Mb351f July 06

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Question PaperTreasury & Forex Management (MB351F): July 2006

Section A : Basic Concepts (30 Marks)

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This section consists of questions with serial number 1 - 30.

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Answer all questions.

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Each question carries one mark.

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Maximum time for answering Section A is 30 Minutes.

1.

ECGC issues “Transfer guarantee” which covers:(a) Any investment made for the purpose of setting up or expansion of overseas projects(b) Exports of capital goods, differed payments of overseas projects etc.(c) Due performance against the advance payment or in lieu of retention money to a foreign bank (d) A bank in India adding its confirmation to a foreign letter of credit(e)

Banks against loss on account of guarantees given to exporters.

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2.

Which of the following is

not

the function of EXIM Bank?(a) Consultancy and technological services to the Indian exporters(b) Pre-shipment credit to exporters not exceeding 180 days(c) Forfaiting facility to Indian exporters(d) Financing of deemed exports(e) Extending lines of credit to overseas governments or agents.

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3.

The payments for imports under cash licenses into India shall be made within_______ from the date of shipment(a) Within 30 days from the date of shipment(b) Within 6 months from the date of shipment(c) Within 30 days from the date of arrival of goods at destination(d) Within 3 months from the date of shipment(e) Within 3 months from the date of arrival of goods at the destination.

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4.

A “Yankee Bond” is(a) A US dollar denominated bond issued in the US market usually by foreign governments or entitites,supranationals and highly rated corporate borrowers(b) A Bond issued by non-Japanese borrowers in the domestic Japanese markets(c) A Bond which is privately placed in Japanese markets(d) A Sterling denominated foreign bond raised in the UK domestic securities market(e) A Yen denominated bond issued outside Japan.

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5.

Which of the following is

not

a feature of a commercial paper (CP)?(a) It is an unsecured instrument issued for a minimum period of 15 days(b) It is issued in multiples of Rs.5 lakhs(c) Buy-back facilities are not available for CPs(d) It is negotiable by endorsement and delivery(e) It is not generally underwritten.

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6.

If the intrinsic value of an equity share is Rs.44, the dividend for the current year is Rs.2.40 and the required rateof return is 16%, then the growth rate of dividends is(a) 7%(b) 8%(c) 9%(d) 10%(e) 11%.

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7.

You are a treasury manager of a finance company and wants to enter into a lease agreement for computerizationof the entire office and branches of the company. Which type of lease do you prefer?(a) Finance lease(b) Operating lease(c) Upgrade lease(d) Leveraged lease(e) Swap lease.

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8.

A repo is a(a) Security which is traded in the stock market(b) Contract to buy a specific security at a future date at the price on that date(c) Contract which gives the holder an option to buy a specific security in future at the predetermined price(d) Contract in which one party sells a specific security to another party with an agreement to buy it back ona specified future date at a specified price(e) Collaterized long term loan.

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9.

Which theory of international trade considers the possibility of trade between two countries having similar factorendowments and consumer tastes?(a) Heckscher – Ohlin Model(b) Imitation – Gap Theory(c) Theory of comparative Advantage(d) International Product Life Cycle Theory(e) Theory of Absolute advantage.

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10.

If the net working capital is negative then it indicates that(a) A part of the long-term funds has been used for financing short-term assets(b) A part of the long-term funds has been used for financing long-term assets(c) A part of the short-term funds has been used for financing long-term assets(d) The short-term funds have been entirely used for financing short-term assets(e) The financing structure of the firm is normal.

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11.

Which of the following is

not

true in respect of Global Depository Receipts (GDRs):(a) GDR is a negotiable instrument which represents publicly traded local-currency-equity share(b) GDR is an instrument which possesses a certain number of underlying shares in the custodial domesticbank of the company(c) GDR holders can exercise the voting rights of the shares through the Depository as per the understandingbetween the issuing company and the GDR holders(d) GDRs are considered as common equity of the issuing company and are entitled to dividends and votingrights since the date of issuance(e) GDRs can be cancelled and converted into equity shares if the issuing company intends.

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12.

The exchange rate between two currencies was determined on the basis of the rates at which the respectivecurrencies could be converted in to gold. This is called the(a) Purchasing power parity(b) Mint parity(c) Currency parity(d) Interest rate parity(e) Hybrid exchange rate.

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13.

Jaico industries has issued bonds with a face value of Rs.100, at a discount of 12.5%. The current market price of the bond is Rs.85 and the coupon rate is 8%. What is the current yield on the bond?(a) 8%(b) 9%(c) 9.14%(d) 9.41%(e) 12.5%.

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14.

In balance of payments statement, current account deficits are offset by(a) Merchandise trade deficits(b) Merchandise trade surpluses(c) Capital account surpluses(d) Capital account deficits(e) Official reserves.

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