COMPILATION

OF
SUGGESTED ANSWERS
TO
QUESTIONS
SET AT THE
INSTITUTE’S EXAMINATIONS
NOVEMBER, 2003 – NOVEMBER, 2014

FINAL COURSE

PAPER – 2: STRATEGIC FINANCIAL

MANAGEMENT

BOARD OF STUDIES
THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA
(Set up by an Act of Parliament)
New Delhi

© The Institute of Chartered Accountants of India

 The Suggested Answers published in this volume do not constitute the basis for evaluation of
the students’ answers in the examinations. The answers are prepared by the Faculty of the
Board of Studies with a view to assist the students in their education. While due care is taken
in preparation of the answers, if any errors or omissions are noticed, the same may be brought
to the attention of the Director of Studies. The Council of the Institute is not responsible in any
way for the correctness or otherwise of the answers published therein.

©The Institute of Chartered Accountants of India

All rights reserved. No part of this publication may be reproduced, stored in a retrieval
system, or transmitted, in any form, or by any means, electronic, mechanical, photocopying,
recording, or otherwise, without prior permission, in writing, from the publisher.

Revised Edition : July, 2015

Website : www.icai.org

Department/Committee : Board of Studies

E-mail : bosnoida@icai.in

Price :

ISBN No. : 978-81-8441-479-0

Published by : The Publication Department on behalf of The Institute of

Chartered Accountants of India, ICAI Bhawan, Post Box No.
7100, Indraprastha Marg, New Delhi- 110 002, India.

Printed by : Sahitya Bhawan Publications, Hospital Road, Agra-282003

July/2015/P1769(Revised)

ii

© The Institute of Chartered Accountants of India

 Paper -2: Management Accounting and Financial Analysis
Statement indicating chapter-wise distribution of past fifteen examination questions
Term of Chapter - 1: Chapter - 2: Chapter - 3: Chapter - Chapter - 5: Indian Chapter - 6: Chapter – 7:
Examination Financial Project Leasing 4: Capital Market Security Portfolio
Policy and Planning decision Dividend Analysis Theory and
Corporate and capital including Decisions Asset Pricing
Strategy cross border
budgeting
leasing
Nov 2003 1(b),3(b) (iii), 4(a) 3(b) (i) & (v), 5(a) 3(a), 6(b) 2(c)
May 2004 1(c), 2(a) & (b) 5 3(a), 6(b)(ii) 4(a) 1(a) & (b), 3(b)
Nov 2004 1 3(b) 4(b) 4(a),5(c), 6(a) & (b) 2(a), 3(a) 5(a)(i) & (ii)
May 2005 3(a), 5(a) 1 3(c) 2(d),3(b), 4(b), 6(c)(2) 2(b), 5(b)
Nov 2005 1(b) 1(a) 2(b), 5(b) 5(a), 6(b) 4(b), 5(c)
May 2006 3(a)(i) 1(a), 5(a) 4(a),6(b)(ii) 2(b),3(c), 5(b) 6(c) 3(b),5(c), 6(b)(i)
Nov 2006 1(a) 6(c) 2(a) & (c) 2(d), 4(a), 5(b) 4(c), 6(a)
May 2007 1(a) 5(a) 5(b) 4(c) 6(c) 2(b), 6(a)
Nov 2007 1 3(b), 5(a)&(c), 6(a) 4(a), 5(b) 6(d)
May 2008 1(a), 4(b) 5(a) 4(a), 6(e) 1(b), 2(a)&(b)
Nov 2008 1 4(a) 3(c)(ii),4(c),6(a)&(d) 4(b), 6(b) 3(b), 6(c)
Jun 2009 1(a),3(b), 6(a) 3(a), 5(b) 5(c) 4(a) 1(b)
Nov 2009 1(c) 1(a), 2(a) 3(b) 5(b) 2(b), 5(a) 2(c), 3(c) 5(c)
May 2010 1(a) 3(a),4(c),5(a),(b)&(c) 3(b) 3(c)
Nov 2010 2(b), 3(a) 5(b) 6(a), 7(a)&(b) 1(a),(b),(c)&(d), 4
6(b)

iii

© The Institute of Chartered Accountants of India

 Term of Chapter – Chapter – 9: Chapter –10: Chapter-11: Foreign Chapter -12: Chapter-13:
Examination 8: Mutual Money Market Direct Investment Foreign Mergers,
Financial Funds Operations and International Exchange Acquisitions and
Services Financial Exposure and Restructuring
in India Management Risk Management
Nov 2003 3(b)(iv) 2(a) & (b) 3(b)(ii), 4(b) 5(b) & (c) 1(a), 4(c)
May 2004 4(c) 3(c), 4(d) 6(b)(i) 4(b) 6(a)
Nov 2004 2(b), 3(c) 2(d) 2(c), 4(d) 4(c), 6(d) 5(b)
May 2005 4(c) 6(b) 2(c), 6(c)(1) 4(a) 2(a), 6(a)
Nov 2005 2(a), 4(a) 3(a), 6(a) 6(c) 3(b), 4(c) 3(c)
May 2006 1(b),4(c) 2(c) 2(a) 4(b) 3(a)(ii), 6(a)
Nov 2006 2(b) 6(d) 3(c) 3(a)&(b), 4(b) 5(a)
May 2007 2(c) 3(c) 4(b) 2(a), 3(b) 3(a), 4(a), 6(b)
Nov 2007 3(a), 6(b) 3(c), 6(c) 2(a)&(b), 4(b)
May 2008 6(d) 3(b), 6(b)&(c) 5(b)
Nov 2008 5(b) 2(b) 3(c)(i) 3(a), 5(a) 2(a)
Jun 2009 4(b), 6(c) 4(c), 6(b) 5(a) 2(a)&(b)
Nov 2009 3(a) 4(b) 1(b), 4(a)
May 2010 1(b) 2(b) 4(b) 2(a), 4(a)
Nov 2010 5(a) 7(c) 3(b) 2(a), 7(d)

iv

© The Institute of Chartered Accountants of India

 Paper -2: Strategic Financial Management
Statement indicating chapter-wise distribution of thirteen examination questions
Term of Chapter - 1: Chapter - 2: Chapter- 3: Chapter - Chapter - 5: Indian Chapter - 6: Chapter – 7:
Examination Financial Project Leasing 4: Capital Market Security Portfolio
Policy and Planning and decision Dividend Analysis Theory and
Corporate capital including Decisions Asset
Strategy budgeting cross Pricing
border
leasing
Nov 2008 3(a) 6(b) 2(b) 1(a)&(b), 2(c),6(c),(d)&(e) 2(a)&(d),3(b), 4(c) 1(c)
Jun 2009 3(a) 1(a)&(c) 2(b),3(b),6(a),(b),( 1(b),
c)&(d) 2(a)&(c)
Nov 2009 1(a) 4(c) 2(c),3(a)&(b), 4(b) 2(a), 5(b)
May 2010 1(c) 1(a) 2(a) 1(b), 2(c), 5(a)&(b) 3(a)
Nov 2010 5(b),7(b) 3(a) 1(c),2(a),3(b),7(c) 1(d),4(b), 6(b) 1(a),5(a)
May 2011 3(b),7(e) 2(a) 6(a) 1(b) &(c),2(b),6(b)(i), 4(a), 5(b), 6(b)(ii) 1(a),1(d),7(b)
7(a), 7(d)
Nov 2011 7(a) 4(b) 1(d),6(b),7(b) & (c) 1(c),3(b),4(a) 6(a)
May 2012 2(a),3(b) 2(b),4(b) 1(b),1(d),4(a),6(a),7(b) 7(a) 5(b)
Nov 2012 7(a) 1(a) 3(a), 7(d) 2(b),5(a),5(b),6(b) 4(b)
May 2013 1(c),2(a) 3(b) 1(d),2(b),6(b) 5(a), 4(a)
Nov 2013 4(b),7(a) 3(a) 1(b),5(b) 1(a),4(a), 6(a) 2(a)
May 2014 7(e) 1(b), 6(c) 7(a) 7(b) & (c) 1(a), 4(a), 6(a)
Nov 2014 2(b) 7(b) 1(d), 5(a) 7(e) 3(b), 6(b)
v

© The Institute of Chartered Accountants of India

 Term of Chapter – Chapter – 9: Chapter –10: Chapter-11: Foreign Chapter -12: Chapter-13:
Examination 8: Mutual Funds Money Market Direct Investment Foreign Exchange Mergers,
Financial Operations and International Exposure and Acquisitions and
Services Financial Risk Management Restructuring
in India Management
Nov 2008 3(c) 4(a)&(b),5(a) 5(b),6(a)
Jun 2009 3(c) 4(a),(b)&(c) 5
Nov 2009 2(b) 1(b) 3(c) 5(a) 4(a)
May 2010 3(c) 2(b), 4(b) 5(c) 3(b) 4(a)
Nov 2010 7(a),7(e) 7(d) 1(b) 6(a) 2(b),4(a)
May 2011 4(b) 7(c) 3(a),5(a)
Nov 2011 1(a),7(d) 1(b),2(b),5(b),7(e) 2(a),3(a),5(a),7(f)
May 2012 6(b) 1(a),7(c) 1(c),5(a),7(d),7(e) 3(a)
Nov 2012 1(c) 1(b),7(b) 7(c) 1(d),3(b) 2(a),4(a) ,6(a),7(e)
May 2013 7(a) 3(a),4(b) 7(b) & (c) 5(b),7(d) 1(a) 1(b),6(a),7(e)
Nov 2013 3(b) 1(d),7(c) 7(e) 1(c), 2(b),6(b),7(b) 5(a),7(d)
May 2014 5(a), 6(b) 3(a) 1(c) 2(a), 7(d) 1(d), 3(b), 5(b) 2(b), 4(b)
Nov 2014 4(a) 4(b), 7(a) 1(b) 5(b) 1(a), 3(a), 7(d) 1(c), 2(a), 6(a), 7(c)

vi

© The Institute of Chartered Accountants of India

 CONTENTS
Page Nos.

CHAPTER − 1 Financial Policy and Corporate Strategy 1.1 – 1.3

CHAPTER − 2 Project Planning and Capital Budgeting 2.1 – 2.56

CHAPTER − 3 Leasing Decisions 3.1 – 3.35

CHAPTER − 4 Dividend Decisions 4.1 – 4.25

CHAPTER − 5 Indian Capital Market 5.1 – 5.60

CHAPTER − 6 Security Analysis 6.1 – 6.57

CHAPTER − 7 Portfolio Theory 7.1 – 7.47

CHAPTER − 8 Financial Services in India 8.1 – 8.13

CHAPTER − 9 Mutual Funds 9.1 – 9.33

CHAPTER − 10 Money Market Operations 10.1 – 10.15

CHAPTER − 11 Foreign Direct Investment (FDI), Foreign 11.1 – 11.15

Institutional Investment (FIIs) and International
Financial Management

CHAPTER − 12 Foreign Exchange Exposure and Risk 12.1 – 12.46

Management

CHAPTER − 13 Merger, Acquisition & Restructuring 13.1 – 13.73

Question Papers 1 – 88

vii

© The Institute of Chartered Accountants of India

 viii

© The Institute of Chartered Accountants of India