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Question Paper
Financial Management I (141): January 2005
\u2022\u2022 Answer all questions.
\u2022\u2022 Marks are indicated against each question.
1.Which of the following is a part of the financial control function of the finance manager?

(a) Negotiating with banks and financial institutions for loans
(b) Negotiating with merchant banks for issue of shares and debentures
(c) Reporting on the financial performance of individual departments within the organization
(d) Appraising investment proposals submitted by various departments
(e) Deciding about the deployment of funds in various assets.

(1 mark)
< Answer
2.Which of the following statements is false with regard to a public limited company?

(a) It is a distinct legal entity separate from its shareholders
(b) It can raise equity capital by issuing shares to the general public
(c) At least seven persons are required to form a public limited company
(d) There is no limit on the maximum number of shareholders
(e) There is no limit on the total managerial remuneration payable by the company.

(1 mark)
< Answer
3.Which of the following implies the significant advantage of a public limited company over a
proprietorship firm?
(a) Limited liability
(b) Difficulty in transfer of ownership interest
(c) Limited life
(d) Inability to mobilize large amount of funds
(e) Fewer government regulations.
(1 mark)
< Answer
4.Which of the following is a disadvantage of bought-out-deals?

(a) It is more expensive than public issue
(b) It involves a time consuming procedure
(c) It is difficult to convince a wholesale investor
(d) Promoters are not assured of immediate funds
(e) Sponsor may misuse its power.

(1 mark)
< Answer
5.Which of the following companies generally provide risk capital to the technology oriented and highly
risky businesses?

(a) Venture capital funding companies
(b) Lease finance companies
(c) Hire purchase finance companies

(d) Commercial banks
(e) Insurance companies.
(1 mark)
< Answer
6.Which of the following players cannot act as a borrower in the call money market?
(a) Discount and Finance House of India
< Answer

(b) SBI Mutual Fund
(c) State Bank of India
(d) Securities Trading Corporation of India
(e) Reserve Bank of India.

(1 mark)
7.In which of the following types of issues is the amount of share capital increased without any increase
in the net worth of the company?
(a) Public issue
(b) Rights issue
(c) Bought-out
(d) Bonus issue
(e) Private placement.
(1 mark)
< Answer
8.Which of the following is not a feature of certificate of deposit issued by a bank?

(a) It is a document of title to a time deposit
(b) There is no lock-in period for transferring it to others
(c) It is not subject to the reserve requirements of the bank
(d) It is transferable by endorsement and delivery
(e) The maximum maturity period is one year.

(1 mark)
< Answer
9.Who among the following players in the international capital markets collect the rupee dividends on
the underlying shares and repatriate the same to the depository in US dollars?
(a) Lead Managers
(b) Underwriter
(c) Custodians
(d) Corporate borrowers
(e) Lenders.
(1 mark)
< Answer
10.Which of the following money market instruments has a maturity period varying from 2 to 15 days?
(a) Call money
(b) Commercial Paper
(c) Notice money
(d) Treasury Bill
(e) Certificate of Deposit.
(1 mark)
< Answer
11.Which of the following instruments is fixed-interest bearing security having a maturity of more than
one year?
(a) Commercial Papers
(b) Medium-Term Notes
(c) American Depository Receipts
(d) Treasury Bills
(e) Global Depository Receipts.
(1 mark)
< Answer
12.If a huge amount of Rs.500 crore is borrowed in the call money market, then the interest rate is
decided by
(a) The lender
(b) The borrower

(c) The Reserve Bank of India as the amount involved is huge
(d) Negotiation between the lender and the borrower
(e) Both lender and borrower but within the maximum limit prescribed by RBI.

(1 mark)
< Answer
13.Which of the following is not a marketable instrument?
(a) Commercial Paper
(b) Certificate of Deposit
(c) Inter Corporate Deposit
(d) Preference Share
(e) Treasury Bill.
< Answer
(1 mark)
14.Which of the following functions is served by the primary capital market of an economy?

(a) It allows the corporate houses to raise the long term capital by issuing new securities
(b) It offers a market to trade for the outstanding long term securities
(c) It offers a market to trade for the outstanding short term securities
(d) It offers an excellent exit route for the venture capital funding companies
(e) It allows the corporate houses to raise short and long term capital.

(1 mark)
< Answer
15.In which of the following markets, are the outstanding long-term financial instruments traded?
(a) Money market
(b) Forex market
(c) Primary capital market
(d) Secondary capital market
(e) Call money market.
(1 mark)
< Answer
16.Which of the following will decrease with an increase in the interest rate?

(a) Future Value Interest Factor
(b) Future Value Interest Factor of Annuity
(c) Capital Recovery Factor
(d) Present Value Interest Factor of a perpetual annuity
(e) Inverse of Present Value Interest Factor of Annuity.

(1 mark)
< Answer
17.Mr. Anand is interested in borrowing funds. Which of the following schemes should he choose?

Scheme A: Rate of interest is 10% p.a. compounded annually.
Scheme B: Rate of interest is 10% p.a. compounded four times a year.
Scheme C: Rate of interest is 10% p.a. compounded daily.
Scheme D: Rate of interest is 10% p.a. compounded half-yearly.
Scheme E: Rate of interest is 10% p.a. compounded monthly.

(a) Scheme A
(b) Scheme B
(c) Scheme C
(d) Scheme D
(e) Scheme E.
(1 mark)
< Answer
18.Which of the following is/are true regarding the capital recovery factor?
It is the inverse of the PVIF factor.
II. It represents the amount that has to be invested at the end of every year for a period of \u2018n\u2019 years at
the rate of interest \u2018k\u2019 in order to accumulate Re.1 at the end of the period.
III. It can be applied to find out the amount to be invested periodically to liquidate a loan over a
specified period at a given rate of interest.
(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.
(1 mark)
< Answer
19.Time value of money considers

(a) The preference of the individuals for future consumption to present consumption
(b) Increase in purchasing power of rupee with the passage of time
(c) The uncertainty of the future
(d) The productivity of money to earn real returns over time
(e) Both (c) and (d) above.

< Answer

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