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Question Paper

Financial Markets (CFA550): January 2008


• Answer all 76 questions.
• Marks are indicated against each question.

Total Marks : 100


1. The required amount of successful bids by a primary dealer who participated in the bidding for <Answer>
T-Bills is Rs.600 crore. The commitment to aggregative bidding would be
(a) Rs.1,200 crore
(b) Rs.1,500 crore
(c) Rs.1,600 crore
(d) Rs.1,800 crore
(e) Rs.2,000 crore. (1 mark)
2. Which of the following statements is/are true with respect to Public Deposits? <Answer>

I. A company for meeting its short-term requirements of funds, may accept or renew deposits for less than 3
months.
II. Any unsecured loan brought in by promoters in pursuance to any stipulation by financial institutions is
considered as public deposit.
III. Any deposit repayable on demand or on notice can be accepted by a company.
IV. The maximum maturity period for the deposits cannot exceed 60 months.
(a) Only (I) above
(b) Only (III) above
(c) Both (I) and (IV) above
(d) Both (II) and (III) above
(e) (I), (III) and (IV) above. (1 mark)
3. An investor invested in the deposit of a company at an interest rate of 10% p.a. for a period of 3 years. On the <Answer>
expiry of 2nd year, he demands premature withdrawal of his deposit. The interest rate for 2-year maturity deposit
is 8.5% p.a. The interest rate payable to him on the said deposit would be
(a) 6.50% p.a.
(b) 7.50% p.a.
(c) 8.00% p.a
(d) 9.00% p.a.
(e) 10.00% p.a. (1 mark)
4. Which of the following statements is/are not true with respect to Government dated securities? <Answer>

I. These securities are issued at discount.


II. These securities provide higher liquidity.
III. These instruments facilitate implementation of the fiscal policy of the government.
(a) Only (I) above
(b) Only (III) above
(c) Both (I) and (II) above
(d) Both (II) and (III) above
(e) All (I), (II) and (III) above. (1 mark)
<Answer>
5. Which of the following statements is/are true with respect to call rates?
I. In the money market call rates are quoted on the annualized basis.
II. The rate of interest on call money is calculated on daily basis.
III. Low call rates indicate tightness of liquidity in the financial system.
IV. Call rate is influenced by forces of supply of and demand for funds.
(a) Only (II) above
(b) Only (IV) above
(c) Both (I) and (II) above
(d) (I), (II) and (IV) above
(e) All (I), (II), (III) and (IV) above. (1 mark)

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<Answer>
6. A 364-Day T-bill with face value of Rs.100 is trading in the market at annual yield of 7.34%. The purchase price
of T-bill is
(a) Rs.92.23
(b) Rs.92.64
(c) Rs.92.85
(d) Rs.93.18
(e) Rs.93.56. (1 mark)
<Answer>
7. Carbon Ltd. issued 1000 commercial papers maturing after10 months having the face value of Rs.1,00,000 at
Rs.98,500 each. The stamp duty payable by the company on such issue is
(a) Rs. 50,000
(b) Rs.1,00,000
(c) Rs.1,50,000
(d) Rs.2,00,000
(e) Rs.5,00,000. (1 mark)
<Answer>
8. Catholic Ltd. has accepted the public deposits of Rs.1,56,65,000 payable at the end of 27 months. It has the
aggregate paid up capital and free reserves of Rs.10,00,00,000. The maximum amount of brokerage payable for
soliciting the above deposits is
(a) Rs.1,56,650
(b) Rs.2,34,975
(c) Rs.3,13,300
(d) Rs.3,91,625
(e) Rs.2,56,650. (1 mark)
<Answer>
9. Which of the following is not the characteristic of a perfect market?
(a) All the players in the market have all the information relating to the security
(b) The flow of funds between the markets should be restricted by the Government regulations
(c) The market price of security reflects all the available information
(d) Transparency in the trading mechanism and shorter settlement periods are critical for low
transaction cost
(e) All players in the market are price takers. (1 mark)
<Answer>
10.Which of the following is false with respect to the effects of Open Market Operations (OMO) conducted by the
RBI?
(a) The open market purchase of gilts will ease the liquidity of banks
(b) If the interest rate structure is to be moved upwards, the prices of securities in the OMO can be set
at higher levels thereby signaling an upward movements in interest rates
(c) The effort to cool the interest rate volatility through OMO may some times lead to an
interest differential loss to the RBI
(d) If the PLR is reduced, the CP rate may also come down
(e) Cut in repo rates will result in increase in the call rates and also other term money rates. (1 mark)
<Answer>
11.Mr. Shah has deposited Rs.2,00,000 with Wicro Ltd. for two years at the rate of 12% p.a. If he wants to
withdraw the entire amount at the beginning of 12th month, the amount that will be refunded by the company to
Mr. Shah as per Rule 8(1) of the Companies (Acceptance of Deposits) Rules, 1975, is
(a) Rs.2,24,000
(b) Rs.2,22,333
(c) Rs.2,20,000
(d) Rs.2,18,333
(e) Rs.2,00,000. (1 mark)

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<Answer>
12.Following is the list of various depositors and their deposits with the Lord Bank:
Name of Amount of
depositor Deposits (Rs.)
Prashant 1,70,500
Prashant 1,24,000
Srinivas 1,00,500
Nandgopal 95,000
Kalyan 82,000
Kalyan 90,000
The half-yearly insurance premium payable by the Lord Bank to insure this deposits as per DICGC guideline is
(a) Rs.141.75
(b) Rs.200.50
(c) Rs.246.50
(d) Rs.283.50
(e) Rs.298.50. (2marks)
<Answer>
13.Money Market Mutual Fund is a special category of Mutual Fund,
(a) Which provides higher returns to an investor as compared to debt funds
(b) Which provides an investor the choice to invest for medium-term
(c) Where safety level of the investment is high
(d) Where liquidity is inadequate
(e) Which invests mainly in unrated paper to generate high returns. (1 mark)
14.Which of the following CDs carries both fixed and floating interest rates? <Answer>

(a) Asian Dollar CD


(b) Installment CD
(c) Jumbo CD
(d) Thrift CD
(e) Yankee CD. (1 mark)
15.Which of the following statements is/are true with respect to an Asset Backed Commercial Paper? <Answer>

I. The paper sells at a high risk premium.


II. Sometimes, an outside surety is also involved in the transaction.
III. An organization with low credit rating or no credit rating can also access finance through this paper.
(a) Only (I) above
(b) Only (II) above
(c) Only (III) above
(d) Both (I) and (III) above
(e) Both (II) and (III) above. (1 mark)
<Answer>
16.Consider the following data pertaining to J.M. Mutual Fund (Income plan):
Particulars Rs. in crore
Value of investments 4,169.04
Receivables 325.76
Accrued income 95.48
Other current assets 1,146.46
Liabilities 977.12
Accrued expenses 225.84
Number of units outstanding 320 crore
Entry Load 2.5%
Mr. Prasad wants to purchase units of this scheme. The per unit price he has to pay is
(a) Rs.14.20
(b) Rs.14.53
(c) Rs.14.91
(d) Rs.15.25
(e) Rs.18.27. (2marks)

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<Answer>
17.An investor has written a naked put option, on a stock trading on NSE:
Option
Strike Current Market
Option Premium No. of shares
Expiring on Price Price of stock
Type per share per contract
(Rs.) (Rs.)
(Rs.)
Put 27th December 2007 320 8.00 1,100 323.90
The amount of margin to be deposited by the investor in his brokerage account is
(a) Rs.40,139
(b) Rs.44,429
(c) Rs.75,768
(d) Rs.84,348
(e) Rs.84,429. (2marks)
<Answer>
18.Which of the following is not true with respect to 364-Day T-Bills?
(a) The RBI does not discount these bills
(b) The RBI does not participate in the auction of these bills
(c) Auction of these bills takes place every fortnight
(d) The auction amount of a bill is conveyed 3 days before the date of auction
(e) The yield on these bills can be used as a benchmark for determining the interest rate of floating
rate bonds. (1 mark)
<Answer>
19.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 neither be used to purchase a real asset will nor 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. (1 mark)
<Answer>
20.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 (I) and (III) above
(e) Both (II) and (III) above. (1 mark)
<Answer>
21.Manoj Enterprises is coming out with an issue of commercial paper of amount Rs.100 lakh with maturity of 8
months. The brokerage payable by it shall be
(a) Rs.50,000
(b) Rs.32,500
(c) Rs.30,000
(d) Rs.25,000
(e) Rs.10,000. (1 mark)

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<Answer>
22.Apart from ensuring appropriate liquidity, investors should also consider the risk present in the money market
instruments. Which of the following is/are the risks associated with the money market instruments?
I. Market risk.
II. Reinvestment risk.
III. Default risk.
IV. Currency risk.
(a) Only (I) above
(b) Only (III) above
(c) Both (II) and (III) above
(d) Both (II) and (IV) above
(e) All (I), (II), (III) and (IV) above. (1 mark)
<Answer>
23.Which of the following is/are true with respect to commercial paper and certificate of deposits?
I. Both are issued by corporates.
II. Both can be invested by individuals and corporates.
III.Both can be bought back by the issuer.
IV. A CP can be issued with a minimum size of Rs.5 lakhs and in multiples of Rs.1 lakh, whereas a CD can be
issued with a minimum size of Rs.5 lakhs and in multiples of Rs.5 lakhs.
(a) Only (II) above
(b) Only (IV) above
(c) Both (II) and (IV) above
(d) (II), (III) and (IV) above
(e) All (I), (II), (III) and (IV) above. (1 mark)
<Answer>
24.Which of the following is not the objective of borrower?
(a) Minimum terms and conditions attached with the usage of funds
(b) Satisfying the statutory reserve requirements and capital adequacy norms
(c) Minimum lead time in obtaining the required funds
(d) Minimum monitoring and interference
(e) Low rates of interest. (1 mark)
<Answer>
25.Which of the following statements is true?
(a) Banks can issue CDs for a minimum period of one year to a maximum of 3 years
(b) CDs are not subject to stamp duty
(c) CDs can be transferred immediately after issue
(d) Premature payment or loans against CDs by the issuer is allowed
(e) CDs are not subject to usual reserve requirements. (1 mark)
<Answer>
26.Scout Ltd. is a Primary Dealer in the Government Securities. During the auction of Dated Securities, it has an
agreement with the RBI for the underwriting commitment of 10% of the shortfall. The devolvement on Scout
Ltd. is Rs.2.5 crore. The competitive bids accepted at cut-off price (including non-competitive bids) are Rs.1000
crore. The amount notified for the bids is
(a) Rs. 800 crore
(b) Rs. 900 crore
(c) Rs.1,100 crore
(d) Rs.1,200 crore
(e) Rs.1,300 crore. (2marks)
<Answer>
27.Which of the following securities are eligible for Repo transaction?
I. Government of India bonds in demat form.
II. Treasury bills in demat form.
III. PSU bonds in demat form.
(a) Only (I) above
(b) Only (II) above
(c) Only (III) above
(d) Both (I) and (III) above
(e) All (I), (II) and (III) above. (1 mark)

5
28.For public deposits the issuing company is required to maintain the liquid assets to the extent of a certain <Answer>
percentage of the deposits maturing during the financial year ending 31st March next. For this purpose, the
permitted investment(s) is/are
I. Deposits held with any Indian bank, free from any lien.
II. Unencumbered securities of central or state government.
III. Unencumbered securities approved by Indian Trust Act, 1882.
IV. Unencumbered bonds issued by HDFC.
(a) Only (II) above
(b) Only (III) above
(c) Both (II) and (IV) above
(d) (II), (III) and (IV) above
(e) All (I), (II), (III) and (IV) above. (1 mark)
29.ABC Ltd. is a primary dealer dealing in Government Securities. The following are the details of its transactions <Answer>
during the last financial year:
Total purchases of T-bills : Rs.300 crore
Total sales of T-bills : Rs.230 crore
Average of month-end stock : Rs.55 crore
The turnover ratio of ABC Ltd. would be
(a) 9.64
(b) 5.46
(c) 4.19
(d) 1.27
(e) 0.78. (1 mark)
<Answer>
30.A T-bill maturing in ‘n’ days can be purchased from the market at the current price of Rs.94.64. On maturity, the
annualized yield to the investor will be 5.68%. The T-bill matures in
(a) 14 days
(b) 30 days
(c) 91 days
(d) 182 days
(e) 364 days. (1 mark)
<Answer>
31.The following is the abstract from the books of the Paul Finance Company:
Rs. crore
Deposits held with Scheduled bank 10
(free from lien or charge)
Unencumbered GOI securities 5
Unencumbered securities of Tamil Nadu State Government 5
Investment in rated paper of Corporates 5
Investment in gold 10
Public deposits maturing during next financial year are Rs.200 crore. To comply with the statutory requirement
of maintaining liquid assets, the amount of additional money to be invested by Paul Finance Company before
30th April is
(a) Rs.30 crore
(b) Rs.20 crore
(c) Rs.10 crore
(d) Rs. 5 crore
(e) Nil. (2marks)

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<Answer>
32.In Mumbai, the market rates are as under
Rs./€ : 56.05/08
1 month : 06 / 08
2 months : 12 / 14
3 months : 22 / 24
If a bank requires an exchange margin of 2 paise, what should be the rate to be quoted to an importer who wants
to have an option delivery in the second month?
(a) Rs.56.15 / €
(b) Rs.56.17 / €
(c) Rs.56.19 / €
(d) Rs.56.22 / €
(e) Rs.56.24 / €. (1 mark)
<Answer>
33.The bid-ask spread is seen to be _________ in the retail market than in the interbank market due to ______&
_____ in the interbank market compare to retail market.
(a) Lower, higher volume, greater liquidity
(b) Higher, higher volume, greater liquidity
(c) Lower, lower volume, lower liquidity
(d) Higher, lower volume, lower liquidity
(e) Lower, higher volume, lower liquidity. (1 mark)
<Answer>
34.The following are the exchange rates quoted in New York:
HK$/US$ : 7.7891/93
DKr/US$ : 5.8517/19
The synthetic rates of DKr/HK$ are
(a) 11.9714/16
(b) 11.8171/73
(c) 0.8468/74
(d) 0.8462/63
(e) 0.7512/13. (2marks)
<Answer>
35.Which of the following foreign exchange transactions does not involve credit risk?
(a) Spot transaction
(b) Forward
(c) Option forward contract
(d) Futures contract
(e) Swap deal. (1 mark)
<Answer>
36.A customer wants to sell a bill worth $100000 to a bank. The bill might mature any time during the second
month. The bank charges a margin of 0.5% and exchange rates are as follows.
Spot Rs./$ 39.70/39.74
Forward 1 month 15/10
2 month 20/15
The rate the bank is likely to quote to its customer is
(a) Rs.39.30/$
(b) Rs.39.35/$
(c) Rs.39.39/$
(d) Rs.39.65/$
(e) Rs.39.70/$. (2marks)

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<Answer>
37.A customer wants to enter into a forward contract with the bank, maturing on September 29 for purchasing
dollars from the bank.
In July, the quote for
The contract maturing on August 31 is SFr/$ 5.5879/85
The contract maturing on October 31 is SFr/$ 5.5908/20
Swap points for the contract between August and October are 29/35
The rate to be charged by the bank to the customer is
(a) SFr 5.5930/$
(b) SFr 5.5925/$
(c) SFr 5.5907/$
(d) SFr 5.5902/$
(e) SFr 5.5899/$. (1 mark)
<Answer>
38.Standard Jewellery Exports based in Mumbai, is a manufacturer of diamond and gemstone studded jewellery,
received an export order worth Euro 200,000 from Germany on October 01, 2007. The company requested its
banker to book a forward contract for Euro 200,000 with an option to deliver in December 2007. (Assuming that
the dollar is delivered on the first day of the option period.)
On October 01, 2007, the following rates prevailed in the inter bank market for US dollars in Mumbai:

Rs/$ Spot 39.70/72


Forward 1 month 10/11 paise
2 month 20/21 paise
3 month 30/31 paise

On October 01, 2007, the exchange rates in Singapore market were:

Euro/$ Spot 0.7086/88


Forward 1 month 13/11
2 month 15/13
3 month 20/18
While quoting the rates, bank usually collects the exchange margin of 0.10%.
The forward rate quoted by the bank on October 01, 2007 was
(a) Rs.56.16/Euro
(b) Rs.56.25/Euro
(c) Rs.56.34/Euro
(d) Rs.56.37/Euro
(e) Rs.56.45/Euro. (3marks)
<Answer>
39.Khanna & Khanna have sold Euro against $ to a German Bank and accordingly, they have credited Euro to the
bank but still German bank has to credit $ in the A/c of Khanna & Khanna. Which of the following risk(s) is/are
applicable to Khanna & Khanna?
I. Contract Risk.
II. Clean Risk.
III. Operational Risk.
IV. Settlement Risk.
(a) Only (I) above
(b) Only (II) above
(c) Both (I) and (II) above
(d) Both (I) and (III) above
(e) Both (II) and (IV) above. (1 mark)

8
<Answer>
40.An exporter enters into a 2 months forward contract with the bank to sell 1 million US dollars to the bank at
contract price of Rs.39.40/$. After one month, exporter asks the bank to take delivery. The spot rate on that date
is 39.20/25, with 1 month swap points 10/15. The bank will charge interest at the rate of 14% per annum. The
net inflow to the exporter is
(a) Rs.39,247,567
(b) Rs.39,247,867
(c) Rs.39,248,150
(d) Rs.39,297,567
(e) Rs.39,297,667. (3marks)
<Answer>
41.Which of the following situations results in profit to the dealer?
(a) Long on foreign currency and home currency appreciated
(b) Short on foreign currency and foreign currency appreciated
(c) Long on foreign currency and home currency depreciated
(d) Short on foreign currency and home currency depreciated
(e) Long on foreign currency and foreign currency depreciated. (1 mark)
<Answer>
42.The initial current market price of the stock is Rs.33 and warrant price is Rs.7. It is expected that there will be an
increase in stock price by 12.12% and warrant price by 28.57%. The stock-warrant ratio after increase in prices
will be
(a) 5.11
(b) 4.71
(c) 4.11
(d) 3.51
(e) 2.71. (2marks)
<Answer>
43.Energy limited is planning to issue 12% debentures with warrants attached to it, and warrants can be exercised
only if the debenture is surrendered, such warrants are reffered to as
(a) Wedding warrants
(b) Puttable warrants
(c) Naked warrants
(d) Detachable warrants
(e) Callable warrants. (1 mark)
44.If the issuer has option to redeem the convertible security for cash, common stock, subordinated notes, or for a <Answer>
combination of the three, it is called
(a) Protective put
(b) subordinated put
(c) Hard put
(d) Convertible put
(e) Soft put. (1 mark)
45.A convertible bond issued by Surana Textiles has par value of Rs.1,000 at a coupon rate of 10% with a maturity <Answer>
of 10 years. The YTM of such bonds in the market is 12% p.a. The shares of Surana Textiles are trading at Rs.17
each. If the conversion rate is 50, the minimum price of the convertible bond is
(a) Rs. 37
(b) Rs. 850
(c) Rs. 887
(d) Rs. 925
(e) Rs. 1,850. (2marks)
46.A convertible bond issued by Rios Industries has par value of Rs.1000 with a coupon rate of 8% and maturity of <Answer>
4 years. The shares of the company are trading at Rs.17 each. The dividend paid by the company on the shares is
Re.0.9 per share. If the conversion rate is 45 and each bond of the company is trading at Rs.962, the pay back
period is
(a) 3.758 years
(b) 4.025 years
(c) 4.978 years
(d) 5.234 years
(e) 5.965 years. (2marks)

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47.Which of the following is/are true with respect to the Option Adjusted Duration (OAD)? <Answer>
I. OAD is influenced by the ratio of price of non-callable bond to the price of callable bond.
II. OAD is directly dependent on price of call option.
III. Delta of the call option does not have any influence on OAD.
(a) Only (I) above
(b) Only (II) above
(c) Both (I) and (II) above
(d) Both (I) and (III) above
(e) Both (II) and (III) above. (1 mark)
48.FRNs consisting of minimum and maximum coupons are referred to as <Answer>
(a) Mismatch FRNs
(b) Collared FRNs
(c) Capped FRNs
(d) Structured FRNs
(e) Inverse FRNs. (1 mark)
49.The investment value of a convertible bond issued by Yash Industries is Rs.500. The shares of the company are <Answer>
trading at Rs.15 each. If the conversion rate is 41 and each bond of the company is trading at Rs.663, the
premium over investment value of the bond is
(a) 12.24%
(b) 15.63%
(c) 21.12%
(d) 24.59%
(e) 32.62%. (2marks)
<Answer>
50.The investment value of a convertible bond issued by Zenon Industries is Rs.500. The shares of the company are trading
at Rs.15 each. If the conversion rate is 40 and each bond of the company is trading at Rs.665, the percentage change
required in the price of stock to reach conversion parity price is
(a) 16.74%
(b) 12.42%
(c) 10.83%
(d) –10.83%
(e) –12.47%. (2marks)
<Answer>
51.Which of the following are true with respect to a puttable bond?
I. Investor acquires a right to exercise his option at the prevailing market price.
II. Puttable bond involves two transactions – purchase of a non-puttable bond and sale of a put option on the
bond.
III. Investor will exercise the put option, when the market yield is greater than the coupon rate on the bond.
IV. Price of the puttable bond is equal to the price of the non- puttable bond and price of the put option.
(a) Both (I) and (II) above
(b) Both (III) and (IV) above
(c) (I), (II) and (IV) above
(d) (I), (III) and (IV) above
(e) All (I), (II), (III) and (IV) above. (1 mark)
<Answer>
52.A convertible bond issued by Amit Industries has par value of Rs.1,000 with a coupon rate of 9% and maturity of 5 years.
The shares of the company are trading at Rs.18 each. The dividend paid by the company on the shares is Rs.1 per share. If
the break-even period is 2.075 years and each bond of the company is trading at Rs.983, the conversion rate is
(a) 40
(b) 45
(c) 50
(d) 55
(e) 60. (2marks)

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<Answer>
53.Which of the following are the characteristics of a future contract?
I. Future contracts are traded in an organized location known as exchange.
II. Terms are customized to suit the requirements of both the contracting parties.
III. Contracts are cleared by separate clearing house.
IV. Future contracts can be easily closed.
(a) Both (I) and (II) above
(b) Both (III) and (IV) above
(c) (I), (II) and (III) above
(d) (I), (II) and (IV) above
(e) (I), (III) and (IV) above. (1 mark)
54.The ‘backwardation’ in a futures market refers to a situation <Answer>
I. When the futures prices are higher than cash prices.
II. When the futures prices are lower than cash prices.
III. When the basis is positive.
IV. When the basis is negative.
(a) Only (I) above
(b) Only (II) above
(c) Both (I) and (III) above
(d) Both (I) and (IV) above
(e) Both (II) and (III) above. (1 mark)
55.The average daily price change in coffee futures contract is Rs.2.50 per kg and the standard deviation of the <Answer>
price changes is Re.0.50. If the size of the contract is 1,000 kg, the initial margin required is
(a) Rs.1,000
(b) Rs.2,000
(c) Rs.3,000
(d) Rs.4,000
(e) Rs.5,000. (2marks)
56.In a forex market if an investor wants to hedge his forex payments and have minimum risk, which of the <Answer>
following should the investor prefer?
(a) Sell the forex futures
(b) Enter into a forward contract to purchase the required forex
(c) Enter into a call option to purchase the required forex
(d) Buy the forex futures
(e) Enter into a put option to sell the required forex. (1 mark)
57.The traders in a futures exchange, who tend to carry positions for longer period of time are known as <Answer>
(a) Floor brokers
(b) Dual traders
(c) Scalpers
(d) Hedgers
(e) Position traders. (1 mark)
<Answer>
58.At the beginning of a trading day, Mr. Ravi Jain is in a long position in the futures market and his collateral is
exactly at the required margin. If the closing futures price is above the opening price, what will happen at the
end of the day?
(a) He will be subject to a margin call
(b) His account will be marked to market and losses will be transferred out
(c) His account will be marked to market and gains will be transferred in
(d) His losses will be offset by gains made by investors holding short positions
(e) His losses will be carried forward to the next day. (1 mark)
<Answer>
59.An option writer writes a 6-m naked call option on a stock at a premium of Rs.3 and the strike price of Rs.150.
The prevailing market price of the stock is Rs.130. If on the expiration day, the price of the stock is Rs.140, then
the profit/loss to the option writer will be
(a) –Rs.10
(b) –Rs. 3
(c) Rs. 3
(d) Rs.10
(e) Rs.13. (2marks)
11
<Answer>
60.Other things being equal, call option premiums for a given asset tend to increase when
I. The price of the underlying asset decreases.
II. The volatility of the returns on underlying asset decreases.
III. The time to expiration of the option increases.
IV. The exercise price of the option increases.
(a) Only (I) above
(b) Only (III) above
(c) Both (I) and (III) above
(d) Both (II) and (IV) above
(e) All (I), (II), (III) and (IV) above. (1 mark)
<Answer>
61.Which of the following statements are uses of stock market indices?
I. The growth in the secondary market can be measured through the movement of indices.
II. The return on index is helpful in conducting the portfolio risk return evaluation.
III. Indices can be calculated industry-wise to know their trend pattern.
IV. Stock market indices are useful indicator of a country’s economic health.
(a) Both (I) and (II) above
(b) Both (I) and (IV) above
(c) (I), (II) and (IV) above
(d) (I), (III) and (IV) above
(e) All (I), (II), (III) and (IV) above. (1 mark)
<Answer>
62.Which of the following statements is/are not true for OTCEI?
I. OTCEI was established to have faster transaction, greater liquidity in the market and a transparency in
transactions.
II. Companies with an issued capital ranging from Rs.3 lakh to less than Rs.3 crore are eligible to list their
shares under OTCEI.
III. OTCEI is first screen-based trading exchange in India.
IV. OTCEI permits trading of equity and debentures.
(a) Only (II) above
(b) Both (II) and (III) above
(c) Both (III) and (IV) above
(d) (I), (II) and (IV) above
(e) (I), (III) and (IV) above. (1 mark)
<Answer>
63.Mr. Anand has given an order to his broker to decide whether to buy or sell the security and also the price. The
type of order given by Mr. Anand to his broker is
(a) Market order
(b) Open order
(c) Limit order
(d) Discretionary order
(e) Day order. (1 mark)
<Answer>
64.International Organization Of Securities Commission (IOSCO) functions through the committee system. Which
of the following committee looks after the day to day functioning of the organization and strives to attain the
objectives?
(a) President’s committee
(b) Executive committee
(c) Technical committee
(d) Emerging markets committee
(e) SRO consultative committee. (1 mark)
<Answer>
65.Which of the following is/are true with respect to Beneficiary Owner account in commodity trading?
I. It is used for the purpose of settlement of delivery obligation.
II. It is used for holding both securities and commodities.
III. It is used for transacting in commodities.
(a) Only (I) above
(b) Only (II) above
(c) Only (III) above
(d) Both (I) and (III) above
(e) Both (II) and (III) above. (1 mark)
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<Answer>
66.Which of the following is/are the part(s) of commodity markets?
I. Agricultural market.
II. Metal market.
III. Energy market.
(a) Only (I) above
(b) Only (II) above
(c) Only (III) above
(d) Both (I) and (II) above
(e) All (I), (II) and (III) above. (1 mark)
67.Which of the following statements is/are true with respect to the valuation of real assets? <Answer>
I. For a real asset which already exists, the application of cost approach is more suitable.
II. For a property with same risk-return characteristics, application of income approach is more suitable.
III. For a real asset which is to be brought and developed, the application of market approach is more suitable.
(a) Only (I) above
(b) Only (II) above
(c) Only (III) above
(d) Both (I) and (II) above
(e) All (I), (II) and (III) above. (1 mark)
68.Which of the following is/are not the characteristics of real estate market? <Answer>
I. In this market, each packet is unique.
II. There are relatively fewer players in the market.
III. The price of property is not influential.
IV. This market is subject to extensive Government controls.
(a) Only (III) above
(b) Only (IV) above
(c) Both (I) and (IV) above
(d) Both (II) and (III) above
(e) (I), (II) and (IV) above. (1 mark)
<Answer>
69.The net operating income from the property is Rs. 35,000. The required rate of return is 14%. For next two
years, the NOI is growing at a rate of 10% and after that it will grow at a constant rate of 5%. The market value
of the property is
(a) Rs.3,95,849
(b) Rs.3,99,851
(c) Rs.4,28,436
(d) Rs.4,31,242
(e) Rs.4,46,540. (2marks)
<Answer>
70.Which of the following physical factors affect the value of real asset?
(a) Interest rates
(b) Demography
(c) Business cycle
(d) Free hold
(e) Inflation. (1 mark)

13
<Answer>
71.The following information is pertaining to the assets and liabilities of Reliance mutual fund:
Break up of assets of MF
Receivables : 4.36%
Accrued income : 3.82%
Other current assets : 19.13%
Investment : 72.69%
Break up of liabilities of MF
Liabilities : 14.92%
Accrued expenses : 3.44%
Unit holder claim: 81.64%
The accrued expenses and accrued income are Rs.45 crores and Rs.50 crores respectively. If the number of
outstanding units is Rs.70 crores, the NAV per unit is
(a) Rs.11.00
(b) Rs.12.50
(c) Rs.13.67
(d) Rs.14.44
(e) Rs.15.26. (2marks)
<Answer>
72.Which of the following reasons are true for the close-ended mutual fund for the current price being less than the
NAV?
I. Investors’ doubt about the abilities of the fund’s management.
II. Lack of sales effort.
III. Riskiness of the fund.
IV. Lack of marketability of the fund’s units.
(a) Both (I) and (II) above
(b) Both (III) and (IV) above
(c) (I), (II) and (III) above
(d) (I), (III) and (IV) above
(e) All (I), (II), (III) and (IV) above. (1 mark)
<Answer>
73.The fund raised by Sun Mutual Fund under a scheme is Rs.550 crore. Its maximum initial issue expenses with
respect to that scheme can be
(a) Rs. 5.50 crore
(b) Rs.16.50 crore
(c) Rs.22.00 crore
(d) Rs.27.50 crore
(e) Rs.33.00 crore. (1 mark)
<Answer>
74.In case of pension funds, the amount by which the total assets of the company exceed the sum of its reserves is
called as
(a) Property capital
(b) Surplus capital
(c) Solvency capital
(d) Real capital
(e) Actuarial capital. (1 mark)
<Answer>
75.60 years old, Mr. Sharma is a retired employee of Union bank and his pensionable year of service is 35 years.
His last 10 months average monthly salary is Rs.25,000. The monthly pension that he recieves under Employees
Pension Scheme (EPS) is
(a) Rs.13,571
(b) Rs.13,500
(c) Rs.13,214
(d) Rs.12,857
(e) Rs.12,500. (2marks)

14
<Answer>
76.Andhra bank proposed to borrow on 11th December 2007 an amount of Rs.1 crore from Southern bank under
repo for a period of 14 days at an interest rate of 10% p.a. The security for this transaction is 7.5% CG2017. The
following information is related to the security:
Interest payments : 1st January and 1st July
Current price of the security : Rs.99.81
The repurchase price of the security is
(a) Rs.99,90,189
(b) Rs.99,91,395
(c) Rs.99,91,403
(d) Rs.99,91,801
(e) Rs.99,92,801. (3marks)

E
N
D

O
F

Q
U
E
S
T
I
O
N

P
A
P
E
R

Suggested Answers
Financial Markets (CFA550): January 2008
Answer Reason
1. B The minimum success ratio for the PDs should be 40% for T-Bills So commitment for aggregative < TOP
bidding would have been
= 600/0.40
= Rs. 1500 crore. Hence (b) is the answer.
2. C • A company for meeting its short-term requirements of funds, may accept or renew deposits for < TOP
less than 3 months.

Any unsecured loan brought in by promoters in pursuance to any stipulation by financial institutions
can not consider as public deposits.

No deposit repayable on demand or on notice can be accepted by a company.

The maximum maturity period for the deposits cannot exceed 60 months.

Hence correct answer is (c).

15
3. B It’s 1% less than the rate at which the company would have paid if the deposit had been accepted for < TOP
the period for which the deposit had actually run. In this case it would be
= 8.5% - 1% = 7.5%. Hence (b) is the answer.
4. A The government-dated securities are not issued at discount. They carry coupon rate. < TOP

All other statements are correct for to government-dated securities.


Hence (a) is the correct answer.
5. D High call rates indicate a tightness of liquidity in the financial system. Therefore statement (III) is < TOP
not correct.
All other statements are correct for call rates.
Hence (d) is the correct answer.
6. D < TOP
⎛ Days × Yield + 1⎞ = ⎛ Face Value ⎞
⎜ ⎟ ⎜ ⎟
⎝ 365 ⎠ ⎝ Pr ice ⎠
⎛ 364 × 0.0734 + 1⎞ = 100
⎜ ⎟
⎝ 365 ⎠ Pr ice
Price = Rs.93.18.
Hence (d) is the correct answer.
7. D The stamp duty payable on CP for maturity 9 months – 12 months = Rs.2 per Rs.1000 on the face < TOP
value of the CP. Hence Carbon Ltd. should pay stamp duty to the extent of 1,000*1,00,000*2/1000 =
Rs.2,00,000.
Hence (d) is the correct answer.
8. C Brokerage is 2% of the amount of public deposits raised if the tenure of the deposit is more than two < TOP
years.
∴ Brokerage = Rs.1,56,65,000*0.02
= Rs.3,13,300
Hence (c) is the correct answer.
9. B Characteristics of perfect market: < TOP

All the players in the market have all the information relating to the security and the market price of
security reflects all the available information
The flow of funds within the market and between the market should not be restricted by the
Government regulations
Transaction cost will depend on trading and settlement processes
Transparency in the trading mechanism and shorter settlement periods
All players in the market are price takers.
Hence (b) is the correct answer.
10. E The open market purchase of gilts will ease the liquidity of banks < TOP

If the interest rate structure is to be moved upwards, the prices of securities in the OMO can be set at
higher levels thereby signaling an upward movements in interest rates
The effort to cool the interest rate volatility through OMO may some time lead to an interest
differential loss to the RBI
IF the PLR is reduced , the CP rate may also come down
Cut in repo rates will result in bringing down the call rates and also other term money rates.
Hence (e) is the correct answer.
11. D Mr. Shah is withdrawing his deposit at the beginning of the 12th month hence he will be given the < TOP
interest for 11 months. Now as per Rule 8(1) of the Companies (Acceptance of Deposits) Rules,
1975 he will be given the interest at the rate of 10% because he is withdrawing the amount before
one year.
Therefore the interest will be 2,00,000 * 0.10 *11/12 = 18,333 (approx)
Hence the total amount that is to be refunded is 2,00,000 + 18,333 = Rs.2,18,333
Hence (d) is the correct answer.

16
12. A If a deposit held in a name of a person individually and the same depositor also holds a deposit < TOP
jointly with another person then they are treated as two different deposits.
Name of depositor Maximum amount insured
Prashant 1,00,000
Prashant 1,00,000
Srinivas 1,00,000
Nandgopal 95,000
Kalyan 82,000
Kalyan 90,000
Total 5,67,000
Hence the insurance premium payable is 567000*0.025/100 = Rs.141.75
13. C MMMFs are a special category of Mutual Funds, where returns are lower since liquidity levels are < TOP
high. These provide an investor the choice to invest for short-term. These invest mainly in high rated
paper so safety levels are quite high. Hence (c) is the correct choice.
14. A Asian Dollar CDs carry both fixed and floating interest rates. < TOP

Hence (a) is the correct answer.


15. E Asset Backed Commercial Paper sells at virtually no or very little risk premium. Sometimes, an < TOP
outside surety is also involved in the transaction. An organization with low credit rating or no credit
rating can also access finance through this paper. Hence statements (II) and (III) are true. Therefore
(e) is the correct answer.
16. B NAV < TOP

Public offering price = 1 − Sales ch arg e

( 4169.04 + 325.76 + 95.48 + 1146.46 − 977.12 − 225.84 ) / 320


= (1 − 0.025)

14.168
= 0.975 = Rs.14.53
17. C Put option < TOP

The put option is ‘out of the money’


a. Using First Method
Margin = Option premium for 1100 shares + 0.2 × Market price per share × 1100 –
The amount by which the contract is ‘out of money’
= 8 × 1100 + 0.2 × 323.90 × 1100 – (323.90 – 320) × 1100
= Rs.75,768
b. Using Second Method
Margin = Option premium for 1100 shares + 0.1 × stock market price × 1100
= 8 × 1100 + 0.1 × 323.90 × 1100
= Rs.44,429.
As the amount arrived through the first method is higher hence the margin amount for put
option
= Rs. 75,768.

17
18. D The following are true with respect to 364-Day T-Bills: < TOP

• The RBI does not discount these bills

The RBI does not participate in the auction of these bills

Auction of these bills takes place every fortnight

The auction amount of a bill is not conveyed before the date of auction

The yield on these bills can be used as a benchmark for determining the interest rate of floating
bonds.

Hence (d) is the correct answer.


19. C For this relationship to exist, There should be no external borrowings in the system and financial < TOP
liabilities should include stock issued to the outsiders. Statement (III) is not correct. Hence (I) and
(II) are true. Hence (c) is the correct answer
20. C If banks are having excess securities, then increase/ decrease in SLR will not have any impact on the < TOP
price and yield of the instruments. Statements (I) and (II) are correct. Hence (c) is the correct answer.

21. E Since the maturity of the instrument is 8 months. The total brokerage shall be as follows: 0.1% of the < TOP
issue amount = Rs.10,000. Hence (e) is the correct answer.

22. E All are the risk associated with the money market instruments. < TOP

Hence (e) is the correct answer.


23. A A CP can be issued by corporates but a CD can be issued only by banks and some permitted < TOP
financial institutions. But individuals and corporates can invest in both. A CP can be bought back
by issuer but a CD cannot be bought back by the issuer. A CD can be issued with a minimum size of
Rs.1 lakhs and in multiples of Rs.1 lakh, whereas a CP can be issued with a minimum size of Rs.5
lakhs and in multiples of Rs.5 lakhs. Hence (a) is the correct answer.

24. B The borrowers generally consider the following while entering into a deal: < TOP

• Low rates of interest

Minimum lead time when money is required

Access to funds up to the desired period of time

Minimum terms and conditions attached with the usage of funds

Minimum monitoring and interference from the lender

Freedom to set the repayment schedule according to the convenience of the borrower.

Satisfying the statutory reserve requirements and the capital adequacy norms is the objective of the
lender not the borrower.
Hence, option (b) is the correct answer.

18
25. C Following are some guidelines relating to CDs: < TOP

• Banks can issue CDs for a minimum period of 15 days to a maximum of one year, whereas

A financial institution can issue it for a minimum of one year and a maximum of 3 years.

CDs are subjected to stamp duty.

CDs can be transferred immediately after issue.

Premature payment or loans against CDs by the issuer is not allowed.

All CDs are subjected to usual CRR and SLR requirements.

Hence, option (c) is the correct answer.


26. C When Scout Ltd. accepted for 10% of short fall, its total devolvement accounted for Rs.2.5 crore. < TOP

Total devolvement on PDs = Rs.2.5 crore/0.10 = Rs.25 crore.


In case of dated securities, total devolvement on PDs is 25% of total short fall
Therefore, total short fall = Rs.25 crore/0.25 = Rs.100 crore
If the bids accepted at cut-off price are Rs.1000 crore, the amount notified is Rs.1100 crore,
(Rs.1000 crore + Rs.100 crore).
Hence, option (c) is the correct answer.
27. E All the mentioned securities are eligible for Repo transaction. Hence (e) is the correct answer. < TOP

28. D For public deposits the issuing company is required to maintain the liquid assets to the extent of < TOP
certain percentage of the deposits maturing during the financial year ending 31st March next. For this
purpose, the permitted investments are
Deposits held with a schedule bank, free from any lien.
Unencumbered securities of central or state government.
Unencumbered securities approved by Indian trust act.
Unencumbered bonds issued by HDFC.
Hence (d) is the correct answer
29. A < TOP
The turnover ratio can be calculated as follows:

300 + 230
= 9.64
55 . Hence (a) is the answer.
30. E < TOP
The value of n can be calculated as follows:

Facevalue Days * Yield


= +1
Pr ice 365
100 Days * 0.0568
= +1
94.64 365 Therefore n= 364 days
31. C It has to maintain 15% of the deposits maturing during 31st March of the next year in approved < TOP
securities. As deposits maturing during 31st March of the next year are Rs.200 crore, it has to
maintain Rs.30 crore worth of liquid assets. It has already invested Rs.20 crore in approved
securities. Gold and investment in corporate paper doesn’t fall under approved securities. Hence it
needs to invest Rs.10crore more. Therefore (c) is the correct answer.
32. E The forward margin is in premium. Premium for two months is collected assuming that the importer < TOP
takes delivery of the currency at the end of 2nd month. Hence, 2 months premium 14 paise is added to
the ask rate of Rs. 56.08 and as the bank requires a 2 paise margin, margin is also added to ask rate.
Hence, rate quoted is Rs. 56.24 ( 56.08 + 0.14 + 0.02)

19
33. B The bid-ask spread is seen to be higher in the retail market than in interbank market. This is because < TOP
of the higher volume and greater liquidity in the interbank market.

34. E < TOP


DKr DKr 1 1
(bid) = 5.8517 × = 0.7512
HK$ bid = US$ × HK$ / US$ (ask) 7.7893

DKr DKr 1 1
ask = ask × US$ ( bid ) = 5.8519 × = 0.7513
HK$ US$ HK$ 7.7891
35. D Future contract involves an agreement between two parties to buy/sell an asset at a predetermined < TOP
price on a future date. In such contract the credit risk involved is minimized by the clearing house by
being a counter party to all trades.
36. A In this case, since the swap points are in descending order, we have to subtract from the spot rates to < TOP
obtain the outright forward rates.
1 month forward : 39.55/39.64
2 month forward : 39.50/39.59
Since the delivery can take place any time during the second month, the bank will base its quote on
the more adverse of the one month and two month forward rates, as the bank has to buy $. When the
customer sell $ to obtain Rupees, the most adverse rate the bank will quote for him is Rs.39.50/$
Subtracting a margin of 0.5%, the rate quoted by the bank will be (39.50)(1-.005)= Rs.39.30/$
37. D On the ask side the premium is 35 points which is spread over (30+31) 61 days. The required < TOP
maturity is 29 days away from the august maturity. Hence the premium charged by the bank over and
above the August rate will be 35*29/61, i.e., 17 points. Hence the rate charged will be
5.5885+.0017= SFr5.5902/$.
38. C US dollar is at premium against rupee. Assuming that the dollar is delivered on the first day of the < TOP
option period, premium is to be taken for 2 months only
Rs /$ Spot bid rate 39.70
Add premium for 2 months 0.20
39.90
Less exchange margin at 0.10% 0.04
Forward buying rate for dollar 39.86
US dollar is at discount against euro. Since selling rate is to be considered earlier delivery ask rate
for 2 months is to be taken i.e. 0.7075(.7088-.0013)
39.86
Rate to be quoted for Euro = 0.7075
= Rs.56.34
39. E Till the bank credits Dollars in Khanna & Khanna A/c, they will be running clean risk and if bank < TOP
fails to do so, they have to put up with the loss. This type of risk also known as settlement risk, may
arise in international transactions owing to time-zone differences.
Hence (e) is correct answer.
40. A The bank has to offset its position created by the early delivery, the bank will have to sell dollar spot < TOP
at @ Rs.39.20 and will have to pay premium of 15paise for the swap. This cost of 15paise will be
charged to the customer. Since the bank pays Rs.39.40/$ to exporter and receives Rs.39.20/$ from
the market, there will be outlay of fund to the extent of 20paise per dollar for the duration of swap
i.e. 1 month the bank will charge 14% interest. In addition to swap cost and interest, exporter will
have to pay Rs.100 flat charges to the bank.
Inflow from dollar sale: 1,000,000*39.40 Rs.39,400,000
Swap charges paid: 0.15*1,000,000 150,000
Interest paid: 0.20*1,000,000*0.14/12 2333
Flat charges 100
Total outflow Rs.152,433
Net inflow Rs.39,247,567

20
41. C Having receivables in a foreign currency is being long on foreign currency, when home currency is < TOP
depreciating result in profit to the dealer as he is going to get more amount of home currency against
foreign currency.
Hence (c) is correct answer.
42. C Stock price after one month: 33*1.12112= Rs. 37 < TOP

Warrant price after one month: 7*1.2857= Rs. 9


Stock warrant ratio =stock price/warrant price
= 37/9 = 4.11
Hence answer is (c).
43. A The warrants which are attached to the host debentures and can be exercised only, if the host < TOP
debenture is surrendered are referred as wedding warrants. Hence, alternative (a) is answer.

44. E If the issuer has the option to redeem the convertible security for cash, common stock, subordinated < TOP
notes, or for a combination of the three, it is called soft put.

45. C Intrinsic value of the bond =100 PVIFA (12%, 10) + 1000 PVIF (12%,10) < TOP

= 100 × 5.65 + 1000 × 0.322 = Rs.887


Convertible price of the bond = 50 × Rs.17 = Rs.850
The greater of intrinsic value and convertible price = Rs.887 which is minimum price of the bond.
46. C Conversion premium = (Market price of the bond – Conversion value)/Conversion value < TOP

= (962–45×17)/ 45×17 = 25.75%


Current yield = 80/962 = 8.32%
Dividend yield = 0.9/17 = 5.29%
Pay back period = [%Premium/(1+%Premium)]/[Current Yield – Dividend
Yield/(1+%Premium)] = 0.2575/(1.2575)/ (0.0832 – 0.0529/1.2575)) = 4.978 years
47. A OAD is influenced by the ratio of price of non-callable bond to the price of callable bond. < TOP

OAD is indirectly dependent on price of call option.


The delta of the call option does have influence on OAD.
So answer is (a).
48. B Mini-Max FRNs consist of minimum and maximum coupons. Investors benefit in terms of high < TOP
spread over the LIBOR but have to agree to minimum rate as well as a maximum rate on their noted,
the differential between the two being very small. These are also referred to as collared FRNs.
49. D The conversion value of the bond = 41 × 15 = Rs.615 < TOP

The investment value of the bond = Rs.500


The market premium = (Market price of the bond – Investment value)/Market price of bond
= (663 – 500)/663 = 24.59%
50. C Conversion parity price of stock = Bond Price/Number of shares on version per warrant = 665/40 = < TOP
Rs.16.625
The price of the should increase by (16.625 – 15)/15 = 10.83% from Rs.15 to reach conversion parity
price of Rs.16.625
51. B In case of a puttable bond, Investor acquires a right to exercise his option at predetermined price. < TOP

Puttable bond involve two trnsactions- purchase of a non-puttable bond and purchsae of a put option
on the bond purchsae
Investor will exercise the put option when the market yield is greater than the coupon rate on the
bond.
Price of the puttable bond is equal to the price of the non- puttable bond and price of the put option.
So answer is (b).
52. C Conversion premium = Market price of the bond – Conversion value = 983–18×X < TOP

Break even period = Conversion premium/ (Interest income – Dividends)


= [983–18×X] /(90–1×X) = 2.075 years
Conversion rate (X) = 50
21
53. E Future contracts are traded in an organized location know as exchange. < TOP

Terms of the contract are highly standardized.


Contrcts are cleared by seprate clearing house.
Future contracts can be easily closed.
Hence answer is (e).
54. E The backwardation in a futures market refers to < TOP

(i) when the futures prices are lower than cash prices and
(ii) when the basis is positive. The difference between the cash price and futures price of a
commodity is referred to as ‘basis’.
55. D The margin depends on the price volatility of the underlying. Exchanges generally set this margin < TOP
equal to
Margin = μ + 3σ
Where μ is the average daily absolute change in the value of the contract and σ is the standard
deviation of these changes measured over a period of time.
Substituting the given values, we get
Margin = 2.50 × 1000 + 3 × 0.5 × 1000 = 2500 + 1500 = 4000.
Hence the correct answer is (d).
56. C Call option is a contract that confers the right, but not an obligation to the holder to buy an < TOP
underlying asset at a price agreed on a specific date or by a specific expiry date. In the given case,
the investor is interested to hedge his forex payments and have a minimum risk position. Hence, it is
better for him to enter into a call option to purchase the required forex at an agreed price on the
expected future date. Thus if the exchange rate behaves against the expectation the investor shall not
exercise his right and the loss that will be incurred will be only the premium paid by him to the
writer of the option. Hence, the answer is (c).
Though payment can be hedged through purchasing the forex futures or entering into a forward
contract to purchase, there is no downside limit to the loss that can be incurred
57. E The traders in a futures exchange, who tend to carry positions for longer periods are known as < TOP
‘position traders’.

58. C In the situation, given your long position you have profited from the price increase. < TOP

Therefore, option (c) is the correct answer.


59. C An option writer who writes a call option has an obligation to sell whereas the buyer or the holder < TOP
has the option to buy. A call option will be exercised by the buyer only when the price of the stock
on the expiration day is more than the strike price of the call option. In the given case as the price of
the stock on the expiration day is less than the strike price, the option holder will not exercise the
option and pays the premium of the option to the writer. Hence, the gain to the writer will be
premium which in this case is Rs.3.
60. B The time to expiration is directly related to the option premium. Longer the time to expiration, higher < TOP
is the option premium. Thus, other things being equal, call option premiums for a given asset tend to
increase when the time to expiration increases.
61. E All the statements are the use of the security market indices, so correct answer is (e). < TOP

62. A OTCEI was established to have faster transaction, greater liquidity in the market and a trnsparency in < TOP
trnsactions.
Compnies with an issued capital ranging from Rs.30 lakh to less than Rs. 3 crore are eligible to list
their shares under OTCEI.
OTCEI is first screen-based trading exchange in India.
OTCEI permit trading of equity and debentures.
So the answer is (a)
63. D In discretionary orders, the broker has the discretion to decide whether to buy or sell the security and < TOP
also its price.

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64. B Executive committee looks the day to day functioning of the organization and strives to attain the < TOP
objectives

65. C Beneficiary owner account is used to hold and transact in commodity balance only. < TOP

Clearing member pool account is used for the purpose of the settlement of delivery obligation.
So answer is (c).
66. E The commodity markets can be divided in the three groups: < TOP

• Agricultural market

Metal market

Energy market

So the answer is (e).


67. B • For a real asset which already exists, the application of market approach is more suitable. < TOP

For a property with same risk-return characteristics, application of income approach is


more suitable.

For a real asset which is to be brought and developed, the application of cost approach is more
suitable.

Hence answer is (b).


68. A • In this market each packet is unique. < TOP

There are relatively fewer players in the market.

The price of property is influential.

This market is subject to extensive Government controls.

So answer is (a).
69. E 2 2 < TOP
35000(1.10) 35000(1.10) 35000(1.10) (1.05)
= + +
(1.14) (0.14 − 0.05)
2 2
(1.14) (1.14)
= Rs.4,46,540.
70. D The micro factors are identified as physical characteristics like size, age, quality and location and < TOP
leasehold/freehold. All under (a) (b) (c) and (e) are macro factors. So answer is (d).

71. E Using the for break-up of assets of mutual fund, we can calculate the value of total assets as follows: < TOP

Total Assets of the fund = Accrued Income/% of accrued income in total assets
= 50/0.0382 = 1308.9
Unit holders Claim
NAV= Number of Units = 1308.9 × 0.8164/70 = 1068.59/70 = Rs15.26
Hence the correct answer is (e).
72. E The reasons for the current market price being less than the NAV can be as follows: < TOP

I. Investors’ doubt about the abilities of the fund’s management.


II. Lack of sales effort.
III. Riskiness of the fund.
IV. Lack of marketability of the fund’s units.
Therefore, Option (e) is the correct answer.

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73. E The initial issue expenses in respect of any scheme may not exceed 6% of the fund raised under that < TOP
scheme. So maximum initial issue expenses can be [Rs.550 crore* 0.06]= Rs.33 crore.
So correct option is (e).
74. C The amount by which the total assets of the company exceed the sun of its reserves than it is called < TOP
solvency capital.

75. C Monthly pension under EPS = {pensionable salary *( pensionable year of service+2)}/70 < TOP

= {25000*(35+2)}/70
= Rs. 13,214
76. B 7.5% CG2017 < TOP

Amount in Rs.
Value of the security 99,81,000.00
Interest for the period 1st July to 10th December 3,33,333.33
Total 1,03,14,333.33
This actual amount borrowed will , therefore be 1,03,14,333.33
Since the contract envisage payment of interest on the borrowing at 10% for 14
days the interest is 1,03,14,333.33*.10*14/365 39,561.83
Total amount to be paid by Andhra bank to Southern bank 1,03,53,895.16
The price of the buyback of the security will be now worked out as under
Amount to be paid 1,03,53,895.16
Interest for 174 days i.e. from 1st July to 25th December 3,62,500.00
Price of the security 99,91,395.16

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