Topic 1: Meaning and Importance of Personal Financial Management
Q1.
Rahul records his income, tracks his daily expenses and decides how much money to save each month. His actions are part of ________.
A. Personal financial management
B. Market speculation
C. Consumer inflation
D. Public expenditure
Q2.
Meena wants to purchase a laptop six months from now. She reduces unnecessary spending today so that she can save enough money. The financial principle she is applying is ________.
A. Increasing current consumption
B. Planning for a future financial goal
C. Ignoring opportunity cost
D. Avoiding financial planning
Q3.
Arun earns a reasonable income but frequently runs out of money because he does not track his expenses. The most useful first step for him would be to ________.
A. Increase all his spending
B. Borrow more money
C. Track and review his expenditure
D. Stop saving completely
Q4.
A family separates its monthly income into essential expenses, savings and discretionary spending. This helps the family to ________.
A. Eliminate all financial risks
B. Guarantee higher income
C. Avoid all future expenses
D. Organise the use of its available money
Q5.
Priya keeps some money aside for an unexpected medical or repair expense. This practice is best described as building ________.
A. Financial preparedness
B. Consumer demand
C. Market surplus
D. Price speculation
Q6.
A student receives a limited allowance and gives priority to school-related expenses before spending on entertainment. This shows the importance of ________.
A. Unlimited consumption
B. Financial priorities
C. Market competition
D. Inflation targeting
Q7.
Rohan compares his monthly income with his regular expenses before deciding whether he can afford a new purchase. This decision reflects ________.
A. Financial planning
B. Compulsory taxation
C. Price discrimination
D. Production planning
Q8.
A person prepares a financial plan but never changes it even after a major change in income and expenses. The missing element in this approach is regular ________.
A. Consumption
B. Borrowing
C. Review and adjustment
D. Speculation
Q9.
A family discovers that several small online purchases together consume a significant amount of its monthly income. Identifying these expenses can help the family ________.
A. Control unnecessary spending
B. Increase inflation
C. Eliminate taxes
D. Guarantee investment returns
Q10.
Two people have similar incomes, but one regularly saves and plans expenses while the other spends without planning. The difference mainly illustrates the importance of ________.
A. Higher prices
B. Financial management
C. Government borrowing
D. Market supply
Topic 2: Inflation and Its Impact on Purchasing Power
Q11.
A family finds that ₹5,000 now buys fewer groceries than it did earlier because prices have generally increased. The family’s ________ has fallen.
A. Purchasing power
B. Money income
C. Production capacity
D. Tax liability
Q12.
A company increases the price of one particular model of phone because its production cost has risen. This single price increase by itself does not necessarily indicate ________.
A. Demand
B. Inflation
C. Consumption
D. Saving
Q13.
A worker’s salary rises by 4%, but the prices of many goods he regularly purchases rise by 7%. His purchasing power may therefore ________.
A. Increase automatically
B. Remain exactly unchanged
C. Decrease
D. Become unlimited
Q14.
If the general price level rises while a person’s money income remains unchanged, the person may be able to purchase ________ goods and services with the same income.
A. More
B. The same number in every situation
C. Unlimited
D. Fewer
Q15.
A student saves a fixed amount for a future purchase. If prices rise substantially before the purchase, the saved money may have ________ purchasing power.
A. Lower
B. Unlimited
C. Guaranteed higher
D. Unchanged in every situation
Q16.
An employee’s salary increases from ₹30,000 to ₹32,000, but the prices of the goods he purchases rise faster than his income. Looking only at his salary would give an incomplete picture of his ________.
A. Tax rate
B. Purchasing power
C. Production
D. Saving account
Q17.
A general and sustained rise in the prices of goods and services is known as ________.
A. Inflation
B. Deflationary saving
C. Budgeting
D. Investment diversification
Q18.
A person receives a salary increase, but prices rise even faster. In such a situation, the person’s nominal income may rise while his ________ falls.
A. Tax record
B. Production
C. Real purchasing power
D. Financial documents
Q19.
A rise in the price of one vegetable caused by a temporary shortage should not automatically be treated as evidence of economy-wide ________.
A. Investment
B. Inflation
C. Saving
D. Budgeting
Q20.
When money buys fewer goods and services than before because of a general rise in prices, the ________ of money has declined.
A. Interest rate
B. Tax burden
C. Purchasing power
D. Principal amount
Topic 3: Simple Interest and Compound Interest
Q21.
Rahul invests ₹10,000 at simple interest. The interest continues to be calculated on the original ₹10,000. The amount ₹10,000 is called the ________.
A. Principal
B. Compound interest
C. Taxable income
D. Premium
Q22.
Under simple interest, if the principal, rate and time period are known, the interest can be calculated using the formula ________.
A. P + R + T
B. P × R × T / 100
C. P − R − T
D. P / R × T
Q23.
An investment earns interest, and the accumulated interest becomes part of the amount on which future interest is calculated. This illustrates ________.
A. Simple budgeting
B. Inflation
C. Compounding
D. Tax deduction
Q24.
Two people invest equal amounts at the same simple interest rate for the same period. Their simple interest will be ________.
A. Always different
B. Impossible to calculate
C. Equal
D. Zero
Q25.
A student compares simple interest and compound interest and notices that under compound interest, previously earned interest can also earn interest. This additional effect is called ________.
A. Compounding
B. Budgeting
C. Diversification
D. Inflation
Q26.
If the principal and interest rate remain unchanged in a simple-interest arrangement, increasing the investment period will generally ________ the simple interest earned.
A. Eliminate
B. Increase
C. Reverse
D. Make it zero
Q27.
A person says that compound interest is calculated only on the original principal throughout the investment period. The person is actually describing ________.
A. Compound interest
B. Simple interest
C. Inflation
D. Insurance
Q28.
Two compound-interest investments have the same principal, rate and time period but different compounding frequencies. Their final amounts may ________.
A. Always be identical
B. Always be zero
C. Differ
D. Become unrelated to interest
Q29.
If the principal is ₹20,000, the annual simple interest rate is 5%, and the time is one year, the simple interest will be ________.
A. ₹500
B. ₹1,000
C. ₹2,000
D. ₹100
Q30.
A borrower wants to understand why the interest amount changes when the interest rate changes. The rate is important because it is one of the factors used to determine the amount of ________.
A. Interest
B. Insurance coverage
C. Tax records
D. Purchasing power
Topic 4: Budgeting
Q31.
Before the beginning of a month, a family estimates its income and plans how much will be spent on food, education, transport and savings. This plan is called a ________.
A. Budget
B. Bond
C. Tax return
D. Mutual fund
Q32.
A student compares planned spending with actual spending and finds that entertainment expenses were higher than expected. This comparison can help identify ________.
A. Inflation
B. Overspending
C. Insurance coverage
D. Investment maturity
Q33.
A family receives limited income and first allocates money to food, education and essential bills. This approach reflects the importance of ________ expenses.
A. Unnecessary
B. Speculative
C. Priority
D. Luxury-only
Q34.
A person prepares a budget but does not include any amount for savings. To improve the budget, the person could include savings as a planned ________ of income.
A. Use
B. Tax penalty
C. Price increase
D. Market failure
Q35.
If a person’s income changes significantly, the existing budget may need to be ________.
A. Ignored permanently
B. Revised
C. Destroyed
D. Converted into insurance
Q36.
A family expects ₹40,000 income and plans ₹35,000 of expenses. The remaining ₹5,000 represents a planned ________.
A. Deficit
B. Loss
C. Surplus
D. Tax penalty
Q37.
A student notices several small monthly subscriptions that were not considered when the budget was prepared. Reviewing these expenses can help the student ________.
A. Identify recurring expenditure
B. Guarantee investment profits
C. Eliminate inflation
D. Increase income automatically
Q38.
If planned expenses are greater than expected income, the budget shows a ________.
A. Surplus
B. Deficit
C. Profit guarantee
D. Financial asset
Q39.
A family changes its budget after an unexpected but continuing increase in an essential expense. This demonstrates that a useful budget should be ________.
A. Flexible enough to be revised
B. Completely fixed
C. Unrelated to income
D. Based only on wants
Q40.
A carefully prepared budget helps a person plan spending, but it cannot completely eliminate ________ expenses.
A. Planned
B. Essential
C. Unexpected
D. Regular
Topic 5: Savings and Investment Options
Q41.
A student wants money to remain easily accessible for a near-term need. Therefore, she should consider the ________ of an investment option.
A. Liquidity
B. Inflation rate only
C. Tax record only
D. Production level
Q42.
A person buys shares expecting a profit but understands that the market price can fall. This reflects the fact that stock returns are generally ________.
A. Guaranteed
B. Subject to market risk
C. Fixed by the government in every case
D. Always negative
Q43.
An investor puts all available investment money into shares of one company. The main concern is excessive ________ risk.
A. Concentration
B. Inflation
C. Tax filing
D. Budgeting
Q44.
A mutual fund collects money from many investors and invests the pooled money according to the fund’s objectives. The money is therefore ________ among investors for investment purposes.
A. Taxed twice automatically
B. Pooled
C. Destroyed
D. Converted into cash only
Q45.
A person chooses a fixed deposit because its terms specify the applicable interest and period. Compared with a market-linked investment, the return under the specified FD terms may be easier to ________.
A. Predict from the stated terms
B. Eliminate
C. Hide
D. Increase automatically
Q46.
A bond represents a financial arrangement in which an investor generally lends money to an ________.
A. Issuer
B. Insurance premium
C. Household budget
D. Inflation index
Q47.
An investor compares risk, expected return, liquidity and time horizon before selecting an investment. This is a more ________ investment decision.
A. Informed
B. Random
C. Unplanned
D. Guaranteed
Q48.
A person invests all savings in one asset because he believes diversification is unnecessary. A better strategy may be to ________ investments to reduce concentration risk.
A. Eliminate
B. Diversify
C. Hide
D. Double without analysis
Q49.
A mutual fund investor should understand that mutual funds are not automatically ________.
A. Financial products
B. Risk-free
C. Investment vehicles
D. Pooled investments
Q50.
A person chooses an investment only because it produced a high return last year. Past performance alone cannot ________ future returns.
A. Guarantee
B. Record
C. Calculate the principal
D. Identify liquidity
Topic 6: Risk and Insurance
Q51.
A family pays a regular amount to an insurance company in return for specified coverage under a policy. The regular payment is called a ________.
A. Premium
B. Principal
C. Surplus
D. Dividend
Q52.
Insurance is mainly used to manage the financial consequences of certain ________ risks.
A. Specified
B. Imaginary
C. Unlimited
D. Guaranteed
Q53.
Before purchasing insurance, a person carefully reads the policy’s coverage, exclusions and conditions. This helps the person understand the ________ of the policy.
A. Scope of protection
B. Stock-market price
C. Inflation rate
D. Budget surplus
Q54.
A person assumes that an insurance policy will cover every possible loss. This assumption is incorrect because insurance coverage depends on the policy’s ________.
A. Terms and conditions
B. Shopping habits
C. Monthly budget only
D. Salary increase
Q55.
Insurance does not prevent an accident or other insured event from occurring; instead, it can provide financial protection against specified ________.
A. Risks
B. Investments
C. Budgets
D. Tax rates
Q56.
A person ignores the exclusions in an insurance policy. This may create problems because exclusions identify situations that may not be ________.
A. Covered
B. Budgeted
C. Invested
D. Saved
Q57.
Two people pay different premiums because their policies provide different levels or types of coverage. The suitability of insurance should therefore be judged by considering both cost and ________.
A. Coverage
B. Inflation alone
C. Salary alone
D. Consumption
Q58.
A person buys insurance but continues taking sensible precautions because insurance does not completely ________ risk.
A. Create
B. Eliminate
C. Calculate
D. Invest
Q59.
When an insured event occurs, whether a claim is payable depends on the policy’s coverage, conditions and ________.
A. Exclusions
B. Shopping list
C. Budget surplus
D. Investment return
Q60.
Choosing an insurance policy only because it has the lowest premium may be unsuitable if the policy does not provide adequate ________.
A. Income
B. Coverage
C. Inflation
D. Interest
Topic 7: Personal Income Tax
Q61.
A compulsory payment imposed under applicable law on income or other taxable bases is generally called ________.
A. Tax
B. Savings
C. Investment
D. Insurance
Q62.
A person deliberately hides income to reduce tax liability. This is not lawful tax planning but is an attempt at tax ________.
A. Saving
B. Evasion
C. Investment
D. Diversification
Q63.
A taxpayer studies applicable deductions and exemptions and uses them only when legally eligible. This can be part of lawful tax ________.
A. Planning
B. Evasion
C. Hiding
D. Borrowing
Q64.
Taxes can reduce the amount of income available for personal spending and saving. Therefore, taxes can affect a person’s ________ income.
A. Disposable
B. Imaginary
C. Production
D. Market
Q65.
A taxpayer keeps income records and relevant financial documents to support accurate reporting. Maintaining such records can help with tax ________.
A. Compliance
B. Inflation
C. Speculation
D. Consumption
Q66.
A person falsely reports information to reduce tax liability. Such behaviour is not considered ________ tax planning.
A. Lawful
B. Financial
C. Personal
D. Annual
Q67.
A person includes applicable taxes while deciding how much money can be used for savings and investment. This shows that tax can be part of personal financial ________.
A. Planning
B. Consumption only
C. Production
D. Insurance coverage
Q68.
Tax is an important source of government ________, which helps the government finance public activities and services.
A. Revenue
B. Investment loss
C. Private saving
D. Household debt
Q69.
A person checks applicable tax rules before making a major financial decision. This can help the person avoid unexpected ________ liabilities.
A. Tax
B. Production
C. Insurance
D. Market
Q70.
Using legally permitted tax deductions or exemptions when eligible can help a taxpayer reduce tax liability while remaining within the ________.
A. Budget
B. Law
C. Stock market
D. Insurance policy
DETAILED ANSWER KEY
Topic 1: Personal Financial Management
Q1 — A. Personal financial management
Rahul is managing income, expenditure and savings. These activities are central to personal financial management.
Q2 — B. Planning for a future financial goal
Meena is sacrificing some present spending to achieve a future financial objective. This is purposeful financial planning.
Q3 — C. Track and review his expenditure
Before changing his spending behaviour, Arun needs to understand where his money is going. Tracking expenses provides that information.
Q4 — D. Organise the use of its available money
Dividing income among essential expenses, savings and discretionary spending helps organise financial resources.
Q5 — A. Financial preparedness
Keeping money aside for unexpected needs can make a person better prepared for financial emergencies.
Q6 — B. Financial priorities
The student gives essential expenses priority over entertainment. This demonstrates the importance of prioritising financial needs.
Q7 — A. Financial planning
Comparing income with expenses before making a purchase is a basic financial-planning decision.
Q8 — C. Review and adjustment
Financial circumstances can change. A useful plan should be reviewed and adjusted when necessary.
Q9 — A. Control unnecessary spending
Identifying small but repeated purchases can help a family reduce unnecessary expenditure.
Q10 — B. Financial management
The example shows that effective financial management depends not only on income but also on planning, saving and spending decisions.
Topic 2: Inflation and Purchasing Power
Q11 — A. Purchasing power
When the same ₹5,000 buys fewer goods than before, the purchasing power of the money has decreased.
Q12 — B. Inflation
A single product’s price increase does not by itself establish a general rise in the price level.
Q13 — C. Decrease
If prices rise faster than income, the person’s income may purchase fewer goods and services despite the salary increase.
Q14 — D. Fewer
When prices generally rise but income remains unchanged, the same income may purchase fewer goods and services.
Q15 — A. Lower
If prices rise substantially, a fixed amount of saved money may purchase fewer goods than originally expected.
Q16 — B. Purchasing power
A salary increase alone does not show whether the person’s ability to purchase goods and services has increased.
Q17 — A. Inflation
Inflation refers to a general and sustained rise in the price level.
Q18 — C. Real purchasing power
Nominal income can rise while purchasing power falls if prices increase faster than income.
Q19 — B. Inflation
A single product-price increase can have a specific cause and does not automatically indicate economy-wide inflation.
Q20 — C. Purchasing power
When money buys fewer goods and services, its purchasing power has declined.
Topic 3: Simple and Compound Interest
Q21 — A. Principal
The original amount invested or borrowed is called the principal.
Q22 — B. P × R × T / 100
The standard simple-interest formula is SI = P × R × T / 100.
Q23 — C. Compounding
When accumulated interest becomes part of the amount on which future interest is calculated, compounding occurs.
Q24 — C. Equal
With the same principal, rate and period, the simple-interest calculation produces the same interest.
Q25 — A. Compounding
The ability of accumulated interest to generate further interest is the effect of compounding.
Q26 — B. Increase
Under simple interest, time is a factor in the formula. Keeping principal and rate constant while increasing time increases the interest.
Q27 — B. Simple interest
Interest calculated only on the original principal describes simple interest, not compound interest.
Q28 — C. Differ
Different compounding frequencies can lead to different final amounts under compound interest.
Q29 — B. ₹1,000
SI = ₹20,000 × 5 × 1 / 100 = ₹1,000.
Q30 — A. Interest
The interest rate is one of the factors used to calculate interest.
Topic 4: Budgeting
Q31 — A. Budget
A budget is a plan for allocating expected income among different expenses and financial purposes.
Q32 — B. Overspending
Comparing planned and actual expenditure can reveal areas where spending exceeded the planned amount.
Q33 — C. Priority
Food, education and essential bills are examples of expenses that may receive priority when resources are limited.
Q34 — A. Use
Savings are one possible planned use of income in a budget.
Q35 — B. Revised
A significant change in income can make an old budget unsuitable, so it may need to be revised.
Q36 — C. Surplus
₹40,000 income − ₹35,000 expenses = ₹5,000 surplus.
Q37 — A. Identify recurring expenditure
Regular subscriptions are recurring expenses and can easily be overlooked without careful budgeting.
Q38 — B. Deficit
When planned expenses exceed expected income, the budget has a deficit.
Q39 — A. Flexible enough to be revised
Changing circumstances may require changes to a budget.
Q40 — C. Unexpected
A budget can help prepare for expenses but cannot guarantee that unexpected expenses will never occur.
Topic 5: Savings and Investment Options
Q41 — A. Liquidity
For near-term needs, it is important to consider how easily money can be accessed.
Q42 — B. Subject to market risk
Stock prices can rise or fall, so returns are not guaranteed.
Q43 — A. Concentration
Putting all money into one company creates concentration risk because a large portion of the investment depends on one asset.
Q44 — B. Pooled
Mutual funds pool money from many investors and invest it according to the scheme’s objectives.
Q45 — A. Predict from the stated terms
An FD generally has specified terms that make the applicable interest easier to understand than returns on fluctuating market investments.
Q46 — A. Issuer
A bond generally represents lending money to an issuer, who has obligations according to the bond’s terms.
Q47 — A. Informed
Considering risk, return, liquidity and time horizon leads to a more informed investment decision.
Q48 — B. Diversify
Diversification spreads investments and can reduce concentration risk.
Q49 — B. Risk-free
Mutual funds involve investment risk; they are not automatically risk-free.
Q50 — A. Guarantee
Past performance cannot guarantee future returns.
Topic 6: Risk and Insurance
Q51 — A. Premium
A premium is the amount paid for insurance coverage according to the policy arrangement.
Q52 — A. Specified
Insurance provides protection against specified risks subject to policy terms.
Q53 — A. Scope of protection
Coverage, exclusions and conditions help a person understand what protection the policy actually provides.
Q54 — A. Terms and conditions
Insurance claims depend on the policy’s coverage, exclusions and conditions.
Q55 — A. Risks
Insurance helps manage the financial consequences of specified risks; it does not necessarily prevent those events.
Q56 — A. Covered
Exclusions identify situations or circumstances that may not be covered by the policy.
Q57 — A. Coverage
The cost of insurance should be considered alongside the protection actually provided.
Q58 — B. Eliminate
Insurance can transfer or manage certain financial risks, but it does not completely eliminate risk.
Q59 — A. Exclusions
Whether a claim is payable depends on coverage, conditions and exclusions in the policy.
Q60 — B. Coverage
A low premium is not sufficient if the policy does not provide adequate protection for the person’s needs.
Topic 7: Personal Income Tax
Q61 — A. Tax
A compulsory payment imposed under applicable law is generally called a tax.
Q62 — B. Evasion
Deliberately hiding income to avoid tax is tax evasion, not lawful tax planning.
Q63 — A. Planning
Using legally available deductions or exemptions when eligible can be part of lawful tax planning.
Q64 — A. Disposable
Taxes can affect the amount of income remaining available for personal spending and saving.
Q65 — A. Compliance
Maintaining appropriate records can help a taxpayer meet applicable tax requirements accurately.
Q66 — A. Lawful
False reporting is not lawful tax planning.
Q67 — A. Planning
Considering taxes when making spending, saving and investment decisions is part of personal financial planning.
Q68 — A. Revenue
Taxes provide government revenue used to finance public activities and services.
Q69 — A. Tax
Understanding applicable tax rules can help a person anticipate relevant tax liabilities.
Q70 — B. Law
Legally permitted deductions and exemptions can be used while remaining within the applicable tax law.
TABULAR ANSWER KEY
| Q. | Ans. | Q. | Ans. | Q. | Ans. | Q. | Ans. |
| 1 | A | 18 | C | 35 | B | 52 | A |
| 2 | B | 19 | B | 36 | C | 53 | A |
| 3 | C | 20 | C | 37 | A | 54 | A |
| 4 | D | 21 | A | 38 | B | 55 | A |
| 5 | A | 22 | B | 39 | A | 56 | A |
| 6 | B | 23 | C | 40 | C | 57 | A |
| 7 | A | 24 | C | 41 | A | 58 | B |
| 8 | C | 25 | A | 42 | B | 59 | A |
| 9 | A | 26 | B | 43 | A | 60 | B |
| 10 | B | 27 | B | 44 | B | 61 | A |
| 11 | A | 28 | C | 45 | A | 62 | B |
| 12 | B | 29 | B | 46 | A | 63 | A |
| 13 | C | 30 | A | 47 | A | 64 | A |
| 14 | D | 31 | A | 48 | B | 65 | A |
| 15 | A | 32 | B | 49 | B | 66 | A |
| 16 | B | 33 | C | 50 | A | 67 | A |
| 17 | A | 34 | A | 51 | A | 68 | A |
| 69 | A | ||||||
| 70 | B |