1Institute of Chartered Accountants of IndiaCertificate Course of Forex and Treasury

ManagementPaper: 2

Answer all the questions

Each question carries one credit. Mark the correct answer from thealternatives provided

1. Exporters who are permitted to retain a part of their export proceeds in aForeign currency account called Exchange earners foreign currencyaccount (EEFC), can maintain such accounts with Authorized dealers in:

a. Current accountb. Savings bank accountc. Term depositsd. All of the above

2. Which of the following is/are true according to the International Fishereffect?

a. Currencies with higher level of inflation, will have higher level ofinterest rate

b. Real returns are equalized across countries through arbitragec. Until the expected real return in two countries are equalized the

process of arbitrage continuesd. Currencies with lower level of interest rate, will appreciate against

currencies with higher level of interest rate

3. In an option forward contract for an export transaction under direct quote,when a currency is in forward premium bank will add:

2a. Maximum premium to the bid rateb. Minimum premium to the bid ratec. It will ignore the premiumd. It will deduct the premium

4. There are various forms of purchasing power parity (PPP) theory. Whichform of PPP is also known as the law of one price?

a. Numerical formb. Relative formc. Accounting formd. Absolute form

5. The method of estimating the value of various items on the basis ofexpected development in the future period is known as:

a. Percent of sales methodb. Budgeted expense method.c. Subjective methodd. Objective method

6. True commercial life refers to

a. Life period of an income generating assetb. Expected number of years an income producing asset can generate cash

inflowsc. Difference between the time of purchase of an asset and the time of final

disposal of the assetd. It is also known as physical life of the asset.

7. Which of the following statement/s is/are false regarding internal auditing?

a. Internal auditing of a company is done by an individual who is not anemployee or partner of the company.

b. The main objective of an internal audit is to ensure true and fairpresentation of accounts.

3c. Internal audit is optional.d. Both (a) and (b) above.

8. K Ltd., issues 15% debentures, the face value being Rs. 100. The netamount realized per debentures is Rs. 97. Debentures are redeemable at parafter 10 years. The tax rate for the firm is 50%. What is the cost of thesedebentures?

a. 5.98%b. 7.92%c. 8.24%d. 15.5%

9. A cash budget is:

a. The amount of cash that can be utilized during a particular periodb. The cash that is budgeted for the purchase of fixed assetsc. An estimate of future cash flowsd. An estimate budget of inflows and outflows from the manufacturing

activities of the firm

10.The reorder point is given by ---- whereS is annual usageL is lead timeF is stock-out acceptance factorR is average quantity ordered

a. S x L x F (S x R x L)1/2b. S + L + F (S x R x L)1/2c. S + L x F (S x R x L)1/2d. S x L + F (S x R x L)1/2

11.A current ratio less than one implies:

4a. Negative net working capitalb. Financing of working capital using long-term sourcesc. Adoption of a conservative working capital policyd. A low debt service coverage ratio

12.The MM hypothesis of capital structure irrelevance is based on theargument(s) of :

a. Existence of perfect capital marketsb. Equalization of market values of firms due to arbitragec. Absence of personal leveraged. Both (a) and (b) above

13.The term capital structure refers to:

a. The manner in which a firm obtains its long-term sources of fundingb. The length of time needed to collect accounts receivablec. Whether the firm can remain profitable in the long rund. Which specific assets the firm should invest in

14. A gross profit margin ratio may not indicate:

a. Earning powerb. The efficiency of productionc. The efficiency of pricingd. The gap between net sales and cost of goods sold

15. Which of the following is/are features of equity capital?

a. The payment of dividend is compulsory, irrespective of the companysfinancial performance.

b. The dividend, if not paid during a year becomes payable in the next year.

5c. Dividend is payable only if the company makes a profit.d. Dividend becomes payable only if recommended by the BoD and passed

by the company in the AGM

16.The rational expectations model of dividend policy says that:

a. Since the expectations of the investors are always rational, therewill be no effect of dividend policy on the valuation of the firm

b. If the investors have rational expectations, they will value adividend paying firm higher than a non-dividend paying firm

c. If the investors have rational expectations, they will value a non-dividend paying firm higher than a dividend paying firm

d. If the declared dividend is in line with the expectations of theinvestors, there will be no effect on the valuation of the firm.

17.Which of the following forms of purchasing power parity states thatchanges in spot rates over a period of time reflect the changes in the pricelevels over the same period in the currencies of the concerned economies?

a. Absolute formb. Expectations formc. Relative formd. Both (a) and (b) above

18.Which of the following is not an assumption of Hecksher-Ohlin model?

a. There is no obstruction to tradeb. There are two factors of productionc. Both commodity and factor markets are perfectly competitived. There are increasing returns to scale.

19.An audit committee is a sub-committee of

6a. External auditorsb. Internal auditorsc. Board of directorsd. WCM Committee

20.The EOQ model of inventory management tries to

a. Minimize the cost of ordering and carrying inventoryb. Minimize the financing cost of inventory carriedc. Minimize timed. Minimize inventory

21.Primary purpose of establishing Internal Control in an organization is to

a. Prevent misappropriations and fraudsb. Ensure that risk taking is made difficultc. Bring out the flaws in the working of various functionsd. All of the above.

22.Which of the following liabilities are classified under Time liabilities forthe computation of NDTL?

a. Unclaimed depositsb. Credit balances in the cash credit accountsc. Outstanding TTs (Telegraphic Transfers), MTs (Mail Transfer)d. Staff security deposits.

23.Risks such as civil riots, natural calamities are covered under

a. Insurance against non-performanceb. Insurance against business risksc. Umbrella policiesd. Excess liability coverage

24.Primary market is where securities are issued by:

7a. Stock Exchangeb. FIIc. Brokersd. Companies to the subscribers directly

25.Petty cash reserves are maintained at low leveli. To prevent unnecessary expenditure

ii. To minimize risk of lossiii. To minimize work to maintain these reserves

a. (i) onlyb. (ii) and (iii) onlyc. (ii) onlyd. (iii) only

26.The basis of estimation for receipts of interest and dividend in the cashbudget is usually by the:

a. Receipts pattern of the pastb. Financial forecastc. Companys investment portfoliod. Past proportion of interest and dividend to total sales.

27.The term SLR in treasury of a bank refers to

a. A ratio of assets and liabilitiesb. A ratio to be adhered to by bank treasuryc. A measure of liquidityd. Indicator of the extent of investments by bank

28.Which of the following indicates the Debt Service Coverage Ratio (DSCR)of 1.5 of a firm?

a. The total obligations (i.e., interest plus repayment on the long-termloan) of the firm are 1.5 times its PBDIT

b. The total obligations are 1.5 times its PATc. The post-tax cash earnings are 1.5 times its total obligations

8d. The post-tax earnings plus depreciation and other non-cash expensesplus interest on term loan is 1.5 times the interest on term loan andthe amount of loan repayment

29.A company can hold foreign currency balance in India in the form ofa. RFC [D] accountb. FCNR Accountc. Foreign Currency accountd. EEFC account

30.Repo

a. Is an agreement to sell the securities by the seller to the buyer after aspecific period of time and amount

b. Is an agreement to repurchase the securities by the seller from thebuyer after a specific period of time and amount

c. Is a redeemable agreement by a company in respect of its preferenceshares

d. Is an agreement to redeem its equity shares by a company on aspecific date and amount

31.Utilization of various provisions in such a way that the tax liability isreduced but it results in the violation of the spirit of guidelines though thelaws are complied with is known as:

a. Tax evasionb. Tax avoidancec. Tax planningd. Tax reduction

932.An Italian company has to pay Japanese Yen for an import transaction in afew days from now. To hedge this, the company will

a. Sell Japanese yen forwardb. Buy Japanese Yen forwardc. Buy USD forwardd. Sell Japanese Yen spot

33.Given total debt-equity ratio = 5:4; total assets = Rs.4,500; short-term debt= Rs.600 and total debt consists only of long-term debt and short-termdebt, the long-term debt is equal to

a. Rs.1,567b. Rs.1,900c. Rs.2,167d. Rs.2,500

34.Mr. Naresh deposited Rs.2,000 at the beginning of every month in a bankfor five years, if the interest rate is 12% p.a. compounded monthly, thenthe accumulated amount he will get after 5 years is

a. Rs. 89,910b. Rs.1,34,400c. Rs.1,63,340d. Rs.1,64,973

35.Which of the following is not a prediction of bankruptcy model?

a. Altmans Z score modelb. Beaver Modelc. Wilcox Modeld. CAPM

36.Mutual benefit funds are also known as

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a. Multanisb. Nidhisc. Muddatisd. Hundis

37.Which of the following are subsystems of the inventory managementsystem?

a. EOQ subsystem.b. Stock-level subsystemc. Reorder-point subsystem.d. All of the above.

38.According to the Monetary Approach of exchange rate forecasting,inflation is the outcome of

a. Increase in wages in the economyb. Increase in real output growthc. Increase in government spendingd. Increase in money supply in excess of real output growth.

39.Which of the following serves as evidence that the goods have actuallybeen imported into India for the remittance sent in foreign currency by anAuthorized Dealer?

a. Bill of Ladingb. Bill of Entryc. Air Way Billd. Combined Transport bill of lading

40.Which of the following is not a function of World Trade Organization?

a. To limit harmful trade practicesb. Cooperating with other international institutes involved in global

policy-makingc. Acting as a forum for multilateral trade negotiations

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d. Short-term financing for development of trade among membercountries.

41.Which of the following is an internal hedging technique?

a. Forwardsb. Futuresc. Optionsd. Sourcing

42.The quote is said to be an European quote where the exchange isexpressed

a. In terms of US dollars per unit of any other currencyb. In terms of number of units of foreign currency per unit of domestic

currencyc. In terms of British pound per US dollard. In terms of euro per unit of any other currency

43.Factor income represents income received by investors on foreigninvestments in financial assets (securities). This transaction is recordedunder

a. Capital account.b. Current accountc. Trade accountd. Invisibles account

44. Between two currencies with different rates of interest,

a. There will always be a parity in exchange ratesb. The currency with higher interest rate will be at a premiumc. The currency with lower interest rate will be at a premiumd. There will be a steady flow of investments

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45.In a swap-out deal, the foreign currency is

a. Bought both spot and forwardb. Sold both spot and forwardc. Sold spot and bought forwardd. Sold forward with different maturities

46.Current account deficit occur(s) when

a. Imports exceeds exportsb. Exports exceeds Importsc. National expenditure exceeds national incomed. Both (a) and (c) above.

47.In Indias Balance of payments account, exports are valued at

a. Exworksb. FOB valuec. C&F valued. CIF value

48.Bank of the Middle East, Dubai is maintaining an account with SBIMumbai. SBI Mumbai calls this account as

a. Nostro accountb. Vostro accountc. Loro accountd. Mirror account

49.According to Altmans Z Score modeli. If a Z score 1.81, the firm is healthy

ii. If Z score 2.99, the firm is healthyiii. If Z score 1.81, the firm is likely to be bankrupt.iv. If Z score 2.99, the firm is likely to be bankrupt.

a. (i) and (ii)b. (i) and (iii)

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c. (i) and (iv)d. (ii) and (iii)

50.Foreign exchange risk is defined as:

a. Variance in the value of assets, liabilities and operating income dueto unanticipated changes in exchange rates

b. Variance in operating income due to expected changes in exchangerates

c. Variance in operating income, value of assets and liabilities due tounfavourable movement of exchange rates

d. Possibility of loss a firm may sustain due to changes in the exchangerates

51.Which of the following statements is false?

a. Authorized dealers are market makers in the foreign exchange marketb. Foreign currency broker act as a middleman between two market

makersc. The counterparty in the foreign exchange market is another bankd. Foreign exchange brokers buy or sell foreign currencies for their

customers.

52.On Tuesday 24-1-2013 a bank in India contacts a bank in London and buydollar spot against rupee. Funds are payable in New York and 26-1-2013 isa holiday in India but not in New York. The value date is

a. 24-1-2013b. 25-1-2013c. 26-1-2013d. 27-1-2013

53.The phenomenon of exchange rates changing more than the required for agiven change in an economic variable and later coming back to the newequilibrium is explained by

a. Efficient Market Hypothesisb. Dornbusch Sticky-Price Theory

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c. Demand-Supply Approachd. Imitation-Gap Theory

54.Suppose the Mexican Peso depreciates by 75% against the US dollar, whatis the percentage appreciation of the US dollar against the Peso?

a. 15%b. 25%c. 75%d. 300%

55.A countrys capital account balance is expected to

a. Decrease if its home currency is expected to weaken, other thingsbeing equal.

b. Increase if its home currency is expected to weaken, other thingsbeing equal.

c. Increase if interest rates decrease in that country and increase in othercountries.

d. Both (a) and (c) above

56.In the case of forward cover, the cost of hedging is

a. The annualized forward premiumb. The difference between the forward rate and expected spot rate for

the maturity datec. The difference between the forward rate and current spot rated. The difference between the forward rate and actual spot rate

prevailing on the date of maturity

57. If Indian rupee appreciates against USD, it means

a. Rupee is costlier in USD termsb. Rupee is cheaper in USD termsc. Rupee is volatiled. There is stability in the market

58.If the ratio of quick assets to projected cash operating expenditure is 0.25and the quick assets are Rs. 90,000, the defensive interval ratio is

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a. 30 daysb. 60 daysc. 90 daysd. 120 days

59.A Certificate of Deposit is available for secondary market transactionsafter ------- days from the date of issuance.

a. 0 (No restriction)b. 7c. 15d. 30

60.Which of the following statements is false?

a. Size of forward contract depends on the term of the contractb. Fluctuations in short-term interest rate affect the futures pricec. In forward contract direct costs are low but indirect costs are highd. Forward market is well regulated.

61.Commercial banks are permitted to offer the following to the corporatei. Export financing

ii. Term financingiii. Foreign currency loans

a. (i) onlyb. (i) and (ii) onlyc. (i) and (iii) onlyd. (i) (ii) and (iii) only

62.Which of the following statements is/are false?

a. Minimum value of an American call option is either zero or, S0 Xb. Maximum value of an American call option can be the value of

underlying asset (S0)c. If two American call options have same exercise price, the option

with longer maturity date will be worth less than the other option

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d. An American call option can never be worth less than a Europeancall option

63.Which of the following institutions has international monetary cooperationas its primary concern?

a. World Bankb. Bank for International Settlementsc. International Monetary Fundd. International Development Association

64.Which of the following is not an assumption of the Theory of ComparativeAdvantage?

a. In both the markets perfect competition existsb. Technical innovation is a continuous process in both the marketsc. The marginal product of labor is constantd. Labor is perfectly mobile within the country

65.Which of the following is not an assumption of binomial option pricingmodel?

a. The underlying stock does not pay any dividends over the life of theoption contract

b. There are no transaction costs and no taxesc. Market participants entail no counterparty riskd. Market prices are such that there are arbitrage opportunities

66.Which of the following is true about merchant quote?

a. It is a quote given by an authorized dealer to RBIb. It is a quote given by the authorized dealer to the scheduled

cooperative banksc. It is a quote given by an authorized dealer to another authorized

dealerd. It is a quote given by the bank to its retail customers

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67.Which of the following is true under a currency board system?

a. The interest rates are automatically set by the market mechanismb. When there is a higher demand for the anchor currency, the reserves

with the currency board gets enhancedc. Lending to either the government or the domestic banks by the

currency board is allowedd. The board can act as the lender of the last resort

68.The discount rate used in the APV method to calculate the benefit due toincreased borrowing capacity if the probability of positive cash flows islow, is

a. The cost of capital for the parent companyb. Risk free rate of interest in home countryc. Risk free rate of interest in host countryd. Market rate of interest in home country

69.Which of the following is the reason for the J-Curve effect? The reason forthis is

a. The inelastic nature of short-run foreign demand for exported goodsallows export businesses to achieve a temporary unfair advantage.

b. The elastic nature of short-run foreign demand for exported goodsallows export businesses to achieve a temporary unfair advantage.

c. The elastic nature of short-run foreign demand for exported goodsdelays the benefits that export businesses should realize.

d. The inelastic nature of short-run foreign demand for exported goodsdelays the benefits that export businesses should realize.

70.If interest rate parity holds and the transaction costs are zero, coveredforeign financing will result in an effective borrowing rate that is

a. Less than domestic interest rateb. Greater than domestic interest ratec. Equal to domestic interest rated. Less than domestic interest rate if forward rate is in discount

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71.An inter-bank swap deal in the foreign exchange market is

a. A pair of deals involving a purchase and sale of different foreigncurrency amounts on a particular day

b. A buy/sell deal for different foreign currency amounts, at the samerate

c. A pair of deals for different foreign currency amounts, different ratesd. A pair of deals involving a purchase and sale for different delivery

dates for the same amount of foreign currency.

72.An international cartel can maintain a high monopoly price if

a. The elasticity of demand for rest of the world is lowb. The elasticity of demand for rest of the world is highc. The cartel controls a small share of the world market for the

cartelized commodityd. The elasticity of supply of the cartelized commodity by the rest of the

world is high

73.Bought-out-Deal (BoD) comes into picture when

a. Companies do not wish to disclose information by way of publicissue

b. Promoters do not want to dilute their stake by going public.c. Small projects require funds but costs of public issue are substantially

highd. Board for Industrial and Financial Reconstruction (BIFR) offers a

sick unit to existing blue chips in that industry.

74.The current Interest rates are as under

Year 1 2 3Interest Rate 10% 11% 12%

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The expected 1 year rate after 2 years is r12 and expected 2 years rate after 1year is r21 then which of the following is true?

a. r12 = 10.5%r21 = 11.5%b. r12 = 11% r21 = 11%c. r12 = 12% r21 = 11%d. r12 = 14% r21 = 13%

75.The system under which the exchange rates are determined by the demandand supply position for the currencies in the foreign exchange market isknown as

a. Target zone arrangement systemb. Crawling peg systemc. Fixed exchange rate systemd. Floating exchange rate system

76.An Indian exporter exporting to U. K. is benefited most

a. By realizing the export proceeds immediately if pound is at a discountb. By delaying the realization of export proceeds if pound is at a

discountc. By delaying the realization of export proceeds if pound is at a

premiumd. Both (a) and (c) of the above.

77.A Bull-dog bond is

a. Issued in U. K. market by U. K. borrowerb. Issued in U. K. market in sterling by a non U. K. borrower under

private placement & unlistedc. Issued in U. K. in sterling by a non U. K. borrower and listed

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d. Issued outside U. K. by a U. K. borrower and listed

78.The Euro dollar interest rates in London are as under1 month : 3.25 p.a.2 month : 3.50 p.a.3 month : 3.75 p.a.

The one month interest rate after 2 months is expected to be

a. 4.12% p.a.b. 4.18% p.a.c. 4.23% p.a.d. 4.28% p.a.

79.If the Euro is quoted $ 0.90 today and the inflation-rates are 4% in Euro-zone and 3% in U.S.A. What should be the $/Euro quote after 3 months?

a. $ 0.9022/Eurob. $ 0.8978/Euroc. $ 0.8966/Eurod. $ 0.8855/Euro

80.The discount rate used in the APV method to calculate the benefit due toincreased borrowing capacity if the probability of positive cash flows islow, is

a. The cost of capital for the parent companyb. Risk free rate of interest in home countryc. Market rate of interest in home countryd. Market rate of interest in host country.

81.A speculator buys Euro at Rs.88.44 and expects to make a profit bykeeping an open position for 1 month. He expects that

a. The spot ask rate after 1 month will be less than the current spot bidrate

b. The spot ask rate after 1 month will be more than the current spot askrate

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c. The spot bid rate after 1 month will be less than the current spot askrate

d. The spot bid rate after 1 month will be more than the current spot askrate.

82.Exchange rates changing more than that required by a change in aneconomic variable and later coming back to the new equilibrium isexplained by

a. Marshall-Lerner conditionb. International Fisher effectc. Quantity theory of moneyd. Dornbusch sticky price theory

83.Which of the following is not a suitable strategy to hedge economicexposure?

a. Product mixb. Plant locationc. Market selectiond. Currency swap.

84.Which of the following theories of exchange rate assumes that thepurchasing power parity holds good?

a. Monetary approachb. Portfolio balance approachc. Asset approachd. Demand-supply approach

85.Which of the following are translated at current rate under the temporalmethod?

a. Cashb. Receivablesc. Inventoryd. All of (a), (b) and (c) above.

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86.Indian Rupee isa. Fully convertible on current accountb. Partly convertible on current accountc. Fully convertible on capital accountd. Not at all convertible

87.Which of the following is/are an example(s) of a Euro-yen deposit?

a. A yen deposit held by a Japanese resident in a US bankb. A yen deposit held by any one in a London bankc. A yen deposit held by non-resident Japanese in a bank in Japand. Both (a) and (b) above.

88.Which of the following letters of credit (L/C) permit an exporter to drawadvance even before the shipment of goods?

a. Revocable creditb. Revolving creditc. Confirmed creditd. Anticipatory credit.

89.Which of the following advances is not a post-shipment credit?

a. Advances against receivables from the Government of Indiab. Advances against retention money relating to exportsc. Advances against approved deemed exportsd. Packing credit

90.The main risk faced by a treasurer is

a. Market riskb. Credit riskc. Operational riskd. Sovereign risk

91.A US based MNC borrowed 5,00,000 at 3.5% for 6 months and investedthe amount in India at 8% for 6 months. If the current spot rate is Rs.71 per

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pound what should be the 6 month Rs./ forward rate, in order to get apositive spread?

a. > 72.57b. < 72.57c. > 72.75d. < 72.75 but >72.57

92.Which of the following forms of arbitrage takes advantage of discrepanciesin the cross currency rates?

a. Interest rate arbitrageb. Covered interest arbitragec. Triangular arbitraged. Two-way arbitrage

93.If 3 month Eurodollar interest rate is 3.75% p.a. and 3 month Euroyeninterest rate is 2% p.a., the dollar will trade at an annualized

a. Forward discount of 2.74%b. Forward premium of 2.74%c. Forward discount of 1.74%d. Forward premium of 1.74%

94.To ensure that there is no three point arbitrage, the relationship among therates of three currencies should conform to

a. {1/S(A/B)ask } X S(C/B)bid x S(A/C)ask 1b. S(A/B)ask / S(C/B)ask S(A/C)bidc. S(A/B)bid X {1 / S(C/B)ask } X {1 / S(A/C)ask } 1d. Both (a) and (b) above

95.Which of the following statements is false?

a. SDR transactions involve no exchange of currencies but only bookentries

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b. SDR is defined in terms of certain gold equivalentc. Issue of SDRs to a member country is in proportion to its quota in

IMFd. SDR is a composite currency unit

96.Which of the following is false with respect to credit rating?

a. A credit rating reflects borrowers accountabilityb. A credit rating reflects the borrowers expected capability and interest

to pay the interest and principal amount on timec. A credit rating is a general purpose evaluation of the issuerd. A credit rating is not an extensive audit of the issuing company

97.The face value of a 364-day T-Bill is Rs.100 and its purchase price isRs.92.25. The yield from such a TBill is _____ %.

a. 7.75b. 7.77c. 8.00d. 8.42.

98.Debt instruments with warrants allowing the investor to subscribe to theequity of another company at certain price is known as

a. Secured Premium Notesb. LYONSc. Third Party Convertible Debenturesd. Cumulative Convertible Preference Shares

99.Which of the following allows simultaneous purchasing and selling ofdifferent securities by a person so that the composition of the portfolio canbe changed without significant costs?

a. Switch dealsb. Repo dealsc. Reverse repo dealsd. Open market operations

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100. LYONS are

a. Optionally convertible debenturesb. Third party convertible debenturesc. Zero coupon convertible notesd. Tax saving bonds

101. The regulatory body for the securities market in USA is

a. Securities and Exchange Boardb. Securities Exchange Commissionc. Securities Investment Boardd. Securities Regulatory Board

102. Which of the following is not an issuers consideration whilechoosing a financial instrument?

a. Cash Flowb. Taxationc. Liquidityd. Leverage

103. Euro Commercial Papers are instruments issued at

a. Londonb. Any European trade centerc. USAd. Both USA and Europe

104. Trading in derivative instruments, can be used to

a. Increase risk exposureb. Decrease risk exposurec. Alter risk exposured. All of the above.

105. Secured Premium Notes are

a. Issued at face value and do not carry interest and are redeemed byrepayment in a series of installments at a premium over the face value

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b. Issued at a discount to their face value and are redeemed at par onexpiry of their tenure

c. Sold at a large discount on their face value and mature at par valued. Also called LYONS

106. Simultaneous purchasing and selling of different securities by aperson so that the composition of the portfolio can be changed withoutsignificant costs is referred to as

a. Open market operationsb. Switch dealsc. Reposd. Reverse repos

107. Bonds that are floated by the foreign countries and are denominated inthe currency of the country where they are floated are referred to as

a. Eurobondsb. Foreign Currency Convertible Bondsc. Foreign bondsd. Straight bonds

108. Which of the following is not true about cumulative convertiblepreference shares (CCPS)?

a. CCPS pays fixed dividendb. CCPS can be considered as a part of the networth of the company

even before its conversionc. CCPS helps companies to maintain EPS and increase the leveraging

capacity of the companyd. CCPS cannot be issued with warrants

109. Export Credit and Guarantee Corporation, ECGC, which providesexport credit insurance support to Indian exporters does not cover which ofthe following risks?

a. Cancellation of valid import licenseb. Insolvency of the buyerc. Commercial disputes including quality disputesd. War, civil war or civil disturbances in buyers country

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110. Which of the following institutions do not have the permission tooperate as a Primary Dealer?

a. SBI Gilts Limitedb. ICICI Securities & Finance Co. Ltd.c. PNB Gilts Limitedd. None of the above.

111. Which of the following intermediaries is/are not registered withSEBI?

a. Portfolio Managersb. Brokersc. Foreign Institutional Investorsd. All of the above intermediaries are required to be registered with

SEBI.

112. If the shares reserved to mutual funds on firm basis in a public issuehas not been fully subscribed, the unsubscribed portion

a. Can be added to other reserved categoriesb. Should be added to the net public offerc. Should be subscribed by the promotersd. Can be subscribed by the underwriters

113. XYZ Ltd. was granted a certificate by SEBI to act as a merchantBanker. In which of the following capacities can XYZ Ltd. not beassociated with a public issue without obtaining any separate certificate ofregistration to act so?

a. Lead Managerb. Co-Managerc. Advisord. Underwriter

114. Which of the following statements is/are true with respect to RepoDeals?

i. They help to even out interest rates in the call money market

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ii. They involve sale of a security with an undertaking to buy thesame security at a predetermined selling price on apredetermined future date

iii. They are medium/long term deals

a. Only (I) aboveb. Both (I) and (II) abovec. Both (I) and (III) aboved. Both (II) and (III) above.

115. Which of the following statements is true?

a. Clean bills should possess the documents of title to goodsb. In post-shipment finance the banker runs the risk of dealing only with

the documents and not in goodsc. Banks can rediscount the bills arising out of share transactionsd. Banks cannot rediscount the bills, which were originally discounted

with them by their corporate clients.

116. An instrument was assigned a rating of MA from ICRA. Theinstrument rated is a/an

a. Bondb. Commercial paperc. Fixed depositd. Preference share

117. Which of the following is/are true regarding government securities?i. Foreign institutional investors are not allowed to invest in

government securitiesii. The coupon on these securities is always pre-determined by the

Central Bankiii. They are also issued in the form of zero coupon securities.

a. Only (I) aboveb. Only (III) abovec. Both (I) and (III) aboved. Both (II) and (III) above

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118. Which of the following statements is true?

a. Clean bills should possess the documents of title to goodsb. Banks cannot rediscount bills, which were originally discounted with

them by their corporate clientsc. Banks can rediscount the bills arising out of share transactionsd. In post-shipment finance the banker runs the risk of dealing only

with the documents and not in goods.

119. Consider the following data:Value of the asset leased = Rs.40 lakhsLease rentals = Rs.32 ptpmLease period = 4 years

Payment pattern = Payable quarterly in advance.

The add-on yield in the above lease transaction isa. 13.4%b. 21.4%c. 25.2%d. 28.6%

120. Sri Finance offers a hire purchase plan for its corporate borrowers onthe following terms :

Flat rate of interest 12%Repayment period 3 yearsFrequency Monthly in advance

Deposit at the inception of hire agreement 20% of the cost of the asset.The annual percentage rate using the approximation formula is

a. 18.0%b. 19.8%c. 23.4%d. 24.7%

121. Gap loan, a form of real estate loan is a

a. Loan extended during the gap the borrower is able to find out asuitable lender

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b. Loan extended to the developer to cover the difference between thebank construction loan and the total cost of the project.

c. Loan extended on which additional payment is required to be made tocover the gap between market interest rate and the ceiling rate agreedupon.

d. Loan on which the interest charged is generally lower than the primelending rate.

122. Which of the following is true regarding factoring and forfeiting?i. Factoring can be structured either as recourse or non-recourse

arrangement but forfeiting can be structured only as non-recoursearrangement.

ii. Factoring can be structured so that service elements are not carried bythe factor whereas under forfeiting the forfeiter has to take theresponsibilities of receivables accounting.

iii. In factoring the factor need not participate in the credit grantingprocess but the forfeiter under forfeiting has to participate.

a. Only (I) aboveb. Both (I) and (III) abovec. Both (I) and (II) aboved. Both (II) and (III) above

123. Which of the following is/are true regarding Collateralized MortgageObligations?

a. They are preferred to pass through securities by issuers as funds canbe raised more cheaply.

b. They are not preferred by investors because of low level of creditquality.

c. Investors who want to avoid call risk prefer short tranche CMOs.d. Investors who prefer to have low interest rate risk avoids shorter

tranche CMOs.

124. Which of the following is/are true regarding the accounting treatmentof a hire purchase transaction?

i. Capital content of outstanding hire purchase installments is shown asliability in the books of hirer

ii. Present value of hire purchase installments or cash price of the asset,whichever is minimum, is capitalized in the books of hirer

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iii. Finance income component of hire purchase installments is recordedas current liability in the books of the finance company

a. Only (I) aboveb. Only (II) abovec. Both (I) and (II) aboved. Both (I) and (III) above.

125. Which of the following can be termed as a cross-border leasetransactions?i. The lessor and lessee are located in India and the supplier is located in

Englandii. The lessor and supplier are located in India and the lessee is located in

England.iii. The lessee is located in India, lessor is located in England and the

supplier is located in USA.

a. Only (I) aboveb. Only (II) abovec. Both (I) and (II) aboved. Both (II) and (III) above

126. Assets worth Rs.20,000 of Classic Finance Limited remained doubtfulfor 2 years. If 50% of the assets are secured, the provision to be madeagainst these doubtful assets is

a. Rs. 6,000b. Rs.13,000c. Rs.16,000d. Rs.26,000

127. Venture capital provided for a major expansion of a company when itssales volume is increasing and it is breaking even or becoming profitable isreferred to as

a. First stage financingb. Second stage financingc. Third stage financingd. Bridge financing

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128. A short term loan extended at the time of completion of the project toprovide bridge finance until the developer can obtain financing of a morepermanent nature is referred to as

a. Bow tiesb. Mini permsc. Gap loansd. Buy down loans

129. Which of the following is\are true regarding pledged accountmortgages?i. They resemble traditional mortgages from the lenders point of view.

ii. The pledged account under this type of mortgage is created by theseller out of his profits.

iii. This type of mortgages are preferred by borrowers who havesufficient cash on hand, but face cash flow shortage for the first fewyears.

a. Only (I) aboveb. Only (II) abovec. Both (I) and (III) aboved. Both (II) and (III) above

130. Which of the following measures is not a preventive anti-takeovermeasure?

a. Golden parachuteb. Poison pillc. Standstill agreementd. Dual Capitalization

131. The proposal which provides one or more of securities, the right or theoption to exchange part or whole of their holdings for a different class ofsecurities of the firm is called:

a. Share repurchaseb. Tender offerc. Proxy contest

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d. Exchange offer

132. Which of the following is/are false?i. The quasi rent is the return necessary to maintain an assets current

service flow.ii. The quasi rent represents a recovery of sunk costs when profits are

included in its measurements.iii. The quasi rent value is the present value of a stream of cash flows

a. Only (I) aboveb. Only (II) abovec. Only (III) aboved. Both (I) and (II) above

133. Which of the following characteristics is/are necessary for a businessto make a good leveraged buyout candidate?

i. Strong and secure cash flows.ii. Greater equity cushion.

iii. High debt on the capital structure.

a. Only (I) aboveb. Both (I) and (II) abovec. Both (I) and (III) aboved. Both (II) and (III) above

134. Mezzanine financingi. Has primary claim on the assets of the target.

ii. Has both equity and debt characteristics.iii. Is subordinated debt issued in connection with LBO.

a. Only (I) aboveb. Both (I) and (II) abovec. Both (II) and (III) aboved. Both (I) and (III) above

135. Which of the following is false with respect to asset-backedsecuritization?

a. It is generally backed by easily traceable movable property like realestate

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b. Asset need not exist at the time of securitization such as future cashflows can also be securitized

c. Process takes into consideration depreciation in the value of the assetsd. Legal hassles are relatively less as compared to mortgage backed

securities.

136. Which of the following is true with respect to mortgaged backedbonds?

i. Use of collateral is more efficient than in case of mortgage passthroughs

ii. Certainty of cash flow is more predictable than in case of collateralmortgage backed bonds

iii. Liquidity is more excellent than treasury bills.

a. Only (I) aboveb. Only (II) abovec. Both (I) and (II) and( III) aboved. None of the above.

137. Which of the following model does not assume that lease is asubstitute of debt?

a. Weingartners Modelb. Equivalent Loan Modelc. Bower-Herringer-Williamson Modeld. Bower Model

138. Which of the following is false with respect to credit rating?

a. A credit rating reflects borrowers accountabilityb. A credit rating reflects the borrowers expected capability and interest

to pay the interest and principal amount on timec. A credit rating is a general purpose evaluation of the issuerd. A credit rating is not an extensive audit of the issuing company

139. In which of the following types of factoring the factor provides anadvance generally varying between 75-85 % of the value of the receivables

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factored and the balance is paid upon collection or on the guaranteedpayment date?

a. Recourse factoringb. Maturity factoringc. Advance factoringd. Supplier guarantee factoring

140. Reintermediation means

a. Increase in deposits experienced by banks due to merchant bankingactivities

b. Increase in deposits experienced by banks due to increased network ofbranches

c. Loss of deposits by financial intermediaries because alternative typesof indirect lending becomes more attractive

d. Loss of deposits by financial intermediaries because of direct lending

141. Exaggeration of the loss for the claim from an Insurance Company iscalled

a. Morale Hazardb. Inflated lossc. False claimd. Moral Hazard

142. Which of the following is true?

a. When duration gap is positive, increase in interest rate increasesmarket value of equity

b. When duration gap is negative, decrease in interest rate decreasesmarket value of equity

c. When duration gap is positive, decrease in interest rate decreasesmarket value of equity

d. When duration gap is negative, increase in interest rate decreasesmarket value of equity

143. Loss due to Jettison Peril which is covered in marine insurancearises, when

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a. The goods are lost in fireb. The goods are stolenc. The goods are fraudulently disposed or sold by master of the shipd. The goods are thrown off the ship, so as to make the ship lighter, in

order to save the vessel and the crew

144. Which of the following statements is false?a. Monetary expansion lowers the equilibrium interest rateb. Monetary expansion increases the interest rate in the long-runc. Monetary expansion in excess of real output growth pushes the

inflation upwardsd. Monetary expansion has a direct effect on interest rates and an

indirect effect on exchange rates.

145. Which of the following deposits is an example of transaction account?

a. Fixed depositsb. Savings bank depositsc. Cumulative / Recurring Depositsd. Term Deposits which have become due for payment, but not paid yet.

146. If a bank is lowering its credit deposit ratio, by investing thesedeposits in low risk financial assets such as Government securities, highgrade privately issued debt such as commercial paper, then it is called

a. Securitizationb. Universal bankingc. Narrow bankingd. Relationship banking.

147. Which of the following statements is false with respect to SLR?

a. SLR investments act as a first line of defence to maintain properliquidity of the bank

b. SLR results in restriction of the expansion of bank creditc. SLR leads to augmenting the investment of banks in Government

securitiesd. SLR ensures solvency of the banks

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148. Which of the following statements is false regarding liquidity riskmanagement?

a. Fundamental approach aims to eliminate liquidity risk in the long runb. Technical approach aims to eliminate liquidity risk in the short runc. In liability management, a proposal for loan is approved when there is

surplus fundsd. Asset management aims to eliminate liquidity risk by holding near

cash assets

149. All deposits based on their maturity fall under which of the followingcategories?

a. Volatile funds, working funds, float fundsb. Stable funds, vulnerable funds, volatile fundsc. Owned funds, stable funds, float fundsd. Volatile funds, working funds, stable funds

150. Which of the following statements is false regarding liquidity riskmanagement?

a. Fundamental approach aims to eliminate liquidity risk in the long runb. Technical approach aims to eliminate liquidity risk in the short runc. In liability management, a proposal for loan is approved when there is

surplus fundsd. Asset management aims to eliminate liquidity risk by holding near

cash assets