Topic 1: Meaning and Importance of Personal Financial Management (PFM)
Q1.
Riya receives a fixed monthly allowance. At the end of every month, she finds that she has spent most of her money on small unnecessary purchases. She starts recording every expense and reviews the list before planning the next month.
Statement: Riya’s action is an example of personal financial management because she is tracking and controlling her spending.
A. True
B. False
Q2.
Aman wants to buy a laptop after six months. He decides to spend all his available money now because financial management is concerned only with present needs, not future goals.
Statement: Aman’s understanding of personal financial management is correct.
A. True
B. False
Q3.
Meena has regular income but does not know where her money goes each month. She begins separating her spending into needs, wants, savings and other expenses.
Statement: This can help Meena make better financial decisions because she is organising her use of money.
A. True
B. False
Q4.
Raj keeps some money aside for an unexpected repair to his bicycle. He does this even though he currently has no repair expense.
Statement: Setting aside money for possible unexpected expenses can be part of responsible personal financial management.
A. True
B. False
Q5.
Sita has two financial goals: paying for an educational course and buying an expensive phone. She decides to save first for the educational course because it is more important to her.
Statement: Giving priority to financial goals can help a person make more purposeful spending and saving decisions.
A. True
B. False
Q6.
Arun earns more money than his friend but frequently borrows money before the end of the month because he spends without planning.
Statement: A higher income automatically means that Arun is managing his personal finances effectively.
A. True
B. False
Q7.
Neha notices that online shopping is taking a large part of her monthly income. She reviews her purchases and reduces unnecessary orders.
Statement: Reviewing spending and reducing unnecessary expenditure can improve personal financial management.
A. True
B. False
Q8.
Vikram makes a financial plan once and never checks it again, even though his income and expenses change significantly.
Statement: His approach is always sufficient because a financial plan never needs to be reviewed.
A. True
B. False
Q9.
A family compares its monthly income with essential expenses and planned savings before deciding how much it can spend on entertainment.
Statement: This approach shows how financial management can help balance present spending with financial priorities.
A. True
B. False
Q10.
Priya keeps all her financial decisions unplanned because she believes that saving and budgeting are useful only for people with very high incomes.
Statement: Priya’s conclusion is correct because people with limited income do not need financial management.
A. True
B. False
Topic 2: Inflation and Its Impact on Purchasing Power
Q11.
The price of several commonly purchased goods rises over time while Rahul’s income remains unchanged. He finds that his income now buys fewer goods than before.
Statement: Rahul’s purchasing power may have decreased because prices have increased while his income has remained unchanged.
A. True
B. False
Q12.
The price of one particular brand of shoes increases because the company changes its product design.
Statement: The price increase of this single product by itself necessarily proves that the economy is experiencing inflation.
A. True
B. False
Q13.
An employee’s salary increases by 5%, but prices of many goods and services rise by more than 5%.
Statement: Even though the employee’s money income has increased, his purchasing power may still decrease.
A. True
B. False
Q14.
During a period of rising prices, Kavita continues buying exactly the same quantity of goods without considering her unchanged income.
Statement: Rising prices can never affect the quantity of goods and services that Kavita can afford.
A. True
B. False
Q15.
A family notices that the same monthly amount of money now purchases fewer groceries, transport services and other necessities than it did earlier.
Statement: This is consistent with a fall in the purchasing power of money.
A. True
B. False
Q16.
Rohan’s income increases by 2%, while the prices of the goods he regularly buys increase by 8%.
Statement: Because Rohan’s income increased, his purchasing power must have increased by 2%.
A. True
B. False
Q17.
A student saves a fixed amount of money for a future purchase. Over time, prices generally rise.
Statement: If the saved amount does not increase while prices rise, the money may buy fewer goods in the future.
A. True
B. False
Q18.
A restaurant increases the price of one meal because its rent has increased, while prices across the economy remain generally stable.
Statement: This single price increase alone is enough to establish that there is inflation in the entire economy.
A. True
B. False
Q19.
A worker receives a salary increase, but the prices of goods and services rise even faster.
Statement: Looking only at the increase in the worker’s salary may give an incomplete picture of the change in his purchasing power.
A. True
B. False
Q20.
A family experiences rising prices but also receives a sufficiently large increase in income.
Statement: Inflation always means that every person’s purchasing power must fall by exactly the same amount.
A. True
B. False
Topic 3: Simple Interest and Compound Interest
Q21.
Rahul invests ₹10,000 at a fixed simple interest rate. The interest is calculated on the original principal throughout the agreed period.
Statement: Under simple interest, the interest calculation is based on the original principal rather than previously earned interest.
A. True
B. False
Q22.
Two investments have the same principal and interest rate. One uses simple interest and the other uses compound interest for a sufficiently long period.
Statement: The compound-interest investment must always produce exactly the same interest as the simple-interest investment.
A. True
B. False
Q23.
An investor leaves the interest earned on an investment in the account, and future interest is calculated on the original amount plus accumulated interest.
Statement: This is an example of the effect of compounding.
A. True
B. False
Q24.
A student believes that increasing the time period of a simple-interest investment while keeping principal and rate unchanged will have no effect on the total simple interest.
Statement: The student’s conclusion is correct.
A. True
B. False
Q25.
Two people invest equal amounts at the same simple interest rate for the same period.
Statement: If all these conditions are identical, their simple interest will be equal.
A. True
B. False
Q26.
An investment earns compound interest, and the interest earned during an earlier period becomes part of the amount on which later interest can be calculated.
Statement: Under compounding, previously earned interest can contribute to future interest.
A. True
B. False
Q27.
Aman says that compound interest is calculated only on the original principal throughout the entire investment period, just like simple interest.
Statement: Aman’s description correctly explains compound interest.
A. True
B. False
Q28.
Two compound-interest investments have the same principal, rate and duration, but interest is compounded at different frequencies according to their terms.
Statement: The compounding frequency can affect the final amount.
A. True
B. False
Q29.
Priya compares two simple-interest investments with different principal amounts but the same rate and time period.
Statement: Principal amount can affect the amount of simple interest earned.
A. True
B. False
Q30.
A person claims that the rate of interest has no effect on the interest earned as long as the principal remains unchanged.
Statement: This claim is correct because only the principal determines interest.
A. True
B. False
Topic 4: Budgeting
Q31.
A family lists its expected income, essential expenses, savings and discretionary spending before the beginning of each month.
Statement: This is an example of budgeting because the family is planning how its money will be used.
A. True
B. False
Q32.
Ravi prepares a monthly budget but never compares his actual spending with the planned amounts.
Statement: Comparing planned and actual spending is unnecessary for effective budgeting.
A. True
B. False
Q33.
A student notices that entertainment expenses regularly exceed the amount planned in the monthly budget. She reduces unnecessary entertainment spending.
Statement: Using a budget to identify and control overspending can improve financial management.
A. True
B. False
Q34.
A family creates a budget with no amount reserved for savings because it believes budgeting is only about spending all available income.
Statement: A budget can include savings as one of its planned uses of income.
A. True
B. False
Q35.
A person’s income changes significantly because of a change in employment.
Statement: Revising the budget may be sensible because financial circumstances have changed.
A. True
B. False
Q36.
Aman prepares a detailed budget at the beginning of the year and refuses to change it even when his income and major expenses change.
Statement: A budget should never be revised after it has been prepared.
A. True
B. False
Q37.
A family expects its income to be limited this month, so it first allocates money to essential expenses and important financial commitments.
Statement: Prioritising important expenses is a useful budgeting approach.
A. True
B. False
Q38.
Meena’s budget shows a surplus because her planned income is greater than her planned expenses.
Statement: A planned surplus means that Meena has planned expenses greater than her expected income.
A. True
B. False
Q39.
A student uses a budget to identify unnecessary subscriptions that consume money every month.
Statement: Budgeting can help reveal recurring expenses that might otherwise be overlooked.
A. True
B. False
Q40.
A family has a carefully prepared budget and therefore assumes that no unexpected expense can ever disturb its financial plan.
Statement: A budget guarantees that unexpected financial situations cannot occur.
A. True
B. False
Topic 5: Savings and Investment Options
Q41.
An investor has a short-term financial goal and therefore considers not only expected returns but also how easily the money can be accessed.
Statement: Liquidity can be an important factor when choosing a savings or investment option.
A. True
B. False
Q42.
Rahul buys shares because he believes that the stock market can only move upward and therefore his return is guaranteed.
Statement: Returns from stocks are guaranteed regardless of market conditions.
A. True
B. False
Q43.
A person puts all available investment money into one company’s shares because he wants to avoid having investments in different places.
Statement: Concentrating all investments in one asset can increase concentration risk.
A. True
B. False
Q44.
A mutual fund collects money from multiple investors and invests the pooled money according to the scheme’s investment objectives.
Statement: A mutual fund is simply a bank savings account in which the investor receives a guaranteed return.
A. True
B. False
Q45.
An investor chooses a fixed deposit because the terms provide a specified interest rate for the agreed period.
Statement: The specified terms of an FD can make the expected interest easier to understand than returns from assets whose market value fluctuates.
A. True
B. False
Q46.
A person buys a bond and assumes that because bonds involve lending to an issuer, there can never be any risk associated with the investment.
Statement: The person’s assumption is correct because bonds are completely risk-free.
A. True
B. False
Q47.
Neha has a long-term financial goal and compares different investment choices based on risk, possible return, liquidity and time horizon.
Statement: Considering several factors rather than looking only at expected return can support a more informed investment decision.
A. True
B. False
Q48.
An investor chooses a mutual fund only because a friend made a profit from it last year.
Statement: A past positive result alone guarantees that the same mutual fund will produce the same return in the future.
A. True
B. False
Q49.
A person divides investments among different types of assets instead of putting all money into one investment.
Statement: Diversification can reduce the risk associated with excessive concentration in a single investment.
A. True
B. False
Q50.
A student says that savings and investments are identical because both always provide exactly the same level of risk, return and liquidity.
Statement: The student’s conclusion is correct.
A. True
B. False
Topic 6: Risk and Insurance
Q51.
A family purchases an insurance policy that provides coverage against specified risks according to the policy terms.
Statement: Insurance can help manage the financial consequences of certain specified risks.
A. True
B. False
Q52.
A person buys insurance and concludes that the insured event can never happen to him because he is now protected.
Statement: Insurance prevents the insured event from occurring.
A. True
B. False
Q53.
Before buying an insurance policy, Kavita reads the coverage, exclusions, conditions and other policy terms carefully.
Statement: Understanding policy terms can help a person know what risks are actually covered.
A. True
B. False
Q54.
Rohan assumes that every financial loss he experiences must automatically be paid by his insurance company because he has an insurance policy.
Statement: Every type of financial loss is automatically covered by every insurance policy.
A. True
B. False
Q55.
A family pays a premium for insurance that provides specified protection according to the policy.
Statement: The premium is a cost paid for the insurance coverage provided under the policy terms.
A. True
B. False
Q56.
A person never reads the exclusions in an insurance policy because he believes that exclusions have no effect on claims.
Statement: Ignoring exclusions is a safe approach because exclusions never matter when making an insurance claim.
A. True
B. False
Q57.
An insurance policy covers a specified risk subject to certain conditions. The insured person experiences an event that appears to fall within the coverage.
Statement: The claim should still be considered according to the policy’s coverage, conditions and exclusions rather than assuming that every claim is automatically payable.
A. True
B. False
Q58.
A person believes that buying insurance means he no longer needs to take any precautions against risk.
Statement: Insurance completely removes the need for responsible behaviour and risk management.
A. True
B. False
Q59.
Two people buy different insurance policies with different coverage and exclusions. They experience similar losses.
Statement: Their claims may be treated differently because insurance protection depends on the terms of each policy.
A. True
B. False
Q60.
A person chooses an insurance policy only by looking at its premium and ignores the amount and type of coverage provided.
Statement: Comparing only the premium is always sufficient for choosing the most suitable insurance policy.
A. True
B. False
Topic 7: Personal Income Tax
Q61.
A person receives income and checks the applicable tax rules before calculating whether any tax liability arises.
Statement: Understanding applicable tax rules is an important part of responsible personal financial management.
A. True
B. False
Q62.
A person deliberately hides income from the tax authorities to reduce the amount of tax he may have to pay.
Statement: Hiding income is a legitimate form of financial planning.
A. True
B. False
Q63.
A family plans its annual finances after considering the effect that applicable taxes may have on the money available for spending and saving.
Statement: Taxes can be relevant when planning personal finances because they can affect disposable income.
A. True
B. False
Q64.
Two individuals have different financial circumstances and therefore assume that exactly the same tax rules and tax liability must apply to both of them in every situation.
Statement: Personal tax liability can never depend on a person’s applicable circumstances and rules.
A. True
B. False
Q65.
A taxpayer keeps appropriate records of income and relevant financial documents needed for complying with applicable tax requirements.
Statement: Maintaining proper records can support responsible tax compliance.
A. True
B. False
Q66.
A person believes that paying taxes is optional because taxation has no connection with government revenue.
Statement: The person’s understanding of taxation is correct.
A. True
B. False
Q67.
A person studies the applicable tax provisions and uses legally permitted deductions or exemptions when eligible.
Statement: Using legally available provisions while following tax laws can be part of lawful tax planning.
A. True
B. False
Q68.
A taxpayer intentionally provides false information in order to reduce tax liability.
Statement: Providing false information is an acceptable method of legal tax planning.
A. True
B. False
Q69.
A worker plans savings and expenditure after considering the amount of income that will actually remain available after applicable taxes.
Statement: Considering taxes while planning one’s finances can help create a more realistic spending and saving plan.
A. True
B. False
Q70.
A person assumes that understanding tax rules is unnecessary because tax matters can never affect personal financial decisions.
Statement: Tax considerations can be relevant to personal financial planning.
A. True
B. False
DETAILED ANSWER KEY
Topic 1: Personal Financial Management
Q1 — A. True
Riya is recording her expenses and using that information to control future spending. Tracking and controlling expenditure are important parts of personal financial management.
Q2 — B. False
Personal financial management includes both present financial needs and future financial goals. Saving for a future laptop is a valid financial-management decision.
Q3 — A. True
Separating spending into categories helps a person understand how income is being used and make more organised financial decisions.
Q4 — A. True
Keeping money aside for possible unexpected expenses is a sensible financial-management practice. It can provide funds when an unexpected need arises.
Q5 — A. True
Financial management involves setting priorities. Giving greater importance to one goal can help a person allocate limited income more effectively.
Q6 — B. False
High income alone does not guarantee good financial management. A person can earn a lot and still face financial difficulties if spending is uncontrolled.
Q7 — A. True
Reviewing expenses and reducing unnecessary purchases can help control spending and improve the use of available income.
Q8 — B. False
Financial circumstances can change. A financial plan may need to be reviewed and adjusted when income, expenses or goals change.
Q9 — A. True
The family is comparing income, essential expenses, savings and discretionary spending. This helps it balance present needs with financial priorities.
Q10 — B. False
Financial management is useful regardless of income level. Planning limited income can be especially important because resources must be allocated carefully.
Topic 2: Inflation and Purchasing Power
Q11 — A. True
When prices rise while income remains unchanged, the same amount of money may purchase fewer goods and services. This represents a decline in purchasing power.
Q12 — B. False
A rise in the price of one product does not by itself establish economy-wide inflation. Inflation refers to a general rise in the price level.
Q13 — A. True
The relevant comparison is not merely whether money income increased, but also how prices changed. If prices rise faster than income, purchasing power may decline.
Q14 — B. False
Rising prices can reduce the quantity of goods and services a person can afford when income does not increase sufficiently.
Q15 — A. True
If the same amount of money buys fewer goods and services, the purchasing power of that money has fallen.
Q16 — B. False
A 2% income increase does not automatically mean a 2% increase in purchasing power. If relevant prices rise faster, purchasing power may fall.
Q17 — A. True
When prices rise, a fixed amount of money may purchase fewer goods in the future. Therefore, inflation can reduce the purchasing power of saved money.
Q18 — B. False
An increase in one restaurant’s price can result from factors specific to that restaurant. It does not by itself establish general inflation.
Q19 — A. True
Nominal income and purchasing power are not identical. If prices increase faster than income, the person’s ability to purchase goods and services may decrease.
Q20 — B. False
The effect of inflation on purchasing power is not necessarily identical for every person. Income changes, spending patterns and other circumstances can differ.
Topic 3: Simple and Compound Interest
Q21 — A. True
Under simple interest, interest is calculated on the original principal for the relevant period.
Q22 — B. False
Simple and compound interest work differently. Under compound interest, accumulated interest can become part of the amount on which future interest is calculated.
Q23 — A. True
When previously earned interest becomes part of the amount used to calculate future interest, the effect is called compounding.
Q24 — B. False
Time is one of the factors affecting simple interest. The simple-interest formula is:
SI = P × R × T / 100
Thus, when principal and rate remain unchanged, increasing time increases simple interest.
Q25 — A. True
With the same principal, rate and time period, the simple-interest calculation gives the same amount of simple interest.
Q26 — A. True
This is the central idea of compound interest: previously accumulated interest can itself contribute to later interest.
Q27 — B. False
Calculating interest only on the original principal throughout is characteristic of simple interest. Compound interest takes accumulated interest into account according to its terms.
Q28 — A. True
The frequency at which interest is compounded can affect the final amount because interest may be added to the account at different intervals.
Q29 — A. True
Principal is one of the factors determining simple interest. With the same rate and time, a larger principal produces more simple interest.
Q30 — B. False
The interest rate is a factor in determining interest. Keeping the principal unchanged does not make the rate irrelevant.
Topic 4: Budgeting
Q31 — A. True
The family is planning how income will be allocated among expenses and savings. That is the basic purpose of a budget.
Q32 — B. False
Comparing actual spending with planned spending can show where a person is overspending or underspending and can help improve future budgets.
Q33 — A. True
A budget can help identify areas of excessive spending. Reducing unnecessary expenses can improve financial control.
Q34 — A. True
Savings can be included as a planned allocation in a budget. A budget is not limited to consumption expenditure.
Q35 — A. True
When income or major expenses change, the existing budget may no longer be appropriate. Revising it can make the financial plan more realistic.
Q36 — B. False
Budgets should be reviewed and adjusted when financial circumstances change. A rigid budget may become unsuitable.
Q37 — A. True
When resources are limited, prioritising essential expenses and important commitments is a sensible budgeting strategy.
Q38 — B. False
A surplus occurs when planned income is greater than planned expenses. The statement describes the opposite situation.
Q39 — A. True
Recurring expenses can consume significant amounts over time. A budget can make such expenses easier to identify.
Q40 — B. False
A budget helps with planning but cannot guarantee that unexpected expenses will never occur.
Topic 5: Savings and Investment Options
Q41 — A. True
Liquidity refers broadly to how easily an investment or financial asset can be converted into usable money. It can be important for short-term goals.
Q42 — B. False
Stock-market returns are not guaranteed. Share prices can rise or fall, and investors can face losses.
Q43 — A. True
Putting all money into one investment concentrates risk. If that investment performs poorly, a large portion of the person’s money may be affected.
Q44 — B. False
A mutual fund pools money from investors and invests according to the scheme’s objectives. It is not simply a bank deposit with a guaranteed return.
Q45 — A. True
An FD generally has specified terms, including the applicable interest rate and period. This can make the expected interest easier to understand than returns from fluctuating market assets.
Q46 — B. False
Bonds are not automatically risk-free. Risks can arise depending on the issuer and market conditions, among other factors.
Q47 — A. True
Investment decisions should consider factors such as risk, possible return, liquidity, financial goals and time horizon rather than focusing on return alone.
Q48 — B. False
A past return does not guarantee a future return. Investment performance can change.
Q49 — A. True
Diversification can reduce concentration risk by spreading money across different investments or asset types. It cannot guarantee that losses will never occur.
Q50 — B. False
Savings and investments can differ in risk, return potential, liquidity and purpose. They should not automatically be treated as identical.
Topic 6: Risk and Insurance
Q51 — A. True
Insurance can provide financial protection against specified risks according to the conditions of the policy.
Q52 — B. False
Insurance does not prevent an event from occurring. It is designed to provide financial protection or compensation according to the policy if a covered event occurs.
Q53 — A. True
Coverage, exclusions and conditions determine the protection provided by a policy. Reading them helps the policyholder understand the scope of coverage.
Q54 — B. False
Insurance policies cover specified risks subject to their terms. Not every financial loss is automatically covered.
Q55 — A. True
A premium is the amount paid for insurance coverage according to the policy arrangement.
Q56 — B. False
Exclusions can directly affect whether a particular loss is covered. Therefore, ignoring them can lead to an incorrect understanding of the policy.
Q57 — A. True
Even when an event appears to fall within coverage, the actual claim must be considered according to the policy’s terms, conditions and exclusions.
Q58 — B. False
Insurance is one part of risk management. It does not eliminate the need for responsible behaviour and other sensible precautions.
Q59 — A. True
Different policies can provide different coverage and contain different exclusions and conditions. Therefore, similar losses can potentially receive different treatment.
Q60 — B. False
A low premium does not automatically mean that a policy is suitable. Coverage, exclusions, conditions and the person’s actual needs should also be considered.
Topic 7: Personal Income Tax
Q61 — A. True
Understanding applicable tax rules helps a person determine and meet relevant tax obligations and plan finances responsibly.
Q62 — B. False
Deliberately hiding income to evade tax is not legitimate financial planning. Lawful tax planning must follow applicable tax laws.
Q63 — A. True
Taxes can affect the amount of income available for spending and saving. Therefore, they can be relevant to financial planning.
Q64 — B. False
Tax liability can depend on applicable laws and the individual’s circumstances. It cannot be assumed that identical rules or liabilities apply in every situation.
Q65 — A. True
Keeping appropriate records can help a taxpayer accurately report relevant information and comply with applicable tax requirements.
Q66 — B. False
Taxes are compulsory levies under applicable law and form an important source of government revenue. They are not simply optional payments.
Q67 — A. True
Using deductions, exemptions or other provisions that are legally available to an eligible taxpayer can be part of lawful tax planning.
Q68 — B. False
Providing false information to reduce tax liability is not lawful tax planning. Tax planning must remain within applicable laws.
Q69 — A. True
Considering taxes before deciding how much money is available for spending and saving can make a personal financial plan more realistic.
Q70 — A. True
Tax obligations can affect disposable income and therefore can influence decisions about spending, saving and investment.
TABULAR ANSWER KEY
| Q. | Answer | Q. | Answer | Q. | Answer | Q. | Answer |
| 1 | A | 18 | B | 35 | A | 52 | B |
| 2 | B | 19 | A | 36 | B | 53 | A |
| 3 | A | 20 | B | 37 | A | 54 | B |
| 4 | A | 21 | A | 38 | B | 55 | A |
| 5 | A | 22 | B | 39 | A | 56 | B |
| 6 | B | 23 | A | 40 | B | 57 | A |
| 7 | A | 24 | B | 41 | A | 58 | B |
| 8 | B | 25 | A | 42 | B | 59 | A |
| 9 | A | 26 | A | 43 | A | 60 | B |
| 10 | B | 27 | B | 44 | B | 61 | A |
| 11 | A | 28 | A | 45 | A | 62 | B |
| 12 | B | 29 | A | 46 | B | 63 | A |
| 13 | A | 30 | B | 47 | A | 64 | B |
| 14 | B | 31 | A | 48 | B | 65 | A |
| 15 | A | 32 | B | 49 | A | 66 | B |
| 16 | B | 33 | A | 50 | B | 67 | A |
| 17 | A | 34 | A | 51 | A | 68 | B |
| 69 | A | ||||||
| 70 | A |