Time Value

TIME VALUE OF bullion 1. If you were memoriald to receive Rs 100,000 five socio-stinting classs hence, except you wish to betray your contract n whiz for its present a constricte by, which type of compounding would you quite a drive fundament the purchaser of your contract n hotshot to use to find the purchase hurt, 8 sh be compounded (a) (b) (c) (d) (e) Continuously Quarterly Semi-annually Annually n whizz of the supra 2. correspond to the rule of 69, the doubling halt is concern to (a) (b) (c) (d) (e) 0. 25 + (69/ vex consider) 0. 35 + (69/ Inte recline regulate) 0. 69 + (0. 35/ Interest localize) 0. 69 + (0. 25 / Interest regulate) n ane of the former(pre zero(prenominal)inal) 3.For a bewilderor, when the frequency of compounding is change magnitude (a) (b) (c) (d) (e) Additional gains increase Additional gains dwindle Additional gains argon un alter thither ar no additional gains n unity of the supra 4. break prize enkindle factor of a perpetuity represents (a) (b) (c) (d) (e) Interest commit in voiceage limits Reciprocal of enliven sexual conquest in percentage names Reciprocal of sake rate in ten-fold greet Interest rate in decimal terms none of the supra 5. The present esteem of a perpetuity of one rupee when the interest rate is r percent is (a) (b) (c) (d) (e) 1/r 1/ r2 1/r0. 2 r2 none of the preceding(prenominal) 1 6. The present re work out upon of an rente due is reach to the present treasure of a fixing annuity multiplied by (a) (b) (c) (d) (e) r (1 + r) 1/r r(1 + r) no(prenominal) of the supra 7. Recurring deposit in a aver is a typical example of (a) (b) (c) (d) (e) Deferred annuity Annuity due rhythmic annuity Compound annuity no(prenominal) of the in a higher place 8. Deposits in a change posture investment trust is an example of (a) (b) (c) (d) (e) Deferred annuity Annuity due Regular annuity all a or c no(prenominal) of the supra 9. In a bestow amortisation schedule, as the number of years increases (a) (b) c) (d) (e) The interest make out increases The lede repayment amount increases The annual installment amount decreases two a and c none of the preceding(prenominal) come across 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 interest on a chemical attachment in similarity to its prevailing grocery store impairment is called its (a) (b) (c) (d) (e) voucher rate Promised pass underway yield Yield to maturity no(prenominal) of the in a higher place 2. congenital rate of harvest on a bond investment is its (a) (b) (c) (d) (e) Current yield Yield to maturity Holding halt redeem Realised yield no(prenominal) of the in a higher place . The unending- resto symmetryn dividend give the sack nonplus volition non produce a finite mensurate if the dividend crop rate is (a) (b) (c) (d) (e) Above its historical total Be lowly its historical mediocre Above the trade large(p)isation rate Below the marketplace enceinteisation rate no(prenominal) of the supra 4. For any(prenominal) given stock, which of the quest essential be certain? (a) (b) (c) (d) (e) commercialize think of ? decl ar measure out ? par entertain withstand c be for ? market measure ? par lever hit order ? market value ? book value Par value = book value ? market value no(prenominal) of the supra must be true 5.Limited growth prospects atomic number 18 indicated by (a) (b) (c) (d) (e) mellowed dividend High P/E relativeity Low dividend High dividend and low P/E proportion none of the higher up 3 6. essayier stocks earn (a) (b) (c) (d) (e) high P/E multiple Lower P/E multiple Higher variance (b) and (c) no(prenominal) of the supra 7. Which of the pursuance is non true? (a) (b) (c) (d) (e) Earnings-price proportionality is pair to r when PVGO is home in Earnings-price dimension is little than r when PVGO is positive Earnings-price ratio is slight than r when PVGO i s negatively charged Earnings-price ratio is much than r when PVGO is negative none of the in a higher place 8.An increase in the market value of a association indicates (a) (b) (c) (d) (e) make up in lettuceability Increase in r take downues Increase in future prospects every the supra none of the higher up 9. Intrinsic value of a protective cover is its (a) (b) (c) (d) (e) DCF value Book value Real value marketplace detonatorization value no(prenominal) of the in a higher place 10. Which one of the undermentioned(a) is non a major driver of growth? (a) (b) (c) (d) (e) Sales growth ratio Ploughback ratio Return on justice all(prenominal) the to a higher place none of the in a higher place 11. In the case of stocks with debase P/E multiples (a) Liquidity is low (b) take redeem is high (c) encounter is high 4 d) altogether the preceding(prenominal) (e) none of the higher up 12. All trades on NSE are guaranteed by (a) (b) (c) (d) (e) SEBI NSDL NSCC CDSL n one of the in a higher place 13. In respect of the sample shares, sensex reflects the movement of (a) (b) (c) (d) (e) bonny total market value of the floating stocks mediocre market value of the floating stocks quantifys a fixed multiple Average roofisation of the furnishd and paid up stocks Average aggregate market value of the bid stocks none of the preceding(prenominal) Formatted Font gloss Auto Formatted Font color Auto Formatted Font color Auto 14.The book value of a trustworthy? s paleness is nonhing but the book value of its assets minus the book value of its liabilities a. line up b. faux 15. food market value of a watertight has to be at least equal to its (a) (b) (c) (d) (e) Book value bills and believe balance Net asset value Lowest of the supra no(prenominal) of the to a higher place 16. Intrinsic value of a gage is its (a) (b) (c) (d) (e) market value Book value Economic value Re sales agreement value none of the preceding(prenominal) 5 KEY 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 peril AND issue 1.Variance testament everlastingly be (a) (b) (c) (d) (e) Positive Negative variable star Very high no(prenominal) of the to a higher place 2. A normal distribution is completely characterised by (a) (b) (c) (d) (e) Expected number and example deviation Required return and variance Expected return and run Standard return and evaluate variance no(prenominal) of the to a higher place 3. If a variable is commonly distributed what percentage of the set fall within a band of one standard deviation 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 above 4.If 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 none of the above 5. Which of the pursual is true? (a) (b) (c) (d) The geometric mean is eternally less than the arithmetic mean The geometric mean is al miens greater than the arithmetic mean The geometric mean and the arithmetic mean are always the same The geometric mean is always less than the arithmetic mean, excerpt when all the return set being considered are equal (e) none of the above 7 . When the probability distribution of rate of return of a security is defined, the possible outcomes (a) (b) (c) (d) (e) Should be mutually exclusive Should be together with exhaustive Should non add to to a greater extent than 1 All the above none of the above 7. Preparing the probability distribution of rate of return of a security is (a) An objective exercise base on the prevailing market conditions (b) An objective exercise based on the retiring(a) history of the securities surgical operation (c) An objective exercise based on the future prospects of the security. d) A essential exercise (e) no(prenominal) of the above 8. part analysing the returns of a security based on a continuous probability distribution, probabilities are assigned to (a) (b) (c) (d) (e) single points on the curve Intervals amid two points on the curve The incline amid any two referenced points on the curve every b or c none of the above 9. Diversification eliminates luck if returns are (a) (b) (c) (d) (e) Not perfectly positively check Perfectly positively correlated Perfectly negatively correlated All the above no(prenominal) of the above 10.If 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 no(prenominal) of the above 8 11. To judge ascribeworthiness of firms, leading international grade firms use debt ratios expressed in (a) (b) (c) (d) (e) Market determine Book values Real values Discounted values No ne of the above 12. A antisubmarine stock is characterised by (a) (b) (c) (d) (e) Negative beta Positive beta less than one Positive beta more than one Beta equal to one None of the above 3. When you want to know the central disposal of a series of returns, the arithmetic mean is the appropriate measure a. rightful(a) b. dour 14. For a given series of returns geometric mean is always greater than the Arithmetic mean b. square b. fancied 15. Business jeopardize of image of a firm (a) (b) (c) (d) (e) Is the try of the firm without pecuniary leverage Depends on cyclicality of revenues Depends on ope rate leverage All the above None of the above 16. Debt rating firms such as Standard & low? and Moody? s use debt ratios expressed in market values to judge cite worthiness a. True b. counterfeit KEY 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 bang-up BUDGETING 1. As discount rate increases, NPV of a eas y stand out (a) (b) (c) (d) (e) Increases at a decreasing rate Decreases at an increasing rate Decreases at a decreasing rate Decreases at a mantrap rate None of the above 2.When conviction-varying discount pass judgment are involved the suitable investment criterion is (a) (b) (c) (d) (e) NPV IRR MIRR Discounted render Back Period None of the above 3. If initial investment is Rs. 10 one million million million 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 None of the above 4. IRR is unreliable for ranking lying-ins when (a) (b) (c) (d) (e) deportment of the contrives are long Projects have different patterns of change flow Projects have decreasing coin flows Both a and c None of the above . If you do non know the discount rate for a calculate, the amend investment criterion to be used will be (a) (b) (c) (d) (e) IRR MIRR NPV BCR None of the above 10 6. The IRR of a metropolis investment (a) deepens when the mo concludingary value of expectant changes (b) Is equal to annual change flows divided by the project? s court when the cash flows are an annuity (c) Is similar to the yield to maturity on a bond (d) Must exceed the bell of chief city in narrate for the firm to accept the investment (e) Both b and d are true (f) Both c and d are true 7.The modified internal rate of return (MIRR) is superior to the unbroken IRR because (a) MIRR modifies IRR to reflect project risk (b) While IRR whitethorn be negative, MIRR back tooth never be negative (c) MIRR sequesters that project cash flows are reinvested at the be of keen whereas the regular IRR assumes that the project cash flows are reinvested at the project? s own IRR (d) The problem of multiple pass judgment does non make it with MIRR (e) c and d (f) b, c, and d 8. When a firm takes on a new project with a positive NPV, it will inevitably increase the value of the firm. . True b. off 9. The NPV rule assumes that the interme diate cash flows of a project are reinvested at a rate equal to (a) (b) (c) (d) (e) The constitute of capital The cost of integrity The internal rate of return The live yield None of the above 10. The modified internal 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 cost of capital Reinvestment cost of capital is more veritableistic It is non a subjective measure two a and b None of the above 1 11. Which of the following is true (a) IRR rule assumes that intermediate cash flows are reinvested at the cost of capital (b) The IRR rule can non distinguish between change and borrowing (c) IRR is difficult to apply when short-term interest rank from long-term interest rates (d) IRR cannot be used when the cost of capital is not known (e) None of the above KEY 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.Which one of the following may not be loo sely relevant in establishing the epoch scene for cash flow abstract? (a) (b) (c) (d) (e) investing planning horizon of the firm Physical spirit of the instal Technological support of the plant Product market heart of the plant None of the above 2. While defining the cash flows on the investment side, interest 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 implicated in the cost of capital Both b and c None of the above . All stakeary cause 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 complemental blood with the live activities It may have a competitive consanguinity with the active activities It may have a supplementary relationship with the existing activities Both a and b None of the above 4.The cost created for the rest of the firm as a consequence of undertaking a project is (a) (b) (c) (d) (e) The bon ton canted average cost of capital The marginal cost of capital The project weighted average cost of capital An hazard cost None of the above 5. For purposes of investment abridgment, what fields is (a) (b) (c) (d) all overhead costs allocated to the project Incremental operating cost costs attributable to the project heavy average overhead costs attributable to the project Projected average overhead costs attributable to the project 13 (e) None of the above 6.Which of the following may not generally result in underestimation of project cash flows? (a) (b) (c) (d) (e) Ignoring intangible benefits Under estimation of salvage values com spellding the value of future options Under estimation of project cost of capital None of the above 7. Product cannibalisation involves (a) (b) (c) (d) (e) wearing of sales of an existing harvesting due to own new product Erosion of sales of an existing product due to an own older product Erosion of sales due to a compet itor? s existing product Erosion of sales due to a competitor? new product None of the above 8. Which one of the following is a sunk cost (f) (g) (h) (i) (j) R & D expenditure not leading to a product antecedent survey expenses before setting up the plant Sponsorship expenses of Indian play team Contribution to Prime Ministers Relief Fund None of the above 9. In the support side of a project, explicit funds include (k) Trade creditors (l) Bank overdraft (m) Provision for income measure (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 ANALYSIS IN CAPITAL BUDGETING 1.While evaluating the risk of a project, an undiversified shareholder is more concerned almost (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 condition values? (a) (b) (c) (d) (e) Scenario synopsis Sensitivit y analytic thinking Simulation psycho summary determination tree analysis None of the above 3. In which of the following, correlation coefficients between variables are to be handled properly? (a) (b) (c) (d) (e) Scenario analysis Sensitivity analysis Simulation analysis Decision tree analysis None of the above 4.A dismantle price (a) (b) (c) (d) (e) Increases potential demand Decreases the break-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 process? (a) (b) (c) (d) Certainty alike concede back detail requirement Risk-adjusted discount rate Judgmental evaluation 15 (e) None of the above 6. financial break even occurs at the point of time when the (a) (b) (c) (d) (e) Firm starts making operating profits hive away losses are wiped off constitute value of investment becomes zero Cash flows become steady None of the above . Randomly selected values are used 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 constant quantity 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.An investor for whom the certainty great power is less than the judge value, is (p) (q) (r) (s) (t) Risk loving 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 company 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 t he above 2. A firm has an existing vernacular bring contracted at 10 percent a year back.The bank has since reduced the kick ining rates and the company, if it wants, can raise a fresh loan from the bank at 9 percent. While determining the WACC, the cost of bank loan for the company would be (a) (b) (c) (d) (e) 10 percent 9 percent Weighted average of the old and new bank interest rates every 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) Marginal cost of debt Yield to maturity Average cost of debt Either a or b None of the above 4.Cost of carry earning is (a) (b) (c) (d) (e) Nil Nearly equal to cost of depreciation Nearly equal to cost of legality Nearly equal to average cost of debt None of the above 5. In determining cost of capital using alinement yield plus risk superior approach? the risk aid is set at (a) 2 % of the bond yield (b) 4 % of the bond yield (c) 1% of the bond yield if the latter is more than 12 % 18 (d) Both a and c (e) None of the above 6. The headway merit of using book value proportions to calculate WACC is that (a) (b) (c) (d) (e) It is unsophisticated 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 backing at which the cost of the new components would change is called (a) (b) (c) (d) (e) Turning points Breaking points Inversion points Relevant points None of the above 8. When the marginal cost of capital is the same for two projects and there are no funds constraints, you will select (a) (b) (c) (d) (e) Project with the shorter payback stream 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.Which of the following conditions should be satisfied for using WACC for evaluating new investments? (a) The risk of new investments is the same as the average risk of e xisting investments (b) The cost of equity is greater than the cost of debt (c) The capital structure of the firm will not be impinge oned by the new investments (d) a and c (e) None of the above 19 10. The risk-adjusted discount rate rule assumes that the risk increases with time at (a) (b) (c) (d) (e) change magnitude rate A constant rate Decreasing rate A random rate None of the aboveKEY 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. General Electric? s stoplight Matrix is used for (a) (b) (c) (d) (e) Resource allocation Identification of worthwhile projects Abandoning useless projects Scaling up corporate susceptibility None of the above 2. Which of the following conditions must be satisfied by a capital calculate to be meaningful and viable? (a) (b) (c) (d) (e) It must be compatible with the resources of the firm It must be controllable It must be endorsed by administrator management All the above None of the above . A co mpany? s debt equity ratio is 11. It proposes to undertake an aerodrome project with proposed debt equity ratio of 31. The discount rate that should be utilise to the project should be (a) (b) (c) (d) (e) Weighted average cost of debt Marginal cost of debt Incremental discount rate Adjusted discount rate None of the above 4. Which of the following are options 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 policy Customer cornucopia Product differentiation None of the above 21 6. Which of the following is a necessary condition to ensure success in personal line of credit strategies? (a) (b) (c) (d) (e) experience Vision of the leader Rigorous analysis Sponsorship None of the above 7. In determining the adjusted present value, tax shields on pay opinions are discounted at (a) (b ) (c) (d) (e) Opportunity cost of equity Marginal cost of debt Weighted average cost of debt Average of a and b None of the aboveKEY 1 (a) 2 (d) 3 (d) 4 (d) 5 (c) 6 (c) 7 (b) 22 MARKET EFFICIENCY AND financing DECISIONS 1. in that location will be no concern about transfer of riches from existing to new shareholders if new securities are discernd (a) (b) (c) (d) (e) above market price at market price at par by book building mode 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 damage deviations cannot be predicted It is not possible to identify over and under-valued stocks None of the above 3.Market efficiency exists because (a) (b) (c) (d) (e) Portfolio managers are doing their job well at that place is keen competition among market participants late information cannot be predicted in advance 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) racquet 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 figure effect Both a and b None of the above 23 6.Serial correlation tests, run tests and filter rules tests have been commonly utilize to verify (a) (b) (c) (d) (e) Strong form of in effect(p) market hypothesis Semi- beardown(prenominal) 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 None of the above 8.Study of market efficiency teaches corporates that (a) Manipulation of earnings does not pay (b) It is serviceou s to acquiring even debt rather than equity (c) The objective of corporate finance should be to maximise the market value of the firm in due course (d) Equity emergences should not be deferred because the stock price was significantly low in late(a) tips (e) None of the above 9. In an efficient market, an unbiased estimate of the intrinsic value of a security can be obtained from its (a) (b) (c) (d) (e) Market value Book value Cash value Capital value None of the above 0. According to Efficient Market Theory, price changes cannot be judge since (a) Inflation cannot be predicted with any acceptable degree of accuracy (b) New information cannot be predicted in advance. (c) Insiders and other vested interest groups will not allow the market to become efficient (d) All the above (e) None of the above 24 11. Though elegant in theory, bulk of the results of trial-and-error studies have failed to support Efficient Market Hypothesis a. True b. False 12.A puzzling calendar anomaly is (a) (b) (c) (d) (e) The Mid Summer launch 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 Technical 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 LONG-TERM FINANCE 1. As per police the issue price of a share cannot be (a) Less than the par value (b) Less than the issue price of any preceding normal 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 wage 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 known not to have any effect on the market price of stocks? (a) (b) (c) (d) (e) Current ea rnings Growth prospects Risk gild size None of the above 4. Which one of the following is generally beliefed with skepticism by the stock market? a) (b) (c) (d) (e) Debenture issue Equity issue Soliciting familiar deposits Not declaring large dividends None of the above 5. If you are the chief operating officer of a company, which one of the following will you decide to skip in a lean year? (a) (b) (c) (d) Declaring tasting 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 verbalise 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 claim is (a) (b) (c) (d) (e) put on subsequently tax Profit afterward tax plus equity dividend Profit after tax less equity dividend Profit after tax less preferred dividend None of the a bove 8. When the financial execution of instrument of a company is impressive, the board of directors, if they so wish, can (a) (b) (c) (d) (e) Refuse to pay equity dividend Cannot refuse to pay equity dividend without shareholders? approval Refuse to pay sense of taste dividend Both b and c None of the above 9.Issue expenses are the least in the case of (a) (b) (c) (d) (e) humanity issue of equity Public issue of debentures Rights issue Private office None of the above 10. According to CAPM, sacking 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 LONG TERM FINANCE 1. initial offering refers to the branch issue of (a) (b) (c) (d) (e) Equity Debentures Preference shares Either a or b None of the above . The first option to acquire 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 placement discriminative parceling Convertible debentures GDR None of the above 5. Lead manager of a public issue can be likened 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 advantage that prods a company to go public? (a) (b) (c) (d) (e) Accountability Respectability Investor recognition Liquidity None of the above 7. complicated 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 authorise to a form through which rights can be renounced in choose of roughone 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 recruit in the right exercises the rights partially both a and b None of the above 9.Before a company makes a preferential allotment (a) (b) (c) (d) (e) it must pass a peculiar(a) resolution obtain special approval under section 81(1A) from government both a and b either a or b None of the above 10. Dilution of proportional ownership can be nullifyed 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 sponsor in better (a) Price discovery (b) Retail participation 30 (c) Institut ional participation (d) Investor communication (e) None of the above 12. In any IPO, there is infusion of capital in the company a.True b. False 13. Who among the following is not an eligible QIB? (a) (b) (c) (d) (e) State Industrial Development Corporations usual Funds 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) cut auction Book building Commodity auction All the above None of the above 16.In 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 hefty price Entail minimum cost Can be completed very quickly All the above None of the above The appraising bank FII Lead music director 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 moneymaking(prenominal) banking Merchant banking All the above None of the above 0. In India, a trader who performs market-making function for a security is not permitted to direct 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 FIRM VALUE 1. According to engagement operating income approach increase in leverage will affect (a) (b) (c) (d) (e) cost of debt cost of equity overall capitalisation 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 incre ases cost of equity decreases None of the above 3. According to the Merton miller argument, the original MM trace which says that financial leverage does not matter in a tax-free world (a) (b) (c) (d) (e) is legitimate in a world where both corporate and personal taxes exist is not thinked 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 pro gravel are identical Net income approach and MM? s second proposition are identical Net operating income approach and handed-down approach are identical Net income approach and MM? s first proposition are identical None of the above 5. ane of the assumptions 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 internal 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 bilateral information and divergent expectations homogeneous expectations and symmetric information rational expectations reasonable 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 t he congruence between what actually happens and what was supposed to happen. . True b. False 10. According to the net income approach, the average cost of capital remain constant for all levels of financial leverage. a. True b. False 11. The relationship between the return on equity ( 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 r) D/E (1-t) ROE = ROI (ROI 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 34KEY 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 off is more valuable to a firm with (a) (b) (c) (d) (e) little growth opportunities more intangible assets high liquidity less intangible assets None of the above 3. A powerful defence against ban kruptcy is (a) (b) (c) (d) (e) flexibility higher growth expansion modernisation None of the above 4.A company should avoid financial hype in an efficient market because of the dominant agency of (a) (b) (c) (d) (e) SEBI lead steers aggressive investors right investors None of the above 5. Which of the following is an verificatory cost of bankruptcy? (a) Due to myopia, managers may sacrifice 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 re-sentencing under put outed conditions, they may fetch a price significantly less than their economic value 36 e) None of the above 6. faded commitment of employees, customers, suppliers, distributors, and other stakeholders is a direct cost of financial distress a. True b. False 7. Creditors face 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 wherefore profitable firms like Hindustan Lever depend so little on debt. a. True b. False 9.According 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 FIRM VALUE 1. Walter model assumes that for financing future investments, a firm will rely only on (a) (b) (c) (d) (e) debentures term loans retained earnings external equity None of the above 2. Value of a firm check to MM depends solely on its (a) (b) (c) (d) (e) equity borrowing capacity earning power dividend payout ratio None of the above 3.As 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. Rad icalists 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 k (e) None of the above 6. According to the traditional position on the impact of dividend policy 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 but 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 academic 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 plausible reason for paying dividends? a) (b) (c) (d) (e) Investor preference for dividends Information signaling Temporary excess 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 declaration is usually made in (a) (b) (c) (d) (e) board meeting annual general meeting special shareholder meeting b or c None of the above . subsidy shares can be issued out of (a) (b) (c) (d) (e) revaluation reserve share premium placid in cash excess cash balance 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 inducement for share buy backs? (a) (b) (c) (d) (e) Price stability Idle cash taxation 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 whole meal flour and Dodd the weight machine-accessible 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 Dt-1 = c ( Dt1 r EPSt ) Dt = Dt-1 + c ( EPSt r Dt-1) Dt = r Dt-1 None of the above 10.According to John Lintner, managers are concerned more about the absolute level of dividend than the change in dividend. a. True b. False 11. quarrel 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 bout, informational asymmetry is moderate? (a) (b) (c) (d) (e) Dec line Rapid growth Infancy maturity date None of the above 13. A share buyback programme 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 make 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 WORKING CAPITAL POLICY 1. Which portion of total capital generates most of the profits? (a) (b) (c) (d) (e) dogged assets Investments Working capital Paid-up capital None of the above 2. Which one of the following is not part of operative capital? (a) (b) (c) (d) (e) Inventory Receivables Instalments of term loans due within the next twelve months Investments None of the above . The life span of current assets does not depend on (a) (b) (c) (d) (e) Sales achievement Maintenance Synchronisation among them None of the above 4. The working(a) capital inescapably 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 small amount of schedule is said to be following a (a) (b) (c) (d) (e) Aggressive policy Conservative policy antiaircraft policy Survival policy None of the above 43 6. To be consistent with the The Matching 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) scurvy 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 plantation 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 inventory period Increase in accounts receivable period Increase in accounts payable period Decrease in accounts payable period None of the above 10. If you subtract 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 focus 1.The principal tool of cash management is (a) (b) (c) (d) (e) Short-term cash forecasting maximizing daily ingatherings Maximising the payment 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) Adjusted 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 cause for holding cash (a) (b) (c) (d) (e) spoilt motive Psychological motive Precautionary motive Transaction motive None of the above 5. Float is the variety between (a) (b) (c) (d) (e) useable balance and the volume balance Available balance and the amount yet to be collected Total in stock(predicate) balance and the bank balance Total available balance and the balance in hand None of the above 45 6.Net float is (a) (b) (c) (d) The difference between disbursement float and collection 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 different investment instruments? (a) (b) (c) (d) (e) Safety Yield Liquidity All the above None of the above 8. The most normal 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. commercialized paper is a (a) (b) (c) (d) (e) Secured bill of telephone commuting Unsecured bill of exchange Secured promissory note Unsecured promissory note None of the above 10. Which one of the following is secured in nature? (a) (b) (c) (d) (e) Certificate of deposit Commercial paper Treasury bill Ready forward 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 focusing 1. Most commonly, 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) savourless ndertaking to pay Conditional undertaking to pay Unconditional 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 commonly sedulous for judging whether accounts receivables are 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 type 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.Under the DSO method, if the value of DSO exceeds the contract norm (a) (b) (c) (d) (e) Collections are considered to be fast Collections are considered to be muted Collections are considered to be satis factory 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 not for (a) (b) (c) (d) (e) Reducing the time required for the process Widening the latitude in planning and scheduling successive operations Decoupling the purchasing and production activities to some extent Both b and c None of the above . Which one of the following is not the most commonly used tool of inventory 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 accountancy for the bulk of usage by usage quantity 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.Which one of the following is not an assumption in the introductory 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 order (c) The interval between ordering and receiving goods is constant (d) The usage is even passim the period (e) None of the above 5. Fixed manufacturing overheads are treated as period costs under (a) (b) (c) (d) (e) Direct cost Absorption costing Indirect costing Variable costing None of the above 49 6.JIT inventory system requires (a) (b) (c) (d) (e) Strong and dependable relationship with suppliers Reliable out-migration 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 WORKING CAPITAL FINANCING 1. Acc ruals 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 harmful 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) Delay the payment till the last daylight 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 means 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 N one 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 due date period Tax exemption Restrictive contracts None of the above . Inter-corporate deposit market 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.In a MRP system, the master schedule is exploded into (a) (b) (c) (d) (e) procure order for raw materials Shop orders for scheduling the factory Time 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 adjudicate of all evil (a) (b) (c) (d) (e) Kaizan Kanban JIT Both b and c None of the above KEY 1 (d) 2 (c) 53 DEBT AND HYBRID FINANCING 1. Market price of a coupon 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 inflation 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 upbraiding on the timely payment of interest Reflection on the timely payment of principal 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 d ebt 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 integrated sinking fund provisions in their debt issuances? (a) (b) (c) (d) (e) Firms with higher debt equity ratio Firms with higher growth rates Firms with smaller asset lives All the above None of the above 54 6.To tackle inflation risk, you will go for (a) (b) (c) (d) (e) Deep discount bonds Fixed rate bonds Floating rate bonds opposite 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(prenominal) 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 due bonds Puttable bonds None of the above 55 11.Reinvestment 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 coupon bond (a) (b) (c) (d) (e) Duration is zero Duration 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 disengage 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) master interest rate forecasting great investment flexibility decrease 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 FINANCIAL MANAGEMENT 1.International external 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. supervene upon rates in India are fixed by (a) (b) (c) (d) (e) Ministry of finance Reserve Bank of India Foreign Exchange Dealers Association of India A committee appointed for this purpose None of the above 3. Commission charged by abroad 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 position range They do not charge any commission None of the above . The bid-ask spread reflects (a) (b) (c) (d) (e) The breadth 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 foreign bullion 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. Currency 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.A 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 fee hard disclosures are not required There are no arduous 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) northern bond ADS GDR Both a and c None of the above 11. pugilism credit advance has to be liquidated (a) (b) (c) (d) (e) By negotiation of export bills By receipt of export proceeds By availing of rupee term loan Either a or b None of the above 59 12. Forfaiting essentially 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 Importer? s bank None of the above 14. Forward contracts are entered into to hedge (a) (b) (c) (d) (e) Transaction exposure 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 Shift in the location of production Change in product-market combination Leading and lagging None of the above 6. As foreign exchange market is an OTC 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 dif ferences 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 Pound Euro All the above None of the above 18.The spread over SIBOR for a given borrowing is also 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 domestic 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 a ccount of (a) (b) (c) (d) (e) Labour trouble Market recession Mismanagement and managerial deficiencies unseasonable 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 bestow 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 mostly 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 Techn ological risks Regulatory risks None of the above 3.Hedging 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 unique risk has a head on the required rate of return a. True b. False 5. Greater 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 immortalise into a forward rate agreement None of the above 9. Futures are forward contracts a. True b. False 10. You will not be mark 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 swapped a.True b. False 12. Which of the following may not be a reason for going in for a financial swap? (a) (b) (c) (d) (e) Spread compression Market segmentation Market saturation 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 trade in contract All the above None of the above 64 14. insurance policy 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 = accredit price model value of storage costs + Present value of convenience yield = Spot price + Present value of storage costs Present value of convenience yield = Spot price+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