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261-0705

261-0705

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Question Paper
Investment Banking and Financial Services-I (261) : July 2005
Section A : Basic Concepts (30 Marks)

\u2022 \u2022 This section consists of questions with serial number 1 - 30.
\u2022 \u2022 Answer all questions.
\u2022 \u2022 Each question carries one mark.
\u2022 \u2022 Maximum time for answering Section A is 30 Minutes.

1.Financial assets equal financial liabilities, so real assets will be financed by savings, for this
relationship to exist which of the following assumptions should hold good?
I.

There are no external borrowings in the system.
II. Financial liabilities include stock issued to the outsiders.
III. Surplus funds of an economic unit will either be used by the saver to purchase a real

asset or will be lent to other economic units to buy real assets.
(a) Only (I) above
(b) Only (II) above
(c) Both (I) and (II) above
(d) Both (II) and (III) above
(e) All (I), (II) and (III) above.

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2.Which of the following statements is/are true with respect to interest rate risk to the lenders?

I. In an administered rate scenario, the scope to manage this risk is very low.
II. Cost based pricing of the loan can protect the lenders against this risk.
III. Credit risk is invariably reflected in the interest rate risk.

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

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3.Some years back, Citibank offered a special kind of credit cards to all the members of
Institute of Chartered Accountants of India. These types of cards are known as
(a) Co-branded cards
(b) Branded cards
(c) Affinity
cards
(d) Add-on cards
(e) Levered investment cards.

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4.Which of the following statements is true with respect to Real Estate Investment Trusts
(REIT)?
(a) The most prominent form of lending by REITs is the construction/developmental
lending
(b) To retain their special tax status, REITs have to distribute 50% of their income to
shareholders
(c) REITs are not allowed to raise finance through debt as they are equity investment

vehicles
(d) Indirect equity investments in REITs by investor usually lack liquidity
(e) According to the federal laws, REIT can only be infinite life trusts.

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5.Which of the following statements is/are true in context of future flow securitization?
I.
In long-term contract receivables, volumes are generally pre-fixed but price may be variable.
II. In future flow category; receivables are subject to both, price and volume variations.

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III. Borrower is able to secure a finer pricing and longer tenures in comparison to the terms
of other funding agencies.
(a) Only (I) above
(b) Only (II) above
(c) Both (I) and (II) above
(d) Both (II) and (III) above
(e) All (I), (II) and (III) above.
6.The_____ are created by taking the cash-flows from the underlying collateral and splitting
them into two or more classes that have the same maturity.
(a) Asset backed securities
(b) Strip securities (c) Pay through
securities
(d) Collaterized mortgage obligations
(e) Pass through securities.

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7.Discount fees involved in the transaction of forfaiting is payable by_______ to_______.
(a) Exporter, forfaiter
(b) Forfaiter, exporter
(c) Exporter\u2019s bank, importer\u2019s bank
(d) Forfaiter, importer
(e) Importer,
forfaiter.

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8.Which of the following forms of factoring is also known as confidential factoring?
(a) Advance factoring
(b) Invoice discounting
(c) Full factoring
(d) Bank participation factoring
(e) Supplier guarantee factoring.

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9.SOT Ltd. is a primary dealer registered with RBI. To honour its bidding commitment in
T-bills segment, it applies for liquidity support to RBI. The total bidding commitments are
Rs.300 crore. The liquidity support provided by the RBI will be
(a) Rs.22.5 crore
(b) Rs.30 crore
(c) Rs.60 crore
(d) Rs.15 crore (e)
Rs.100 crore.

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10.Which of the following is false 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.

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11.Banks in an economy have been maintaining SLR in excess of statutory requirements. In
such a scenario, which of the situations given below will prevail?
I.
An increase in SLR will not have a significant impact on the liquidity, prices and yields
of the instruments.
II. A decrease in SLR will not have a significant impact on the liquidity, prices and yields

of the instruments.
III. A decrease in SLR will bring down the prices of the instruments.
(a) Only (I) above

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

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12.XYZ Ltd. is a primary dealer in India. As on 31.03.2005, the balance maturity of securities
lying in its portfolio were as follows:

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Balance maturity in years
Market value in Rs. crore
4
20
6
30
12
10
15
10
The
risk
weighted
value of above securities will be
(a) Rs. 20 crore
(b) Rs.17.5 crore
(c) Rs.25 crore (d) Rs.15 crore
(e)
Rs.22.5 crore.
13.State which of the following statements is/are true with respect to US T-bills markets?
I.
Strip bills are package of bills requiring investors to bid for an entire series of bills
with same maturities.
II. Cash management bills are simply the reopened issue of bills that were sold in prior
weeks.
III. The reopening of bills occurs at periodic intervals and is usually pre-decided.
(a) Only (I) above
(b) Only (II) above
(c) Only (III) above
(d) Both (II) and (III) above
(e) All (I), (II) and (III) above.

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14.Manoj Enterprises is coming out with an issue of commercial paper of amount Rs.100 lakh
with maturity of 8 months. The rating charges payable by it shall be
(a) Rs.50,000
(b) Rs.32,500
(c) Rs.30,000
(d) Rs.25,000
(e)
Rs.20,000.

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15.Which of the following statements is/are not true with respect to reservation in the public
issues of the company?
I.
The reservation for the employees of the company cannot exceed 10% of the total size
of the company.
II. The reservation for group shareholders cannot exceed 10% of the total size of the
company.
III. Net offer to the public should not be less than 25% of the post issue equity capital of the
company.
IV. Total reservation for all NRIs and OCBs cannot exceed 15% of the post-issue capital as
per RBI guidelines.
(a) Only (II) above
(b) Only (IV) above
(c) Both (II) and (III) above
(d) Both (III) and (IV) above
(e) All (I), (II), (III) and (IV) above.

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16.The probability of the investment being confiscated is 0.2. If the cash flow when confiscation
does not occur is Rs.20 lakh and the discount rate is 9%, then expected cash flow is
(a) Rs.55.00 lakh
(b) Rs.55.17 lakh
(c) Rs.50.01 lakh
(d) Rs.61.45 lakh
(e) Rs.60.67 lakh.

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17.Can Factors Limited gives an advance of 80% against receivables worth Rs.10,00,000

purchased from Shayama 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 Shayama 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.

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