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. _______________________________________________________________________
_______________________________________________________________________
3. _______________________________________________________________________
_______________________________________________________________________

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

Question No. 2.
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. If 3-month LIBOR proves to be 4.5% for the 3-month period the
cash flows to the lender will be how much?

Question No.3.
A Bank has 100 million rupees to invest in any of the two fixed income bonds. You
are being asked to evaluate which bond will be safer for investment.
Bond 1
Par
100
Maturity
15 years
Coupon
12% (semi annually)
YTM
10%
Compute the DV01 of each bond.

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?

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Question No.4.
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. How much
interest payment will be made quarterly?

Question No.5.
Bond Principal (rs)

Time to Maturity

Annual
Coupon

100
1 Year
0
100
1.5 Year
Rs 8
100
2 Year
Rs 12
Half the coupon is assumed paid every six months.

I.
II.

Bond Price
90
96
101.6

Compute the zero rates for Year 1, 1.5 and 2.

Compute the zero rate for 1.85 year by bootstrap method.

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Question No. 6.

Write short notes on the followings:

New York Stock Exchange______

_________________________________________________________________________________
Karachi Stock Exchange _____

__________________________________________________________________________________
London Stock Exchange_____

__________________________________________________________________________________

Question No.7

Write a short note on the pricing of Bank Loan.

______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
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______________________________________________________________________________
______________________________________________________________________________

Gold is currently priced at Rs 44,000 per tola. 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.
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 45,000
Question No.8.

Question No.9.
I.

Give very short answers of the followings:

Ladder Maturity approach

__________________________________________

II.

Repo

__________________________________________

III.

Scalpers

__________________________________________

IV.

Reinvestment Risk

__________________________________________

V.

Short Sale

__________________________________________
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VI.

Investment Grade Bonds

__________________________________________

VII.

Default Risk

__________________________________________

VIII.

Bonds Duration

__________________________________________

IX.

Merchant Banking

__________________________________________

X.

Maintenance Margin
__________________________________________

Question No.10.

True False Statements

1.
True__ False
Primary earning assets of commercial banks are
securities and deposits
from customers.
2.
True__ False
Liquidity refers to the ease of converting an asset
into money quickly and
at a high exchange cost.
3.
True__ False
Barbell maturity approach is investing smaller
portion of funds in short
term maturity bonds.
4.
True__ False
Default risk is the risk that the borrower may be able
to pay the promised
interest but not the principal on maturity.
5.
True__ False
Type III securities are speculative grade securities.
6.
True__ False
Price risk and reinvestment risk are the two types of
interest rate risks.
7.
True__ False
Passive management of interest rate is purchasing
the long term securities
with the intention of holding them until maturity.
8.
True__ False
In credit analysis ,capacity is the ability to repay.
9.
True__ False
Character in credit analysis is the willingness to pay,
which is measured
through future performance.
10. True__ False
Seasonal working capital is also called standby letter
of credit.
11. True__ False
Short duration working capital loan is called term
loan.
12. True__ False
Management of investment securities require both
liquidity and
profitability.
13. True__ False
A preapproved credit facility usually of more than 1
year, enabling a
banks customer to borrow upto the specified maximum
amount at any time during the relevant period of time is
called letter of credit.
14. True__ False
The rate charged by the bank for the unused portion
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of a line of credit is
called commitment fee.
15. True__ False
The narrowest definition of investment banking is the
underwriting and
raising capital in the secondary markets.

Question No.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.

GOOD LUCK

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