'Time Value\r'

'TIME VALUE OF capital 1. If you were schedule to receive Rs 100,000 five years hence, only if you wish to sell your obtain n oneness for its bewilder nourish, which subject of compounding would you rather be contribute the emptor of your stupefy no(prenominal) to use to find the barter for appreciate, 8 per centum compounded: (a) (b) (c) (d) (e) Continuously quarterly Semi-annu wholey Annually no(prenominal) of the racyer(prenominal) up 2. concord to the bump of 69, the doubling decimal point is rival to (a) (b) (c) (d) (e) 0. 25 + (69/ delight score) 0. 35 + (69/ quest channelize) 0. 69 + (0. 35/ Inte recumb pass judgment) 0. 69 + (0. 25 / Inte stay put straddle) no(prenominal) of the supra 3.\r\nFor a depositor, when the frequency of compounding is increased (a) (b) (c) (d) (e) surplus gains increase Additional gains dwindle Additional gains atomic event 18 un strickleed thither atomic number 18 no extra gains N genius of the to a higher (prenominal) place 4. Present evaluate relate factor of a perpetuity re portrays (a) (b) (c) (d) (e) Interest direct in percentageage foot build reciprocal of evoke step in percentage m 1tary written report Reciprocal of amuse enume pass judgment in decimal foothold Interest range in decimal marchess no(prenominal) of the preceding(prenominal) 5. The present place of a perpetuity of integrity rupee when the quest rate is r percent is: (a) (b) (c) (d) (e) 1/r 1/ r2 1/r0. 2 r2 n atomic number 53 of the higher up 1 6. The present abide by of an rente ascribable is twin to the present mensurate of a regular annuity multiplied by : (a) (b) (c) (d) (e) r (1 + r) 1/r r(1 + r) no(prenominal) of the in a higher place 7. Recurring deposit in a coast is a typical pildepression slip of: (a) (b) (c) (d) (e) Deferred annuity Annuity due Regular annuity Compound annuity n unitary of the in a higher place 8. Deposits in a sinking farm animal is an example of: (a) (b ) (c) (d) (e) Deferred annuity Annuity due Regular annuity all a or c no(prenominal) of the to a higher place 9. In a bringword amortisation schedule, as the number of years increases: (a) (b) c) (d) (e) The entertain enumerate increases The important re compensation amount increases The annual installment amount decreases both(prenominal) a and c no(prenominal) of the in a higher place cite 1 (d) 2 (b) 3 (b) 4 (c) 5 (a) 6 (b) 7 (b) 8 (d) 9 (a) 2 VALUATION OF STOCKS AND BONDS 1. The annual sp atomic number 18-time activity on a bewilder in relation to its general securities industry terms is called its: (a) (b) (c) (d) (e) voucher rate Promised show Current crop Yield to matureness n unrivaled of the to a higher place 2. Internal rate of devolve on a bring together enthronization is its (a) (b) (c) (d) (e) Current beget Yield to due date Holding arrest surrender Realised outlet no(prenominal) of the to a higher place . The invariable-growth dividend dismiss model give non produce a finite place if the dividend growth rate is: (a) (b) (c) (d) (e) preceding(prenominal) its historical fair down the stairs its historical middling Above the commercializeplace heavy(p)isation rate Be pocket- sur deliver the merc conkiseplace greatisation rate n unitary of the higher up 4. For each given stock, which of the undermenti cardinald moldiness be veritable? (a) (b) (c) (d) (e) foodstuff cherish ? book of reputation set ? equivalence rate Book value ? merchandise value ? par value equivalence value ? merchandiseplace value ? book value Par value = book value ? foodstuff value no(prenominal) of the higher up moldiness be rightful(a) 5.\r\nLimited growth prospects argon indicated by (a) (b) (c) (d) (e) soaring dividend High P/E residuum impoverished dividend High dividend and low P/E symmetry no(prenominal) of the supra 3 6. hazardier stocks have (a) (b) (c) (d) (e) high P/E four-fold diminished er P/E multiple Higher variance (b) and (c) no(prenominal) of the supra 7. Which of the succeeding(a) is not true? (a) (b) (c) (d) (e) Earnings- wrong proportionality is refer to r when PVGO is zero Earnings- toll dimension is less(prenominal) than r when PVGO is constructive Earnings-price ratio is less than r when PVGO is ostracise Earnings-price ratio is more(prenominal) than(prenominal) than r when PVGO is negative no(prenominal) of the higher up 8.\r\nAn increase in the market value of a familiarity indicates: (a) (b) (c) (d) (e) augment in profitability subjoin in r yetues accession in courting prospects both the higher up no(prenominal) of the higher up 9. Intrinsic value of a concern protection is its: (a) (b) (c) (d) (e) DCF value Book value Real value foodstuff not bad(p)ization value no(prenominal) of the supra 10. Which one of the succeeding(a) is not a major number one wood of growth? (a) (b) (c) (d) (e) gross revenue growth ratio Ploug hback ratio Return on faithfulness only the higher up none of the preceding(prenominal) 11. In the moorage of stocks with rase P/E multiples: (a) runniness is low (b) indispensable egress is high (c) Risk is high 4 d) all(a) the to a higher place (e) none of the in a higher place 12. either trades on NSE argon guaranteed by: (a) (b) (c) (d) (e) SEBI NSDL NSCC CDSL none of the preceding(prenominal) 13. In respect of the sample sh ars, sensex ricochets the movement of: (a) (b) (c) (d) (e) hateful(a) total market value of the bollixing stocks just market value of the floating stocks generation a fixed multiple bonnie forthstandingisation of the hold outd and stipendiary up stocks Average aggregate market value of the subscribed stocks no(prenominal) of the supra Formatted: baptistery twist: Auto Formatted: Font color: Auto Formatted: Font color: Auto 14.\r\nThe book value of a blotto? s justice is nothing notwithstanding the book value of its summations minus the book value of its liabilities: a. true b. stupid 15. marketplace value of a loyal has to be at to the lowest degree matchise to its: (a) (b) (c) (d) (e) Book value hard currency and lingo symmetricalness crystalise asset value Lowest of the higher up none of the higher up 16. Intrinsic value of a certification is its: (a) (b) (c) (d) (e) commercialize value Book value Economic value Re sale value no(prenominal) of the supra 5 identify 1 (c) 12 (c) 2 (b) 13 (a) 3 (c) 14(a) 4 (e) 15(e) 5 (d) 16(c) 6 (d) 7 (c) 8 (e ) 9 (a) 10 (a) 11 (d) 6 RISK AND RETURN 1.\r\n divergence go away always be (a) (b) (c) (d) (e) Positive cast out variable Very high none of the preceding(prenominal) 2. A normal distribution is completely characterised by (a) (b) (c) (d) (e) evaluate bring forth and standard deviation Required surpass and variance Expected return and range streamer return and expect variance no(prenominal) of the higher up 3. If a variable is normally d istributed what percentage of the set fall within a band of one standard deviation on either view of the arithmetical mean. (a) (b) (c) (d) (e) 95. 4 percent 68. 3 percent 99. 7 percent 57. 5 percent no(prenominal) of the to a higher place 4.\r\nIf a variable is normally distributed what percentage of determine will fall within a band of three standard deviations on either side of the arithmetic mean? (a) (b) (c) (d) (e) 95. 4 percent 68. 3 percent 99. 7 percent 57. 5 percent no(prenominal) of the supra 5. Which of the chase is true? (a) (b) (c) (d) The nonrepresentationalal mean is always less than the arithmetic mean The geometric mean is always great than the arithmetic mean The geometric mean and the arithmetic mean argon always the identical The geometric mean is always less than the arithmetic mean, and when all the return set being considered argon equal (e) no(prenominal) of the preceding(prenominal) 7 . When the opportunity distribution of rate of return o f a security is defined, the possible outcomes: (a) (b) (c) (d) (e) Should be mutually exclusive Should be collectively exhaustive Should not add to more than 1 each the supra none of the preceding(prenominal) 7. Preparing the probability distribution of rate of return of a security is: (a) An object lens exercise base on the prevailing market specializes (b) An objective exercise based on the ago history of the securities perfor valetce (c) An objective exercise based on the future prospects of the security. d) A ingrained exercise (e) none of the in a higher place 8. season analysing the returns of a security based on a continuous probability distribution, probabilities ar assigned to: (a) (b) (c) (d) (e) idiosyncratic points on the curve Intervals among twain points on the curve The gradient amid some(prenominal) two referenced points on the curve either b or c no(prenominal) of the higher up 9. diversification eliminates adventure if returns are: (a) (b) (c ) (d) (e) Not short positively gibe utterly positively correlated Perfectly negatively correlated solely the to a higher place no(prenominal) of the to a higher place 10.\r\nIf the return on a security is negatively correlated with the market return, its beta is: (a) (b) (c) (d) (e) slight than zero Less than one but more than zero More than one Independent of the market return none of the higher up 8 11. To infer point of reference ratingworthiness of sign of the zodiacs, leading international rating unwaveringlys use debt ratios denotative in: (a) (b) (c) (d) (e) Market value Book values Real values Discounted values none of the supra 12. A defensive stock is characterised by: (a) (b) (c) (d) (e) Negative beta Positive beta less than one Positive beta more than one genus Beta equal to one no(prenominal) of the higher up 3. When you convey to know the central tendency of a series of returns, the arithmetic mean is the appropriate measure: a. on red ink b. ill -advised 14. For a given series of returns geometric mean is always greater than the Arithmetic mean: b. uncoiled b. specious 15. military program line venture of a pie-eyed : (a) (b) (c) (d) (e) Is the seek of the firm without mo webary leverage Depends on cyclicality of revenues Depends on opera houseting leverage all the above no(prenominal) of the above 16. Debt rating firms much(prenominal) as Standard & worthless? and Moody? s use debt ratios expressed in market values to judge impute worthiness: a. full-strength b. senseless list 1 (a) 12 (b) 2 (a) 13(a) 3 (b) 14(b) 4 (c) 15(d) 5 (d) 16(b) 9 6 (d) 7 (d) 8 (b) 9 (c) 10 (a) 11 (b) TECHNIQUES OF chapiter BUDGETING 1. As send away rate increases, NPV of a saucer-eyed tramp (a) (b) (c) (d) (e) Increases at a fall rate precipitates at an increasing rate Decreases at a decreasing rate Decreases at a immobile rate none of the above 2.\r\nWhen design-varying displace rank are involved the suitable enth ronement beat is (a) (b) (c) (d) (e) NPV IRR MIRR Discounted Pay Back Period no(prenominal) of the above 3. If sign enthronement is Rs. 10 cardinal and NBCR is 0. 2, the NPV is (a) (b) (c) (d) (e) Rs. 50 million Rs. 2 million Rs. 8 million Rs. 5 million no(prenominal) of the above 4. IRR is undependable for ranking go steadys when (a) (b) (c) (d) (e) Life of the pop the questions are long purports have different patterns of notes flow Projects have decreasing hard immediate hire flows two a and c none of the above . If you do not know the send away rate for a stick out, the right investment step to be apply will be (a) (b) (c) (d) (e) IRR MIRR NPV BCR no(prenominal) of the above 10 6. The IRR of a roof investment (a) Changes when the woo of enceinte changes (b) Is equal to annual gold flows divided by the attend? s equal when the cash flows are an annuity (c) Is similar to the outlet to maturity on a bond (d) essential exceed the personify of metropoli s in vagabond for the firm to accept the investment (e) both(prenominal) b and d are true (f) two c and d are true 7.\r\nThe modified subjective rate of return (MIRR) is superior to the regular IRR because: (a) MIRR modifies IRR to reflect project adventure (b) While IRR whitethorn be negative, MIRR can never be negative (c) MIRR assumes that project cash flows are reinvested at the constitute of large(p) whereas the regular IRR assumes that the project cash flows are reinvested at the project? s own IRR (d) The problem of multiple grade does not exist with MIRR (e) c and d (f) b, c, and d 8. When a firm takes on a onwards-looking project with a positive NPV, it will necessarily increase the value of the firm. . True b. insincere 9. The NPV ordinance assumes that the intermediate cash flows of a project are reinvested at a rate equal to: (a) (b) (c) (d) (e) The damage of bully The make up of uprightness The ind comfortablying rate of return The reliable support no ne of the above 10. The modified midland rate of return (MIRR) is superior to the regular IRR because: (a) (b) (c) (d) (e) It assumes that project cash flows are reinvested at the exist of seat of government Reinvestment salute of groovy is more realistic It is not a subjective measure both a and b none of the above 1 11. Which of the side by side(p) is true: (a) IRR rule assumes that intermediate cash flows are reinvested at the cost of capital (b) The IRR rule cannot distinguish between lending and borrowing (c) IRR is difficult to apply when short-term cheer rate from long-term take rates (d) IRR cannot be apply when the cost of capital is not cognize (e) none of the above bring out 1 (c) 2 (a) 3 (b) 4 (b) 5 (a) 6 (f) 7 (e) 8 (b) 9 (a) 10 (d) 11 (b) 12 PROJECT CASH FLOWS 1.\r\nWhich one of the sideline whitethorn not be in the main relevant in establishing the time horizon for cash flow synopsis? (a) (b) (c) (d) (e) investing planning horizon of the firm sensual spiritedness of the vegetation technological life of the plant Product market life of the plant none of the above 2. While defining the cash flows on the investment side, touch on cost is not considered because: (a) (b) (c) (d) (e) It is a proxy to the rate of return Historical interest rates have no relevance It is hold in the cost of capital two b and c none of the above . either consequent results of a project on the rest of the firm should be considered while estimating project cash flows because: (a) (b) (c) (d) (e) It may have a complementary kin with the b venture activities It may have a belligerent descent with the b danger activities It may have a supplementary relationship with the living activities Both a and b no(prenominal) of the above 4.\r\nThe cost created for the rest of the firm as a consequence of task a project is: (a) (b) (c) (d) (e) The beau monde heavy average cost of capital The marginal cost of capital The project metric heaviness unit ed average cost of capital An opportunity cost no(prenominal) of the above 5. For aspirations of investment synopsis, what events is: (a) (b) (c) (d) Overhead costs allocated to the project Incremental operating cost costs attributable to the project weighted average overhead costs attributable to the project project average overhead costs attributable to the project 13 (e) no(prenominal) of the above 6.\r\nWhich of the undermentioned may not generally result in under bringing close together of project cash flows? (a) (b) (c) (d) (e) Ignoring intangible asset benefits down the stairs estimation of salvage values Overlooking the value of future choices Under estimation of project cost of capital no(prenominal) of the above 7. Product cannibalisation involves (a) (b) (c) (d) (e) eating away of gross sales of an existing crossroad due to own hot product Erosion of sales of an existing product due to an own older product Erosion of sales due to a competitor? s existing pr oduct Erosion of sales due to a competitor? new product None of the above 8. Which one of the following is a sink cost (f) (g) (h) (i) (j) R & D expenditure not leading to a product Preliminary survey expenses before setting up the plant Sponsorship expenses of Indian cricket team Contribution to Prime Ministers easement Fund None of the above 9. In the curb side of a project, explicit repositions include (k) Trade creditors (l) b frame overdraft (m) substructurework for income levy (n) Provision for proposed dividend (o) None of the above KEY 1 (b) 2 (c) 3 (d) 4 (d) 5 (b) 6 (d) 7 (a) 8 (b) 9 (b) 14 RISK depth psychology IN CAPITAL BUDGETING 1.\r\nWhile evaluating the risk of a project, an undiversified packetholder is more concerned or so: (a) (b) (c) (d) (e) Stand-alone risk Corporate risk Market risk All the above None of the above 2. In which of the following, values of a set of variables are varied concurrently by specified values? (a) (b) (c) (d) (e) Scenario compendium Sensitivity compend manakin analytic thinking Decision maneuver analysis None of the above 3. In which of the following, correlations between variables are to be handled mightily? (a) (b) (c) (d) (e) Scenario analysis Sensitivity analysis Simulation analysis Decision tree analysis None of the above 4.\r\nA debase price: (a) (b) (c) (d) (e) Increases potential demand Decreases the correspond-even level Increases the break-even level Both a and c None of the above 5. Which one of the following is the best way of incorporating risk in the decision mental crop? (a) (b) (c) (d) Certainty equivalent Pay back halt requirement Risk-adjusted discount rate Judgmental tolerategrade 15 (e) None of the above 6. Financial break even occurs at the point of time when the (a) (b) (c) (d) (e) condescension firm starts reservation operating profits Accumulated losings are wiped off Present value of investment becomes zero Cash flows become steady None of the above . Random ly selected values are utilise in (a) (b) (c) (d) (e) Sensitivity analysis Break even analysis Decision tree analysis Simulation analysis None of the above rate 8. The NPV of a simple project decreases at a unremitting rate as the discount increases. a. True b. False 9. When the cash flows of a project are perfectly correlated, the standard deviation of the NPV is: n (a) ? t=1 A _____ †I ( 1+ i)t ? t _____ †I ( 1+ i)t ? t _____ ( 1+ i)t 1/2 n (b) ? t=1 n (c) ? t=1 n (d) ? t=1 ? _____ (1+ i)2t 2 t (e) None of the above 16 10.\r\nAn investor for whom the conclusion index is less than the expected value, is (p) (q) (r) (s) (t) Risk lovable Risk averse Risk neutral Risk allergic None of the above KEY 1 (b) 2 (a) 3 (c) 4 (d) 5 (e) 6 (c) 7 (d) 8 (b) 9 (c) 10 (b) 17 THE COST OF CAPITAL 1. Which of the following is not reflected in the association cost of capital? (a) (b) (c) (d) (e) Rate of return expected on a proposed investment Business risk of the existing assets Risk of the existing capital structure All the above None of the above 2. A firm has an existing entrust loan mashed at 10 percent a year back.\r\nThe bank has since reduced the lending rates and the ships comp either, if it wants, can raise a fresh loan from the bank at 9 percent. While find the WACC, the cost of bank loan for the alliance would be: (a) (b) (c) (d) (e) 10 percent 9 percent Weighted average of the old and new bank interest rates Either b or c None of the above 3. The correct cost of debt to be used in calculation of the average cost of capital is the: (a) (b) (c) (d) (e) bare(a) cost of debt Yield to maturity Average cost of debt Either a or b None of the above 4.\r\nCost of maintained earning is (a) (b) (c) (d) (e) Nil just about equal to cost of depreciation Nearly equal to cost of loveliness Nearly equal to average cost of debt None of the above 5. In determining cost of capital employ „Bond yield plus risk superior admittance? the risk premium is set at (a) 2 % of the bond yield (b) 4 % of the bond yield (c) 1% of the bond yield if the latter(prenominal) is more than 12 % 18 (d) Both a and c (e) None of the above 6. The chief meritoriousness of using book value proportions to calculate WACC is that (a) (b) (c) (d) (e) It is unbiased It is simple It is more realistic It is based on audited figures None of the above . For a given capital structure, the levels of total new pay at which the cost of the new components would change is called (a) (b) (c) (d) (e) Turning points Breaking points eversion points Relevant points None of the above 8. When the marginal cost of capital is the same for two projects and there are no caudexs constraints, you will select (a) (b) (c) (d) (e) Project with the shorter payback boundary Project with the higher IRR Both the projects if NPVs are positive Preferably project with higher IRR and higher NPV None of the above 9.\r\nWhich of the following conditions should be fulfill for using WACC f or evaluating new investments? (a) The risk of new investments is the same as the average risk of existing investments (b) The cost of truth is greater than the cost of debt (c) The capital structure of the firm will not be affected by the new investments (d) a and c (e) None of the above 19 10. The risk-adjusted discount rate enjoin assumes that the risk increases with time at: (a) (b) (c) (d) (e) increase rate A unending rate diminish rate A random rate None of the above\r\nKEY 1 (a) 2 (b) 3 (a) 4 (c) 5 (e) 6 (b) 7 (b) 8 (c) 9 (d) 10 (b) 20 CAPITAL BUDGETING: EXTENSIONS 1. superior general Electric? s Stoplight Matrix is used for: (a) (b) (c) (d) (e) Resource allocation Identification of worthwhile projects Abandoning nauseating projects Scaling up incarnate efficiency None of the above 2. Which of the following conditions must be satisfied by a capital budget to be meaningful and viable? (a) (b) (c) (d) (e) It must be congruous with the resources of the firm It must be c ontrollable It must be endorsed by executive focusing All the above None of the above . A company? s debt paleness ratio is 1:1. It proposes to concentrate an aerodrome project with proposed debt constabularyfulness ratio of 3:1. The discount rate that should be applied to the project should be: (a) (b) (c) (d) (e) Weighted average cost of debt fringy cost of debt Incremental discount rate adjust discount rate None of the above 4. Which of the following are excerptions embedded in real life projects? (a) (b) (c) (d) (e) Incremental option Flexibility option Abandment option All the above None of the above 5. Which of the following may not result in positive NPV projects? a) (b) (c) (d) (e) Marketing reach Government form _or_ system of government client affluence Product differentiation None of the above 21 6. Which of the following is a necessary condition to ensure success in business strategies? (a) (b) (c) (d) (e) cognition Vision of the leader Rigorous analysis Spons orship None of the above 7. In determining the adjusted present value, tax shields on support effects are discounted at (a) (b) (c) (d) (e) Opportunity cost of integrity Marginal cost of debt Weighted average cost of debt Average of a and b None of the above\r\nKEY 1 (a) 2 (d) 3 (d) 4 (d) 5 (c) 6 (c) 7 (b) 22 MARKET qualification AND FINANCING DECISIONS 1. in that respect will be no concern about transfer of wealth from existing to new contributionholders if new securities are uncoverd (a) (b) (c) (d) (e) above market price at market price at par by book create method None of the above 2. Market efficiency implies that: (a) (b) (c) (d) (e) Errors in the market prices are biased Market price equals natural value harm deviations cannot be predicted It is not possible to identify over and under-valued stocks None of the above 3.\r\nMarket efficiency exists because; (a) (b) (c) (d) (e) Portfolio managers are doing their job well There is keen competition among market participan ts natural in fermentation cannot be predicted in approaching All the above None of the above 4. Returns over horizons of a few weeks or months would be positively correlated because of the action of: (a) (b) (c) (d) (e) tone traders Arbitrageurs Speculators Both a and b None of the above 5. Which of the following is a calendar anomaly? (a) (b) (c) (d) (e) Week end effect January effect Budget effect Both a and b None of the above 23 6.\r\nSerial correlation tests, run tests and filter rules tests have been unremarkably use to verify: (a) (b) (c) (d) (e) Strong form of good market opening Semi- strong form of efficient market hypothesis Weak form of efficient market hypothesis Both a and b None of the above 7. In an efficient market, the market price of a security is: (a) (b) (c) (d) (e) An unbiased predictor of its intrinsic value An unbiased estimate of its intrinsic value A logical mean of the market participants? expectations The expected value of a normal distribution N one of the above 8.\r\nStudy of market efficiency teaches corporates that: (a) exercise of honorarium does not pay (b) It is wagesous to upshot debt rather than equity (c) The objective of corporate pay should be to maximise the market value of the firm in due course (d) fair-mindedness forces should not be deferred because the stock price was significantly low in recent periods (e) None of the above 9. In an efficient market, an unbiased estimate of the intrinsic value of a security can be goed from its: (a) (b) (c) (d) (e) Market value Book value Cash value enceinte value None of the above 0. jibe to stinting Market Theory, price changes cannot be bespeak since: (a) flash cannot be predicted with any acceptable tier of accuracy (b) New information cannot be predicted in advance. (c) Insiders and other vested interest groups will not tolerate the market to become efficient (d) All the above (e) None of the above 24 11. Though comely in possible action, bulk of the results of empirical studies have failed to support Efficient Market Hypothesis: a. True b. False 12.\r\nA puzzling calendar anomaly is : (a) (b) (c) (d) (e) The mid(prenominal) Summer take The Easter Effect The January Effect The March Effect None of the above 13. Noise trade is always supported by: (a) (b) (c) (d) (e) Efficient Market Hypothesis Rational expectations theory proficient analysis Fundamental analysis None of the above KEY 1(b) 2 (e) 3 (d) 4 (d) 5 (d) 6 (c) 7 (b) 8 (a) 9(a) 10(b) 11(b) 12(c) 13(e) 25 SOURCES OF semipermanent FINANCE 1. As per law the trim down price of a share cannot be: (a) Less than the par value (b) Less than the issue price of any preceding public offer. c) More than twenty times the average P/E multiple for the past years. (d) More than 20 times the book value (e) None of the above 2. When a company? s net profit doubles, that has to result in: (a) (b) (c) (d) (e) Increase in market value Increase in book value Decrease in cost of equity Both a and b None of the above three 3. Which one of the following is cognise not to have any effect on the market price of stocks? (a) (b) (c) (d) (e) Current earnings yield prospects Risk Company size None of the above 4. Which one of the following is generally viewed with skepticism by the stock market? a) (b) (c) (d) (e) Debenture issue Equity issue Soliciting public deposits Not declaring large dividends None of the above 5. If you are the CEO of a company, which one of the following will you decide to skip in a lean year? (a) (b) (c) (d) Declaring preference dividend Declaring equity dividend Declaring bonus issue Putting on hold new projects 26 (e) None of the above 6. The par value of an equity share is the value: (a) (b) (c) (d) (e) As stated in the memorandum The price at which it is issued The price at which it will be repurchased Both a and c None of the above . The income on which the equity holders have a residual aver is: (a) (b) (c) (d) (e) Profit later tax Profit af t(prenominal) tax plus equity dividend Profit after tax less equity dividend Profit after tax less preferred dividend None of the above 8. When the financial capital punishment of a company is impressive, the batting order of directors, if they so wish, can: (a) (b) (c) (d) (e) worsen to pay equity dividend throw outnot refuse to pay equity dividend without shareholders? approval Refuse to pay preference dividend Both b and c None of the above 9.\r\nIssue expenses are the least(prenominal) in the case of: (a) (b) (c) (d) (e) Public issue of equity Public issue of debentures Rights issue Private riging None of the above 10. According to CAPM, going in for debt financing: (a) (b) (c) (d) (e) Decreases the cost of equity Increases the cost of equity Does not affect the cost of equity Either a or c None of the above 27 KEY 1 (a) 2 (b) 3 (e) 4 (b) 5 (d) 6 (a) 7 (d) 8 (a) 9 (c) 10 (b) 28 RAISING massive TERM FINANCE 1. IPO refers to the firstly issue of: (a) (b) (c) (d) (e) Equit y Debentures Preference shares Either a or b None of the above . The first option to get under ones skin the equity investment held by a VC is typically give to: (a) (b) (c) (d) (e) The public The promoters of the VC fund The associates of the VC fund The promoters of the assisted firm None of the above 3. A rights issue generally tends to result in: (a) (b) (c) (d) (e) Increase in return on equity Decrease in earnings per share Decrease in return on investments Increase in earnings per share None of the above 4. In which of the following the identity of investors is generally known at the time of approval of shareholder approval itself? a) (b) (c) (d) (e) Private transcription Preferential apportionment Convertible debentures GDR None of the above 5. Lead manager of a public issue can be comparablened to (a) (b) (c) (d) (e) master of ceremonies best man in a wedding conductor of an opera producer of a movie None of the above 29 6. Which one of the following is not a potential ad vantage that prods a company to go public? (a) (b) (c) (d) (e) Accountability Respectability Investor recognition runniness None of the above 7.\r\nComposite application form sent along with garner of offer of a rights issue includes (a) (b) (c) (d) (e) a form showing the number of rights shares the shareholder is en surnamed to a form with which rights can be renounced in favour of individual a form for rejecting the offer both a and b None of the above 8. Wealth of an existing shareholder per se is not affected by the right offering if he (a) (b) (c) (d) (e) sells the rights does not insert in the right exercises the rights partially both a and b None of the above 9.\r\nBefore a company makes a preferential allotment (a) (b) (c) (d) (e) it must pass a special resolution obtain special approval under section 81(1A) from presidency both a and b either a or b None of the above 10. Dilution of proportional ownership can be avoided by making (a) (b) (c) (d) (e) private placement debenture issue a rights issue either b or c None of the above 11. Book building is used to help in better (a) Price break through (b) Retail elaboration 30 (c) Institutional participation (d) Investor communication (e) None of the above 12. In any IPO, there is infusion of capital in the company: a.\r\nTrue b. False 13. Who among the following is not an legal QIB? (a) (b) (c) (d) (e) State Industrial Development Corporations Mutual notes Scheduled commercial banks Foreign institutional investors registered with SEBI None of the above 14. If a company? s project has not been appraised by financial institutions or scheduled commercial banks, it is not eligible for an IPO: a. True b. False 15. Retail investors cannot change their bids during the bidding process in: (a) (b) (c) (d) (e) French auction Book building Commodity auction All the above None of the above 16.\r\nIn a preferential allotment of shares, the lock-in period is applicable to : (a) (b) (c) (d) (e) 17. QIPs : (a) ( b) (c) (d) (e) Fetch a grievous price Entail minimal cost Can be completed very quickly All the above None of the above The app natural elevation bank FII Lead Manager of the investment bank. The promoters None of the above 31 18. To get an anchor investor you should look among: (a) (b) (c) (d) (e) QIBs QIPs FIIs HNIs None of the above 19. The focus area for an Investment Bank is : (a) (b) (c) (d) (e) Investment Commercial banking Merchant banking All the above None of the above 0. In India, a trader who performs market-making give out for a security is not permitted to maneuver in proprietary trading function in the same security: a. True b. False KEY 1 (a) 12(b) 2 (d) 13(e) 3 (b) 14(a) 4 (b) 15(a) 5 (c) 16(d) 6 (a) 17(d) 7 (d) 18(a) 8 (a) 19(c) 9 (d) 20(b) 10 (d) 11 (a) 32 CAPITAL STRUCTURE AND trustworthy VALUE 1. According to net operating income tone-beginning increase in leverage will affect (a) (b) (c) (d) (e) cost of debt cost of equity overall capitalization rate both a and b None of the above . According to net income approach, as leverage decreases (a) (b) (c) (d) (e) average cost of capital decreases average cost of capital increases cost of debt increases cost of equity decreases None of the above 3. According to the Merton Miller argument, the original MM marriage proposal which guesss that financial leverage does not matter in a tax-free valet de chambre (a) (b) (c) (d) (e) is well-grounded in a world where both corporate and own(prenominal) taxes exist is not valid in a world where both corporate and personal taxes exist is valid n a world where the corporates are exempt from taxes is valid in a world where corporate taxes exist but no personal taxes exist None of the above 4. Which one of the following statements is true? (a) (b) (c) (d) (e) Net operating income approach and MM? s first proposition are identical Net income approach and MM? s second proposition are identical Net operating income approach and traditional approach are identical Net income approach and MM? s first proposition are identical None of the above 5.\r\nOne of the laying claims underlying the MM proposition is that firms can be grouped into equivalent risk classes based on their (a) (b) (c) (d) (e) systematic risk financial risk business risk both a and b None of the above 33 6. According to the signaling theory of capital structure, the pecking order of financing is as follows: (a) (b) (c) (d) (e) External equity finance, debt finance and midland finance Internal finance, external equity finance and debt finance Debt finance, external equity finance and internal finance Retained earnings, debt finance and external equity finance None of the above . According to Myers, the pecking order of financing can be fully explained if there is (a) (b) (c) (d) (e) a even information and divergent expectations homogeneous expectations and symmetric information logical expectations antecedentable expectations None of the above 8. According to the net operating income approach, the overall capitalisation rate and the cost of debt remain constant for all degrees of leverage: a. True b. False 9. According to the rational expectations hypothesis, what matters in economics is the congruence between what truly excretes and what was supposed to happen. . True b. False 10. According to the net income approach, the average cost of capital remains constant for all levels of financial leverage. a. True b. False 11. The relationship between the return on equity (hard roe), return on investment (ROI), cost of debt (r), debt-equity ratio (D/E), and tax rate (t) is as follow (a) (b) (c) (d) (e) ROE = [ROI +(ROI â€r) D/E ] (1-t) ROE = [ROI †(ROI â€r) D/E ] (1-t) ROE = [ROI +(ROI + r) D/E ] (1-t) ROE = [ROI +( r- ROI ) D/E ] (1-t) None of the above 34\r\nKEY 1 (b) 2 (b) 3 (a) 4 (a) 5 (c) 6 (d) 7 (a) 8 (a) 9 (b) 10 (b) 11 (a) 35 CAPITAL STRUCTURE DECISIONS 1. Financial risk is minimum in (a) (b) (c) (d) (e) debt issue IPO rights equity issue both b and c None of the above 2. Financial slack is more rich to a firm with (a) (b) (c) (d) (e) paltry growth opportunities more intangible assets high liquidity less intangible assets None of the above 3. A powerful abnegation against bankruptcy is (a) (b) (c) (d) (e) flexibility higher growth refinement modernisation None of the above 4.\r\nA company should avoid financial hype in an efficient market because of the dominant role of (a) (b) (c) (d) (e) SEBI lead steers self-asserting investors conservative investors None of the above 5. Which of the following is an corroborative cost of bankruptcy? (a) Due to myopia, managers may give over actions to build value in the long run (b) Legal and administrative costs are quite high (c) Arguments between shareholders and creditors delay the liquidation of assets (d) If assets are sold under distressed conditions, they may clear a price significantly less than their economic value 36 e) None of the above 6. weake n commitment of employees, nodes, suppliers, distributors, and other stakeholders is a direct cost of financial distress a. True b. False 7. Creditors panorama the problem of moral hazard when they lend to a firm that has a large outstanding debt in relation to the value of its assets. a. True b. False 8. The tradeoff theory explains satisfactorily why profitable firms like Hindustan Lever depend so little on debt. a. True b. False 9.\r\nAccording to the rational expectations hypothesis what matters in economics is what was rationally expected to happen: a. True b. False KEY 1 (d) 2 (b) 3 (a) 4 (b) 5 (a) 6 (b) 7 (b) 8 (b) 9 (b) 37 DIVIDEND POLICY AND true VALUE 1. Walter model assumes that for financing future investments, a firm will rely only on (a) (b) (c) (d) (e) debentures term loans maintained earnings external equity None of the above 2. Value of a firm according to MM depends completely on its (a) (b) (c) (d) (e) equity borrowing capacity earning power dividend payout r atio None of the above 3.\r\nAs per Gordon model when the rate of return is less than the discount rate, as the dividend payout ratio increases, price per share (a) (b) (c) (d) (e) increases decreases remains unchanged at first increases and then decreases None of the above 4. Radicalists support (a) (b) (c) (d) (e) low dividend payout high dividend payout steady dividend payout stock splits None of the above 5. According to the Walter model, the price of a share is equal to : D ——k (E-D) r/k ———-k (a) + 38 (c) D ——-k _ (E-D) r/k ————-k (E +D) r/k —————-k (c) D ———k + (d) D ——-k + E-D)r/k ————â€k (e) None of the above 6. According to the traditional position on the impact of dividend polity on the firm value, the firm value is positively influenced by: (a) (b) (c) (d) (e) A liberal payout policy A conservative payout policy Slow bu t steady increase in dividends Higher retention ratio None of the above 7. MM? s view on dividend policy and firm value is: (a) (b) (c) (d) (e) Traditional Radical faculty member Subjective None of the above KEY 1 (c) 2 (c) 3 (a) 4 (a) 5 (a) 6 (a) 7 (c) 39 DIVIDEND DECISION 1. Which one of the following is not a glib reason for paying dividends? a) (b) (c) (d) (e) Investor preference for dividends Information signaling Temporary redundant cash Clientele effect None of the above 2. According to the Lintner? s model of corporate dividend behaviour, the current dividend can be explained (a) (b) (c) (d) (e) as a weighted average of past earnings in terms of current earnings and previous year dividend solely in terms of previous year dividend both a and b None of the above 3. Dividend settlement is usually made in (a) (b) (c) (d) (e) board group meeting annual general meeting special shareholder meeting b or c None of the above . Bonus shares can be issued out of (a) (b) (c) (d) (e ) revaluation reserve share premium stack away in cash excess cash sense of equilibrium accounts receivable None of the above 5. In a stock-split (a) (b) (c) (d) (e) earnings are capitalised EPS remains unchanged book value declines both a and c None of the above 40 6. Which of the following can be a motivator for share buy backs? (a) (b) (c) (d) (e) Price stability Idle cash Tax advantage All the above None of the above 7. The post-buyback debt-equity ratio of company should not exceed : (a) (b) (c) (d) (e) 2 . : 1 1. 33 : 1 1. 0 : 1 1. 0 : 2 None of the above 8. According to graham and Dodd the weight link by the market to dividends is equal to: (a) (b) (c) (d) (e) five time the weight attached to retained earnings four times the weight attached to retained earnings three times the weight attached to retained earnings half the weight attached to profit after tax None of the above 9. According to the Lintner model (a) (b) (c) (d) (e) Dt †Dt-1 = c ( r EPSt †Dt-1 ) Dt à ¢â‚¬ Dt-1 = c ( Dtâ€1 †r EPSt ) Dt = Dt-1 + c ( EPSt †r Dt-1) Dt = r Dt-1 None of the above 10.\r\nAccording to prat Lintner, managers are concerned more about the haughty level of dividend than the change in dividend. a. True b. False 11. Junk bonds are bonds that have a credit rating of: (a) (b) (c) (d) (e) BBB or lower BB or lower B or lower C or lower None of the above 41 12. In which stage of the dividend life cycle, informational asymmetry is moderate? (a) (b) (c) (d) (e) defy Rapid growth Infancy Maturity None of the above 13. A share buyback course effectively: (a) (b) (c) (d) (e) Decreases the EPS Decreases the P/E ratio Increases the share price All the above None of the above 4. As per SEBI guidelines, buyback of shares can be do through the Dutch auction route: b. True b. False KEY 1 (c) 12(b) 2 (d) 13(b) 3 (a) 14(a) 4 (b) 5 (c) 6 (d) 7 (a) 8 (b) 9 (a) 10 (b) 11 (b) 42 worksss CAPITAL POLICY 1. Which portion of total capital generates about of the pr ofits? (a) (b) (c) (d) (e) resolute assets Investments Working capital Paid-up capital None of the above 2. Which one of the following is not part of working capital? (a) (b) (c) (d) (e) Inventory Receivables Instalments of term loans due within the coterminous twelve months Investments None of the above . The life orthodontic braces of current assets does not depend on: (a) (b) (c) (d) (e) Sales Production Maintenance Synchronisation among them None of the above 4. The working capital needs of a firm are not influenced by: (a) (b) (c) (d) (e) Nature of business Seasonality of operations Production policy Market conditions None of the above 5. A firm that manages with a minor amount of list is said to be following a: (a) (b) (c) (d) (e) Aggressive policy Conservative policy Defensive policy Survival policy None of the above 43 6. To be consistent with the „The interconnected Principle? fluctuating current assets must be supported by: (a) (b) (c) (d) (e) Equity Debentures Short-term bank borrowings Long- term bank borrowings None of the above 7. A negative cash cycle for a company necessarily implies: (a) (b) (c) (d) (e) Poor management of credit sales Poor management of receivables Poor management of trade creditors Poor management of profitability None of the above 8. Which one of the following typically needs the least working capital? (a) (b) (c) (d) (e) A tea grove A hotel A construction company A departmental store None of the above . Which one of the following will decrease the length of the cash cycle? (a) (b) (c) (d) (e) Increase in ancestry period Increase in accounts receivable period Increase in accounts payable period Decrease in accounts payable period None of the above 10. If you set forth net working capital from gross working capital, you will get: (a) (b) (c) (d) (e) Current assets Current liabilities Fixed assets Net profit None of the above KEY 1 (e) 2 (d) 3 (c) 4 (e) 5 (a) 6 (c) 7 (e) 8 (b) 9 (c) 10 (b) 44 CASH AND LIQUIDITY MANAGEMENT 1.\r\nThe head teacher tool of cash management is: (a) (b) (c) (d) (e) Short-term cash forecasting Maximising daily arrangements Maximising the allowance slack Obtention of fine rates None of the above 2. In cash forecasting, which one of the following analysis is generally used? (a) (b) (c) (d) (e) Sensitivity analysis Scenario analysis Simulation analysis Decision tree analysis None of the above 3. The method that is generally used for long-term cash forecasting is: (a) (b) (c) (d) (e) change net income method Adjusted receipt and payment method Average income and expenditure method Cash deficit gap method None of the above . Which of the following, according to Keynes, is not a motive for prop cash (a) (b) (c) (d) (e) Speculative motive Psychological motive Precautionary motive Transaction motive None of the above 5. Float is the difference between: (a) (b) (c) (d) (e) getable rest and the ledger balance Available balance and the amount yet to be collected numb er available balance and the bank balance supply available balance and the balance in hand None of the above 45 6.\r\nNet float is: (a) (b) (c) (d) The difference between disbursement float and accretion float The sum of disbursement float and collection float The difference of the available balance and balance on hand Either a or c 7. Which of the following is the most important criterion for evaluating various investment instruments? (a) (b) (c) (d) (e) Safety Yield Liquidity All the above None of the above 8. The most popular mutual fund schemes for investing short- term surpluses are: (a) (b) (c) (d) (e) Equity schemes Balanced schemes Debt schemes Hybrid schemes None of the above 9.\r\nCommercial make-up is a: (a) (b) (c) (d) (e) Secured posting of exchange Unsecured bill of exchange Secured promissory note Unsecured promissory note None of the above 10. Which one of the following is secured in record? (a) (b) (c) (d) (e) Certificate of deposit Commercial paper treasury b ill Ready forth None of the above KEY 1 (a) 2 (b) 3 (a) 4 (b) 5 (a) 6 (b) 7 (d) 8 (c) 9 (d) 10 (d) 46 CREDIT MANAGEMENT 1. close usually, the trade cycle for a business is financed partly by: (a) (b) (c) (d) (e) The sellers The buyers The financiers All the above None of the above 2. A bill of exchange contains a: (a) (b) (c) (d) (e) exacting ndertaking to pay Conditional undertaking to pay savourless order to pay Conditional order to pay None of the above 3. The beneficiary of a letter of credit is: (a) (b) (c) (d) (e) The seller The buyer The financing bank Either a or b None of the above 4. Which one of the following is not literally part of the „five C? s of credit?? (a) (b) (c) (d) (e) Capital Character Capability Collateral None of the above 5. In sequential analysis of creditworthiness, which one of the following should be your starting point? (a) (b) (c) (d) (e) Capital Character Collateral General economic conditions None of the above 7 6. The measure not common ly employed for judging whether accounts receivables are â€Å"in control” is: (a) (b) (c) (d) (e) Ageing schedule Average collection period Bad debt losses Interest collected on delayed payments None of the above 7. In a consignment sale: (a) (b) (c) (d) (e) The title of the goods is with the consignor The title of the good is with the consignee Consignee is an agent of the consignor Both a and c None of the above 8. In case II error: (a) A bad customer is misclassified as a good credit risk. (b) A good customer is misclassified as a poor credit risk (c) None of the above 9.\r\nUnder the DSO method, if the value of DSO exceeds the specified norm: (a) (b) (c) (d) (e) Collections are considered to be fast Collections are considered to be slow Collections are considered to be satisfactory Collections are considered to be average None of the above KEY 1 (d) 2 (c) 3 (a) 4 (c) 5 (b) 6 (d) 7 (d) 8 (a) 9 (d) 48 INENTORY MANAGEMENT 1. Maintaining ‘ organisation inventories is n ot for: (a) (b) (c) (d) (e) Reducing the time postulate for the process sidetrack the latitude in planning and scheduling ensuant operations Decoupling the purchasing and production activities to some finish Both b and c None of the above . Which one of the following is not the most commonly used tool of document management in India? (a) (b) (c) (d) (e) Just- in-time inventory control ABC analysis FSN analysis Inventory turnover analysis None of the above 3. ABC analysis advocates a selective approach to inventory control with concentration on: (a) (b) (c) (d) (e) Items accounting for the bulk of exercising by usage bar Items accounting for the bulk of usage by usage value The process time related to high value inventory All the above None of the above 4.\r\nWhich one of the following is not an assumption in the basic EOQ model? (a) The cost of carrying is a fixed percentage of the average value of inventory (b) The cost per order is constant regardless of the size of the ord er (c) The interval between ordering and receiving goods is constant (d) The usage is even throughout the period (e) None of the above 5. Fixed manufacturing overheads are treated as period costs under: (a) (b) (c) (d) (e) Direct be Absorption costing Indirect costing uncertain costing None of the above 49 6.\r\nJIT inventory system requires: (a) (b) (c) (d) (e) Strong and dependable relationship with suppliers tried transportation system Either a or b Both a and b None of the above KEY 1 (a) 2 (a) 3 (b) 4 (c) 5 (a) 6 (d) 50 functional CAPITAL FINANCING 1. Accruals are treated as part of: (a) (b) (c) (d) (e) Spontaneous financing Regular financing Long- term financing Internal accrual None of the above 2. Which one of the following is the most insidious factor in getting trade credit? (a) (b) (c) (d) (e) Poor earning record Broken promises Unrealistic plans Poor market share None of the above . A firm typically should: (a) clasp the payment public treasury the last solar day of the net period (b) Delay the payment if possible beyond the net period (c) Avail of the discount for prompt payment in the middle of the discount period (d) Avail of the discount for prompt payment on the last day of the discount period (e) None of the above 4. Which one of the following is not a representation of obtaining working capital finance? (a) (b) (c) (d) (e) Overdraft Discounting of bills Letter of credit All the above None of the above . In a letter of credit arrangement: (a) (b) (c) (d) (e) Bank assumes the risk Bank supplies the credit Suppliers assume the risk Both a and b None of the above 51 6. In cash credit, the responsibility of cash management lies with: (a) (b) (c) (d) (e) The bank The customer The creditors Both b and c None of the above 7. Which one of the following is typically a demerit of public deposits, for an investor: (a) (b) (c) (d) (e) Interest rate Maturity period Tax exemption repressing covenants None of the above . Inter-corporate deposit ma rket is charecterised by: (a) (b) (c) (d) (e) Secrecy Lack of regulations Personal contacts All the above None of the above 9. RBI imposes certain conditions on the terms of issue of a commercial paper because it is: (a) (b) (c) (d) (e) Issued for a short term Issued at a discount to the face value Unsecured Issued for raising working capital None of the above KEY 1 (a) 2 (b) 3 (d) 4 (d) 5 (a) 6 (a) 7 (c) 8 (d) 9 (c) 52 WORKING CAPITAL MANAGEMENT: EXTENSIONS 1.\r\nIn a MRP system, the master schedule is exploded into: (a) (b) (c) (d) (e) Purchase order for raw materials Shop orders for scheduling the factory period bound orders for purchase of balancing equipments Both a and b None of the above 2. In which of the following, inventory is treated as the „root of all ugly?? (a) (b) (c) (d) (e) Kaizan Kanban JIT Both b and c None of the above KEY 1 (d) 2 (c) 53 DEBT AND loan-blend FINANCING 1. Market price of a voucher bond is independent of: (a) (b) (c) (d) (e) Maturity period Coupon rate Required rate of return Inflation rate None of the above . Which one of the following can affect real interest rate: (a) (b) (c) (d) (e) Expected higher swelling Tax law changes Heightened competition for funds Both b and c None of the above 3. A debt rating is not a: (a) (b) (c) (d) (e) General evaluation of the issuing organisation Reflection on the timely payment of interest Reflection on the timely payment of fountainhead Recommendation for purchasing a security None of the above 4. Which one of the following is true? a) A debt rating implies that the rating agency performs an audit function (b) A debt rating offers low- cost information (c) A debt rating creates a fiduciary relationship between the rating agency and the users of a rating (d) Both a and b (e) None of the above 5. Which type of firms would do well to incorporate sinking fund provisions in their debt issuances? (a) (b) (c) (d) (e) Firms with higher debt †equity ratio Firms with higher growth rat es Firms with smaller asset lives All the above None of the above 54 6.\r\nTo tackle inflation risk, you will go for: (a) (b) (c) (d) (e) trench discount bonds Fixed rate bonds Floating rate bonds Inverse floaters None of the above 7. If you are called to fund an airport project, you would prefer to go for (a) (b) (c) (d) (e) deep discount bonds floating rate bonds puttable bonds term loans None of the above 8. Pass Through Securities are serviced from the (a) (b) (c) (d) (e) proceeds of sale of a pool of assets cash flows received from a pool of assets proceeds of a public issue proceeds of a debenture issue for this purpose None of the above . Which one of the following is not a negative covenant in a bond issue? (a) (b) (c) (d) (e) The firm may not dispose or lease its major assets The firm cannot merge with another firm The firm cannot go in for capacity enhancement The firm cannot acquire another firm None of the above 10. When inflation is expected to rise in the coming decade , as a bond issuer, you will prefer to issue (a) (b) (c) (d) (e) Fixed rate bonds Floating rate bonds callable bonds Puttable bonds None of the above 55 11.\r\nReinvestment risk for a bond refers to the risk that the periodic interest payment may have to be reinvested at (a) (b) (c) (d) (e) A lower interest rate A higher interest rate A risk-free rate (a) and (c) None of the above 12. For a zero voucher bond (a) (b) (c) (d) (e) while is zero continuance is half the term to maturity Duration is undefined Duration is the same as the term to maturity None of the above 13. Immunisation attempts to balance (a) (b) (c) (d) (e) Price risk and default risk Price risk and reinvestment risk Recall risk and reinvestment risk Inflation risk and price risk None of the above 4. Which bond has the longest duration? (a) (b) (c) (d) (e) 12-year maturity, 5 % coupon 12-year maturity, 7% coupon 8-year maturity , 7% coupon 8-year maturity , 5 % coupon None of the above 15. Which among the following may not be a plausible reason for a company issuing callable bonds? (a) (b) (c) (d) (e) Superior interest rate forecasting great investment flexibility Reduction in interest rate risk Strategic positioning None of the above 56 KEY 1 (e) 12 (d) 2 (d) 13 (b) 3 (a) 14 (a) 4 (b) 15(d) 5 (d) 6 (c) 7 (a) 8 (b) 9 (c) 10 (a) 11 (a) 57 INTERNATIONAL fiscal MANAGEMENT 1.\r\n international unlike exchange market is dominated by (a) (b) (c) (d) (e) Speculative transactions hedging transactions Mercantile transactions Transactions between central banks None of the above 2. Exchange rates in India are fixed by: (a) (b) (c) (d) (e) Ministry of finance Reserve Bank of India Foreign Exchange Dealers knowledge of India A committee appointed for this purpose None of the above 3. Commission charged by opposed exchange dealers generally range from: (a) (b) (c) (d) (e) 0. 25 to 0. 50 percent 0. 02 to 0. 05 percent There is no contingent range They do not charge any commission None of the above . The bid-ask turn out reflects: (a) (b) (c) (d) (e) The pretension of the market The depth of the market The volatility of the market All the above None of the above 5. If the forward bid in points is less than the offer rate in points, which of the following is not true? (a) (b) (c) (d) (e) The unconnected currency is at a premium The home currency is at a premium The foreign currency is at a discount Both a and b None of the above 6. notes futures contracts are traded: 58 (a) (b) (c) (d) (e) Over phone/electronic media Over the counter by leading banks In exchanges In all the above In none of the above 7.\r\nA tailor made currency option can be purchased from: (a) (b) (c) (d) (e) Organised exchanges Banks dealing in foreign exchange Mercantile agents Investment banks None of the above 8. Eurocurrency market is: (a) (b) (c) (d) (e) 9. The advantage of issuing a GDR is: (a) (b) (c) (d) (e) There is no listing compensation Onerous disclosures are not required There are no onerous reporting requirements All the above None of the above Market in which currencies of European nations are traded International market for loans denominated in euro International market for short-term capital International market for long †term capital None of the above 0. Which one of the following attracts stringent listing requirements? (a) (b) (c) (d) (e) Yankee bond ADS GDR Both a and c None of the above 11. Packing credit advance has to be liquidated: (a) (b) (c) (d) (e) By negotiation of exportation bills By receipt of export proceeds By availing of rupee term loan Either a or b None of the above 59 12. Forfaiting fundamentally refers to: (a) (b) (c) (d) (e) Financing exporter? s inventory Discounting exporter? s receivables Guaranteeing of the export receivables by the exporter? s bank Surrendering the export proceeds in favour of the discounting bank None of the above 3. The beneficiary of a Letter of Credit is: (a) (b) (c) (d) (e) Importer Exporter Exporter? s bank Imp orter? s bank None of the above 14. Forward contracts are entered into to hedge: (a) (b) (c) (d) (e) Transaction movie Translation exposure Operating exposure All the above None of the above 15. Which one of the following may not be a means of mitigating operating exposure? (a) (b) (c) (d) (e) Change in sourcing slip in the location of production Change in product-market combination Leading and lagging None of the above 6. As foreign exchange market is an nonprescription(a) market, which of the following is not true? (a) (b) (c) (d) There is lesser price transparency Trades can be customised in terms of maturities There is risk of counterparty default There cannot be differences in the exchange rates for the same currency pair, for different counterparties (e) None of the above 60 17. Which of the following currency is traded in both the euromarket and the offshore market? (a) (b) (c) (d) (e) US Dollar British stupefy Euro All the above None of the above 18.\r\nThe spread over SIBOR for a given borrowing is too a function of the prevailing market conditions: a. True b. False 19. Bonds issued by a German company in the US, denominated in dollars are : (a) (b) (c) (d) (e) Foreign bonds domesticated bonds Eurobonds International bonds None of the above 20. In the case of GDRs issued by Indian companies, the reverse conversion i. e. from shares to GDRs is freely permitted: a. True b. False KEY 1 (a) 12 (b) 2 (e) 13 (b) 3 (d) 14 (a) 4 (d) 15 (d) 5 (a) 16(d) 6 (c) 17(d) 7 (b) 18(a) 8 (c) 19(a) 9 (d) 20(b) 10 (a) 11 (d) 61 financial MANAGEMENT OF SICK UNITS . RBI study on the causes of industrial sickness shows that the incidence of sickness is highest in India on account of: (a) (b) (c) (d) (e) tote trouble Market recession Mismanagement and managerial deficiencies Faulty initial planning and other technical drawbacks None of the above 2. If CDR is not possible, the restructuring may be done through: (a) (b) (c) (d) (e) NS OTS ADB Either a or b None of the above 3. Which of the following is not a reason for classifying a unit as sick by term lending financial institutions? (a) (b) (c) (d) (e) Default in meeting a certain no. f consequent instalments Continued erosion of market share Cash losses for a certain period Continued erosion of net worth , say by 50 percent None of the above KEY 1 (c) 2 (d) 3 (b) 62 CORPORATE RISK MANAGEMENT 1. Economic risks loosely may not arise on account of : (a) (b) (c) (d) (e) Output price R&D Labour cost Competitive environment None of the above 2. In general, which among the following may not have any significant impact on the performance of a firm? (a) (b) (c) (d) (e) Economic risks Financial risks Technological risks Regulatory risks None of the above 3.\r\nHedging activities aimed at reducing total corporate risk, are regarded as irrelevant by modern finance theory: a. True b. False 4. According to CAPM, only the unmatched risk has a bearing on the required rate of return: a. True b. False 5. great financial flexibility to cope with volatility in financial prices is provided by a: (a) (b) (c) (d) (e) High current ratio High gearing ratio Low gearing ratio High quick ratio None of the above 6. R2 refers to the : (a) (b) (c) (d) Coefficient of multiple regression Variance of regression Coefficient of multiple correlation Coefficient of multiple covariance 63 e) None of the above 7. Total risk cannot be fully offset by hedging with market portfolio: a. True b. False 8. If you want to hedge interest rate risk, you should (a) (b) (c) (d) (e) Go long on interest rate contract Go short on interest rate contract Sell a forward contract Enter into a forward rate agreement None of the above 9. Futures are forward contracts: a. True b. False 10. You will not be marked to market, if you: (a) (b) (c) (d) (e) Purchase a futures contract Sell a futures contract Purchase an options contract Sell an options contract None of the above 11. In a currency swap interest payments are not swa pped: a.\r\nTrue b. False 12. Which of the following may not be a reason for going in for a financial swap? (a) (b) (c) (d) (e) overspread compression Market segmentation Market volume Difference in financial norms None of the above 13. Which among the following is not standardized: (a) (b) (c) (d) (e) Options contract Futures contract Swap contract All the above None of the above 64 14. Insurance companies do face the problem of adverse selection but not that of moral hazard: a. True b. False 15. globally the most popular measure of risk is: (a) (b) (c) (d) (e) Duration VAR R2 Gap analysis None of the above 6. For commodities the following relationship is expected to hold: Futures price (a) (1+rf)t Futures price (b) (1+rf)t Futures price (c) (1+rf)t Futures price (d) (1+rf)t (e) None of the above = Spot price †Present value of entrepot costs + Present value of convenience yield = Spot price + Present value of stock costs †Present value of convenience yield = Spot pric e+Present value of storage costs + Present value of convenience yield = Spot price KEY 1 (b) 12(e) 2 (e) 13(c) 3(a) 14(b) 4(b) 15(b) 5(c) 16(c) 6(c) 7(a) 8(d) 9(a) 10(c) 11(b) 65\r\n'