recommendations given by the KV Kamath Committee,

Reserve Bank of India (RBI) has released guidelines for banks to follow while
restructuring COVID-stressed loan exposures. According to the guidelines, the
tenure of a loan may be extended by a maximum of _______ with or without
a moratorium.

(1) 6 months
(2) 12 months
(3) 15 months
(4) 18 months
(5) 24 months

Answer key: 5
Solution:
• Based on the recommendations given by the KV Kamath Committee, The Reserve
Bank of India (RBI) released guidelines for banks to follow while restructuring
COVID-stressed loan exposures, across 26 sectors.
• The committee sets 180 days to implement the plan and makes an inter-creditor
agreement (ICA) mandatory.
• The tenure of a loan may be extended by a maximum of two years, with or without
a moratorium,
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• The resolution process shall be treated as invoked once lenders representing 75%
by value and 60% by number agree to invoke the same.

33. Parliament has passed the Banking Regulation Amendment Bill 2020. Now,
Co-operative banks may raise equity or unsecured debt capital from the public
subject to prior RBI approval with maturity of not less than _______ years.

(1) 5 years
(2) 10 years
(3) 15 years
(4) 20 years
(5) None of these

Answer key: 2
Solution:
• Parliament has passed the Banking Regulation Amendment Bill 2020.
• The Banking Regulation (Amendment) Bill, 2020 seeks to amend the Banking
Regulation Act, 1949 to bring cooperative banks under the supervision of the RBI.
• The bill replaces an ordinance that was issued on June 26, 2020.
• Under the bill's provisions, RBI may exempt a cooperative bank or a class of
cooperative banks from certain provisions of the Act through notification.
• Under the bill, co-operative banks cannot employ someone who is insolvent or has
been convicted of a crime involving moral turpitude as Chairman.
• RBI will have the power to remove the Chairman if he is not fit and proper and
appoint a suitable person if the bank does not do so.
• Co-operative banks may raise equity or unsecured debt capital from the public
subject to prior RBI approval with maturity of not less than 10 years.

34. Ministry of Labour and Employment released the new series of Consumer
Price Index for Industrial Worker (CPI-IW) with base year 2016. In the new
series, the weight of spending on housing and clothing increased from 15.2%
to _______%.

(1) 15.8%
(2) 16%
(3) 16.2%
(4) 17.2%
(5) 17%

Answer key: 5
Solution:
SEBI Grade A 2020 Model Test Paper Free SEBI Grade A eBook

• Ministry of Labour and Employment released the new series of Consumer Price
Index for Industrial Worker (CPI-IW) with base year 2016.
• The new series of CPI-IW with base 2016 has replaced the existing series with base
2001.
• The new series gives more weightage to spending on health, education, recreation,
and other miscellaneous expenses, while reducing the weight of food and
beverages.
a. The weight of spending on housing and clothing increased from 15.2% to
17%.
b. The weight of miscellaneous items, like education and health rose to
30.31% from 23.26%.
c. The weight of food and beverage was reduced from 46.2% to 39% and
indicates an increase in disposable income.

35. Which one of the following will be the result of higher working capital?

(1) High Current ratio, higher risk, and high profit

(2) Lower current ratio, high risk and profit
(3) High Current ratio, Lower risk, and high profit
(4) High current ratio, lower risk, and lower profit
(5) High Equity, Lower risk, and High profit

Answer key: 1
Solution:
• Working capital is the difference between a company’s current assets, such as
cash, accounts receivable (customers’ unpaid bills) and inventories of raw
materials and finished goods, and its current liabilities, such as accounts payable
• A company has negative working capital If the ratio of current assets to liabilities
is less than one.
• Positive working capital indicates that a company can fund its current operations
and invest in future activities and growth.
• High working capital usually result in High Current ratio, higher risk, and high profit

36. Under which method, securities are not issued directly to the public but
are offered for sale through intermediaries?

(1) Offer for sale

(2) Offer through prospectus
(3) Private Placement
(4) Right Issue
(5) e-IPOs

Answer key: 1
SEBI Grade A 2020 Model Test Paper Free SEBI Grade A eBook

Solution:
• An offer for sale is nothing but a sale of existing shares held by shareholders of a
company to the public but they are not issued directly to the public but are offered
for sale through intermediaries like issuing houses or stock brokers.
• The mechanism was first introduced by India’s securities market regulator SEBI, in
2012, to make it easier for promoters of publicly traded companies to cut their
holdings and comply with the minimum public shareholding norms
• In OFS, the entire retail bid amount is backed by 100 per cent margins in the form
of cash and cash equivalent.
• The process is quick and any excess fund, due to non-allotment or partial
allotment, is refunded to the trading member on the same day.

37. The bonds that are backed by cash flow from project and are sold to finance
particular project is known as ________.

(1) Revenue Bond

(2) Callable Bond
(3) Puttable Bond
(4) Serial Bond
(5) None of the above

Answer key: 1
Solution:
• A revenue bond is a category of municipal bond supported by the revenue from a
specific project, such as a toll bridge, highway, or local stadium.
• Revenue bonds that finance income-producing projects are thus secured by a
specified revenue source.
• Revenue bonds can be issued by any government agency or fund that is managed
in the manner of a business, such as entities having both operating revenues and
expenses.

38. Which derivative/option gives the buyer the right, but not the obligation
to sell the given quantity of the underlying asset at a given price on or before
a given date?

(1) Future Contract

(2) Forward Contract
(3) Call options
(4) Put options
(5) None of the above

Answer key: 4
SEBI Grade A 2020 Model Test Paper Free SEBI Grade A eBook

Solution:
• A put option is a contract giving the owner the right, but not the obligation, to sell–
or sell short–a specified amount of an underlying security at a pre-determined
price within a specified time frame.
• This pre-determined price that buyer of the put option can sell at is called the strike
price.

39. In which type of Fiscal Policy, government spending is more than its tax
revenue?

(1) Neutral Fiscal Policy

(2) Contractionary Fiscal Policy.
(3) Expansionary Fiscal Policy.
(4) Expenditure Policy
(5) Restrictive Fiscal Policy

Answer key: 3

Solution:
• Expansionary Fiscal Policy: This type of policy is usually undertaken during
recessions to increase the level of economic activity.
• In this, the government spends more money than it collects in taxes.
• Expansionary policy shifts the aggregate demand curve to the right.
• It boosts aggregate demand, which in turn increases output and employment in
the economy.

40. Under which section of the FRBM Act, the Centre can exceed the annual
fiscal deficit target citing grounds?

(1) Section 3(2)

(2) Section 4(2)
(3) Section 2(4)
(4) Section 5(2)
(5) Section 6(3)

Answer key: 2

Solution:
• Under Section 4(2) of the Act, the Centre can exceed the annual fiscal deficit target
citing grounds that include national security, national calamity and decline in real
output growth of a quarter by at least three percentage points below the average
of the previous four quarters.
SEBI Grade A 2020 Model Test Paper Free SEBI Grade A eBook

41. Which of the following acts as agent of Micro- Financial institutions?

(1) Self-help group

(2) NABARD
(3) Scheduled Commercial Bank
(4) Regional Rural Bank
(5) All of the above

Answer key 1

Solution
• Self-Help Groups (SHGs) are informal associations of people who choose to come
together to find ways to improve their living conditions.
• It can be defined as self-governed, peer-controlled information group of people
with similar socio-economic background and having a desire to collectively
perform common purpose.
• They help each other, to solve their problems.
• SHGs promote small savings among their members.
• The savings are kept with the bank. This is the common fund in the name of the
SHG. The SHG gives small loans to its members from its common fund.
• They also act as agent of Micro- Financial institutions.

42. The Credit guarantee scheme is applicable for companies with an annual
turnover of Rs ______.

(1) 100 crores

(2) 200 crores
(3) 250 crores
(4) 500 crores
(5) None of these

Answer key: 3

Solution:
• Government of India has decided to expand the scope of the credit guarantee
scheme which was launched as a part of Aatmanirbhar package.
• Under the scheme, 100% guarantee coverage will be provided by the National
Credit Guarantee Trustee Company Limited (NCGTC) to eligible MSMEs
• The maximum amount of guaranteed emergency credit line (GECL) funding under
the scheme would also correspondingly increase from Rs 5 crore at present to Rs
10 crore
SEBI Grade A 2020 Model Test Paper Free SEBI Grade A eBook

• The scheme is now applicable for companies with an annual turnover of Rs 250
crore as against the earlier Rs. 100 crores.
• Banks assign zero percent risk weight on the credit facilities extended under this
scheme.
• The government will also include loans given to individuals for business purposes
under the scheme.

43. Under which function of the management policies and strategies are
formulated?

(1) Planning
(2) Organising
(3) Staffing
(4) Directing
(5) Coordinating

Answer key: 1

Solution:
• Planning means looking ahead and chalking out future courses of action to be
followed. It is a preparatory step.
• It is a systematic activity which determines when, how and who is going to perform
a specific job.
• Planning is a detailed programme regarding future courses of action.

44. Dream can be turned into reality only when the managers think in advance
what to do and how to do it. Which function of management best describes
the above statement?

(1) Strategy
(2) Planning
(3) Organising
(4) Directing
(5) None of the above

Answer key: 2

Solution:
• Planning means looking ahead and chalking out future courses of action to be
followed. It is a preparatory step.
SEBI Grade A 2020 Model Test Paper Free SEBI Grade A eBook

• It is a systematic activity which determines when, how and who is going to perform
a specific job.
• Planning is a detailed programme regarding future courses of action.
• Planning provides a means for organizations to cope with changes in their
environment

45. To increase the awareness of the company’s product in the market and
customers, the CEO of the company decided to advertise in all leading
newspaper in every state of India for the next 2 months.
The plan highlighted in the above statement is known as _________.

(1) Procedure
(2) Objective
(3) Rule
(4) Policy
(5) None of the above

Answer key: 5

Solution:
• The plan highlighted in the above statement is known as Strategy.
• A plan is a specific action proposed to help the organization to achieve its
objectives.
• Based on what the plan seeks to achieve, plan can be classified as:
a. Objective
b. Procedure
c. Budget
d. Strategy
e. Rule
f. Policy
g. Method
h. Programme
• Strategy: A Strategy provides the broad contours of an organisation’s business. It
is a comprehensive plan prepared for meeting the challenge posed by the activities
of competitors and other environmental forces.
• It includes determining long term objective, adopting a particular course of action,
allocating resources necessary to achieve the objectives.

46. Which function of management coordinates human efforts, assembles

resources and integrate both into a unified whole to be utilised for achieving
specified objectives?
SEBI Grade A 2020 Model Test Paper Free SEBI Grade A eBook

(1) Strategy
(2) Planning
(3) Organising
(4) Directing
(5) Staffing

Answer key: 3

Solution:
• Organising is a process of defining the essential relationships among people, tasks,
and activities in such a way that all the organisation’s resources are integrated and
coordinated to accomplish its objectives efficiently and effectively.
• Organizing is the function of management which follows planning.
• It is a function in which the synchronization and combination of human, physical
and financial resources take place. All the three resources are important to get
results.
• Therefore, organizational function helps in achievement of results which in fact is
important for the functioning of a concern.

47. Which of the following is the highest level of need in the Maslow theory of
Motivation?

(1) Physiological needs

(2) Esteem
(3) Self-actualization
(4) Safety
(5) Leve/Belongings

Answer key:

Solution:
• Maslow theory assumes that there is a hierarchy of five needs within each
individual.
• According to Maslow, individuals are motivated by unsatisfied needs. As each of
these needs is significantly satisfied, it drives and forces the next need to emerge.
Maslow grouped the five needs into two categories – Higher- order needs and
Lower-order needs
SEBI Grade A 2020 Model Test Paper Free SEBI Grade A eBook

48. Status comes under which type of barriers to communication?

(1) Semantic
(2) Organisational
(3) Non-Semantic
(4) Psychological
(5) None of these

Answer key: 2

Solution:
• The Organizational Barriers refers to the hindrances in the flow of information
among the employees that might result in a commercial failure of an organization.
• For example: Status and power consciousness, Message filtering, Absence of
formal channels, Poor coordination etc.

49. Likert has given a continuum of various systems of management. In which

system, the responsibility lies in the hands of the people at the upper echelons
of the hierarchy and the superior has no trust and confidence in subordinates.

(1) System 1
(2) System 2
SEBI Grade A 2020 Model Test Paper Free SEBI Grade A eBook

(3) System 3
(4) System 4
(5) System 5

Answer key: 1

Solution:
• Likert has given a continuum of four systems of management.
• He has taken seven variables to differentiate one management system from
others: Leadership, Motivation, Communication, interaction-influence, Decision
making process, Goal setting and Control Process.

System 1 - Exploitative Authoritative:

• Responsibility lies in the hands of the people at the upper echelons of the
hierarchy.
• The superior has no trust and confidence in subordinates.
• The decisions are imposed on subordinates and they do not feel free at all to
discuss things about the job with their superior.
• The teamwork or communication is very little, and the motivation is based on
threats.

50. The Theory states that a good leader provides clear direction, sets high
goals, gets involved in goal achievement and supports his employees. The
employees, as a result, will be a more satisfied and productive team. It also
states that employees will accept a leader's direction if the employee believes
that there will be an immediate or future benefit that results from work.
Name the theory mentioned in the above passage

(1) Great Man Theory

(2) Likert Theory
(3) Situational Leadership Theory
(4) Path Goal Theory
(5) Vroom’s Expectancy Theory

Answer key: 4

Solution:
• The theory mentioned in the above passage is Path Goal Theory.
• The theory was developed by Robert House and has its roots in the expectancy
theory of motivation.
• The theory is based on the premise that an employee’s perception of expectancies
between his effort and performance is greatly affected by a leader’s behaviour.
SEBI Grade A 2020 Model Test Paper Free SEBI Grade A eBook

• Path Goal Theory attempts to predict leadership effectiveness in different

situations.
• According to the above theory, the main function of a leader is to clarify and set
goals with subordinates, to help them find the best path for achieving the goals,
and to remove the obstacles to their performance and need satisfaction.

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