PAF – Karachi Institute of Economics and Technology

Course: Financial Institution & Markets
Faculty: Mirza Imtiaz Askari
Class ID:
Examination: Final (Fall - 10)

Date:

Total Marks: 40
Max. Time: 3 Hrs.

Name:__________________________________

Registration No. _________________

Attempt all questions. All questions carry equal marks except question
No.11 which is of 5 marks
SOLVE ON QUESTION PAPER
Question No.1.
a. List down any three advantages of Mutual Funds.
1. _______________________________________________________________________
_______________________________________________________________________
2. _______________________________________________________________________
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3. _______________________________________________________________________
_______________________________________________________________________

b. List down the differences between close ended Mutual Funds and
open ended Mutual Fund.
1. _______________________________________________________________________
_______________________________________________________________________
2. _______________________________________________________________________
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Page 1 of 7

Suppose that a bank enters into a forward rate agreement that specifies that it will receive a fixed rate of 4% on a principal of Rs 100 million for a 3-month period starting in 3 years. 2. Bond 2 100 6 years 6% semi annually 10%  If interest rate changes by 10 basis points what will be the resulting change in the price of each bond? Page 2 of 7 . Bond 1 Par 100 Maturity 15 years Coupon 12% (semi annually) YTM 10%  Compute the DV01 of each bond. _______________________________________________________________________ _______________________________________________________________________ Question No.5% for the 3-month period the cash flows to the lender will be how much? Question No. A Bank has 100 million rupees to invest in any of the two fixed income bonds. If 3-month LIBOR proves to be 4.3.3. You are being asked to evaluate which bond will be safer for investment.

5 Year Rs 8 100 2 Year Rs 12  Half the coupon is assumed paid every six months.85 year by bootstrap method. 1. Page 3 of 7 . How much interest payment will be made quarterly? Question No.5 and 2.Question No. Bond Principal (rs) Time to Maturity  Annual Coupon 100 1 Year 0 100 1.6 Compute the zero rates for Year 1.5. Bond Price 90 96 101. Suppose that a bank has quoted an interest rate on loans as 8% per annum with continuous compounding and that interest is actually paid quarterly. II.4. Compute the zero rate for 1. I.

Write short notes on the followings: New York Stock Exchange______ _________________________________________________________________________________ Karachi Stock Exchange _____ __________________________________________________________________________________ London Stock Exchange_____ __________________________________________________________________________________ Question No.Question No. 6.7 Write a short note on the pricing of Bank Loan. ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Page 4 of 7 .

Repo __________________________________________ III.000 per tola.______________________________________________________________________________ ______________________________________________________________________________ Gold is currently priced at Rs 44. What should the Gold futures price for a three-month contract be? What arbitrage opportunities are there if Gold future price for the above contract is quoted as Rs 45. Reinvestment Risk __________________________________________ V. Question No. Scalpers __________________________________________ IV.8.9. The risk-free interest rate is 8% per annum (with continuous compounding) and the storage cost is Rs 250 per month payable at the start of each month. Short Sale __________________________________________ Page 5 of 7 . Give very short answers of the followings: Ladder Maturity approach __________________________________________ II. I.000 Question No.

2. enabling a bank’s customer to borrow upto the specified maximum amount at any time during the relevant period of time is called letter of credit. True__ False A preapproved credit facility usually of more than 1 year.capacity is the ability to repay. Default Risk __________________________________________ VIII. 14. 3. True__ False Seasonal working capital is also called standby letter of credit.VI. True__ False Primary earning assets of commercial banks are securities and deposits from customers. True__ False Short duration working capital loan is called term loan. Maintenance Margin __________________________________________ Question No.10. 12. 10. True__ False Liquidity refers to the ease of converting an asset into money quickly and at a high exchange cost. True__ False Passive management of interest rate is purchasing the long term securities with the intention of holding them until maturity. True__ False Management of investment securities require both liquidity and profitability. Bond’s Duration __________________________________________ IX. 7. True__ False In credit analysis . True False Statements 1. Investment Grade Bonds __________________________________________ VII. True__ False Character in credit analysis is the willingness to pay. 5. 9. True__ False Barbell maturity approach is investing smaller portion of funds in short term maturity bonds. which is measured through future performance. True__ False Price risk and reinvestment risk are the two types of interest rate risks. True__ False Type III securities are speculative grade securities. True__ False Default risk is the risk that the borrower may be able to pay the promised interest but not the principal on maturity. 11. 6. Merchant Banking __________________________________________ X. True__ False The rate charged by the bank for the unused portion Page 6 of 7 . 13. 8. 4.

Question No. GOOD LUCK Page 7 of 7 . True__ False The narrowest definition of investment banking is the underwriting and raising capital in the secondary markets. 15.of a line of credit is called commitment fee.11. [5] • Write a short note on the importance of asset liability mismatch. • Analyze the Asset liability mismatch of Bank Al Habib for the year 2009.

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