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Model Question Paper MF0017-MERCANT BANKING & FINANCIAL SERVICES PART A – 1 mark questions

Description 1. Who is responsible for monitoring of trade and setting of policies and procedures to prevent insider trading? a) Portfolio manager b) Compliance officer c) Underwriter d) Auditor

Answer Key b)

Marks 1


Which of the following is a process by which capital is mobilised from a large number of investors and is made available to all those who need them, mainly to corporate customers? a) Working capital b) Project finance c) Financial intermediation d) Loan syndication 3. Which among the following is the function of registrar to an issue? Maintaining records of applications. Executing a trust deed Undertakes the management of portfolio of securities d. Coordinating the prelimnary distribution of securities and acquire direct subscription form investors. As per the _______________, IDR is an instrument in the form of a depository receipt created by the Indian depository in India against the underlying equity shares of the issuing company. a. Companies (issue of IDRs) Rules, 2004 b. Companies Act, 1956( the ‘Act’) c. SEBI(Custodian of Securities) Regulations, 1996 d. SEBI ( Depositories and Participants), Regulations,1996 ___________ is a type of transferable financial security which is traded in a local stock exchange . a. Debt instruments b. Depository Receipts( DRs) c. Offer documents d. Initial Public offerings A company offering convertible or non-convertible debt instruments through an offer document should comply with which of the following? a. 75 % book building b. Requirement of credit rating c. Agreement with stock exchange d. Appointment of registrar to issue Which of the following comes under the pricing norms of the OTCEI? a. A company must have a minimum paid up capital of Rs. 30 lakhs b. The minimum offer to the public should be 25% of the issued capital c. The promoter retains at least 20 percent of the total issued capital for three years from the date of the assignment of securities in the proposed issue. d. The sponsor of the issue must provide the market makers to give buy and sell quotes in the securities a. b. c.

















The securities traded in ___________________ segment are eligible for short selling. A sub-broker should be a member of a stock exchange. Maintains a database of their clients according to any format d. 1 c. Forward d. a.8. ____________ relates to the action initiated by the issuing company through its merchant banker prior to the issue of the shares. selling or dealing in securities c. by a broker for affiliation in buying. A lead merchant banker d. Administrates and protects the assets of the clients c. Primary market b. Deals in securities on behalf of clients for a commission c. The pre-issue lead merchant banker b. b. Authorised. 1 9. Deals with the depository directly or on behalf of their clients 13. Takes adequate steps for redressal of investor grievances within three month of the receipt of the complaint. Forwards d. Secondary market 12. Memorandum of understanding c. Due diligence c. Which of the following is a condition that a sub-broker should satisfy to get the certificate from SEBI? a. __________ must submit a certificate within two weeks from the date of allotment to the board. Post issue management b. 1 10. Which is the contract that has an agreement to buy/sell an asset at a predetermined future date on an agreed price? a. 1 d. Futures and options c. Short selling 11. 1 . Maintains the securities of a shareholder in an electronic form b. b. a. a. Options c. Which of the following is the function of a custodian? a. in writing. Pre issue management d. The post-issue lead merchant banker c. The registrars to an issue b. 1 b. Futures b.

IAS-16 19. Financial services enable mobility and allocation of savings through the transformation of savings into _____________. Tripartite lease d. a. Finance lease a. Depository b. sells. Investment banker 15. AS-19 b. 1 16.14. of the property to the lessee by the end of the lease term? a. IAS 16 b. Direct financing lease c. Investor b. loans c. a. The post-issue lead merchant banker maintains close coordination with the __________________. Direct lease c. IAS 4 21. IAS 38 c. 1 c. Which one of the following term best describes "The value of a leased asset is the estimated fair value of the asset at the end of the lease term". 1 a. 1 b. using rates for similar assets. 1 . Registrars to an issue c. 1 a. IAS-4 d. On what subject was the draft introduced by the International Accounting Standard Committee Accountants of India (ICAI) in 1987? a. IAS-17 c. Residual value b. Inception of lease d. Stock broker d. 1 a. Sales type lease d. Finance lease b. Economic life 20. 1 b. The asset must be depreciated over its expected useful life under __________. a. debentures d. and deals in securities on behalf of the clients for a commission. IAS 17 d. Individual shareholders d. investments b. Lease c. Which lease does not give rise to manufacturer’s or dealer's profit to the lessor but meets the criteria. fixed deposits 17. Custodian b. a. Operating lease 18. In which of the following the transfer of risks takes place? a. A _____________ is a member of a recognised stock exchange who buys. Sub broker c. a. Operating lease b.

Security deposit c. From the viewpoint of the lessor. 1 b. Sales of goods b. Seller c. In operating lease. lessee and the financier. Income-tax on lease payments b. Residual value 24. Operating lease d. a. A ________ is a contract where the seller transfers the ownership of goods to the buyer for a price. a. Interest and agreement d. the lessor. Capital payment and the interest c. the ___________ aims at determining whether to accept a lease proposal or to choose from the alternative proposals. 1 a. 1 . Discount rate 27. 1 b. Break-even lease rental d. 1 b. Tax shield on depreciation d. a. Financial lease c. Appraisal method b. a. a. Direct leasing d. Financial lease b. Which of the following is a short-term contract in which the only the rights to use the property is transferred by the lessor to the lessee? a. Lessee d. Leveraged lease 25. Leasing intermediaries c. ___________ involves three parties. c. Hirer b. Lessor d. 1 d.22. Direct lease 23. The ___________ are financial institutes which provide financial assistance in leasing. Lease evaluation c. Asset management firms 26. From the point of view of lessor. 28. who bears the maintenance cost of the assets? a. a. Each instalment in the hire-purchase finance consists of ____________. Credit union b. Stock brokerage firms d. Ownership of goods and payment b. Depreciation and finance charge c 1 a. Operating lease b. the cash outflows contains ________. Hire Purchase Agreement Lease 1 29. Leveraged lease c. d.

c. the factor provides all types of facilities except debt protection. Usance bills c. d. Tax benefits 35. b. d. In ____________ factoring. 1 c. a. What kind of document is accepted by Reserve Bank of India (RBI) as security to grant demand loans to the scheduled banks? a. a. Sale purchase c. 1 . the discounted bills are a good _______. Supply bills c. Forfaiting d. Promissory notes b. Supply bills c. What is the margin between the advance granted by the bank and the face value of the bill ? a. Maturity date d. Non-recourse b. Discount b. 1 36. The factoring contract is similar to any other __________agreement which is regulated under the law of contract. __________________ are bills of exchange that are supplemented by documents confirming the authenticity of a trade transaction between the buyer and the seller of goods. a. c. Liability Net worth Asset Debenture a. Full 31. Bank guarantee 32. Tenure c. Accommodation bills 33. 1 c. 1 b. Facility of refinancing Bill discounting Credit rating Discount charge b.30. Documentary bills d. Recourse d. 1 a. As the financial institutions offer refinancing facility to banks for bills discounted and purchased by them. Factoring b. Accommodation bills d. b. a. Usance bills b. Which of the following has an advantage of obtaining a profit that is higher than other types of loan and advances ? a. 1 34. Advance c.

Identify the true and false statements: 1. b. which institutions have played the role of venture capitalist in India in the absence of an organised venture capital industry ? a. 2. Angel funding 40. b. 2T 1T. c.2F 1F. Debt c. Seed capital investment is basically a small amount that an entrepreneur receives as a confirmation that they are eligible for a start up loan. Until 1985. 1 39. c. Equity b.2F 1F.37. 1 c.2T . 1 41. Early stage financing is typically for a company which has already started production and distribution and also has established inventories. d. d. c. d. 1T. a. Which of the following is a subdivision of early stage financing? a. 1 38. d. Which of the following insurance provides life insurance protection for a specific period only? a. b. Industrial Finance Corporation of India (IFCI) Risk Capital Foundation (RCF) Individual investors and Development Finance Institutions (DFIs) Technology Development and Information Company of India (TDICI) a. b. Venture capital provides finance through__________ . c. Whole life insurance Endowment insurance Term insurance Annuities c. Mezzanine or development capital Bridge or expansion Seed capital Hands-on-nurturing c. Receivables d. a.

T F. 2 d. a. The pricing of issue is one of the many ways by which companies can hike their capital.F T. 1T. 2. 1. c.F F. Identify true and false statements. 45. d. c. The banker to an issue undertakes the management and administration of portfolio of securities and funds of clients on their behalf. c. Identify the true and false statements. Coordinates the preliminary distribution of securities and acquires direct subscription from many investors. d. Corporate counselling is a fee-based service provided by merchant bankers to corporate enterprises. a. Advertises information in a correct manner which can influence the decision of the investors. The portfolio manager safeguards the interest of holders of debentures b. b. 44. any money for inducing such person for dealing in any security with the object of causing fluctuation in the price of such security. Indulges in an act which creates correct impression of trading in securities market. b. d. 2. Which among the following is a fraudulent or unfair practice? a.42. Agrees to pay any person. Which among the following is true? a. and encourage on-shore investment. 2 b. Issue management is a fee-based service provided by financial institutions. d.2F 1F.T d.2T c) 2 43. 1. The underwriter finalises the allotment of securities and dispatching allotment letters.2F 1T. The concept of Qualified Institutional Placements (QIP) was introduced in India to prevent the export of domestic equity markets. The registrar to an issue assists companies in deciding the basis of allotment of securities in consultation with stock exchanges. T. c.2T 1F. 1 . b.

b.2T b. The lead merchant banker files the offer documents of size up to Rs.46. 2 2. 2 . 1.F b. Institutional investors are permitted to do day trading or square off their transactions. Instructions on post-issue obligations d.T 48. F. The depository helps in speeding up the transfer process by registering the rights of shares in the name of the depository. 1. The depository maintains current accounts for participants. Which of the following is a false statement? b.2F 1F. Offer document made public c. 50. 49. a. c. c. The objective of post-issue management is the issuance and pricing of shares.2F 1F. 2 c. F. b. An unlisted company can ask for relaxation from SEBI in the applicability of the rule. d. 1T. 2. T. a. 2 a. Identify the true or false statements. The members permitted to short sell are all sections of investors such as retail and institutional investors. 2. Which of the following is not a operational guideline issued by the SEBI for the standard disclosure of the offer document ? a. The depository is intimated electronically within 60 days when any dematerialisation request is rejected. d. The depository involves in all transfers resulting from the settlement of transactions. Identify true and false statements. Which of the following is true? 1. Registration with Association of Merchant Bankers of India (AMBI). 2 47. 25 crores with the regional office of SEBI under the jurisdiction of the registered office of the issuer company. Submission of draft and final offer document b.F d. c. Issue management helps the corporate clients to raise funds from the capital market. d.T c. T. 2T 1T. for listing its shares.

2 . 2T 1T. IAS-17 54. AS-19.2F c. In some cases the lease period may stretch over the entire economic life of the asset which we call as financial lease 2. a. The commitment for minimum lease payments under________ or _____ with a term of more than one year should be disclosed in summary form giving the amounts and periods in which the payment become due. b. if title is not transferred b. 2 c. The lessee has the option to acquire the asset by paying the first rental d. 1T. 3 2. Leases of land. 1. 1. a. d. b. Which of the following are exempt from the accounting policies and disclosures in finance and operating leases? a. 1F. Sales-type lease . c. State which of the following statements are true or false. 1T. a. then the rewards and risks of ownership has not substantially passed c. 2F b. The lease cannot be renewed for a further period of time. 4 1. Financial lease is generally for a shorter period and is cancellable. d.4 a. d. 2 3. The cost of maintenance of equipment is borne by the lessee.2T 53. b. The option to continue the lease for a secondary term at significantly below market rent. 4. Lessee is not capable of adding or altering anything to the leased asset 3.2T d. c. non cancellable leases d. 2 52. sales-type lease c. Which of the following are advantages of leasing? 1. c. The lessor’s ownership is fully secured 2. Finance lease.2F 1F. Which one of the following is true regarding financial lease? a. 1T. 2 d. Direct financing lease. If the title to the land is not likely to pass to the lessee. 2 b.a. opeating leases b. Lease agreements to use property such as land 55. Double sales tax can be charged once at the time of purchase of the asset a. 1F.2F 51. The lessor being the owner of the asset bears the risk of obsolescence and the lessee is free on this score.2T 1F. The rentals are the payment which the lessor and the lessee fix after the contract is prepared.

1F. In leasing. 1T. The leasing intermediaries are financial institutions such as commercial banks. 2 d. 2T b. a cooperative society. 1. a. 2T 1T. 1F. insurance business can be undertaken only by a public company. the ownership of the asset is with the finance company.The customer can terminate the agreement before the payment of the full amount. d. b. Structure of regulations relating to obligations of insurers to rural or social sectors is one of the functions of IRDA. 2T b. 1F. and other financial institutions. 2. In India. c. 1T. 2. 2.2F c. a body corporate other than a private company incorporated in any country outside India. 2 b. NBFC (non-banking financial companies). 2T 57. In hire-purchase financing. Identify the true and false statements. Financial appraisal is a financial evaluation technique to determine which possible alternative is economically viable. Identify true and false statements. lessee is the owner of the asset and ownership is transferred to the lessee. 2F 1F. 1T. 2F c. 1. 2 c. 2F 58. 1T. 2F c. 1T. 1T.56.2F d. The registration with the IRDA is not mandatory for all insurance companies to carry on business in India. 2 . 1. 1T. 2F b. Identify the true and false statements. The consumer credit transaction consists of two parties. 2F d. Identify true and false statements 1. a. 1F. 2T d. 2T 1F. 1F. insurance company. a. a. 1F. 2 59. 2. They are bipartite and tripartite. b. 2T d.2T 60. Identify true and false statements 1.

D-1 d. Has the right to carry on with the sale of secured property in case of default by the issuer of security. To obtain approval for the issue from the SEBI. Endowment policy gives assurance that the benefits under the policy will be given to the beneficiaries on the death of the policy holder within the selected term or on its maturity date. Issue management B. F. Project finance D. To provide advice on procedural aspects of project implementation. Portfolio manager a. B-4.F d. 4 b. Coordinates the preliminary distribution of securities and acquire direct subscription from many investors. A-2. D-3 62. 4 Second set: 1. D-4 b. Takes decisions regarding investments and policy. B-1. A-4. Match the following: First set: A. who fails to subscribe them. C-3. To ensure effective running of a corporate enterprise through efficient management of finance. T. a.2. T c. 2. To arrange the funds from non-traditional sources such as through issue of debentures. Match the following: First set: A. a. Working capital Second set: 1. 4. allocating assets for individuals and balancing risk against performance. Underwriter D. 4. 3. F. B-4. 2. D-1 c. C-2. Broker to an issue C. C-3.T 61. 3. Take up shares specified in the underwriting agreement of the public. C-4. T. Debenture trustee B. Corporate counselling C. F b. B-2. A-1. A-3. .

D-1. 4 Second set: 1. A-4. D-2 c. Step 3 D. A-2. D-2 b.a. Step 1 B. Step 4 c. The offer document must state the assets on which the security is created. C-4. The company must file a copy of notice of the resolution with the SEBI. Requirement of credit rating Second set: 1. A rights issue of all debt instruments is made only when the credit rating of minimum investment grade is obtained from two credit rating agencies. 4 a. A-1. B-1. A-2. B-4 64. Match the following: The steps involved in the book building process: First set: A. A-2. C-3. Companies cannot issue Fully Convertible Debentures (FCDs) having a conversion period of more than 36 months. The draft prospectus is filed with SEBI to provide a legal standing. B-1. C-4 b. 2. D-2. . B-4. D-4 63. Other requirements C. D-1 d. A-2. B-3. D-3. 3. A-4 c. Match the following: First set: A. B-4. C-3. C-1. a. Disclosure and creation of charge B. C-3. 2. B-1. B-3. The issuer company proposing an IPO appoints a lead merchant banker as a Book Running Lead Manager (BRLM). Step 2 C. Requirement of letter of option D. 4. C-2. C-1. D-3 d. A-3.

B-4. Green Shoe Option (GSO) is an option where a company can retain a part of the over-subscribed capital by issuing additional shares. 3. An agreement between the lead manager and the issuing company. Due-diligence certificate Second set: 1.4T 1T.2T. 4. a. Submitted to the Board and disclosed in the offer document if the issue is handled by more than one merchant banker. The basis of pricing of the issue must be disclosed in the offer document where the issuer discloses information related to the quantitative and qualitative factors justifying the issue price. C-1. D-1 c. C-4. d. 4 66. 1T. Identify true and false statements. B-3.2T.3T. A definite period is set as the bid period and BRLM conducts awareness campaigns like advertisement. 3. Memorandum of understanding C. Match the following: First set: A. C-4. 4. 3T.3F. but consists of other details about the size of the issue. 2. the issuer company consults with the BRLM in drawing up an offer document which does not mention the price of the issues. Primarily.4T c. companies past history. In an IDR. and a price band.3. B-1. Due diligence B.4T 1F.3T. a. C-1. A-3. Investigates or audits potential investments to verify all material facts to a sale. B-4. b. 4. Inter-se allocation of responsibilities D. 4F 1T.2T. Qualified people like lawyers. road shows and so on. A-3. c. A-2. foreign companies can not issue shares. 2T. c. acquisitions. A-2. 4 . and investment bankers examine every aspect of the target company usually before mergers. D-3 b. 2. strategic investments and so on. 1. D-2 d. to an Indian depository. D-1 65. chartered accountants. A company must enter into an agreement with the stock exchange and must specify their mutual duties or rights or responsibilities.

Category III D. B-4 67. B-1. They are allowed to carry the roles of advisor. Participant D. advisor. C-1. 4 . A-2. They are allowed take up activities related to issue management. Category IV a. C-3. D-3. underwriter and portfolio manager. C-1. Match the following: SEBI regulations provided for the four categories of merchant bankers: First set: A. 4 Second set: 1. A-3. B-3. B-4. Capital adequacy norm for this category is Rs. C-4. A-2. B-3. Sub broker b. B-1. Category II C. A-4 c. D-3 d. Capital adequacy norm for this category is Rs. D-1. 20 lakh. B-4. B-4. Custodian C. A-2. and consultant. There is no capital adequacy norm for this category of merchant banker. comanager.a. They are allowed to act as an underwriter. 5 crores. 2. C-1. D-1 c. A-3. consultant. Match the following: First set: A. They are allowed to act as an advisor or consultant. C-4 b. A-2. a. C-1. C-4. D-2 d. 3. D-1 68. A-2. Compliance officer B. D-3 b. Category I B. Capital adequacy norm for this category is Rs. D-2. 50 lakh. 4.

C-3. 3F. Future contracts are non-transferable legal agreements. 3. 3F. B-4. Leveraged lease C. 2. B-2 d. 4T 1T. D-3. International lease D. Future contract is a transferable specific delivery forward contract. Acts as an agent on behalf of a stockbroker 4. c. B-4. 4T c. Directly deals with the depository directly or on behalf of their clients a. 2F. B-4 . D-3 b. 2. Future contracts have high risk and low liquidity. 3. Single investor lease Second set 1. Match the following First set A. 2T. 4. B-1. A-1. Monitors the compliance of the SEBI ACT 3. B-1. D-3 c. A-3. D-2 4 . 4F 1F. Domestic lease B.Second set: 1. 2F. c. C-2. a. A-2. The leasing company buys the asset through considerable borrowing. D-4. Import lease and cross-border lease are its sub classifications. All parties mentioned in the agreement are the residents of the same country. 1T. 4. A-2. 1. C-4. C-1. A-3. b. C-4. D-2 b. 2T. d. Administrates and protects the assets of the clients 2. C-1 D-3 69. 3T. B-3. Future contracts are structures for the delivery of the underlying assets on an agreed future date. B-2. A-4. A-4. D-1 d. C-1. 4F 1F. Identify the true or false statements. 4 70. The leasing company manages the fund of the entire investment by an appropriate mix of debt and equity funds. a. A-2. 3T. C-1 c.

4F 1F. The highest lease payments need to be allocated between the land and the building component in proportion to their relative fair values of the lease holding interests at the beginning of the lease. 4F 1T. d. 2. Factoring C. C-2. Issuing of Letters of Credit B. an asset based financial service 4. B-4. the Reserve Bank of India (RBI) issues direction from time to time under the RBI Act. C-3 d. To coordinate.2T. C-1. 4 72. D-4 c.2T. 1T. 3T. D-3 73. b.2F. a. 4 . 2F. control and regulate the functioning of all NBFCs. 2T. 4T 1F. 3F. State whether the following statements are true or false. B-3. 1T.3T.3T. D-1. C2. 2T.71. 2T. an element of leasing 2. 3. Match the following statements First set A. a classification of NBFCs a. 4F 1F. Which of the statements are true and false? 1. 3T. A lease which transfers all the risks and rewards incident to ownership of an asset is finance lease 2. A-4. a fee based financial service 3.4F 1T. A-2.3F. 3T. B-2. 4T b. D-4 b. The government decides which company is eligible for leasing. The lessor has the choice to purchase the asset at a cost that is expected to be lower than its fair value and such that the option is likely to be exercised. d. 2T. A-1. A-1. 1. 4. 4 a. b.4F a. c. The NBFCs play a vital role in expanding the access to financial services and enhancing competition. B-3. The AFC is a financial institution which carries on its major business like the financing of physical assets that support economic activities a. 3T. 4. c.4T 1T. Conditions in the lease may specify that an entity has only a limited disclosure to the risks and benefits of the leased asset 3. Lease rentals D. Asset Finance Company Second set 1.

B-4. B-4. C-4. D-3 d.B-2. A-4. B-3.D-2 c. C-1. A-3. Lease term C.C-1. C-1. Leveraged lease D. A-1. the part of the residual value which is guaranteed by the lesse or an independent third party who is financially able of discharging the obligations under the guarantee. Is is an agreement calling for the lessee (user) to pay the lessor (owner) for use of an asset for an agreed period of time. 2. Process of financial appraisal in a lease transaction C.D-2 b. Guaranteed residual value B.D-4 c. D-3 b. Match the following: First set: A. Accounting or Reporting Framework and Taxation of Leasing. Lease Second set: 1. 4 c. A-3. and in the case of the lessor. 4 . Match the following: First set: A. A-2. D-1 d.C-2. 3. B-4. C-4. Operating lease Second set: 1. a. It is sure by the lessee to pay the maximum amount of the guarantee. A-2. A-2. 2. Appraisal of the client in terms of financial strength and credit worthiness a.C-3. Finance lease D. A-2. It is the rental at which the lessee is indifferent between lease financing and borrowing and buying. C-3. 3. B-1. Service lease 4.D-1 d. B-1. D-3 75. Break-even lease rental B. A lease which transfers all the risks and rewards incident to ownership of an asset. Under this type of leasing.B-4. the lessor borrows funds from a financer to finance the asset and leases it to a lessee. 4.74.