Page 1 of 24 Roll No.... Membership No The Institute of Chartered Accountants of India Forex & Treasury Management Certificate Course Evaluation Test Booklet Paper 112th January, 2014 Duration- 3 Hours Total Marks- 100 INSTRUCTIONS: 1. Please read the instructions carefully given in the question paper and solve it in the space provided. 2. Thecandidatesarenotallowedtocarrytheevaluationtestbookletwiththem.This should be tied up with sheets provided to answer the question Paper. 3. Use Blue/Black pen only. 4. DonotwriteyourRollNo.orNameorotheridentificationotherthaninthespace (perforated) provided on this sheet. 5. PleaseshowAdmitCardtotheinvigilatorforverificationofyouridentity,when asked. 6. The candidates may use the simple calculator. 7. The candidates should allocate their time wisely. Use the number of marks assigned to each problem as your guide. 8. Inordertogetfullcreditontheproblems,thecandidatesmustshowalltheirrough work/ other workings. _______________ (Participant Signature)(Invigilator Signature) PLEASE RETURN THIS BOOKLET BEFORE LEAVING THE EXAMINATION HALL Date :12th January, 2014 Centre:New Delhi/ Mumbai /Chennai/Kolkata/Bangalore/Ahmedabad (Do not write your Roll No. and Membership number anywhere in the answer sheet except as mentioned above) Checked byVerified by Page 2 of 24 CERTIFICATION COURSE ON FOREX AND TREASURY MANAGEMENT S. No. Total Number of Questions Questions to be answered Total Marks Marks Obtained Multiple Choice - Section A10010050 Multiple Choice Section B505050 Total150150100 Page 3 of 24 Section ANumber of questions: 100 Marks: 50 Multiple choices: There may be more than one correct answer, but there is at least one. Q1. Which of the following functions not pertains to Treasury(a)Treasury Front Office (b)Treasury Middle Office (c)Treasury Back Office (d) Loan department Q2. What do you mean by Swap Annualized Premium (a)It is a Repo rate charged by RBI from banks (b)It is a Reverse repo rate charged by banks from RBI (c)Excess rate charged by one bank over other on overnight basis (d) Itis%equivalentofpremiumreceivedorpaidbyexporterorimporterover spot rate Q3. Which one of the following is odd man out in respect to Treasury Front Office (a)Buy and Sell of FX in Interbank market (b)Buy and Sell of Securities in Interbank market (c)Taking new and reversing of old positions as per Corporate mandate (d) Taking care of documentation of Treasury function Q4: Which one is the exact role of Treasury Middle Office (a)Buy and Sell of FX in Interbank market (b)Buy and Sell of Securities in Interbank market (c)Taking new and reversing of old positions as per Corporate mandate (d) Managingexistingandnecessaryamendmentstocreatenewrisk managementpolicies Q5. Which one is the exact role of the Treasury Back Office (a)Buy and Sell of FX in Interbank market (b)Buy and Sell of Securities in Interbank market (c)Managingexistingandnecessaryamendmentstocreatenewriskmanagement policies (d) TakingcareofrespectiveTreasurydocumentationasperapprovedcorporate risk management policies Q6. Which of the following is odd man out in spot sales (a)Cash Spot (b)Cash Tom (c)Overnight (d) Spot Week Page 4 of 24 Q 7. Asanimporterwhatwouldbethenetoutrightrateforyouwhilebuying$1Mn USD/INR which is trading at 62.00 having Cash Spot at 2.75 / 3 P (a)62.0000 (b)61.9800 (c)61.9725(d)61.9700 Q8. IfUSD/INRSpotistradingat62.00withoneyearforwardpremiumistradingat 5.10/5.12 then what would be lock rate for exporter of $ 1 Mn (a) 67.1000(b)67.0975 (c)67.1200 (d)67.1175 Q9. If JPY/USD is trading at 104.25 and AUD/USD is trading at 1.03 then what would be the cross rate for JPY/AUD (a)104.00 (b)101.2130 (c)101.2136(d)102.3136 Q10. If JPY/USD is trading at 104.25 and one year forward rates are trading at-97/-98 Basis Points then what would be the net outright rate for an exporter (a) 103.2800(b)103.2795 (c)103.2700 (d)103.2695 Q11. Which among the following is not amongst the volatility gauges in FX markets (a) USD/INR(b)AUD/USD (c)EUR/USD (d)GBP/USD Q12. Which amongst the following is a direct FX pair (a)USD/INR (b) AUD/USD(c)USD/PHP (d)None of these Q13. Which amongst the following is not a commodity currency pair (a)Australian Dollar ( AUD) (b)Canadian Dollar ( NZD ) (c)New Zealand Dollar ( NZD) (d)Chinese Yuan ( RMB) Q14. Which amongst the following is not a discounted money market instrument (a)Commercial Paper Page 5 of 24 (b)Certificate of Deposits (c)Treasury Bills (d)Treasury Notes Q15. WhichamongstthefollowingisoddmanoutwhenitcomestoTreasuryDiscounted Instruments (a)Bond Equivalent Yields (b)Bond Discounted Yields (c)Zero Coupon Instruments(d)None of these Q16. IfUSD/INRspotistradingat63.00andTreasurerwouldliketocreateaBuyPut Contract at 58.00 then he would be termed as(a)In the Money (ITM) (b)Deep Out of the Money (OTM)(c)At the Money (d)None of the above Q17. What exactly is the difference between Buy Put and Sell Call Contracts (a)Former is having right to Buy while later is right to Sell (b)Former is having right to Sell while later is right to Buy (c)Former is having right to Sell while later obligation to Sell(d)Both are at sell position however with obligations Q18. If USD/INR is trading at 63.00 and Treasurer booked Buy Put at 58 and now would like to reverse the deal. What is odd man out?? (a)Treasurer would pay the difference of Rs 5 to Bank (b)Treasurer would get the difference of Rs 5 from Bank (c)Treasurer would square off the net premiums first paid and now received from bank as in Options you are having right but not the obligation to honor your trade(d)None of these Q19. Which of the following is acting as Asian Financial Centre in the world (a)Australia (b) Singapore(c)London (d)India Q20. IfUSDInterestratesareat.25%andINRat9%.Currently UD/INRtradingat63then what would be the outright rate for 1 Year (a)68.4900 (b)68.4975 (c)68.49875(d)68.5000 Q21. Which one is odd man out when it comes to booking of USD/INR NDF Trade (a)AustraliaPage 6 of 24 (b)Singapore (c)New York (d) India Q22. What is the exact combination of exporting Collars using Options Contracts (a) Buy Put and Sell Call (b)But Call and Sell Put (c)Buy Call + Buy Put and Sell Call (d)All of the above Q23. USD/INR Non Deliverable Forwards (NDF) contracts are settled at(a)USD/INR end of day spot rate(b)USD/INR end of day closing rate (c)USD/INR RBI Fixing Rate(d)USD/INR rate quoted by WSJ at end of day Q24. Which of the following is not an Asian Non Deliverable Forward Contracts currency Pair (a) Australian Dollar / USD(b)USD/ Indian Rupee (c)USD/ Philippines Peso (d)USD/ Singapore Dollar Q25. As an exporter you sold $ 1Mn USD/INR NDFat 63.20 foronemonthandfixing rate done at 63.00 then how much would be your local currency Gain/ (Loss) (a) Gain of Rs 200,000(b)Loss of Rs 200,000 (c)Gain of Present value of Rs 200,000 (d)Loss of Present Value of Rs 200,000 Q26. Buy Call Option would be a suitable for which of the following Options(a)You are an exporter and would like to Buy $ (b)You are an Importer and would like to Sell $ (c)You are an Importer and would like to Buy $(d)You are an importer and want to do both sell and buy $ Q27. Buy Put contracts are also known as(a)Insurance Contracts (b)Bullish Contracts (c)Getting a right to sell foreign currency in local currency(d) Both 1 & 3 Currency2007 Exchange Rate ( Per USD) 2008 Exchange Rate ( Per USD ) Euro.99541.0747 Japanese Yen 102.20114.90 CanadCanadian1.441.50 Page 7 of 24 Dollar Q28. ThetableaboveshowstheexchangeratesbetweenvariouscurrenciesandtheU.S. dollar.Between2007and2008,theU.S.dollar________againsttheeuroand________ against the Japanese Yen (a)Depreciated; appreciated(b)Appreciated; depreciated (c)Depreciated; depreciated(d) Appreciated; appreciated Q29. ThetableaboveshowstheexchangeratesbetweenvariouscurrenciesandtheU.S. dollar. Between2007 and 2008, the Japanese yen ________ against the U.S dollar and the euro ________ against theU.S. dollar (a)Depreciated; appreciated(b) Depreciated; depreciated(c)Appreciated; appreciated(d)Appreciated; depreciated Q30.If the price level in the U.S. is 120, the price level in South Africa is 140, and the nominal exchange rate is 7 South African Rand (ZAR) per dollar, then the real exchange rate is (a)1.4 South African goods per U.S. good(b)9.8 South African goods per U.S. good (c)6 South African goods per U.S. good(d)8.4 South African goods per U.S. good Q31. With everything else the same, in the foreign exchange market the(a)The higher the exchange rate, the cheaper are U.S.-produced goods and services (b)The lower the exchange rate, the smaller is the expected profit from buying dollars (c)LargerthevalueofU.S.exports,thegreateristhequantityofdollars demanded(d)Lower the exchange rate, the smaller the amount of U.S. exports Q32. If the exchange rate falls, then the expected profit from holding the currency(a) Increases(b)Decreases (c)Does not change (d)Can either increase or decrease InvestorExpectedfuturevalueofa(francsper dollar) Investor A 120 Investor B100 Investor C85 Q33. Using the table above, if the current market value of the dollar is 125 francs per dollar (a)Investor A expects dollar depreciation, but B and C expect appreciation (b)All three investors expect the dollar to appreciate (c)Investor A expects dollar appreciation, but B and C expect depreciation (d) All three investors expect the dollar to depreciatePage 8 of 24 Q34. Using the table above, if the current market value of the dollar is 125 francs (a) All three investors hold francs(b)Investor A holds francs, but B and C hold dollars (c)Investor A holds dollars, but B and C hold francs (d)All three investors hold dollars Q35. Using the table above, if the current market value of the dollar is 70 francs (a) All three investors expect the dollar to appreciate(b)All three investors expect the dollar to depreciate (c)Investor A expects dollar appreciation, but B and C expect depreciation (d)Investor A expects dollar depreciation, but B and C expect appreciation Q36. As a Treasurer selling your $ in INR on one week ahead of spot is known as(a)Cash Spot (b)Cash Tom (c)Spot Next (d) Spot Week Q37. In Options Pricing Collars are also known as except(a)Range Forward(b)Zero Cost Collars (c)Cylindrical Options (d) Seagull Q38. Treasury Management Systems (TMS) refers to except (a)Automated Software that takes care of all Treasury Functions (b)Software that computes revaluation of all Foreign Currency hedges in books (c)Translation of all local currency balances in books into foreign currency (d) Booking of Accounts receivables entry and linking the same with payment site Q39. Treasury Risk Management Policy covers the following(a)Risk Management objectives of the company (b)Foreign Exchange Hedging Program (c)Hedging in onshore and Offshore Treasury Markets (d) All of the above Q40. Suppose a Treasurer booked sell position of $ 1 Mn at 63.20 for 1 Year. On maturity he ishavingshortageinEEFCA/csandwhatallaretheavailableoptionstohonorthe trade (a)Cancellation of existing contract (b)Prematurity of existing contracts (c)Rollover of existing contracts (d) Options 1 & 3 Q41. WithreferencetoabovequestionwhatwouldbecancellationcostifUSD/INRtrading at 65.00 (a)Gain of USD 27,692Page 9 of 24 (b) Loss of USD 27,692(c)No Gain /(Loss) on cancellation as delivery would happen at 63.20 (d)As per RBI Policy there is no cancellation allowed Q42. With reference to Question No 40 what would be Rollover Cost and new contract rate if USD/INR 1 months premium is trading at Rs 5/$ (a)Loss of USD 27,692 at new outright rate of Rs 70 / $ (b) Loss of USD 27,692 at new outright rate of Rs 65 / $(c)Gain of USD 27,692 at new outright rate of Rs 70 / $ (d)Loss of USD 27,692 at new outright rate of Rs 65 / $ Q43.WithreferencetoQuestionNo40.WouldthatbepossibleforTreasurertocancel capital a/c transaction of $ 1 Mn (a)Yes and take cancellation Gain/(Loss) in the books (b)No and take cancellation Gain/(Loss) in the books (c)CapitalA/ccancellationispermittedprovidednodrawdownofCapitalA/c remittances (d) Options 1 & 3 Q44. Treasurer booked one Buy Put Contract of USD/INR of $ 1 Mn at 65 for 1 year maturity. Thereisapremiumof$100,000forthatBuyPutdeal.Whatwouldbeeffective accounting of that Premium? (a) TreasurerisallowedtocapitalizethePremiumover1Yearinthebooksand Treasurer is also allowed to deferred the payment with banks (b)Treasurerhavetohavepayentirepremiumatonegoandnocapitalizationis allowed (c)ThereisnoprovisionofdeferredpaymentstobanksandTreasurerhavetopay entire $ 100,000 in one go and take in books (d)Treasurer can pay on deferred and do deferred capitalization in books Q45. With reference to Question no 44 what would be max loss in the books to be taken by Treasurer in case of cancellation of Buy Put Contract (a)Premiumof$100,000paidtobankprovidednodeferredpaymentand Capitalization (b)Deferred Premium taken in books and no Capitalization (c)Deferred Premium taken in books provided Capitalization (d) Premium Capitalize in books and ignore deferred payment to be done till now Q46.When large credit proposals are considered by banks for sanction, (a)They need to be prior cleared by the treasury department (b)They need subsequent approval by the treasury department (c)The ALM committee has to approve(d) Treasury department does not have any role in it Q47. CLS, earlier known as Continuous Linked System(a)Is owned by the world's leading financial institutions Page 10 of 24 (b)SettlespaymentinstructionsrelatingtounderlyingFXtransactionsin17major currencies (c)Operatesthelargestmulticurrencycashsettlementsystemtomitigatesettlement risk for the FX transactions of its Members and their customers. (d) Has all the features a to c above Q48. The Clearing Corporation of India Ltd was set up for providing(a) exclusiveclearingandsettlementfortransactionsinMoney,GSecsand Foreign Exchange (b)settlement services in imports and exports (c)guarantee of payments in interbank transactions (d)services to banks in clearing the cheques Q49. The Clearing Corporation of India Ltd (a)Is a wholly owned subsidiary of RBI(b) Is majority owned by banks (c)Is wholly owned by select banks (d)Is a publicly held company Q50.The types of trades that are currently settled through The Clearing Corporation of India Ltd are (a)All forex interbank transactions (b) All Forex inter-bank Cash, Tom, Spot and Forward USD/INR transactions (c)All Forex inter-bank Cash, Tom, Spot transactions (d)All Forex inter-bank Cash, Tom, Spot and Forward transactions Q51. Banks which are authorized to handle international business (a)Are ipso facto permitted to import gold (b) Can trade in foreign exchange through their treasury department (c)Handle gold trading through their commodity desk (d)are considered as international banks Q52. The Capital Adequacy Ratio of a bank is roughly the equivalent of(a) Debt equity ratio of a company(b)Current ratio of a company (c)Quick current ratio of a company (d)DSCR of a company Q53.Asian Clearing Union with AMU as the accounting unit is an example of(a)Unified currency (b)Regional trade block(c)Arrangement for payments for intra-regional transactions (d)All the above Q54. Mark the odd one out in the following in the context of balance sheet exposure (a)Forward contracts (b)Swaps (c)Term loans Page 11 of 24 (d)Options Q55. Trading books of a bank refer to(a)The records maintained supporting the trading activities of a bank (b)Commodities traded by a bank (c)Audit functions of a bank (d) The treasury of a bank Q56. One common link between credit management and treasury in a bank is(a)The Board of Directors (b)The Chairman of the bank (c)The ALCO committee (d)The common General Manager heading the departments Q57. A large corporate needs to maintain good relationship with its bankers(a)Only if the corporate is a large borrower (b)Only if the corporate desires to avail any type of service from the bank (c)Since banks offer financial services to all categories of corporates (d)As a corporate social responsibility Q58. Which of the following statement is true with reference to treasury functions? (a)All corporates have to necessarily have a treasury department (b)RBI guidelines on treasury functions apply only to treasuries of banks (c)Bank treasuries have to adhere to guidelines issued by RBI and SEBI (d) Treasury in a bank is a separate profit center. Q59.Between drawings against unavailable balance and an unsecured overdraft, banks(a) Feel more comfortable in taking a credit risk in the former case (b)Do not distinguish between the two (c)Have greater interest income in the latter case (d)Have different provisioning norms Q60. For a treasurer, sweep facility offered by banks helps in(a)Reducing interest burden (b)Enhancing interest income (c)Managing liquidity (d) All the above Q61. Bank decides the value of an account exclusively based on (a)Interest earned out of that account (b)RBI guidelines uniformly across all banks (c)Scientific calculations after accounting for cost of funds (d)Non-fund based income earned from that account Q62. Volume of transactions handled at Clearing Houses will decline due to(a)Electronic remittance schemes (b)Mobile payment systems (c)ATM enabled transfers(d) Due to all these developments Page 12 of 24 Q63. As per RBI guidelines on reconciliation of Nostro accounts (a)The bank statements should be received atleast once in fifteen days (b) The bank statements should be received atleast once a week (c)Thebasedocumentsforreconciliationarethemirroraccountandrecordof transactions during that period (d)BankshavetoplacebeforetheManagingDirectorthesummaryofreconciliation every month Q64. The mirror account of a Nostro account is maintained (a)In Indian rupees (b)In corresponding foreign currency(c)In US Dollar (d) Incorrespondingforeigncurrencywithitsrupeeequivalentforeach transaction Q65. In case of reconciliation of Nostro accounts,(a)Any error could have impact on the profit figure of the bank (b)Errors will result in accounting inaccuracy (c)Valuationisbasedontheoutstandingrupeeequivalentinthemirroraccount& hence reconciliation is important (d) All the above are true Q66. The net float for a company is(a) The difference between the cash balance shown in the company's Ledger and the available balance in its bank account (b)The cash balance shown in the company's Ledger plus cheques deposited (c)The cash balance shown in the company's Ledger less cheques issued (d)The unveiled overdraft balance in the bank Q67.The total amount of Cheques issued but not presented for payment at the bank is known as (a)Collection float (b) Disbursement float (c)Net float (d)Gross float Q68.In a lock box system covering collection of cheques, there is a saving on account of the following activities and the reasons. Match the activities and the reasons. Activities A.Cuts down the mailing time B.shortens the availability delay C.reduces the processing timeReasons i.The company does not have to open the envelopes and deposit the Cheques for collection ii.Because the Cheques are typically drawn on local banks. iii.Cheques are received at a nearby post office instead of at corporate headquarters Which of the following pairing is correct Page 13 of 24 (a)A andi (b) A and iii (c)B andi (d)B & C and iii Q69.Following is not an alternative for lock box facility for cheques collection(a)Door step banking (b)Electronic payment (c)Pan India clearing system (d) Payment through DDs Q70.The corporates should have a risk management policy for their forex treasury functions because (a)RBI has advised so (b) to minimize the effects of adverse exchange rate fluctuations(c)Senior management should feel happy (d)It helps in avoiding risk Q71.Balancesheetexposurethatresultsfromtheconsolidationoffinancialstatementsof foreign entities into the home currency is called as (a) Translation exposure (b)Transaction exposure (c)Operating exposure (d)Economic exposure Q72.Essentially,fourdifferentstrategiesareavailabletoacompanyformanagingforeign currency risk and following is not one of them (a)Take no action (b)Always hedge everything (c)Selectively hedge risk (d) Trading position hesitatingly Q73.The global trend in risk management structure is (a) Centralizing risk management with integrated treasury management (b)Decentralized set up to take care of local features (c)Decentralized set up with separate treasuries for different activities (d)To separate treasury activity from risk management issues Q74.The software to be used by treasury of a bank(a)Is advised by RBI (b) Should conform to the guidelines prescribed by RBI (c)Is a pure commercial decision taken by the bank (d)Is always developed in house, in view of sensitivity Q75.Flexcube core banking application including treasury functions (a)Is a product of Infosys (b) Is a product of Oracle (c)Is a product originally by a company called I Flex Solutions Ltd taken over by Infosys (d)Is not used by banks in India Page 14 of 24 Q76.The treasury software used by banks need to have the following features [mark the odd one] (a)Should ensure functional separation (b)Dealers can capture data through proper login credentials (c)Thetradingdate,time&serialnumberaretobenecessarilyenteredbythe dealer (d)Provision to enter late deals data with remarks accordingly Q77.ExchangeratesystemwheretheCentralBankintervenestosmoothentheexchange rate fluctuation is called (a)Floating rate system (b) Dirty float (c)Clean float (d)Free float Q78.As per FEDAI rules, a spot contract shall be deliverable on(a)Next business day following the day when the transaction is closed. (b)The same business day when the transaction is closed. (c)Second day following the day when the transaction is closed. (d) Secondsucceedingbusinessdayfollowingthedaywhenthetransactionis closed provided there is no holidays in between Q79.In India, the exchange rate is quoted in direct terms.(a)This is at the discretion of the banks (b)This is the market practice (c)This is as per FEDAI rule (d)This is as per RBI circular Q80.Incaseofcancellationofaforwardcontractattherequestofthecustomerthe differencebetweenthecontractedrateandtherateatwhichthecancellationis effected (a)Is absorbed by the bank (b) Is passed on to the customer (c)Is passed on to the customer if it results in loss (d)Is passed on to the customer if it results in gain Q81.A forward purchase contract is cancelled at the banks (a) Spot T.T. selling rate on the date of cancellation (b)Spot T.T. purchase rate on the date of cancellation (c)Spot T.T. selling rate on the date of contract (d)Spot T.T. purchase rate on the date of contract Q82.AbankdealerhasalongpositioninUSDollarwhenhisquotewas65.60/65.90.He wants to square or near square position. What his quote will be? (a)65.30/65.60 (b)65.45/65.75 (c)65.45/66.05 Page 15 of 24 (d)65.75/66.05 Q83.An Indian exporter is expecting to receive US dollar after three months. Indian interest rates are higher than that of US Dollar. A possible strategy of hedging in money market is (a)Borrowing and investing in USD(b)Borrowing and investing in INR (c)Borrowing in USD and investing in INR (d)Borrowing in INR and investing in USD Q84.The J-curve relating to exchange rate impact is linked to the concept of (a) Elasticity (b)Interest rate parity (c)Purchasing power parity (d)Capital asset pricing model Q85.A non-deliverable forward [NDF] market exists for a currency if(a)It is a highly traded currency (b) It is subject to capital controls (c)It is not an approved currency in the market (d)Delivery of that currency is not possible Q86.Which is a true descriptionof anon-deliverable forward [NDF]: (a)An illegal market (b) A foreign currency financial derivative contract (c)Results in physical delivery of the currencies at maturity (d)It develops in the onshore market Q87.The value of a fixed-income investment is(a)The sum of all of its cash flows(b) The sum of all of its cash flows discounted at an interest rate that reflects the inherent investment risk (c)The sum of all of its cash flows discounted at the market rate(d)The sum of all of its cash flows discounted at the current interest rate Q88.In general, changes in the value of a bond(a)Are directly related to changes in the rate of return (b)Have no relation to changes in the rate of return (c)Are exactly equal to changes in the rate of return (d) Are inversely related to changes in the rate of return Q89.Macaulay Duration(a)Measuresthenumberofyearsrequiredtorecoverthetruecostofabond, considering the present value of all coupon and principal payments received in the future (b)It is the only type of duration which is measured in years (c)It assumes that interest rates are continuously compounded (d) All the above are true Page 16 of 24 Q90.The convexity of a bond is(a)A measure of the curvature of its price/yield relationship (b)Aconfirmationthatthepricechangeonaccountofchangeininterestrateisnot linear (c)Itovercomesthelimitationofdurationasameasureofinterestrate/price sensitivity (d) All the above are true Q91.If theValueat Risk[VAR] onan asset is $ 100 million at a one-week, 95% confidence level, it means(a) Thereisonlya5%chancethatthevalueoftheassetwilldropmorethan$ 100 million over any given week. (b)There is only a 5% chance that the value of the asset will drop by $ 100 million over any given week. (c)The maximum loss on the portfolio will be $ 100 million over any given week. (d)There will surely be a loss of $ 100 million over any given week in this portfolio. Q92.The Value at Risk [VAR] can be specified for(a)An individual asset only (b)A portfolio of assets only (c)An entire firm only (d) An individual asset, a portfolio of assets or for an entire firm Q93.In Value at Risk [VAR] calculation, the focus is on (a)Credit risk (b) Market risk (c)Interest rate risk (d)Liquidity risk Q94.The term structure of interest rates (a)Is the inverse of yield curve (b)Is a graph that plots interest rates on different dates (c)Isagraphthatplotstheyieldsofsimilar-qualitybondsagainsttheir maturities, from shortest to longest (d)Is the interest rate chart displayed by banks on their deposit spread Q95.An increase in NPA level of a bank can be contained (a)By increasing the total advances portfolio of the bank (b)If the bank takes effective recovery steps (c)By changing the way in which accounts are classified as NPAs (d)By taking all the steps a, b & c above Q96.Chart showing coupon rates against different maturities is called (a)Yield curve (b) Spot curve (c)Forward curve (d)Term structure curve Q97.A 2 X 7 forward loan in a fixed interest rate market Page 17 of 24 (a) Commences two months from the spot date and lasts for five months (b)Commences two months from the spot date and lasts for seven months (c)Commences from the spot date and lasts for five months (d)Commences from the spot date and lasts for seven months Q98.A zero coupon bond is known by that name because (a)There is no yield in such bonds (b) There is no payout before maturity (c)The coupon attached carries zero interest rate (d)There is no payment received on such bonds Q99.Which of the following statement is not true? (a)A zero coupon bond can never trade at premium prior to maturity (b)Aninvestorwhotradesinzerocouponbondpriortomaturitymayexperiencea capital gain or a capital loss (c)Aninvestorwhobuysazerocouponbondandholdsittillmaturityisalways assured of capital gain (d) Zero coupon bond is different from deep discount bond Q100.Reinvestment risk in case of bonds (a)Arises due to intermediate cash flows getting reinvested at rates lower than earlier anticipated (b)Does not arise in case of zero coupon bonds (c)Is not taken into account in case of YTM calculation of plain vanilla bonds (d) All the above statements are true Section B Number of questions: 50 Marks: 50 Multiple choices: There may be more than one correct answer, but there is at least one. Q101.Which is not true of A normal yield curve? It (a) Is also called inverted yield curve (b)Slopes upwards (c)Indicates long term yield are higher than short term yield (d)Is also called positive yield curve Q102.If a bond has a duration of 5 years and interest rates increase by 1%, the bond's price will(a)Grow by approximately 5% (b)Grow by approximately 1% (c)Decline by approximately 5% (d)Decline by approximately 1% Q103.What is a Government security? (a)It is a debt instrument issued by Government Page 18 of 24 (b) ItisatradableinstrumentissuedbytheCentralGovernmentortheState Governments (c)It is a bond issued by Government (d)A security which is guaranteed to be repaid on due date by the Government Q104.Dated Government securities are (a)Government securities which carry a date of issue (b)Government securities which have a fixed maturity date (c)Governmentsecuritieswhicharelongtermsecuritiescarryingafixedorfloatingcoupon rate (d)Government securities which are already matured Q105.In case of Government securities, the following rule applies if the payment date falls on Sunday or holiday (a) If it is the coupon payment date, then it is made on the next working day (b)If it is the coupon payment date, then it is made on the previous working day (c)If it is the redemption date, then it is made on the next working day (d)Both for redemption & coupon, the payment will be on the next working day Q106.What is a shut period in government securities market? (a)Period during which government securities cannot be bought (b) Period during which government securities cannot be delivered (c)Period during which government securities are not auctioned (d)Period during which government securities are not available for trading Q107.Which is not true of the following? (a)InDeliveryVersusPaymentsettlement,transferofsecuritiesandfundshappen simultaneously (b)Delivery Versus Payment settlement eliminates risk (c)InDeliveryVersusPaymentsettlementbuyingandsellingtakesplace simultaneously (d)There are three types of Delivery Versus Payment settlements Q108.Which of the below is not commonly used by investors to measure the potential return from investing in a bond(a)Coupon yield (b)Current yield (c)Yield to maturity (d) Coupon rate Q109.Which of the following is not a money market instrument? (a)Call money (b)Repos& Reverse Repo (c)Treasury bills& CMB (d) Treasury Bonds Q110.In securities market, face value of an instrument is not the following: (a)The amount that is paid to the investor at the time of maturity (b) The amount that is paid by the investor for acquiring that security Page 19 of 24 (c)The redemption value (d)The repayment amount Q111.Commercial Paper is(a) Anunsecuredmoneymarketinstrumentissuedintheformofapromissory note (b)A secured money market instrument issued in the form of a promissory note (c)An unsecured money market instrument issued in the form of a Bill of exchange(d)A secured money market instrument issued in the form of a Bill of exchange Q112.Which of the following is not true (a)Treasury bills are issued only by Central Government (b)Treasury bill offers short term investment opportunities (c)Generally the maturity of treasury bills is ten years (d)The minimum amount of treasury bill is Rs 25,000 Q113.The following is not a post-sale finance option (a)Factoring (b)Forfeiting (c)Packing credit advance (d)Bills discounting by banks Q114.When a bill is forfeited, the risk is borne by (a)Seller (b) Avail bank (c)Buyer (d)The discounting bank Q115.While factoring an export bill, the factoring agency (a)Carries the credit risk invariably (b) Can factor with or without recourse (c)Can approach a bank to offload the risk (d)Does not have any risk at all Q116.The interest rate on export bill discounted by banks is(a)Exactly as advised by RBI (b) A concessional interest rate (c)Purely at the discretion of the bank concerned (d)Advised by FEDAI Q117.Fullrangeofserviceslikecollection,salesledgermaintenanceetcareofferedbythe agency which offers (a) Factoring (b)Forfeiting (c)Bill discounting Page 20 of 24 (d)All the above types of services Q118.When an export bill is discounted by a bank without backed by an LC (a)The bank recovers the money from ECGC if there is default (b) The bank reserves the right to recover the advance from the exporter (c)The bank has no right to recourse against the exporter (d)The banks right of recovery is against the importer Q119.In India, banks offer to their exporter clients the facility of(a) Bill discounting(b)Factoring and bill discounting (c)Bill discounting and forfeiting(d)Factoring and forfeiting Q120.Asamarketpractice,thefollowingserviceisofferedforthefullportfolioofthe exporter and not case wise (a)Bill discounting (b) Factoring (c)Forfeiting (d)Bill refinancing Q121.AnIndianregisteredcompanyengagedincommoditytradingandpromotedby foreign insurance companies desires to make a public issue to Indian public. Who is the regulator for the public issue? (a)RBI (b)IRDA (c)FMC(d) SEBI Q122.The following entity cannot register as Qualified Foreign Investor [QFI] (a)Resident in a country which is not a member of FATF (b)Resident in India (c)Registered with SEBI as FII (d) All the above Q123.As per the Prevention of Money Laundering Act 2002 and the rules thereunder, all cash transactions more than the following amount are to be reported by the intermediaries in capital market (a)Rs One lac (b)Rs Five lac (c)Rs Ten lac (d)Rs Twenty five lac Q124.Example of an intermediary which does not belong to the primary market is(a)Lead manager (b) Stock broker (c)Transfer agent (d)Underwriter Q125.Which is not correct in respect of Foreign Currency Convertible BondsPage 21 of 24 (a)Can be issued by foreign companies in Indian markets (b)Are not debt instruments (c)Can be issued by Indian companies in overseas markets (d)Are not subject to ECB guidelines Q126.Depository Receipts in a GDR issue (a)Are not negotiable securities (b)Are issued in India (c)Represent the rupee denominated equity shares of the company (d)Are issued by a custodian bank Q127.In case of ADR/GDR issues, (a)The custodian bank is outside India (b) They are listed on European or US Stock exchanges (c)The depository is in India (d)The custodian deposits the underlying shares with the company Q128.Foreign investment in partnership firm in India (e) Is allowed on non-repatriation basis (f)Is not allowed at all (g)Is allowed by NRIs, PIOs & other foreigners (h)Always needs RBI permission Q129.Foreign currency exchangeable bond (a)Is same as foreign currency convertible bond (b)Is denominated in foreign currency and issued by Offered company (c)Is denominated in foreign currency and issued by Issuing company (d)Can be issued in US Dollar only Q130.Refinancing of existing FCCBs(a)Is not allowed (b) Can be allowed by the designated AD banks (c)Is allowed subject to RBI permission (d)Is allowed under approval route only Q131.After availing ECB loan and obtaining LRN from RBI, if following changes are required, it invariably needs RBI permission (a)Change in currency of borrowing (b)Changeinrepaymentschedulewhethertheaveragematurityperiodchangesor not (c)Change of Designated AD Bank (d) Increase in the amount of ECB beyond the automatic route ceiling Q132.Which of the following pairing is correct? (a) Domestic banking : IBA = forex banking : FEDAI (b)Domestic banking : RBI = forex banking : FEDAI (c)Forex banking : RBI = domestic banking : IBA (d)Domestic banking : SEBI = forex banking : RBI Page 22 of 24 Q133.A credit rating agency rates (a)At the cost of the enquirer (b)The company which issues the instrument (c)By denoting the ratings with alphanumerical symbol (d) By evaluating the financial condition of issuers of debt instruments Q134.TheratingsofCreditRatingAgencies[CRA]maybeusedbybanksforassigningrisk weights for credit risk (a)If the CRA is approved by SEBI (b) Subject to consistently using it for each type of claim, for both risk weighting and risk management purposes (c)Only unsolicited rating can be used (d)Both solicited and unsolicited rating can be used subject to different weightage Q135.Venture capital investments(a)Are generally considered illiquid (b)Are risky (c)Are generally in startup companies (d) Have all the above features Q136.A Sovereign Wealth Fund (a)Is not necessarily a State owned investment fund (b) IsaStateownedinvestmentfundthatinvestinStrategicassetsacrossthe world (c)Created out of borrowings by any Government (d)Includes foreign currency reserve assets held for BOP or monetary policy purpose Q137.Portfolio Management Service [PMS](a) Results in exposure to variety of products for the investor (b)Results in exposure to variety of products for the service provider like the MF (c)Does not result in individual investor owning the securities (d)Does not enable the manager to buy or sell securities on behalf of the investor Q138.Certificate of Deposit [CD] in India is (a)Not a negotiable instrument(b)Issued only as usance promissory note (c)Issued by corporates to raise funds (d)Issued by Scheduled Commercial Banks & FIs. Q139.Primary Dealer [PD](a)Is an individual like a broker (b)Is involved in selling government securities to investing public like an agent (c)Acts like a market maker for Government securities (d)Is another name for an Authorised Dealer Page 23 of 24 Q140.PDs can (a)Maintain Current account with RBI (b)Maintain SGL account with RBI (c)Access LAF of RBI (d) Have all the above facilities Q141.Between Over the Counter [OTC] market & Exchange traded market (a)OTC is more liquid (b)OTC is more formal (c)Exchange traded market is considered as bilateral (d) OTC isless transparent and operate with fewer rules Q142.A traveler sells his unused currency notes on his return from travel abroad to the same bank from where he had bought it earlier. The bank will apply (a) Its currency note buying rate (b)Its currency note selling rate (c)The rate at which the bank had earlier sold the notes to the traveller (d)Therateatwhichthebankhadearliersoldthenotestothetravelerorthedays rate whichever is lower Q143.The rates quoted by a bank for spot and 3 month forward transaction in US Dollar are: 61.35/36 & 5000/5500. What is the rate applicable for a 3rd month delivery export bill, ignoring transit period? (a)61.91 (b)61.86 (c)60.85 (d) 61.85 Q144. If USD/INR spot is trading at 63.20 and one year fwd premium is trading at 63.40 then which of the following statements are true (a) Forward curve is almost At the Money (ATM)(b)Forward curve is Deep In the Money (ITM) (c)Forward curve is Out of the Money (OTM) (d)None of these Q145. If USD/INR spot is trading at 63.20 and one year Swap annualized premium is trading at 6.8% then what would be the net outright rate (a)66.4500 (b)67.4500 (c)68.4500 (d) 67.4976 Q146. If USD/INR is trading at 63.20 and Cash Spot is trading at 2.75/3.00 P then what would be outright rate for exporter to sell $ 1 Mn(a) 63.1700(b)63.1725 Page 24 of 24 (c)63.1675 (d)63.1000 Q147. If USD/INR is trading at 63.20 and Value Tom is trading at 1.75/2P then what would be outright rate for exporters to see $ 1 Mn (a) 63.1800(b)63.1775 (c)62.3000 (d)62.2000 Q148. US dollar is quoted today as: spot $ 1 = Rs 60 and six months forward $1 = Rs 63.(a)This means $ is at discount (b)This means future of rupee is uncertain (c)This means future of rupee is unclear (d) This means $ is at premium Q149.US dollar is quoted today as: spot $ 1 = Rs 60 and six months forward $1 = Rs 63. The annualized forward margin is (a) 10% (b)5% (c)3% (d)6% Q150.The forward premium is a function of(a)Exchange rate differential (b) Interest rate differential or Interest Rate Parity (c)Demand and supply (d)Intervention by Central Banks