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Question Paper
Investment Banking and Financial Services \u2013 I : April 2002
Part A : Basic Concepts (30 Points)

\u2022This part consists of questions with serial number 1 - 30.
\u2022 Answera l l q u e s t i o n s .
\u2022Each question carries one point.
\u2022Maximum time for answering Part A is 30 Minutes.

1.The role of the Depository in the capital market is
a. Corporate advisory services
b. Market making in Government securities

c. To subscribe to unsubscribed portion of the securities
d. To ensure exchange in currencies
e. To hold the securities in electronic form on behalf of the investors.

2.Which of the following is/aretrue regarding accounting of lease transaction as per
Accounting Standard 19 of ICAI?
The lessor has to capitalize the leased asset in its books at the fair market value of the
II. Only finance charges of the lease rentals have to be debited to profit & loss account in
the books of the lessee.
III. The lessor must show the net investment in lease as a current asset in the balance sheet.

a. Only (I) above
b. Only (II) above
c. Only (III) above
d. Both (I) and (II) above
e. Both (II) and (III) above.

3.Which of the following isnot an objective of the lender of funds in the credit market?
a. Maximum spreads

b. Minimum terms and conditions attached with the usage of the funds
c. Adequate coverage for the various risk exposures
d. Satisfy the statutory reserve requirements
e. Satisfy the capital adequacy norms.

4.Hindustan Factors Ltd. gives an advance of 80% against receivables worth Rs.10,00,000

purchased from Aniket Ltd. payable after 90 days. The advance carries an interest rate of 17% per annum compounded quarterly and the factoring commission is 1.8% of the value of factored receivables. Both the interest and commission are collected up-front. The amount actually made available to Ankit Ltd. is

a. Rs.7,28,000 b. Rs.7,48,000 c. Rs.7,66,000 d. Rs.7,82,000

e. Rs.8,00,000.
5.Which of the following is a banking sector security?
a. Certificate of Deposit
b. Commercial Paper
c. Factorization Bill
d. Inter-Corporate Deposit
e. None of the above.
6.Which of the following statements isfalse?

a. In advance factoring, the factor provides an advance between 35-40 % of the value of the receivables received and the balance is paid upon collection or on the guaranteed payment date

b. In recourse factoring, the factor purchases the receivables on the condition that the loss

arising on account of irrecoverable receivables will be borne by the client
c. In maturity factoring, the factor does not make any advance payment
d. Bank participation factoring is an extension of advance factoring

e. None of the above.
7.Which of the following statements describe the Gensaki rate?

a. It is the short-term bench market rate used in Japanese markets
b. It is the bench mark rate used to price the Samurai bonds
c. It is the long-term prime rate used in the Swiss markets
d. It is the treasury rate used in the US market

e. None of the above.
8.Which of the following is/are the benefit(s) of CMO to the issuer?
a. Compared to pass through securities, funds can be raised more cheaply due to

b. Wider diversification of investor base can be achieved
c. More efficient use of collateralization than mortgage backed bonds
d. Both (b) and (c) above
e. All (a), (b) and (c) above.

9.The face value of a 14 days T-Bill is Rs.100. If the purchase price is Rs.99.50, then the yield
on such a bill is

a. 10.7% b. 12.5% c. 13.1% d. 14.0%

e. 15.2%.
10.Which of the following isfalse with respect to real estate investment?

a. It requires substantial outlay of funds
b. Transaction cost tend to be higher
c. It is a good hedge against inflation
d. Tax treatment is not favorable for real estate investments
e. It is a durable investment.

11.Which of the following is/aretrue regarding issue of debentures?
Credit rating is mandatory for an issue of debentures irrespective of the maturity period
II. Appointment of Debenture Trustee is mandatory if the maturity period exceeds 15
III. Creation of Debenture Redemption Reserve is optional in case of debenture issue whose
maturity period is 15 months.

a. Only (II) above
b. Only (III) above
c. Both (I) and (III) above
d. Both (II) and (III) above
e. All (I), (II) and (III) above.

12.Which of the following venture capital financing is provided to a company which is
intending to go public within six months?
a. Bridge financing
b. Seed financing
c. Start-up financing
d. First stage financing
e. Mezzanine financing.
13.Which of the following statements regarding treasury bills is/are not true?
Capital depreciation in these bills is very high
II. Individuals and private firms are not allowed to participate in the auctions on
competitive bidding
III. These bills are issued in the form of promissory notes.

a. Only (II) above
b. Only (III) above
c. Both (I) and (II) above
d. Both (I) and (III) above
e. Both (II) and (III) above.

14.The maximum amount of general provisions/loss reserves that can be included in the Tier II
capital while computing capital adequacy ratio of a leasing company is
a. 1.00 percent of Tier I capital
b. 1.25 percent of Tier I capital
c. 1.25 percent of Tier II capital excluding the general provisions and reserves
d. 1.25 percent of risk weighted assets
e. 1.00 percent of risk weighted assets.
15.Which of the following is/aretrue regarding financial intermediaries?
The intermediaries in the capital market include underwriters, primary dealers, etc.
II. The cost of lending and borrowing reduces due to the presence of intermediaries
III. If the markets are not well regulated the presence of intermediaries increases the risks to
the investors

a. Only (I) above
b. Only (III) above
c. Both (I) and (III) above
d. Both (II) and (III) above
e. None of the above.

16.First Class Leasing Company has leased an equipment costing Rs.50 lakhs for a monthly
rental of Rs.26 ptpm payable monthly in advance for 5 years. The add on yield on the lease
transaction is

a. 10.00% b. 11.20% c. 15.00% d. 19.53%

e. 20.00%.
17.The networth of ABC Ltd., a registered underwriter is Rs.25 lakhs. The maximum total
outstanding underwriting obligation at any point of time can be

a. Rs.250 lakhs b. Rs.400 lakhs c. Rs.500 lakhs d. Rs.825 lakhs e. No limit.

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