Question Paper Investment Banking and Financial Services-I (261) : April 2006 Section A : Basic Concepts (30 Marks) >This section consists of questions wit serial aumber 1-30 J+ Ansierall questions J+ Esch question camiss one math Maximum tine for answering Section A i 30 Minus L. Whichof the following statement ae true? ses 1. Thepurchaser of interest-only portion ofthe STRIP invests in the security with 2 yield potential ofhigh-conpon colatenl. IL Taepurchiser of princpal-only portion of STRIP expects the intretiste: would contin fill and the borower ofthe mortgage lom would resrtto large-scale prepayment. IL. Both interest-only cecutes and prncipal-nly securities are neutral tothe changes in intrest W. rates, Theretun tothe investors of interest-only seewity and princps|-only securities move inthe ‘ame diction. @ Both Qand above (©) Both (D) and QV) above © OD ai MD due @ D.C and WV) above © AND, MD, and WV) adore. 2 A-net Jesse where the tile of the sce passes fo the lessee upoa exercising a purchase option or ‘armen of guaranteed residual is called (@) Scleand leaseback (©) Close-ended esse (©) Leveragedlense (@ Cross-border lease (©) Open-ended lease nadia, under SEBI regulations ‘venture capital undertaking’ meas 2 domestic company, Whose share: are listed on 2 recognized tock change. TL Which s engaged inthe business of providing service, production or manufacture of articles ot tBings. [IL Whoze acts domo include the activities ofmegatve lists provided by Cental Goverament (@) Only Datore (©) Only above (©) Oaly dD above (@ Both (1) and GD above © All, Cand UD above‘Which ofthe fllowing ne true with rexpectto diferent chares? The diferenial shares area las of shares hat ey varying voting rights with fuctuting rates of dividend. TL The ae of ciffrentl shares ace a takeover defence forthe company. IL Most, the compares wiz this route 2s an aid to maximie the wealth ofthe sharcholdrs (2) Only @) above ©) Only GD) sbore (© Only CI) above @ Bok) ard above (©) AL@, GD) md (Il sbore ‘Which ofthe following CDs cay beth fined and foating intrest ites? (@) Asian Dollar CDs @) Insalhnent CD: (© Rising Rate CDs @ Tank D: (© Yankee CD. ‘Which ofthe following is not true fer LYONS? (©) Thisisazer coupon bond, which ie converible into the common teck of the esuer (G) The ser gts the tx advantage even if be imo paying any interes tll stony (©) Lite investor such securities choose to convatt be wil gt all aterued and unpaid part ofthe interest (@ Byieoing such minsrement the company exm: 3 ump um in he nial prod, forich does nothave to meet media out flow of interest (© Tssumce of tis tock help: the issue fo take advantage ofcomerile dé without oo much dation of common tek ‘Alomn that canbe extended after a pre-set parodie called @ Temba (@) Revchsing eed icity (© Fragen ficlty @ Badkstop fealty (2) Sminglixe Which of the flowing ise not the cbjectva(:) of Intemational Organization of Security “S=* Commissions? 1. Cooperating nd promoting high standard ofreglation in onder tomsinti uct, ficient and sound met, TL Exchanging infomation on thei respective expesiences in order to promote the development of intenstiorl market: TI Previding munalasstance to promote she mteeity ofthe markets. @ Only @ above () Galy shove (© Boh () ard (above @ Boh (D ani HI) above © ALO. @) md MD abore.a aL. LB. ‘The Takeover Code under SEBI's regulatory purview is triggered when the acquirer obtains () Weequiysake in company ©) 1S%equiysoke i x eomeany (© 1WYecuigyse ina company (@ 2S%eequiysake ins company (© Sequiyste in» ommy. ‘Which ofthe following political sks are covered by Export Credit and Guarantee Corpration? I. War, civil war sevolutio orcs distrbanoe i the buyer's comnny TL Cancllston of raid license o new import rertictions. TL Defaalt or insolvency of any agen of exporter or ofthe collecting bunk. TV. Loss occuring eutide India due to any otherreacons thst ae notinsued, @ Both @ and QM) above ©) Both (I) and) above © O.@ad Gator @ 0, Dad W) above (AU, GD, Cand) soe, NZ is a US based company. It wants to raise funds fom Indiz through Indian Depestory Receipts, “MSE? What is the profitability requirement for NZ according to SEB] Act, 19927 (@ thas been making profits forthe lac thee years preceding to issue and bas been declan Aividend of not less than ive percent each year forthe suid period (®)_bas been making profits forthe act thee yeas preceding to isue aud ba: been decline ividend of ntfs: than en prcent each year fr the said period (©) bac been making profit forthe Ic five yen: preceding to enue and bac been decarng ividend oft ler thn five percent each yexr forthe sid period (@ Ita: been making profits forthe las fve yea: preceding to issue and bas been Geclarng Aividend oft ler than en percent each yer for the snd period (© Ita: been making profits for the lac five yeas preceding fo issue and as been declaring vidend of not ss than fiffen percent each year fer he suid period. ‘Which of the following is mot true with respect to private placement? (@ Unlike the public issue mat, a existing company i not required to have 2 dividend tack second fr three yen (@) Thisroate is availabe for the listed companies only (© Friateplacement des: can be suceesilly closed in to 6 weeks, hence di: fcter meanto sie finds (@ a puvateplacement there is estes Denby in wovking out the temas ofissue (© The tse expanses in case of private placement is as low as ? percent ofthe total issue amount sscompared to 10to 12 perentin case of pubic este, ‘Which of the following ismet trae with respect to bonus ise according to SEBI guideline:? tose (@)_ The bons issu ic made out of tee reserves built out of genuine profits orhare premium colested in cash oaly (®)_ Bonus shure: samt be ised outof evaluation carves and they cant be espitlined (@ The bone issue isnot made wnles the parly pid hare: ae mace fully psic| (@ A company which announces its bonus sue aust implement the proposal within a period of ‘hee monte from th dae ofcuch approval (© Esme of bomus share: after any publicightisue i subject tothe condition thatno bomus sae shall be made which wil dle the value of right: ofthe holder of debenture, convertible ful or pat.ua. 16. nn 1B. Parker Ld. wants fo sue th CPs of 15 months of maturity. The discount te used io issue the CPs is > 1. Theprevalng murketrte of CP. TL Asperth eetitratngsehieved TL Asporthe dsaron of he compar. IV. The company cannot sue the CPs (@) Only Q) above ©) Only (ID above (©) Only QV) above @ ©, Mand OD) above (All. @), GD) and (V) above. ‘Following is the data pertaining toa finance company ay Tiarl( oftoulaset) 688% Ti2(6 ofiotl set) 466% TREK Weighted Assets of tial asset) 768% ‘The total assets of the company stands to Rs250 crores, The Capital Adequacy Ratio ofthe company @ 16% @ 1214% © 114% @ 075% © 375%. ‘Uader advance fctoring anangement, India Factors Limied (FL) bas greed to advance 2 sum of Rs. 15 lakh for 90 days aganst the seceirables of XYZ Limited. The advance camits the interes of 164% pa, compounded quarterly and the faclor commission i 29% of the value of fictved reserable. Interest i collected in ameat and commuszion i: collected upffont. Tote receivable: of the XYZ Limite ae Rs 18,75,000. ‘Whats the annualized cost of find: made available to XYZ Limited? anew (@ 16.00% 167% 4% @1M% — & Baw. ‘Consider the following data regarding a traditiona! loan? sae Tenureoflean years Rute of terest Dhpa Lea ant Be.10.00000 Prymeat pate Equated monthly iotllments The principal amount eid in the fir installmen’ ic (R899 RTO RANT = RLM RIBS. Tn which of he following lease agreement has third party, 2 lender, toi? sare? (a). Back to back short tem lene ©) Levesged ase (6) Operating lease @ Fillzevnelene (@ Saleand lence back19. Consider the foloning dts relating toa maauficturng company: Conoflesedscst —: Re25 kk Raeof deprecation — 25% Fined set tamovernto ©2 Sale: forthe yesr e150 lakh nsead of leasing if the company had purchased the asc, its dined asset tumover ratio would have een @ 100 @ Ls @Ls @ 10 © 200 10, A company has isned Pace Through Centfistes (PTC) backed by a pool of property ressirables ‘aggregating fo R.J15.86 IL The equited meubly payment to be made to PIC bolder ae a: fallow: ‘During the fret 12 months 2 Rel6lathpa, ‘Durirgthenext 1? months ReDLath pm ‘During thenext 6 months 8hihpm (Calenlate te promised ate of retum to the investor. or. @ 1736% © 1656% @ 956% (© Data neuen. 31, Which of he fllowing i true for bras even laze rental? (Alpe pte: poynens dense bak ere rena (2) A higher tax relevant rate of depreciation increases the break even rental: (©) A longer primary lease period increase: the break even rental: (@ Bighercosofcspil ince bk event (A bigher net salvage value inereases the break even rental. 32, Mr Shab as deposited Re 20,000 with an NBFC 2 the interest of 115% pa. ith the matmity of ‘36 months Afer [7 month: be wants to mithcaw the depos Th interest wil be pid te Mr. Shah t thente of @ l0%pa @ Spa MWepa @ U5%pa. (@) No intrest wilbe pid te him. 33. Which ofthe fllowingis'xe true for Advance Factoring? ssi? 1. Advance ficioring alters he cuent ato ofthe fim. This arangemert results inthe creation of cument init IL Ttsamplyreamanges the curent accets by replacing recervables wit cach and fctr dues. (Cay store ©) Oaiy above (© On G above @ Boi) and above @ All, and ators. 14. In-which lease tanscton the lensing company invest inthe equpaent by bonowing 2 large chunk <=> cof avectnnt with il rece fo the lene and wikon any ncoueto i? () Leeagedlan @) Single mrecor ase (© Trpatte ace @ Biatielase @ Sale mdlene bak. prrendGrenland finance company bas he ttl aes of Bs 10 cone and ae owned finds are Rs roe ‘The maximum amount itcan berew is @) Reso ©) Beldcrme (9 Reeve @ Baue © RsN0crae ‘Wick lace of the eae agreement ents the Lecr to eminate the greemant ard be indemaifed ‘bythe ese foal enpnses need on account othe actin ofthe see” (@) Description cane (©) Ecuipment delivery dame (6) Onmarship clause @ Surederdane (©) Exeaptin dine. ‘Which of he flowing statement tru with respect o Rea Estat Investnent Trust (REIT)? (2) The most prominent fm of lending by REIT: she constustin/developmertl lending (©) To ean thet peval tx stars, REITs veto distribute 50% ofthc income to charles (©) ETT: net llowed to ise nance tough debt 2c they ae eguyivesment ibis: (@) Taiec equi invesments ia RETTo by verter wally Lc liguity (©) Ascding tothe federal lows, RETT cnn oly be infinite ie ure, Which ofthe flowing statement is fale regarding REPO:? (@) REPO is combmation of spot and forward transaction (© Bsa REPO toh ccd sei ot snebneoey ncaa (©) The backward log ofthe transaction provides the fundzmental basis for determining the REPO- inertia (@_ REPO serves as a collateralized fixed-rate Ioan fora short period (@) REPO market caa be wed for bedzing nicks with an advantage over the forward maazhet. ‘Which anampenen i desged to grotto the beer nd te lender git vets ‘rates in real estate financing” @) Gaplozs ©) Bowties (@) Daect jout venture: (@ Direct development and syndication (@) Matpems A fined deposit with an NBFC camnot be withdrawn within (2) 2 month omit acceptance (©) 3 marth fom it asceptance (©) 4 mouth Bom its ascepace (@) Gmenth Bom te asceptince (@) 9 mouths om is acceptance, ‘END OF SECTION7. With the ever increasing dynamism in the market new sud new merument: mdmeckanism: ae comin into phy in the retail debt market in India. Diccus the broad trends in the retail debt maikets in Inds and the ferent investment products avalible forretail patcipaton, (10 marks) Arse END OF SECTION C END OF QUESTION PAPER Suggested Answers Investment Banking and Financial Services-I (261) : April 2006 Section A : Basic Concepts LL Answer (3) oe ‘Reason: The following statements are true ‘The purchaser of terest-only postion of the STRIP invests in the security with a yield potential of higk-coupon collateral. The puckaser of prncpalorly porto of STRIP expects the ‘nferestraies would contime fll andthe borower of te mertzage Jom would resort to large-scale prepayments, Both inteestonly security and princpal-oniy seeunty have large impact associated wih a small change in interest tes. The retum fo the imeston of Interest ony security and Principal only secures move in the opposite direction. Hence (2) is the comect ans. @ sama A net lease, where th tte of the asset pases to the lessee upon cxarising 2 purchase option or pryment of zuaranted resifal i called open-ended ease lence (eis the comect answer. ifi i] Ancor: Race: @ Im India, ander SEBI regulations‘ venture capt undertaking’ menus a domestic company ‘Whore shares arent sted ona recognized ock exchange ‘Which s engaged inthe business of providing services, production or manufacture of ail or things. Whore activities de aot inchde the activities of negative lists provided by Cental Government lence (A) isthe comet answer @ ‘The folowing ae rae with re-petto differenti] shares: The differential share: ae a class of shares that cary varying ‘voting ight with actuating rates of dividend The iaue of cifleential chases acts a 2 take over defense the conpay. Mosty, the companies utilize thi: route a a precautionary metue amd net a2 an sid fo maximize che weit of the shareholder Hlnce (A) isthe conect answer, @ Asian Dollar CD: cary both fixed and fostng intrestates Hlece (a) isthe conect answer. © If the invertor of such scutes chooze to conver, be wil Lave to fongo all accrued and unpaid put of the meet All oer statements ate comet. Hlence (¢)is the conect answer. © A loan that can be extended affer 2 preset period is called Evagen feilty Answer: Renn: Hlnce (c) isthe comest answes. ® Following are the objectives of Intemstional Oremnizaton of Security Commissions: ii Cooperate and promote high standard: of repultion in onder to snsinnia jst, efficient and sound mukets Exchange information or thes sespective experiences inorder to promote the development of domestic makes. Provide mutual asistance to promote the itegnty ofthe markets lance (p) isthe comect answer ® ‘The Taeover Code under SEBI's regulatory preview i tizeered ‘when the 2equirer obtain: 15% equity sake ina company. Hence (b) isthe conect answerif B. ut. 16. rie OF if rf © Default or incolvency of any agent of exporter or the collecting ‘enki the mck which ie matevesed by ECGC. Hace (9 ic the coast smawer @ ‘The compary who watt: to mize funds thvough IDR, har bean snaking profit forthe Ic five yezs preceding to irae and bar ‘been declaring cividend of not les than tan percent exch yea for the sid period. Hance (isthe eomect answer. @ ‘The private placement route is alco availible for che unlisted ‘companies Al ether option: ae comect for private pavement, Hance (tis the erect awe. @ ‘A company which anzcunces is bons out mst implemen! fhe roposal wid 2 period of six mond fom the date of such sppoval All otber statements ae comrest Hence (9 isthe conect answer © (Commmeril Paper ha: the marimam maturity of one year. ‘Therefor the company cannot issue the CP for 15 months lance cc the conc answer © ‘Tier capital = 250 « 0.0698 = 1745, “Tier Despitl: ‘Ri weighted scat: = 250 0.7687 = 192175 CAR = (1745411 65)192175 514% © Ademce provided 15.00 ikke Less commission 0375 Like RelA 505 ikke Discount charge (0.600 Lake Elective ate per quater: 0.60/14625=410% Anmalioed rte=[(LD41)* = 1] 100= 17.48%, lance (cic the conc anwer BV. 18 Bs. 2. a. i i ited i i i © se 10,00,000 PVIFALin0 14347 m= Tntuest contest iz the fist installment 2 TP =Re 10.000 Principal pat= 14,347 -10,000= Rs 4347 10,0,000 FA tummver = 15070015 @ sie ‘Define im the mouthly rate of return imple by the cach flow 315.86 = 16 x PVIFA Gin 12) = [12x PVIFAGn 1?) x VEGn 12) -[§» PVEAdn 6) PVEGa2#)] ‘The eguaton ested by n= 1.5% (By ial and ere) Hance (i) isthe conect answer © -Alngeapfiont payment ineesres th breakeven rental. A higher tax relevant rate of depreciation decreas the ned eveanentl -~ Allonger primary lence prod decree: the break even rental, ~ Higher costo capital increases the break even rental. ~ Akigher act salvage vahe decreas the beak even ental nce (iis he conect answer o A fixed depost with a NBFC comet be withdrawn within 3 ‘month: from it acceptance. Subsequent to 3 month period deposit is wthdrwn afer [2 months but before the date of matunty is ‘sgl for intrest a he mite wich i one percent point les han te contacted date, ‘Therefore Mr, Ska wll seceive he interest @ of 1.5 Hence (8) isthe conect ancwes B 05%.2. 4. %. 0. 2B. 2B. 30 Aaswe: Resor: © Fellowing are tu for advance fatoing: ‘Advance fetoing doe: wotslter he cunt rei ofthe firme ‘This rangement does not esl inthe cretion of cumen ini. 1 samply eamaages th cunent eset by replacing reenable: ‘with cash and factor des. “lace (ie he comet anew, @) Ta Leverged lace transaction, the lesng coupany inves in the ‘equipment by bomowing 2 large chaak of investment wih fll recourse lessee and without an recone tit Hlance [ie he comet anower @ ‘The feaace company canst bonow more than fen tne: net ovael fxd, Aaswe: Recon: Answer Resor: Answer Resse: “Hlnge (2 ie he cores snows, @ Equipment dalivery cla of the leseo 2prement entities the lesz fo termite the agnesment and be indemnified bythe lve ‘hr all expences acured on account of te acon ofthe leet ‘Hlence (0s the comet ans, @) ‘The met prominent fem of Imdng by BEIT: & he comtucton/devlopmentl ending. To retin ther pesil ta cistus, REIT: have to dembue 95% of der income to shueheldes. Thee can be motgege REM Inditee: equity invesmuens in RETTs by investor are highly liquid. REIT can be nite fe ust or fin fe. Hence ony (2s tue. © ‘By definition REPO ~ shen for epurcce of secures, Following me the featur: of REPO: ‘REPO isa combizatoa of spot and forward wansaction Tana REDO both ech and security gt sialtneoely exchanged ‘The forward log ef the tnsaetin provides the findamentel bes 4s determining the REDO.mteret ite ‘REDO serves a a colatealiedfvedate loan fora crt period [REPO market can be wsed for hedeins risks with an advanaze ‘over the forward make. “lace (ie he comet anew, © ‘A bow tee designed te protect both the beremer aad be lender sgsint volte intrest nes, © A fixed deposit with a NBFC cannot be withdiawa wits 3 ‘montis domits accepance, lence (Behe comet anon, B4 Question Paper Investment Banking and Financial Services-I (261): October 2006 Section A : Basic Concepts (30 Marks) ‘This section conse of questions with serial number | - 30, Answer all questions, }+ Esch queston same: one mati. _Naxinmm sine for ansrering Section A i JO Minutes, ‘Which ofthe fllowing is wot 2 rarsbe of Eoonomie Risks for sovereign risk rating purpose? @ © © @ © ‘Resource endowments and dere of diversification Public sector fiscal balances Living standards, income and wea dsrbation Public debt and interest burden Trends inprice inition. AMoonchet ic @ © @ @ @ A stock thats fvorte among the todas ‘An IFO that mikes dsproportinzely ange guns inthe tock price onthe fist day of trating A situation where the aciity in 2 market is umusully low due to the aicipaion of exis by the investors ‘A stock whic asthe ngs market eaptazation inthe stock exchange on 2 partular day A stock whose bid prise sequal the ak ce ‘Which ofthe fllowing cbs ic mot covered by Expert Credit and Guarantee Corporation ECCQ)? @ ® @ @ @ Tncolreney ofthe buyer (Caneaton of vad ipertlisense (Causes inherent the nature ofthe goods ‘Wear civ war, revolatin or evil disturbances in th buyer's country Failure ofthe buyer to make the payment within a specified period. ‘Which ofthe following is/are true with respect to detachable equity coponetwamant? L . 0 @ ® @ @ @ Detachable equity compons wants sued by the companies ete theboldertobuy2 stated rumber of equity ares ofthe issuing compary at sated price any time during the inital defined pariod Detochable equity coupons rarants canbe isued with non-conertbe debentures or with any aha debtor eqnity instruments ‘The warrant stached to he ictrumens comct be traded 2 india secures Cniy @) store ott (1) and (1) store Bot) nd UD) above Both (and QI) sbore AQ, (aad UD above‘Which ofthe following ican wot true with spect to Muiti-cuency leans? 1 Mali-sumeny laos coms denominated in one caency with an optor te borowin one or more oer TL Mul-enmeny lan ae being inning aed as usineses tempt ike advanng of owing TH. Melisureacy leans ae famed to elinizate curency sick @ Oxyd) aoe @) Only steve (© Both ()and (I abore (@ Bo) ad) above © ALO. da Mp ove Which ofthe flling scrtes ae eligble for Repo hansactin? 1 Govenment of bonds in dena! fom. I. Treisuybills in denat form TL. PSU bonds im demat fer. () Only Dabove (6) Only) above (© Only) above @ _Beth() and (ID shore (2) Al), aed UD) above, ‘Which ofthe following statements ise true with respect to intrestrate risk tothe lender? Ina sdiinistered rate sonar, the see to mamaze thi ei very low. Cot based pricing of the loan can protect the lender: agnint this nck. TD. Greditrck is invaicbly reflected in the interestrate ts, @ Only Dabow (6) Only) above © Beth) and (above @ Beth () and (ID above © Al, and UD above. ‘Whick ofthe following ic mot true for reasry bil (@) Treacy tills ae ised to meet the short-term requirement: of Goverament (©) Treasury tills enable the RBI to perform open marlet operations (©) Investor prefer tmesemy bill: bessuce of high liquidity and azrured rete @_Trearuy til ae eligible formeetng CRR requrement: (© Treasury tills ae sued at discount and redeemed at par ‘Whick of th following ise true with expect to owiteh dele? ae Switch deals ivlve simalteneous purchasing and elling of different cecuities by a person, L_This ised to change the composition of portfolio without sinificat costs. TL Generally, this fanlity is used by the RBI to increase or decease the money supply inthe system. (Only) stove © OdyDadore © Only (HI) above (@ _Beth() and) stove © AL@, Wad MI) abovewu. L. ua . Which of the following is not tue for LYONS? ‘Which ofthe following defaults may be charged unde Minor Deftelt:? soe 1 Publication of information inthe advertisement and other printed matter that does aot confi with he provpectas 1 Violatoa of goverment regulations en advertisement on capiliscue. IL Non disclosure to SEBI of allocation of responsiities tothe led manager before the opening ofthe issue INV, Investor: grievances not handled propa. (3) Only above © Ody above (©) Both) and MD) above (@ Beth) sed QU) shove ©) OMadW)arove ‘Which ofthe following ise true wih espectte the guideline for nod: boy-bk, eeued by SEBI? L_ The company shall not issue any shares inclading by way of bomus shares till the date of closure of the offer sme under be sock repurchae roman. TL The company shall not withdraw the offer to buy-back after the draft letter of the offer is filed with the board. ML The company can buy-back the locked-n shares ard non-nancferable share: by passing theresoluion in board EEaLE, (3) Ody above (b) Beth and MD) above (ce) Both @) and (ID) above (@ Beth and CD atove (AL ©. @) and MD above. (a) Thisisa sro coupon bond, which is concert into the emo sok oft ser (B) The err gets he tox advantage even fe ie motpoyng ay intrest ll matty (he investorof suc ecuitis choose conver, be wil get al acrud and unpaid part ofthe intrest (@)_Byitoing sich an mcrumest the company ears 3 hump sum i che inital penod, for which does uot Isvetomect immediate ou flow of meret (@) _lesume ofthis stok hes the isuorto take advantage of conve debe witht too much dition of common stock, ‘The insurance premium paid on the dapocit: accepted by th bank is tobe paid bythe banks at seis (a) The end of January ané uly (0) Theend of Marchand Septomiber (©) Theend of Apri and Ocioter (@ The end of May andNovenber |) The end of une andDecomber. For publis deposit the issuing company is required to matin theLgu asset forthe deposits mating befowe 31"March next. The amouat should be deposited or invested before 30" Apai. For this purpose ‘he ported investment) ite 1 Depostsheld with my Indian bank, fee fom any ten 1 Usencunbesed stents: of ental ar ote goverment TL Unencunteed secures approved by Iadan Trast Act 1882, IN, Usexcusered bonds iesud by EDEC. () Only M)atore ©) Only CD) above (0) Both) and QV) store @ GD, Wad W)atove © ALO, ©), Mad) adove.My. ‘The Enacutve Commitee of Intemational Organization of Seewrity Commissions consist af seas () 2uentes ©) Huentes © Smentes @ = [Smembes © Dmentes. ‘Which of the following guideline(s) issued by the RBI is'ane correct fer bank participation in equipment lasing? — SE 1 Acoumerealbunk em undrtiedreety th snes of epgmert lexan and bie pce TL The bank can also set up a subsidiary to transact the business of equipment leasing and hire purchase and such ober ati: cident tert where, he bak must ot old les hn 51% of pid wp share expel of ‘the subsidiary. 1D vertont fa bok in char en fit ubsany company (ngnedin equipment ening togetier ‘with the investment of the bank in the chare capitul of ocher companies camying on the basiness of equipment levang canon he agarezste enced IO of tepid pcb capt] md meee @) Only) steve ©) Boh and Q) sbve (©) Both) md (I) store @ Boh) and MD above (@ ALQ, and I) shove. ‘A company lat esaed Paes Through Cefcnts (PTC!) bacad by = pol of pepary reseable:agmegning to 22> 45315 5 bth The equated monly pzymenttobemadeo PTC holder ae a flloes: Dusing the fist 12 months Ro l6hkhpm, Dwingtieoeet 2mumte =: Re 12 Blhpm Dung the next 6 montis Rs Shthpm, ‘The promised nite of tum tothe investors @ Iss @ 1756% © 656% @ 956% © 25e. ‘Which ofthe fllowing isa sbort-tem loan extended 2 the time of completion of project o provide a bridze finance “E> ntl the developer can obtain Sinneng of more permanent ate? @ Gpiom @ Bowties (2) Desetjoms verre: @ Disect development and yndction (© Mini-pems. Mr. Prashant asthe accumnlsed saving of Rs. 7,000 far Sve years with NHB, He requis a lan fora new sscoumodition, which i of $42 square fst. What wil be the masimsem amount of Jom dicburad thin under Home Lean Account Scheme? © nm © Relpgooe © B10 @ 26000 © Rls snesa, ‘Which of he fillowing ic considered ar an azcet under Wealth Tax Act! a (@) Residential house far residential prpove or alloted by 2 company tits officer for residence whose gross anc salary is es than Ks. 500,000 pa (©) Howebeldas stoskit-taie (@ Howe ued forown busines or profession (@_ Aletouthousspropny fer 100 days inthe preview yr (6) commercial complec ‘A fixed deposit with an NBFC cxmmot be withdraw within same (@)2month fom its aceptance (©) 3 mon omits aceptance ($month omits aceptance @ Smut fom its aeeprnce (@) 9 aeme fom it aeeptnce ‘Which ofthe filling is' not true regarding the difference between vente copia aad bought out desl? L Pascipaton ia management of VC undertaking is high in cae of VCF where wit slow in cae of bough cut eds. {TL Exit from the investments takes 7to 10 years in ase of venture capital while in case of bough out dels exis one inmecistly afr the expay of lock m period {Regulations oa venture capital investment: ave very high 2s camped to bought cut deals. (3) Only (i) above @) Both (and ) shove (@) Both @) and QI) above @ Both) and) above © Al@, amd) above. ‘Which of te following sane not true for back-to-back short tem lease contac? stone? 1 Under arangomant,2 ais of erobla ler ae acu sch ht the tt uation of cbr lever eget fhe mannan of eemon feof beat This mangement ha he carats of bot he nme ec and opring lee ‘TD. Under tis avangement, each short-term lease is a cancelable lease. (a) Only CD above (0) Both @ and (I) above (©) Both @) and (II) atove (@ Both (I) and (I) above @ AU@, Gand) stove |. Under advance fectoring smangement India Factors iit (FL) ba agreed to advance a sum of Re, 15 lakh for 99 8 days agsinct the receivables of XYZ Limited. The advance care: the intee:t rae of 16% pa. compornded quarterly and the facor commission is 94 of the value of ficioed cecesables Interest and commision are collected wpfoat Tot receivables ofthe XYZ Limited are Rs 18,15,000. ‘What isthe anzuaized cost of funds made wwallble to XYZ Limited?‘Every NBFC accepting fzed deposits has to maintain a et of registers in respect ofall deposits. These regis shoul be bet at the registered office ofthe company and shouldbe maisined for nert ‘Expat Led ica lezing company Following ae the relevant ifommaton for lease transaction undetkon by it 5 calendar yer: feloning the Suan year 7 calendar yen following the faaasial year S calendar yen following the faaasial year 10 calendar year following the finance year 10 calendar years following the financial year. Lense rata rcenabl forthe nec five years 228er. Lense seta receaile over the eae toma 3Ber (Cos oflesed equipments 215s, ‘Net ommed funds 1100. “The smount drown exch eve fr this anenetion om the bakit ) © @ © ‘A oat lace what te tle of the suet paras to he levee upon exercising 2 puree cption or payment of © R190 cone 183 ame Rel ame BelB ame B13 cow. psrnted wesidel i called @) o © @ & Sale and leaeback (Closeended lesce Leveraged lease (Croe-brdar lense Open-ended sce ‘Wick ofthe flowing ae the salient fishes of capital lcs? 1 1 cig WN. @) ) © @ ® This lenses aon-canelble fr 2 specified period usually refered to primary period. Thi: exe fully amortized overt primary exe prod. ‘nth lease, the lessoris responsible for eps, maufenanc an insernce ofthe aset The ek of sbelesonce i shied fem ver to lezee Both (and (I) above Both) and UD above ©, Mand V) above @,@ni W) stove AUD, (D, (ID, and QV) stove.2 Following the infomation peta to a ze asaction: “— Iniiheot «: | -RGDBEL Lene uote ReAMRs 1000 payable amma PV fleaseresials ; RGSE.STARL Lestem Bye Costof debt 1% Costof eit 1% ‘What willbe the principal amomt to be paid tthe end ofthc year ape the placed debt mortization schedule inalexe! © R208] bib @ RIL © RMS Juin Financial Sorcice: Ltd. ([FSL) bac recomly suctred 2 six year leveraged lose tanszeion involving 2a ‘nvestmant cost of Rs 150 crore with itelf a: the equty parieipat aud Syndieate Baak 2c th loan purtispant ‘ding the investment in theratio of 14. The lom cara: an effective of inere:tof 14% and i: to berepadin ‘he six equated mma] instalment, The ro vild of ESL i 20% per ammum. The amount of loan repent to Syaditate bank at the end of every year for such aleve trmsaction @ BMScae @) BiSdlooe © B1086cme @ BMS © B1586cue sree» END OFSECTION Arf re i Qo mark) {END OF SECTION END OF QUESTION: Suggested Answers Investment Banking and Financial Services-I (261): October 2006 Section A : Basic Concepts 2 Following ae the variables of Economic Risks for soversign rk rating purposes: + Resource endowment, degree of diversification “+ Bulli sector fea balances ‘+ Public deb nd interest burden + Trenisin price nation Living ¢anéads, income and wealth dcibation is avaiable of Piteal Rick for sovereign rick rating pupoces Hence () isthe somest mares, Answer: @) Reason: Meoncht i he tems weed to desabe 2 sitistion where the PO ube: disrepontionstaly Lage gine in he stock price on the fit day of tadmg. The pie of he [PO slyrockes over double or tiple sah on the fist day ofits tading. The tennis also wsedto describe any stock that makes incredibly large pice leap curing the tang csson. Inthe conten ofthe question, (i) the comet aner. Asswer ‘Reason: Ricks arising de to cawses inherent in the nanwe ofthe goods are act covereé by ECGC. All oher nicks ae covered by ECGC, Henoe() isthe mzwer Asser @) ‘Reasou: The warrants attached tothe instruments can be taded fey as individual seewiy. Hence isthe comect answer. ) CConsin curency sick ae inherent he meli-cunescy oun, -Multi-cumency leans to some cleat representa matrl expansion of Fue dollar lone. Hence i) isthe comect anes. © Allthe mentinsd sacunie: ae elgble for Rapotarsicton Hence (@)# the comeet nome, Bri @ Jaa administered rate scenai, the scope to manage this ski very low a: regulator fixes the imerest raf leaving lie to marage. Hence (1) iste. Cost baed prising ofthe loun cannot protct the lenders agumt tic nck since im the incresing rte sear, the cor ef leans tend t goup. Hence (Z) is ot tue. Credits is invariably reflected in the interest re rsh 2 in an increasing rte scent, ‘he default ate tends to go up. Hence (II) ialso tue. Therefore (isthe coect answer. @ ‘Treasury bills ae eligible for SLR. Al other options are comect Hence (@) isthe comect answer @ Swritch dal donot ve any aupsct onthe money supply. Hence otstomant IIT i incomest and (it the comet mawer &) ‘Non disclosure te SEBI of allocation of responsTulitis to the lead manager before the opening of the fumes gor defiult Al ober statement ae someet fer minor defel Hlnse(@) the comet newer, 5G) ‘The company stall not buy-back the locked-in chures and uow-tonsfeale cha: ail the shares become transferable as per SEBIpuideine All other tctements are conect. Hence (0) the comect answer. ©) [fe inventor of se svat: chooze to convert he wil ave to forge oll scerad and unpaid put of ‘he infers. Al otarcnlements ate contct Hise (() the comet mswer, 2 @) ‘The premium paid onthe deposits accepted bythe bank is to paid by dhe banks atthe end of Time and Decenber, ‘Hence (¢) is the comect answer. @ Fer polis depot the ining company reged to manta the ligud set forthe depois stung before 31*March nat. The amount hcl be depend or reed befee 50° Ap. For ‘this purpose the penmitted investment are Deposits held with a schedule bank, fee fom any lien. Usescunared seni ofcennl ors goverment Ueaeunberedstemites pore Indie test act, ‘Unencumbered bonds issued by HDEC. Hence (iis te comer ave © Tie Executive Connie of Interatoml Oiginten of Secrty Commins costs of 19, nenber. Hlnse(@) the comet newer, © Ald the sstmeats egording bask paiciption in equipment lasing ae comest lange (@) isthe comet mswer,cP if ff iF if @ Define I the monty rt of enum ipledby he such flow creo 51586 = I6PVIFA GinJ!) ~ (12 * PUFA 12) *PVFGan 1) -[ 8 * PVFAMaS ) PVE] The equation ists by Im = 15% Gy tial anderen) Armand sein ie 1 =(-in)71 cnng?—1 £19568 Hence (@) isthe comect ane ® Mini ems ic 2 chorea lun ntndad at the tne of completion of project to provide a brides ‘inace ul th developer can obtain fiancng of amore peacent mtu Hence (ee the comet sre, @ ‘Under Home lous acco! sheme he masiaum amount ofa tht an be dicbacedi a fllow: Builtup ater Maximum amount oflsan Upw iq t fo times of amount saved Upto iseg ‘hae tines of amount ved rceadng 860 sq two finer ofamcun saved Thareforelom Mc P =72000*3 Re, 216 00, Hence (2): the comect newer ® A let ont hose property for a minum of 300 days the previo yar isnt considered asa met sade: Wel Tux Act. Thrfoe 2 let ut house propany for 100 days ia the previous yer ie considered asa at Hence (@) isthe comect nove. ® A fied deposit with 2 NBFC camot be withdrawn 3 months fom its acepance Hence (bs the comet answer @ Regulations on veanme capil invesments ae low 2b compared to bought out deals. All other (bffoence se cemaet Hence (9) ete comet ce. 8 This snangeneat esmbles 2 cance lec inthe ence dat ech heaton lense ie anon canceib Jase. Hence steemen [ts wong ad alent (0) be answer4. %. 0. 2B ». 20. 2 @) Rs.ldhs Advance provided 15.000 Teve:Commizsin 0.375, 14.05 Less:Dizcountcharge 0.600 Fund made vadaile 14,025 Effective rat per gute: 06/1405. Annualized rate =[(1.0426)* - 1]* 100= 18.25%. Hance (isthe conest mower © Every NBFC scceting fixed depos hat msitin sat of neice in espec ofl deposits. These sepiters shold be kept a th registered office ofthe company and cold be maintained for ext 8 calendar yer fllowng the fuarcialye, @ CISLRG)LAMI*C 20.75*225825 "215 RL Hanee @ isthe comet answer © A nat lease, where the tle of the seat pasce fo the lessee upon exercising a purchace option or payment of punrateed residual izclledopen-ende laze. Hlnse (isthe coneet newer © (Capital lease is also known 2 mance lease, The salient features are 2 fellows ‘Thece ease is uon-cancelble fora spesified period unally refed 2s pumary paid. ‘This env ie ily amortized over the prmzy ese period. Int lev. the lessee responsible for apa, mintenance and iswance of the aset ‘The nk of cbolescence i dhifled from lessor to lesee. longs (ithe comect newer. @ Gs Lks) ‘Yeu [Tomotimtiebezming [Tnterestcontent [Capit coment [Rental 1 387 1001 1663 | 25.54 2 ae TA 1945 7660 3 De aa De 266 Hinee (@ is the comet answer — a nstane uted mln = PUFA, 6) Hae (isthe comet we. ee {he provisone of Non-Eakins companies Dizecions, 1959. Which of the following isnot the salert ‘ature ofthe isue of CPs by a fiaance company? @ The CBs areissued at discountand redenned at par (The discount rte is cube tothe exp and can nat be fely determina by th ieruar (© The CPs cannothavea mntuty paiodofles than 3 month: and more han 6 manthe (@ The CP vail be inthe fom of unumcepromiscory note negotiable by endorement and delivery (© The aggregate anour tht ear be nised through issue of Cs can mot exceed 75% ofthe ‘compary’s working capt lint fined by the barker tothe company. ‘There are several strong resson: in favour of lesing over buying but thre ae come shertcomings ‘ecocated with the asat-bwsed fnaacing Which of the following ila true with rezpuct 10 the ‘shortcomings associated withthe asse-based financing? ‘Moat of the equipment leace transactions are structured as finance leaves, the Hexiblity of lessee tp deinveticsnoly undetermined TL Propelled by the dubious advantage of ‘Off Balance Sheet Financing’ or one fam can afford to. ‘acre it eone toleasng beyond rexsomble iit. ‘TL Inperfectly campenitive financial market, the cost of leasing tends to be higher than the cost of therfore oftomonine. (Only above @) Boh) and (I) above © ~~ Both Qjand (IID) aboveSnggested Answers with Examiners Feedback fle/1Cs Documents 2Cand20Setingser Desktop Neer BES. (@ All), (and above. ‘M0, Wheter a lease isa fame lease or an operating lease depends onthe substance ofthe tansacton “8 rather than is form. Which ofthe following sinations would mot nonnaly fad to ease being classified 1s nave lense? (@) The easetrnsers the onmership ofthe assets tothe lessee bythe end ofthe lease term (0) Thedesee taste option to purchase the assets a apie which sequal tothe fai vate athe date te opin becomes eerie such that, at the inception of as, itis reasonably certain tit te option wll be exercised (©) The easetermisfr the major par ofthe eonomic life of thease even if tie is aot transfened (@) Atte inception ofthe ease the present valu ofthe miniawm lease payments amounts to aileast uttaally all ofthe ir vale ofthe eased aset (€)Theleased assets ofa pecilized nature such tat nly he lessee can seit without major solitons being male END OF SECTION Alot Team’. What consideration 3 eustomar should sarieuly lek ints before choosing “Loating rate ome los’ ora ‘Reed te heme losn'? Dzewes (0 marks} Ta the publi sue of Barons Inds Lith lead manager forthe issue is Kacy Investors Sercces Ltd, the rpstar Bigshoe Services Pot Led, and the bakers me ICICI Baok and HDEC Bank. With respect io thi, discuss the ole of Lend Mangas, Registrars and ‘tose Bankers: ermine tothe ese (00 marks) END OF SECTIONC END OF QUESTION PAPER Suggested Answers Investment Banking and Financial Services-I (261): July 2006 Section A : Basic Concepts Answer: (®) os Resco The money makst& a wholesale debt market fr a lw ck, highly lignid shor tem 2 PEGE id a) snsrments having the mtuity ranging om single day to a ye. “Hence (isthe comect answer, @ Allaretherskassociated withthe money make instuments, “Hines (ithe comect nove, ® The specifi objective ofS is to promote etal invest. All ter statements are comect for ¥Ds “lnc 2s th conect answer Tae following ae ru with espestto the commits ‘The main purpose of President's Commie iso achieve the objectives of 10SCO and mets nce ina year The Execatve Commitee consists of 19 members and it looks ater the day to day Sineioning of the organization and strives to tain the cbjenives The Technical Commitee coming of 16 members, addvesses major regulatory issues and genet: pratoe response to these coneerss The Emerging Malet Conmitee endeavors the promotion and development of efficient securtins and fits market in developing combs The SEO Consultative Commitee iscoustiued by te afte menbers of 1OSCO and eaables SROs to prove costroctve and substantial inputs othe regulatory iiaties of the 762008 7.15 PMHence (2s the conect answer © Following may be the reavns for ihe planed divesitue: Smntegic deisons te exit iom a eerainindusty ocr basizes ft ith he other company Severe competition Techacogical ctor Sinking margins (Contaaows loses ma parla line of activ. Hence (@ isthe comect msver @ ‘In cave of Book bu iru, che minimum and masimum period fer which bidding will be openic 3-7 working days extendsbleby 3 days cae ofa revision in the pice band Hence (@) i the consct anawer :@ Paikap egah pial (0000 cine FRET aad) ROD Refined exmngs R200 00,00 ‘Eamuing before interest and tases: (700,00,0071 020) :140,00,000 Teter Bs200,00 Pro before Be 120.0,00 Pro Ber Be BO). Es Es ‘Markel pre per siare Rs Numba of eccing cues vequel fr 2 agi ame] 5 (1990.000"90000) ‘The ale of ne afer beagle ae r Be 833 » ‘The fllowing ae the feature of puivate placement: ‘There ae low entry tras frth private plcement matket Thereis no need for repistation ofthe offer doeument with SEB1 The terms ofthe issue can be negotiated betvaen the issuers andthe investors ‘The tramastion cont re low (Cedi rating is optional in caze of cebtintraments “Hace (bc thecomect ansver. :@ ‘The significant advantages of DS: isare ‘Tncesce the amar of vsilble potential target, bth ates of quality ad step Bt. Frovide an engae for high velosiy growth by incening the fib to the smerpedleombinad company’s expt sactere Mainthin the competitienes of Indian bourse: aca prefemedzecesnry destination among. lobal stokmatkot: fr itrctional Ling Provide Indsn investor: n opportunity to putipte in the growth of weld elt: Indin companies “Hence (@ isthe comectansreri . M my ri 7 Fy Mm ii Mm 20 ® < “Theisen! nich roi ha invertor hopin fo cove the papain Et net ‘paying instrument atthe end of partical-r period, is known a: Flip-lop FRN. 7 “once (0) ic th cont ane @ Following sete constreet ofthe invermatnal ese Special Drawing Rights (Oficial bling of gold Foreign exchange Resave postion inthe MF Hence (@) she conast zener. @ Follonigg seman ae coast nth respects rpo rte: 1 he curent ysl is lower an repo rate capital loss wil occur due te adachnent in repurchase pie. Adjemment in pie atthe reprcaze stage isnot required if both repo rate ad compen inteestraeae equal. ‘Te rue re is found by culating the sale and sepuchase prizes after aust the scorned eof mares. ‘Hence (0) isthe conest memes, @ Tncrace companies ime gues to coverlong talons only, Som bake Hence (@) is he conast nena. © Defauitrincleency of any agent of exporter r the clizting bank i hers which not covered by BOG. Hance (0s he coma ans. @ ‘Bace-top fiction designed tobe drama ony asthe tert. This fey protests she coupes ait the lgnty crack Hace (isthe conest acne, me a ‘The following guidelines issued bythe RBI are comest for bank partcpoion in equipment 2 oe Teme ke ct vb fet mt mite tens 2 aby wmt eet nn Reece eecretaren enter ne 51% of the paid up chare capital ofthe subsidizry. Trem rare ot nap oan aS Tainan eet ‘equipment leasing cannot in the aggregate exceed 10% of its paid up shave capital and Taio becentne ® i epi ni it r ennehing eed ‘be passad through to the holder of the security i the form of monthly payments of interest, ~ ‘puizcipal and payments All other options are comect. ‘Hence (b) is the conect answer.18, Answer) B. BR Rexon: Answer, Rexzon: if ii if if if x le. ‘The client udartake: esponsibility to sate problems of dispute, damages and deductions relating to the bill assimed to the factor All other stsements are coret for master agreement of fctorng. ‘Hence (2) isthe comet answer. o ANNBEC call fll thefllowing conditions before acceping he fied deposit: - I'should have been in existence foratleasttwo yeu. - Ison not have overdue deposits, except those undlzimed. I shold be » profit making company. + It should obtain miximum rating A Gf ised by CRISIL or ICRA) or BBB Gif isaed by CARE). It should declare that it has complied withthe Intest guideline conceming acceptance of fixed deposs by NBFC. “Hence (bith conect swe. whi oe & Following ae comet for RVE “ EVI cover the produc rk into recesses. ‘The cot of RVLiethe pres payable othe underwater or he mnarnce com. ‘The obvious advantage ofbrying of RVIisthat he lessor able o offer compestiv ies Hence (9 he comet newer @ ‘A fnaace lace where the xictory costs incaned ie mlstion to th lscedaset like insurance repair. repaid by the lsee ic ale Net av * Hee @ he comet anes. @ ‘Thefollowing statements sre true: ‘The purchaser of interest-only portion ofthe STRIP invests the sacrty witha yield potential of hieh-coupon collateral ‘The purchaser of prncpsl-only portion of STRIP expects te interes ates woul contimne fall and the bomower of he morgage loan would reson to large sile prepayment. ‘Both interest-only cecuity and prinsipal-oly security have large impact associated with 3 small change in interest rates. The return to fe investors of ntret only security and Principal on'y secure move ia he opperit direction, “Hence () ithe comect mame. @ PV oflexse rentals = Leace Rental *PVIFA(I7.3) s7=1R*2210 IR=2664 Incaliment=lexce renal Hlnce (@ the comet newer @ resent Value of minimum Lesce payments = 400 x03 x FVIFA (18%) =373.24labhs wha wlan wk Fair market value =Re, 400 bik So, Present Value of minimum Lense payments a: 2 percentage of Fair matket value = 37524400 x 100=94% appro.Reson Reson © ‘ Supplier guarantee factoring agreements was developed by the Amesisan factors primal to 5 ‘help their mporters/distibutor: invelved in executing ampott order: on behslf of ther custome. ‘Honse (cis the comect anew. o ‘Over ime, 2s mortgage balance decline the LTV alco declines So this stotementis fale and al oter statements are tue. Hance (b) isthe comect answer, @ ‘The fellowing are tue with respect to finite-lifa Real Estate Investment Trst ‘hace tas: Lave epasii fe spare, benveen Sand 15 yess Atthe end of the specified lifetime the rust must beliguidated ‘The finite life iz intended to reduce the dicpenty between the maviet price of the REIT shares andthe underlying vals oft real estas aesateand thus warding offhectletabeover:, lence (2 is the correct answer. o ‘The fellowing isnct the sabentfxture of tne isue of CPs by a finance company: 2 ‘The CPs ave iseved at discount and redeemed atx. The discount rate isnot subjesto any cap and can be fiaey determined by he izmer The CPs ean not have amatutyperisd ofles than 3 month: and mare than 6 mente The CPs will be inthe form of usuance promissory note negotiable by endorsemeat and delivery ‘The aggregate amount that can berised through issue of CPs can not excead 75% of the company’s working cpitllinit fixed’ the bankers the company o The following ate tue with secpect fo the shortcomings acrocnted with the anetbaced fica ‘ost ofthe equipment lease tansaction: are stuchured as finance laces, the Benbiity of lescee to dianvest ie seiouly andetemnined. Propelled by the dubious advasntage of ‘Of Balance Sheet Financing’ or one firm can afford to increase its exposure to leasing beyond rezsnable lint, Inperftedy competitive Gnncial mathet, the cor of leasing tends tobe equal to th cost of othe forms ofborewings. lance (b) the correct answer. ® ‘The fellowing situations would nomnally lead to leace being assifed as fnance lence: The lease transfers the onmerip of he aces tothe esse by theend of theese term ‘The lessee bas the option to purchase th 2sets ata price which is expected to be suficietiy lewwer han the fax value atthe date the epton becomes exercisable suck hat tthe mcepion coflence sts reaconnby ceria thatthe option will be exerciced The lez temn is for the msjor pat ofthe economic feof the acct: even if te ic not snnsfered ‘At he inception ofthe lease the precent vale of the minimum lease payments amounts to atleast substantially all ofthe fir value ofthe leased asset. The less acet eof 2 cpeciaized sate cach that ony he less can we it without major ‘modifications being made “Hance (0) the comrect answerQuestion Paper Investment Banking and Financial Services-I (261) : January 2007 Section A : Basic Concepts (30 Marks) This section consists of questions with eral mumber 1-20. Answer all questions + Each question eumies one mark > _Nosimum sme for answering Section Ais 30 Mites 1. Which ofthe following ic atthe characteristic ofthe periact make? ste (a) Alltheplayers in the market haveal the infomation eating to the acuity (b) The ow offinds tetveen the markat shonld be rowicad by the Covemmentrepuation: (© The market rice of security reflects all tie avaiable infomation (@Tramparency im the tracing mechanism and shorter seftement periods ar critical for low snamsnction cost (@)Allplayer i the market are price thers Which of the following is false with respect to the efltcts of Open Market Operations (MO) conducted by be RB? (@) The open market purchase of gilts will ease the liquidity of tanks () Ufthe interest rate structure is to be moved upwards, the prices of secwities in the OMO canbe seta higher evel shrebysgmalng 2a upward movement in neret tes (©) The effort to cool the interest rate volatility through OMO may some time lead to an interest diferent orto a RBI (@) Ifthe FLR is reduced, the CP rate may also come down (©) Cat msepo rates will result in increase in the call rates and also other term money rates. 3. Which ofthe folowing ic fake withrespect te interstate sructre i he Indian money market?) S25 (@) Avery tht liquidity position will inreare the call rates while excess liquidity wil give fly low md sablerae: () Ifthe liquidity emnc ofthe banks is passed onto the system, it may lend to high volatility i the call tes (©) Callraes der aomalliuidity condition ae the cap rate forthe tem meney market (@) Ina volatile call market station, lending will eum high yale and by sling Inver-Bank antspatone the baak: wll bare mare money t play isthe ell kat (©) The Boorsate for CDs is irl by short term depost rats and the ceiling for CDs is set by CPs 4 To enable paicipaton of small evel operators inthe Liquidity Adjustment Faiity (LAF) and akoto “MS2> ad further operational flexibility tothe scheme, the minimum bid size for LAF is being reduced to (3) Re Sere BR Teo © Rave @ RaveMr. Shah has deposited of Rs.200,000 with Wier Ld. fortwo years at iterate of 12% pa Ihe wants © to withdraw the entre amount tthe besining of 12° month, th amount ha wl be refunded by the ‘company to Mr. Shah as per Rule 81) ofthe Companies (Acceptance of Deposits) Rules, 1975.is @ © © @ © ‘Any person aggrieved by an order of SEBI can file an appeal petition tothe Cental Goverment. Such appeal has tobe fled within 30 days fom the date of communication ofthe order. However, ifthe appelimt had sufficient cause for aot pefaing te appeal within 30 days, the Cental Goverment, if Bs 224000, Bs220333 s220000, Bs218333 Bs200000, satisfied, may extend the period by frber @ days © Tas © Wésys @ Mays © bas Flowing isthe ist of various depositors and heir deposits with the Lord Bank: Naneef | Toutaccout | Saving beak Careat Fed deposits okies | accomt(®s)_| Accout(Rs) | Devosis Bs) Prasat [= 7300 = 00000 Prahat | Redan BDO EDD 5600 Seana | 5.000 = 35500 Nandgopal [= TeLo00 3,000 000 Kalyan | Anita 26000 56.000 = Kalyan [= 5.000 = 00 ‘The ba yearly insance preminm payable by the Lord Bank to ime this deposits as per DICGC sidelines (@) Rei9750 @® Rs20050 (© Bs24650 @ 28350 (©) Bs29850. The takeover code is tiggered wien the aogier obtain 1 sakes itmandstory for he ccquter to make a public offer to acqure a farher Sof equity ofthe get company 10%, ofeqaty of ie wget company 15%, ofeqaty ofthe tpt company 20s ofeay of te tpt company 25% of equity ofthe target company. @ © © @ @ equity stake im a company. The code sirescu ‘Which of the following is false with respect tothe registration ofthe offer document for an IPO? sirsuer> @ o& oO @ @ ‘Seven copies ofthe draft prospectus have tobe fled with SEB by the lead manazer ‘The lend manager is required to sinmtanecushy file the drat prospeta with ll he stock exchanges where sing is proposed ‘The lend manager shoulé fish tothe Board anin-principle approval ofthe stock exchanges ‘or lising ofthe secuites within 15 days offing ofthe draft offer document withthe stock exchmges ‘SEBL would make the observation within 21 days om fing the ofr document and in cae no observations ae ceived within the stplated ptid the offer documents deemed to have been slewed by SEBI ‘The drat prospect filed wil be tested as public document. ‘Which of the following islare false with respect to eligibility of securities for computation of promoter's “HSH cotton? L [promoters of any company issuing securities require equity for consideration other than cash shring the preceding tnee yeas before fling the offer documents andifitinvclvesrevalunion of sets or capitalization of intangible assets, then such srurtes are not eligible fr omputation of promotes conzibution ‘Shares resltng from bonus issue cut of revalutim reserve or reserves without aeeral of cash resource are not eligible for computation of promotr’sconmbution Incase ofpubliissme by unlisted companies, secures, which have been isued to he promoters daring the preceding one yer aa price lower than th price at which equity is bemg ofeed to publi, ar lizble for computation of promoter's contribution Only above Oniy QD above Both) and (I) sbove Boh (and HD above AULQ) (and (MD above. ‘Which of the following is false with respect to the issue of debentures? tase @ ) oO @ @ (Cedi ating is mandatory for any debenture issue wiere the conversion period exceeds 18 moaks Appoinnnent of SEBI registered Debentie Trustee is manchtor ifthe maturity period ofthe instrument exceeds 18 months (Ceaton of Debentre Redemption Reserve is mandatory ifthe muturty period ofthe msment exceeds [8 months Jn case the non convertible portion ofthe PCD is tobe rlled over, a compulsory option st be given o debenture holders io redeem and encash hex debentives ‘No issue of FCDs having conversion period exceding 18 months canbe made unless comverson is made optional with pt and cal options. ‘Which of the following is false with respect to the various financial instrumeats? tase @ &) oO @ © Cash pay bond are simple debt instrument which pay interest in cash Secured premium noes are issued a fice vale and pays interest ammally ‘The term of maturity for the deep discount bond is usally around 20025 years Inthe party converte debt, waran is issued withthe debe which allows the investorto subscribe the equty shares of another company the investors of zero coupon convertible noe choose to convert int the common sock ofthe ‘issuer, they have to forgo al acme and unpaid pat of the interest.B uM 16. nh ‘Which of the following sae false with respect to GDR? steaee Normally. typical GDR is denominated in US dollars where asthe underlying shares would be denominated inthe local curency ofthe issuer. TL GDRmay be atthe request of investor converted into equity shares by cancelation of GDRs through intemmediaton ofthe local custodian IL These of udelying saves is dove in the domestic market through the depository. (@) Only @) above (@) Oaly Dabove (© Both and ( above @ Both) and UD above @ AO. Dad QD above Prime Ltd. wants fo ol over its non convertible portion of PCDs. Within how many menths prior tthe @ Coptllease (D) Sale and leaseback (Swap lease @ Bigtchet ese © Finance leas. 22, Mr Pranav is intending to own 2 house worth of Rs 375,000. He is sanctioned 75% of the cost of the <#=#=* house os loan. The interes rate on loa s 15% and tenure forthe sae is 20 years. The EM payable by hum on this lms (@ Bs3.00847 ® BIB (R350 @ B34 (© R307 23, Money Market Mamal Fund is a special category of Mutual Fund, toms (2) Whichprovies higherretns to an investoras compared to debt més (@) Which provides am investor th choice to invest for medium-term (Where safety level ofthe imvesmentis high (© Where iquiityis madeguate (©) Which invests mainly in uated paper to generate igh retums, revo‘Which ofthe fllowing CDs cues both fixed and floating interests? (Asim Dolas CD (©) Installment CD (© BisngRateCD @ Tinto © Ymieeco. . imoice cscouing is uot confidential in nature, che customers of the cient ae advised to make peyment directly tothe factor. This fait, if offered with anon recourse feature is known as (@) Protected nice disci Bub icone © Agen fatorng @ Fulficormg © Oidine ficerng (Consider the following extract of balance sheet of Ms Patel Ltd for the year ended March 31,2006 Part Bela Watwor 180 ‘Long tena debt 0 (Curent isblties m0 Fixedasets 2D Inventory 8 Receivables 130 Cask » ‘Mis. Puikh Led. has agreed to factor the receivables of Mis, Patel Lid. and has given an advance of 80 Sp of receivables. 1E50% ofthe additonal cah ic wlzed to reduce curent Lables, the curent ratio before and after factoring respectively, willbe @ 1936 167.433 © 23438 @ 23.633 © 2819 7. Sowvick hastens consumer loan of 2s. 60,000 for 2 period of ? yeas. Ifthe total change for credit © 5.21600 the Mat ate ofinterest @ D%pe ® wpe © ype @ wpe © w%pe ‘Which of te folloning fem: of Vextue Capitl Fnasizg i proved to compraies that have ceeded ber uta capil (oem developing ax make stg a protonpe) sd reque find to inline fills muaitencbg andes? () Seed Fumxing (©) Start-up Financing (Bint Stage Finmeng @ Mezmte Famine © Badge Fiamcng29, Which of the following isfae true regarding accountng of a lease transaction in the bocks of lessor as tases per Accounting Standard 19 ofthe Instinte ofthe Charered Accountants of India? L 1 fi @ © © @ © ‘Which of the fellowing is not n intemal credit enhancement technique in respect of securitization? @ © © @ © ‘The lessor ams record the finace lease as a receivable inthe balance sheet at an amount egal to tenet investment me lease. ‘The lessor nt bifircat the lease rental into two components =the capital component and the interest component ‘The pattem of recognizing the finance income must also reflect he moertaitiesesocated with the collect oflease etals, expectations ofthe fre aes of interest, et pariculary for Tonge leases. Only © above Orly CD above Both () and) above Both ) and (I) above Al), (I) and (UD above Over collatentizaton Cash collateral eter ofcredit Creit trenching Triggered morzation END OF SECTIONSuggested Answers Investment Banking and Financial Services-I (261) : January 2007 Reason Reason: ae Ranson: Section A : Basic Concepts & ‘Chanateistis of peter macket ‘All the players in the market have all the information reiting to the security and the market price of secunty rele ll the avalabe information ‘The flow of funds within the market and between the market should not be restricted by the Goverament regulations ‘Transaction cost wil depend on tading and settlement processes ‘Transparency in th trading mechanism and shorter setlement periods Allplyers nthe marke are pice taker. ‘Hace (b) is the comect answer. 2@ ‘The open mahet puch of ets wil ease the git banks I the interest ate sructre isto be moved upwards, th pies of secures in the OMO cam beset at igherevels thereby sigmling am upward movements in nerest tes ‘The eff to cool he intrest te volatility trough OMO may some tine lad to an nees diferent loss to taeRBI IF thePLR isrednced te CP sate may also come dom (Cutinrepo rats wil esl bringing down the cal rts and alo other tem money rts Hence (isthe conest answer. © A very fight guid position wil increase the call rates while ences liuiity wl give fly lw and stable rates he liguiity crunch ofthe banks is passed om to the system, it may lead to high volatility inthe cll tes Call sates under norma liquidity conditions are the floor te forthe term money market Jaa volatile call market situation, lending wil rem high yields, and by selling Inter Bak Partcipations, the bank will ave more money to play inthe call maaket ‘The flor rte for CDs is ied by short ter depsit rates andthe cling for CDs is set by CB. Hence (9) isthe comest aner. 7@ ‘To enable participation of small level operators in the Liquidity Adjusanent Facility (LAF) and also to ‘dither operational feb to the scheme, the minimum bid sie for LAF is being reduced to Rs5 ‘Hence (a) isthe comet answer. meReason: re exon Renson: Reason: @ ‘Me. Sha is withraving his depot tthe begining f ike 12" month hence he will be given the interest or 11 months, Now as per Rale8() ofthe Companies (Acceptance of Deposits) les, 1975 ‘he wl be given the interest atthe rt of 1s because he is withérawang the amount before one yew ‘Therefore the interest wl be 20,000 * 0.10 1/12 = 18.333 (apres) ‘lence the total amount tht is tobe refunded is 200.00 + 18.333 =R5218 333, lence (8s the comet nser © Any person agzrieved by an oder of SEBI can fle an appeal petition othe Cental Goverment Such ‘ppei hast be filed within 30 days ftom the date of communication of te ode. Ifthe appellant bad suicent case for uot peering the appeal within 30 dys, the Cenral Goverment may extend the period by futher 1S days, ‘lonoe (2) is the comet answer @ ‘fa deposit eld ima mame ofa person individually andthe Same depositor also hos a deposit jointly ‘with nober person then they re tented as to different deposits [Name of depositor Joint accouat elder Masimumn amount iasured Prachnt - Lon000 Prashant Reba 1on000 Srinivas - Lon000 ‘Nanda - 95.000 aly Anuadis 82000 Kalyan - sooo Tol 567000 ‘Enoe te insane premium payable is 567000*0.05/100 =Rs 283.50 @ The takeover code is tiggered when the acqucr obisins 15% equity stake ina company. The code ‘makes it mandatory forthe acquierto make a pubic offer to acme a futher 20% of equity of the ‘age compary lence (@)is the comet answer @ Following are tre wth respect othe registration ofthe offer docament for mn IPO: ‘Ten copies ofthe dat prospectus hve tobe Sled with SEBI bythe lead manager ‘The lead maragerisrequced to simtmnzonly file th drat prospets with el the stock exchanges ‘wher listing is proposed ‘The lead manager shonld furnish tothe Boar, an in-piniple approval of the stock exchanges for [sting of the securities within 5 dys of Eling of the a offer document withthe sock exchanges SEBI would make the cbservation within the 21 days fom he fling xd incase no observations are ‘received within the tiple period the offer document is deemed to have been cleared by SEBI ‘The draft prospectus Bled wil be treated as public document laos (a) is the comet answer10. iL 2. in 16. Answer Renson: Aner Reason: Answer Reason: Answer: Reason: Answer: Answer Answer o In case of public issue by unlisted companies, secures, which have been issued to the promoters dhting te preceding on year, ata pric lower tan the price at which egy is being offered to public ace not lg or computation of promotes conbation All ter statements ae cone. ence 0s the conet answer @ (reiting is mandotoy for any debeatae issue where he conversion pid exceeds 18 mous ‘Appoinment of SEBI registred Debentue Trustee is mandatory ifthe mauity period of the instant erceeds 18 months Cretio of Debentve Redemption Reserve is mandatory if the matuity period of the instrument esceds [8 mons [nave the moa convertible potion ofthe PCD iso be soled ove, as compulsory opi is tobe given to debeate holders o redeem and eacsh tes debentres No isue of FCDs having conversion period exceeding 36 months ules conversion is made optionl ‘wih pt and call options ence (cis the comect answer o (Cosh pey bonds ae simple deb instruments, which pay interest in cash Secured premium notes are sada face vale and donot cay any interest ‘The em of matty forthe deep discount bond is usally around 2D 025 yeas In third panty convertible debt a want isissved withthe debt wich allows the investor to subscribe the equity shares of noher company [ithe ivesors of zero coupon convertible ne, choose to cones it te common stock ofthe ise, ‘hey veto forgo al accrued and unpaid prt of te interest eae (0) the conect answer @ GDR may beat the request of investor converted into equity shares by cacsllton of GDRs though intermediaton ofthe depository andthe sale of underlying shares m the domestemarke through the loeal estodian ‘All oser statements ae comect for GDRs. ‘Hence (d) is the comect answer @ fhe isser wants to roll over its non coavertble portion of PCDs, he will have to obtein fresh eet rating within the period of Smonths prior tothe date ofredemption Hence (ais the comect answer. @ Deamtualzato is te nest buzzword rocking te stock enchangs allover. This means that seutes eschanges wl no auger be omued ony bythe meters of tee exchanges as tet. Thy wl be converted nto pubic companies where oversip wil be divorced from tadng rit of broker and secures. Hence (i the comet answer. © ‘When the security i sd itis tobe coniered asa sale of asset and not ws an issue of bt tliat ofthe rgiatrof the margges. Al ober options re comet. Hence (c)is the comect answer BBw 8. 4. Reson: @ ‘Ths intrcoporate deposits rised by finance company canna exceed to tines the net owned més oft ‘Hoar (cis the comet exswer 2 @ ‘Onwership clase of the lesice agreement stialtes that the lesee_ shall not cell, assign, pledge or osberwise encumber Hien ypo or agains the equpmet, ‘noe (isthe comet answer, @ Diseountehares = 1000020890360 = RsS0 ‘Valve receive by the clint Bs. 950 Eflctve ate of interest per quar = 50950100 ‘Effective rte ofinterest perm == 10526*-1= 22.75%. ‘lence (ais the comect answer 0) ‘The following ae tre with espeot to lveraged lease tramscton ‘The leverged lease haste third pry cll lender attache tit ‘The det fd sed by he leasing company swith il recourse he lessee and without ny resoue tobe ler. ‘The tte tothe transaction remit the debt service component of the rental to the lender and the balance tothe lessor. ‘ders tansacton he esr claims tx shies on he deprecation ‘Hence (b) is the correct answer @ ‘Alene where ihe relive magnitude ofiavesment voles ite high o vey big is called Big ket ee ‘Hence (@) is the comrect answer @ Amount sanctionedis =375 00°05 = 281250 281250001254. 0125)" mE 1005" =B3, 0347 ‘Hence (¢) is the comect answer. © ‘MMM are a special category of Mutual Funds, where returns ave lower since liquidity levels are high. ‘These provide an investor the choice to invest frshort-temm. These invest mainly in high rated paper so safety levels are quite high Hence (c) isthe cerect choice @ ‘Asin Dollar CDs carry both fixed and floating interest rates. ‘Hence (a) isthe correct answer cadReason Reason Beason: Reason Reason © te invoice discounting isnot confidential in nate, te customers ofthe cient are advised to make payment dict t the factor. This ficilty when ofred with « nonsecourse fetwe is known a5 Agency Factoring. Hence) isthe eomect answer © te On factoring, 80% of receivables is converted info cash. Given that 50% of cash received through acionng suze fr reducing current habits, 80+180+20 Predactring canentrtio= ‘120 =238 (Changed cuent asses = 90-0002 +20 +180 208 x0.5=2s.208 kts. ‘Changed cuent tities = 120 (190 x0. 30.5) = Ri Bas 208 “ence, pos fictoring cumentratio= 48 =433 ‘Hence, (c)is the answer, @ <0 The total charge fr credit calculated as Loan Amout x Flat me of intrest ruber of yes ‘ene, inthe given question fit rat of interest = 2160000000 x 2) = 17% © se Fist Stage Fanci is provided to companies that have expended tet inital capital (olen in developing and matt testing 1 prototype) andrea funds to inte fll scale manufacturing and sales Eece() ise corect neve © se All of te fllowing ue tue reading scouting ofa lease transaction inte books of esa as per Accounting Stnard19 of the Instn ofthe hatred Accomm of Inia which tates tht 4 Thelesor must record he nance lense asa receivable inthe tlance sheet at an amount el to ‘hut nvesnen ine ev i, The esor aust bifucte the ese etl into two components -( the capil component and (i) ‘he interest componet ‘ii The pate of ecoginng the face income mt also elec the uncer socsed wit the colecy of Ieee teal, expectations of he frre mtes of interest, ee. partly fr Jongtem nes Hence (© isthe ver @ Faz “Leter of cet is provided by a tnd purty for secuitzation stuces with credit rags below the Jevel sought forthe issue Hence, this is an extemal credit enhancement fecmoue and (¢) isthe answer,seerseee a pee Investment Banking and Financial Services-I (261): April 2007 1, Which of the following fictions of te financial systems ensures a smooth flow of finds fom savings to investment in onder to stabilize te econonyy? @ © © @ © 2, Which ofthe fellowing statements is mot true regarding vais types of bis cf exchange? @ © © @ © ‘3. Which of the fillowing statements is aot true with respect tothe lock-in reguremenss of the Section A : Basic Concepts (30 Marks) + This ection consis of questions with sera mmiber 1-30, J+ Answer all questions + Each question caries one ma. + Maxim tine for answering Seton Ais 30 Mines Savings fmetion Policy facta (Credit fneton Financial feton Invest fnetion Bil whichis payable a speci ltr date is called wsance bil Bil accepted by the cranee to accommodate the dewer witout having received any consideration is called an aecommodsto bill Bil ewan dia ad mace payable ouside India is called a fveign bl Bil accompanied by the documents of tite to goods suchas ley receipt cr bil of lading is called clean bil Bil which aries cut of supply of goods by mansichring concer is called a supply till promers’ contribution? = (@) Toe minianm contribution tobe made by promotes hall be locked-in fra period of tee yen (©) Ta case the promotes’ coutbuton in the proposed issue exceeds te miniamm specified contribution, such excess contribution wl so atrct een period of tne years (© The lock-in period commences fiom the dite of alloment or fiom the date of commencement of commercial production whichever ister (@ The specification of shares for lock wl llow reverse chronological order © Shares issed tothe promoter at a price lower han the curentisue pice curing the receding 1? months period are required o be locked.in fo period of thes years. 4. A.CD that allows the avesors to withdraw a certain amount of promised yields on selected yearly = dates is called eo @ © © @ © Instaiment CD Twit cD Jumbo CD Decining rte CD Risiagrate CD.8, Which ofthe following i've true with respec to creditrating? 1 Acreit ratings a professional option given afer studying all availabe information ata paticul pom of ime ‘Theres no privity of contract between an investor and arnting agency ante investor is fee to accept ortject the opinion ofthe agency. TIL Rating agency compensaies the ivesicr who has made an investment relying onthe rting and snakes loss on investment, (a) Only above © Only) stove (©) Both and) above @ Bok MD md WD) above © AO.) and) above (6. The instrument which provides the investor the option to convert the paper into ft interest paying = ‘nsrument tthe end of parca period s known as 2 (@) Mismatch FRNs (b) Minimax FRNs (© Ripsop FRNs (@ Capped FRNs (© VENstuctred FRNs. 7. Green shoe option is an arangement wherein the issue would be over alloted tothe extent ofa. * matimm of __% ofthe issue size. @ W ® 6 © 2 @ © 30 48 na fixed price issue the issuing company can mecion cap onthe pice band, which hood not be < nore than_ ofthe floor price 2 @ 10% ® W% © 3% @ We 3% 9. In caseof Boo: Bait isses, he minimum period for wich bidding wil be opens 3 working days. * ‘The maximnm period for which bidding will be open andthe maximum numberof days by which it “St canbe extended in case ofa revision nthe price band are ~ (@) 6 days and? daysrespecticely (> 6 days and 3 days respectively (©) Tdays and? days respectively (@—Tdaysand 5 daysrespectvely (e) Weaysand4 days respectively10Which of de fillowing statements is not true with respect tothe Indian Depository Receipts + OR)? 2 (@) Through Ds he Fadian imestrs can own overseas stock (©) Ds isned by any company in any Ginncal year shall not exceed 15% ofits paid up capil and fe reserves (©) IDs shall ot be redeemed ato underlying exty shares befine the expiry of ix moos pei fromthe date ofthe ise ofthe Rs (@ Theisming company shall aot have presse deb to equity ratio more tan 2:1 (@) The suing company hasbeen making profits fr a es ve years preceding the soe and bas ben slr the dividend of motes thn 1% each year othe sud period. ‘Which ofthe following files does the RBI provide to the guilt fds? * 1 The gi funds ae given the facility of transfer of fumis from one center to mother under tbe 22 RemitanceFacty Scheme of the BBL. TL The git funds ae also given tbe facility of clearing of cheques arising out of goverument ‘securities transactions, tendered at the RBI counters. TL. Gilt nds are given the facility to access the call money market as borower. @) Only above (b) Only above (©) Beth) and UD abore @ Both and Qi) above © All, OD) and (AD) above. 13 Which ofthe following isnt tue wih respect to depostinsunne provided by DICGC? * (a) The deposit will ave am insurance cover fr the acta amount of the deposit subject fo 2 maximum of Rs.1,00,000 (b) Forthispupos the deposits of depositor at ferent ranches ae clubbed ngtier (©) Individual deposits and joint deposits held by a person are chubbed together fr this purpose (@ The premam poyabie forthe asurance is at he rte of 5 pis per half year for every hundred rupees (©) Theyrenim ispeidat the end of December hae 13An adjustment made for ofieting the market ris to save the hemower or the lender fom the < -Tansacion price movements in are transaction, is called (@) Haircut ) Hairof (© Haron (@ Hair adjusment (Centric adjustment. ‘Which of the fllowing isnt tue with espctio apo? (a) The moan of act in the repo make wil increase the tumover of the money mucket, realngin an echnced igi and deph in he maket (&) Ase toclofuancing the repo woul cause an incense the over inh debt make! (©) Repo enables the traders to tke convenient positions to go short or ong inthe maket, wach esis in incresed ect ofthe debt mkt (@ _lnstntons and coporates see repo as an expensive way of finncing (@) _Repois alto wef tothe Central Ban:in the way they can use then a apart of their open. suai open1S Which ofthe following is mt true with respect to 364-Day T-Bis? "(The RBI doesnot discount these bills (©) The RBI doesnot participate inthe anction ofthese bills (©) Auction of these bil takes place every formight (@ The anion ancut ofa bl is conveyed 3 ays before te dat of action (©The yield on these ills cam be used as a benchmark for determining the intrest rate of floating rate bends. ‘6 Which of the following itare mot trae with respect to Shibosai Bonds? These ae privately placed bonds ised the apinese madkels The qualijing crea ae stingent for is bond as compre o Suma or Ero Yeu bons ‘These bonds are offered to a different market segment that consists of msstitutional investors aucudng banks, Theeligilty oterin amount, atu and redemption aswell the compen te ands price all are govemed by Japan's Ministry of Finance guidelines. (Only above ®) Oly abore (Both and UH) above © 0, ad above © ALD. ca) and 0) above 1/7 Belgan Dents isthe em wsedto describe (2) The institutional investors who make market specific investment (0) Theastituionl investors who make make nd industry specific investment (©) The mstiwional investors who make time speciic investment (@ The lenders who are mainly the benks in case of Euroloans (@) Thegh et wor maids who subscribe to the equity ofthe comport incase of GDRs. 1A lease which does ut provide a phase option the ese a the ead ofthe ease pod andthe © «-asereves bck to the lessor iscled (2) Wakanayleue ) Wetlease (© Bigtibetnse (2) Masterlease © Leselne 19 Which of he following is true for break even eae rental from the view point oflessee? * @) A lage upfront payments decreases the break even rental (0) Arbigher ta rlevantrate of depreciation nerenses he breakeven ental (6) Alonzer primary lense priodincreass te beak even ental (© Highercos of capital increases the break even rental (@)Alighernet salvage valve ineeaes the beck even rental. Winder which of the following pes of facoing, the factor purchases the receivables on the condition tha the los arising on account of rreeoverable receivables will be born by the client? (@) Recousefctring © Nonsecourse factoring a BRE pant21. Which ofthe flowing isnot te factions ofa factor? (2) Salesledger administration (b) Cedi proction (©) Longton fndng (@) Advisory senices (©) Collecion 22Me Prasbat has accummlated savings of 83,00 for ive eas with NEB. He equi lon for. $ +4 new acommedaton, whichis of 862 sque fet, What wil be te mina amount of Ian dlsbussed to hin mer Home fan acout scheme? @ Bs. 800 ) Rs 166000 (@ Bs.249000 (@ Bs.332000 © Re d5.00 23 Which of the following sotemeats lave not true? “1 Fevivestrssekinglow expos interes ae isk he sorter tenche CMOsare bet © suied ‘The she traaches est be elie befielnzer traces receive principal payments The shore tranches ave a form of al pectin. Forth og em investors who wan to avoid reivesinent sk, the loge tance CMO are ‘dea vestments. (2) Only (abe (b) Only above (© Both) and) stove (Dad Di above © ALO, Wasi qv) above. “hs Riddisinteading own aoe worth Rs 3.75 00 Shes sanctioned 75% of ie cos ofthe, £ «hows as fom. The infers ste on loan is 159% and eure forthe same is 0 yens. Te EMIS payable by bers - (a) Rs3,00347 (b) Rs3.20374 © 35104 (@ 37347 () Rs3.80347. 18A lensing company which i fomed ws a subsidiary of « mamictring company fr lenin the © + prodnots ofthe parent company, called oS (@) Captive leasing company (b) Common lasing company (¢) Formal easing company (@) Extended easing company (@) _ltegrated leasing company. See261-Let Lid isa lasing company. Following ae the relevant infomation fora lease transaction «undertaken by the company: Lease rental receivable forthe nxt five yems R250 core Lease ratlreceivble over he lease ema R350 crore (Cost of eased equipments R275 core ‘Netowned fimés Rs1LO0erme ‘The amount drawn as cash credit fortis tanscton fom the bank is @ Bs 19cm ® Bl Bave (© Bs153eme @ 2st cme (© Bsl33crme 27 Which of the folowing is wot true with respect to crawing refizance assistance by the companies ~ fom NEB? (2) The companies shouldbe registered with NHB to cary onthe business of housing finnce (©) The companies shouldbe providing log tem finance for constuction / puchase / eps | praction of hoasing units (©) The componies should imvest atleast 75% of capita employed in the form of long term housing finance (@ The companies should have nt owned find of atleast Rs. 20 erore (@) The compmiss should have net non-performing assets not more than 5% of the net advances, 28A company has issued Pass Through Certficates (PTC) backed by a pool of propery receivables * aggregating to Rs 350.00 Lakh. The equated monthly payments to be made to PIC belder are as follows Dixing the first 12 months Rs 18hihpm During the nett 12 months Rs. 14 lathpm. During the next 6 months Bs 10hEhpm (Caen the promised rat of tur tothe investor. @ 1550 be) 17.66% © HIS @ 233% M3, 29 Which ofthe following sstement is true with respect to RealEstate Investment Trusts (REIT)? * (@) Taemost prominent fom of lending by REITS isthe constuction developmental ending (©) To retain their special tax status, REITS have to dsbute 50% of their income t0 shareholders (o) REsTsarenot alowed tris nance drongh debts thy ar ety avestunt vehicles (@) Inve equity investments in RETTs by investor usually lack ligaity (e) According tothe federal laws, RETTs can cay be init Lis tsi. ‘301-Lend Finance Limited hes the policy of discounting the LIC backed bil ofits cient athe rate of + 1Sep.a, when the value of iis Bs. 1000 2 ‘The anual eetive rat of interestimpled bythe above bil with ausance period of 90 ysis @ 180% be) WA% © 2% @ BM © 40%. rB.. B.ENDOF SECTION C END OF QUESTION PAPER Suggested Answers Investment Banking and Financial Services-I (261): April 2007 Section A : Basic Concepts L Ansner: (®) we ‘Reason: Policy function of 2 financial system ensures smooth flow of fds fom savings to invesamen's in order to stabilize the ecommy Hence, alemative (0) is answer. Savings function ensures mobilization of sevings to provide « potentially protble and low risk outlet. Credit Sinction ensures the savings transform into the necessary credit for snvestment and spending purposes, Hence, option (isthe comect answer. @ ae Reason: Bill which is accompanied by documents of title to goods such as railway receiptlory receipt of Inding is called a documentary bill. ‘Bl which is at accompanied by any suck documents of tte of goods ‘called clem bil. Therefore statement (5 se Hence, option (isthe comes ansver. 3 Answer: ®) es Reason: The fllowing statement is re withrepest to the lol in requirements ofthe promoter’ contrbuton: + The minimum promotes contribution stall be locked-in for 2 erod of tree year + Incase the promotes’ contsibution inthe proposed isue exceeds ‘he minimum speifed contrintion, such excess coniibuton will also attract lock-in period of cae yeus +The lock-in pesiod commences from the date of ellotment or fom ‘he date of commencement of commercial procaction whicheveris, later + The specification of shares for lock-in will follow reverse chronological order (+ Share ised to the promoter a price lower than the cent ssue rte during the preceding 12 mouth period are requred to be Jocked.in fr a pani ofthe years. Hence (tithe comet answer iiy Fe 6 if ri if 1. if ® A Rising Rate CD allows the investor te withdraw 2 cetain amount of romized yields on elected yeuly dates. Hence (¢)is the answer. © ‘The following ar re with espctto the credit ting: © A credit ring is 2 profesional opinion giver aftr studying all ssvulsble information at parsealar point of tine, Thee is no privity of contzet betvaen an investor and 2 ting agency andthe investors fee to acept or react he epiion ofthe azey, Rating agency doe: not compenste the investor who has made aa ‘nvesmment eying onthe rating and make: [vs on ivertment “lence (0) the cores names © ‘The instrument which provide: th invertor the option to convent the piper to Bat interest paying netument tthe end of parealrpaisd, ‘2 known 22 Fip-flop FRN Hence 0) isthe coreet ansmer o Green chos option is an amngemat wherein the issue world be over sllatied to dhe extent of maximum of 15% ofthe ious ze Hence (isthe eomect answer ) ‘na fined price issue the issuing company can mettin cap on the price band, which shou not be moe than 20% ofthe lor price Hence (tis the correct newer @ Jn cae of Book built issues, the minimum and maximum pstod for ‘which bidding wil be open 3 ~ 7 working days extendable by 3 days incase of: raicion nthe price band, Hence (@) ic the correct newer © ‘Through IDRe the Indian investors ean own overss stock IDR issued by any company in amy Gnancial year call ot exceed 15% ofits paid up capital and fice reserves IDR shall not be redaemed in to undsying equity share: before the ‘expiry of one yer perisd fom the date of te uous ofthe Re The issuing company shall not have the pre-sue debt to equity ratio sore than 21 ‘The iruing company hae been making profits for at lest five yess preceding the cae and bas bean daclanng he divdend of mot lcs tha 1 eeach year forthe end period Hence (ei the coreet answer © ‘The following faites the RBI provides to the gut funds: +The sik finds are given che favity of tranferof fund: fiom one Bcanter to another under the Remittance Facility Scheme of the Reserve Bak. The gilt funds ae ako given the fclity of clearing of chesues arising out of goverment securities transects, tendered at the Reserve Bank coutar. Gl funds can access the call money market: lender. Hlnce(¢) ie the comect never, 12, Aner: (6) Rezson: The following is tue wih respect to deposit insurance provided by 1B. Answer: (a) Dice The deposit wile a insane cove forthe atl amcant of ‘the deposit subject to a maxuaum of R:.1,00,000 For this purpose the deposit: of a depositor at different branches sie dulbedtopeber Individual deposits adjoint depois ae eal sept or this pare: The premium paral fer he racy i a he ofS pe pr tal year freer hunied pees ‘The premium is paid at the end of December and June. ‘Revson: The harcat is m agustment aude for offsetting the market risk to ave the torower or the lender for trinacton price movement: ia 2 170 ransicion, Hence (a) ic the comect ances, 4, Answer: (@ ‘Henson: Following statements ae tue with respec to repos: The amount of avtivity in de repo meet wil irene te fumover ofthe money aurket, relting in he enbanced liquidity and depth in the market ‘As 3 tool of Gnansing the sepor would eswe am ieresce in the tumover inthe debt market Repos emable the taders to take convenient positons to go short and or long in the maket and the activity of the debe market Tnciutons aad corporates ste repos an menpensie way of fizancing and can borow and invest at market rates Repos ae alze wef to he Central Bunk in the way ey can wz (hem a: apart of the open market operations. lence (@) ie the comect sswer 15, Answer: (@) Rerson: The following ae te with respec to 364Day T-Bil: Tho RBI doo: not discount thee bil: ‘The REI doesnot puricpate in the auction of hex bile Action of there bill table: place every fovtight ‘The austin amoust of abil is uot conveyed before the date of|1 n Aare iy ry if 7 if ction + The yield oc dee bile con be wed ae 2 benchmak fr deteining the intra rat of foting bonds. Hace (isthe comeet arse @ Folloning ae tre wan spt ie Shbosi Bonds + These ae de piintely plied bods ised a the Japanese sauket. The qualfing ees ae less singe! for his bond: compared +o Samui or Euro Yen bond, © Thee bonds ae offered to 2 diflrent mae sepment ht consis of ictntnal investors iacding banks © Tee eighty tra amount, matty and redemption 2 well 25 ‘Be coupon te ee pie alle govered by Japa's Minty of ‘Fnnee (Mf) eudelne: Ines of diy, MeP has clsifed vaio: boomer: into hue oops in conan wth he ata, enc (asthe comet ane @ Belgian Dentist i the toma weed to dese fhe high ost woth andiaduls who subenbe to the equity ofthe corporis in cae of oR Hence (@ is he comet answer @ Alene which de: nt provide a pure optont the ese a the end ofthe ease prod andthe act evr: back to theses ealled Walk aaylene enc (asthe comect ane @ ~Alage wpiot payment incase he bak even rent = Abigher tax relevant ae of depression decreases the ak een etl + Alonger primary lee period ecrenes the ek even rental. + Hishercostofcail iacenses the breakeven etal, + Abigherae sage value decrees the break eveazental ‘Hence @is the comectanser @ ‘Under recourse factoring. the fitor purchases the reeirables on the ‘oud tat the loc sing on acount of anecoverile reseable: sabe bom by cea Hine (aie the comet answer 0 ‘The filling ne the funtion ofthe factor = Sle lager sdiisation = Gradtpotsinif if if i if re + Shorttem funding + Advisory services ~ Golleston Henze (0 isthe coment answer ® ‘Under Home lon account scheme the maximum amount of lom tht, can be dictuned isa follows Built ep aren ‘Masinpum ameuat of loan Upted30-q 8 Fonrtime: ofameut ved Upiiea ft ‘Thee tue: of aout ved Exceeding 86039. Two times ofanout saved Therefore lomto Me? == 8300092 = Bs. 166,000 <1 Hence (x the conectanawes, & ‘The following sttements are re: © For invasions secking low exposure to interstate risk, the shorter ‘tranche CMOs ae best suited The sheer anshes mmctheretzed before longer trnches, ©The longer tanches have a fom ofall protection +The Long term investors who want to avoid wzvestment rik, he longer tranche CMOs are idea investment veces Hesse) othe conetave @ Amouat sanctioned is = 3,75,000*0.75 81.250 2sizxoonssfionsf” EMe 10125" -1 =R:370347 ‘Hence (¢) i the comect answer. ® os Alensingconpay wih ome 22 nbs of a mautrng comany fr length product of th punt company, is aed Captive leasing company ‘Hence (a) is the comect answer. @ see orsepagy/iRgyec 19925859275 Rise eae (Qh conect sve @ me Tedrorrefasce fem NHB, te cempaie bald ~Beregited whNEB tocar on bse: of oun ance - Provide Jong em finance for38, Answer: 2. Answer 30, Anse: La Matt pice pershae Enna pershae Sabscipion pice Consrction chaser pean fusing is ~ avs a east 73% of api empopd in th faa of ng term os face = Haveneovaal fidf atleast Rs 0 cre ~ Have ct operon ase nt me than 5% of the act sdsaces Hence (is be comet ver 0 ~» Defoe Ise mo eof eam inp by he ash Bow steam 4330 1S PEA Gan?) + [4 * PUFA 2) PVF} +10" PUFA(n6)*PVE(.24) ‘Theegunton said by n= 182 Bj il and ens) sonal! rete: T=(-la)-1 = (10180)"-1 = 1.16% Hence (isthe cont answer ® ae Tie mot pominet fom of lenlag by REIS is te cosacoeelpmentl nding Toren tir pec tx sas REITs hve dtibte 85 ofthe income to sees. Thee ca ‘be mortgage REITs. Invest equity investments in REITs by investor see highly lid, REIT can be nite ie tts Stee. Hee cal (ise © ae Dison charges = 100001890360 =RsS ‘Vat eed ty thelr R955 fete finest erquaer = 45955 10) 470%, ‘Effet ate ofintrestgeranmm = = 10471 Hence) he comet ver Section B : Problems RulS Faia Ro ‘Pv below exiting et pice = his” 1 ‘Which ofthe following stement isnot rue wth respect the Goverment ted secures? stom (@Theseare medumto long tem Goverment seus ©) Thseseoutes cary a compn ate (Sine these securities ae long erm insrumens, they ae puto the long em debt maket (@Teseinstumens seta benchmark rong tem ineresttes (© Being Goverment secs, hese dota seus Lave igh gai. ‘Which ofthe following stement is not rue? stom (2) The flormte fr CDs is ied y the sont erm deposit ates (@)Theceibag rae Sor Ds is et by CPs (OQ ThePLRwilsetthe cap ir CPs @ —Theminimum nt fr the bls ofechane is set by call ates (© Themucimmmne tortie bis ofescige ist by CD mes, ‘Which of th fllonng rks snot covered by the Export Credit and Guaranee Comoran? steer @)Insclvency ofthe yer (©) Faire ofthe buyerto maketh pryments within specif prod (© War ci war evlutim or cil dsttances in te buyer's ccuiry @__Flactuons inthe exchange te for pryment scheduled within 7 mons (Adio feet or surance charges tat result he to intemupin or dversion of voyage utside Ta, which can not be reovered fom the tuys ‘Which ofthe following depermens cf SEBIis responsible for new nrestment rods matet suveilane md <6» inser ding? Isvesbelow __in size cannot belied on reg stock exchanges and are pemutedtobelistedonlyon seus» @ Bs Some ® Rs Toe © Bsllcmne @ Bs20cume © Bsteure ‘Which ofthe flloning sets ie mot eile fr computation of promot’ contin? store? Lhe promoters of any company sung secures acquire equity for consideration ober tan cash ring uae capiabzaon oi 1 Sak oa tas eee IL Incase of pubic issue by unlisted companies, eeres which hve been issued tothe promoters rng ‘he rcstng one year at rc ower thm he price at which equity is being offre to pubic andthe dffence beeen tee prices has been trough bythe promotes. @ Only @above (6) Onby ID above © Both (ad Datexe @ Both ani MD above © ALO. Q)and Madore. ‘Thea erin ave eed ave cave tobe ead sabi Bee bow many act <>. pein offs sve moucenent advice as be eae? @ Téa tas © MagsSagpl Ames it Eom eta @ days © Adys Which ote flowing se rue with respec to Seared Premium Noes (SPN)? stew SPN me ssved at fae vale and do at cary any interest TL SPNsareredeemed by repayment in eis of istallects ata premio over face vale. IL SPNsmaybe issued with etachable warts. IV. The chge fo SPNs may be created by pledge, ypotection and mortgage onthe ast ofthe sing company. @ Only @) above ©) Only (I) above (© Both () and (store @ OQ as MI adove © ALO, D, Dad ) above. 9, Whichofthe flowing statements is mt true with respect o action ated debt? ste (o)Thes are filly redeemable no comeribe shor term debeahwes secwed by specifi movable and non- movable ast ofthe compacy (e)Toes debentures ae redeemed at eglrintevas and then reaction (c)Thes debentures lp he company io get Tong erm Sods at shor team ates (@)Thes insruents ae privately placed at compete bids (e)Thes instrument ae complsoy sted andthe minimum ating requice is of investment ade 10, Which ofthe flowing statements isnot true with espet to Medium Term Notes (MTN)? eae? (MIN oe defind as the sequentially issed foatng interest sents which bave amar of over me year (@)A pica MIN program emnbles an suet sue Bc cts for diffrent mattis for oer one year ‘ptothe desired vel of matty (QMINe ae conceived as non-underiten fies (GA Gloal MIN is issued worldwide by oping Eo as ella the US mares ude the same program (e)Spreads pid on MINs depend on cit atime, treasury yield carve an th familiarity ofthe snes ong heaves, TL, Consier the following data of GoTo AirLad ste Pai-ap egy capital (1000000 sare oF Rs 10 each) BI 000000] Retaned eamings R200, Enmingporer 0 Thieest Be 2s Totalasets 700000 ‘The tax ate applicable to the company i 40%. The PIE rato of the company is 10. The company proposes for ach ‘seve of 20,00 shares at the subscription pice of Rs 20, The per shares vale afer he ight issues expected tbe @ 26833 56633 (6033 © BRO © Bo. 12, Apart fiom eosrng appropri igi, investors should aso conse thesis presente money mavet ‘nsraments. Which ofthe following fr the sss asoiated withthe moaey mast nsruments?wy sew @ RTer 12, Apart fom ensuing appropri iii, investors shoul also consider the sik prsentin the money market instruments. Which of th flowing ise thesis associated wih the money mare instrament? L Moet sk T_ Reinvestment isk TL Def IV. Infltion isk @ Only Dabore (©) Only (above (©) Both and (above (@ Both (U) and) store © AL. CD. CD) and 1) above 13, Which ofthe follwing ie tr with espeet to sith els? Stith del invole simtaneonsporhasng snd sling of fen seowities. IL Thisis used io change the eomposton of portfolio without infant costs TIL Generally, ths citys ued bythe RBI to increase or decrease te money soply inthe sytem. (Only (above aly above Oy above Both () and (0) above Al (), (as bore. ‘4, Which ofthe flowing ie nt true with espe to repo tes? Sees pew chiang NOPE eT TATA‘Sugar wi Bs Finck 1 Adjstmeain pie atthe epuchase stage swt vequed if both ep ate nd coupon interest te are xual Tithe ecent ili ower tan repo te capil gin wil ou ve to austen in epurchase ice TL. Thesequised sii oud by ecleting the sale and opchase rites er dusting the aered eof inte (2) Only Qabove (©) Only (Z) above (©) Oniy (I) above (@) Both) and (0) above (e) ALG), (and above. ‘15. Following are the details of different types of deposits held by different clients with Dena Bank: fase (Amount Rs) ‘Name of lec Sung Ascot | Caeat Ascot | Fined depois ‘Whatisthe semi anmal insane rem payable bythe bank to ine deposits accepted fom the customers shore? (Bs 5705 ) Bs 28525 (Bs S7050 (@) -BsL14100 (Bs 142625. 16, Which of the following is not true with sespect to Morlznge Pass-Through Seeuites? tase (@)The most active issurs of mortgage passthrough seemitics ar the mortgage crginatrs such as savings sad lon associations, commercial banks and mortgage comaies (b)The cash Hows Soma pas throgh secu wil aaerally be ieberas compare o cash ows fom a sanigage drt faawed by the inves, ithe elemeats of sein es and pepayments ae aot there (ln pss though securities the holder ofthe security bas a proportionate interest in each cash far poet in the pool (@)When passthrough securities are slits eonstred asa sale of set (e)Pas though seuss promise thatthe cach flow fom te maetying motgage would be passed ttrogh tothe holder ofthe secures inthe form of monthly payments(@When passthrough securities are sold it is construed asa sale of asset (@)Pass trough seems promite thatthe cach flow Soon the underiing mortgage would be passed ‘through tothe hole ofthe secures inthe orm of monthly payments. 17, Which ofthe flloning stement ae true? stem 1 Taepuchaserof'ntrest-ony potion ofthe STRIP invests inthe scary witha yield potential of bi ‘coupon collateral. The prchase of pincpal-oly portion of STRIP enpects tents rates wold comin to fall and the ‘borrower of the mortgage loan would resort to lage scale prepayments. IIL Both interest-only secures nd principal uly secs ae weil to the changes in inlet ates. TV. Theretuto the investors of Ttrest only ect and Principal ony seus move inthe same daection. (@ Both) and) above ©) Both (and av abore © O.QaiM above @ OD, Mad) above © All), D, (0), aad QV) above. 18, Following ste infomation praise sation tees Lense Que RsH4Rs 100 payable mally Initial cost Rs.120 lakh PV offense reaials RII773 ath Lease tem 3 years Cost of debt mh Cost af ail rr ‘What wil be the principal amount to be paid atthe end of third year as per the displaced debt amorization schedule ‘inallease? @ R45 Sth ap ching epeses NSPS hm Go TRUE 2ST APLSapp Anes wih iar Fendt © Rs364S aka © Resta @ 27h © R278 19, Alene which allows theese to exchange equpmectinned of msjorepi wits roperiy working element equipment, is called @Tenporry lee (©) Finance lease © Opicntene © Smaplene © Openenied lee 20, ln uhich ofthe following stages of veatre capital financing the company may bein he process of organizing ot iane> may already be inthe busines for one year or less bat may at have sods product commercials? (@ Seed financing (©) Startup financing (©) Fist stage anacing (©) Second stage financing (© Third stage financing 21, Which ofthe following is nt true with espectto the Quasi Equity Investment? toa? (@)The quasi equity ans ca be lnked othe company’s perfomance and pticiate significant oaly in ‘he upside (@)The quasi euty rans canbe a loa on which there is 2 misiomm obligation contacted at reasoasbly Tor leelseespectve of pefomance and an upside staring component (The quasi equity ivestnet also come wits a amber of pctectiv covenants ik appoiniment of ‘mine, opin fo conver the loan into ety shares et. (The sisavantage with quasi equity is tititinvores the cash payout fom the investee company doing ‘he goth phase, when the company neds to conserve cash most (From invesor’s point of view tacking nd acconating the payments and ensuring the acwrcy of sles accounting by the ivesee companys 2 pin of potential abuse. . Which clase ofthe lease agreement entitles te lessor to terminate the agreement andbe indemnified by the lessee Aas» ‘all expenses incued on acconnt ofthe action of te lessee? @ Description canse (©) Equipment delivery couse (©) Ormentipcanse Surender tse (©) Exemption cane, 23, Which amangementis designed to protect bot the bonowe andthe ender agit voll interest ates inal este ‘Anne @ — Gaploams (© Bowties (© Dist jis wetues (Direct developmen and syndication © — Miniperms. 2A, Asctlease where he lessee guarantees the esidual aes called snow (a) Master leave9) umes cereus yuzcano, (© Mingems ‘Ast lease where lese gure te esl ae called tsa (3) Magerene 0) Neeaetlene (¢) Operating lease (8) Stepped lease () Resdullene 28, Arecouse ining facty wher te aviedxoufng fait iut conden inate ate coomersof A> te cleat ae advised to make peat cy othe fac, thsi iscalled (2) Agency factoring ()Bubkfacoring (Oldie fctorng (@ Ful factoring (eo) Bigticket coin 26, Whichof telling ia ot true egg te iieace bere vente capial and bove cuteol?)— 1. Paticgton nmamgenent of VC uoeriaking is hih acs of VOF wheres itis incase of ough caidas TL Ext Homte vestments aes 7to 10 yearn es of ere cptl wen eae of bngh out els cet is dom inne diately ae the expiry of lock in period. TIL Regulations on venture cepitl investments are very hgh as comred to bought ont dels (2)0aly (1) above (D)Both 1) and above wegen SPRL 0THSage are emi Fodck (CiBoth 0) and (D) shove (GBobD) ad D above AL ©, (and OM) above 27, Under sn chance factoring arangement, India Factors Limited FL): apred to advance acum of Re 45 ith for dame» 90 days agiettherecansble of XYZ Limited The advance canies the intrest ne of 14% p.a compounded ‘quay andthe ficior commission is 25% of the value offictored receivables Interest and commicaon ae collected upfoe. Total receirable: of he XYZ Limited ae R58 7500. ‘Wastic the sanaaized cos of finde made avaiable to XYZ Limited? @iss™ wer @lese% an (182% 238, Fist Leasing La is proposing to give equipment forleve the paricalrs of which ew follows: toon Cod Pequpment Rea ‘Ment rental [a= (payable advance) mont Duston ole Tyee ‘The adi-on yield forthe Fast Lesng would be @ 10.00% @ 91% © 97% @ 98% 995% 29, A borrower wishe: to prepay the ontstanding amount of lon after the payment of 3th installment. The other Sasi pti: sb i om tear folows: Toslendtdare R312 ‘Repayment pened dyes Tot mbar often: 36 Thoin at which he ete pt, acomdngt the moifiadvrion of Re of 7Smethod sing the defeat pened of ons @ Mi o Re 14) © ‘Rs 345 @ Re 5.67 © kre. 13, Which ofthe fllowing sare true wit respect othe guidelines for stock buy-back issued by SEBI? soa L_ The company sal oot sue any shares inching by way of bons cas til he date of clone of the offer mide under the stock repurchase prosam. TL Thecompany shall not wihéraw te offertobuy-back after the draftleter of the offers fed with the board, TL The company can buy-tack the locked-in care: ad non-tanserble hares by pacing the re-olton in ‘board mesting. (@)Oaly @) above (Bech and O atove (©Buth@) and I) above (Both (D and CI) above (@AIQ, O axd QD) stove ‘END OF SECTIONSage Anes i Fon eda 1. Answer: Reason: Thefllonng ae ve with resect o the Goverment aed seers: ‘These ae medium tong te Government secs These scutes cary coupon te Init of being Jong em nsrument these seis form apart in money market ‘These asments set benchmat for long tem intrest ates ‘Being Goverment seus, thse aed secures have high iy eace (ci the comet ase. 2. Answer: (@ Reason: Thefllonng stiemeats ae te The loc ae forCDsis inet sot term eps rates Thecelag refx CDsissetby CPs The PLR vill ste cap fr CPs ‘Theanine fat bill of exchange i set yell ates ‘The masz satefor teil ofexctange ety em depesitrats ad aot by CD. Hence the comet ase. 4 Answer: Reason: Following ae theists covered by ECGC: Insolvency ofthe yer Fue ofthe buyer tome the payments within a specifi period ‘War ci wa revolution ci stances in the bayersountry Ato eight rinse charges hat eu neo iteration diversion of voyage sie Ina, which an ot be ecovered rom the bye Flocatos inthe exchange ate isthe sk which is covered byte ECG under specie, schemes frie payment schedle vera period of 12 mons or more up toa masian of 15 yas, Hence fis the omer ane 4. Answer: ‘Reason: Secondary matt depatmet of SEBI is responsible fnew investment products, sual surelane an inserting Hence) isthe cone anwer 5, Ansner: (@ Reason: Issues below Rs Sorin size can ot ested on replr stock exchanges and ae pete belted only on OTCEL Hence 2) th comet ase. 6 Answer: () ty fade Wy fale w fae w fede w fade5. Answer: @) Reason + Issues below Rs 5 cre in size can aot be listed on regular stock exchanges and are serie oe ited only on OTCEL ence 2) th comet answer 6 dase: () Reason > The following secu ar nt elle fr computation of rome’ contribution: ‘Tfthe promoters of any company issuing secuntes aequre equity for consideration other than cach ving th peeing te yeas bebe ling th of dcunens and iit ives ‘eration of sels oreapaliain of intangible ses ‘Shares resulting from bogus issue out of revaluation reserves. Incase of public issue by unlisted companies, securities which ave been ised tote ‘romuotets during the preceding one year, at a price lower than the price at which equity is being feed pb arate fr te compton of omnes cetibin bt ite ference betnentesepices has een brought byte promo thn these secures are clghle the computation for promote’ contin ‘Rene (cis the comect answer. 1. dame: « Reason: Issue announcement advertisement bas to be released 10 days before the opening of & theism = ‘ence (0) she corect answer. & hoses () Reason > Thefolowing ae me with respec i Secueé Premium Noes (SPNS) ‘SPNS ae soved a face value and do not cany any wrest. SPN ae redeemed by repayment in seis of intima premium ove face ate ‘SPNS may be tsved wth detachable warans, ‘The charge for SPNs may be created by mortgage on all immovable asets of the issuing company ence (ste comet ast w Be ~ ke ~ opr icin need USOT oT 27M‘Suge rset nines Fen 9. Answer: ‘Reason : The following statements are tue with respect to auction ted debt: ‘These are filly redeemable non convertible shar tem debentwes, secwed by specific movable. = and on-movabe aets ofthe company ‘These debentures are redeemed at regular intervals and then reactoned ‘These debentures help the company to get long term funds at shor term rates These instruments re privately placed at competitive Bids This instrument does not regue credit ating asthe tenes less than 18 months. ence () isthe comect answer. 10, Answer: () ‘Reason : The folowing statements is uot ue with respect to Meium-Term Note: [MINsare defined as the sequentially issued fred interest seis which have « maturity of ver oue year A typical MIN program eusbles an issuer ie issue Eutoaotes fo fect mattis fo over one year up othe desced level of matty [MINsare conceived as non underariten facilities Global MIN is issued word wide by tapping Euro as wells the US markets under the same pom Spreads pid on MTNs depend on cet ratings, teary yield cave andthe Samay ofthe issuas among the investors. Hence (a isthe comect answer 1, Answer: (@) Resco ‘Paid-up equity capital (10,00,000 shares of Rs.10 each) Bs100,00,000] a 20000004 Eaning before interest nd tes (70000000 020) 140,000 Teest 220,000 Pritbcine tx Rei0.00004 Proftafier tax B20 BS Ba ‘ket pie per save Es ‘Naber of existing shares equed for rights sare (10,00,000200,000) The vale of hae afer the ight ise Bs. 6333 12, Answer: @ ‘Reason : Allazethe risk associated with the money market instruments. ence () isthe comect answer. 13, Ansrer: @ This is used to change the composition of portfolio without significant costs. Sitch deals do rnothave any impact on the money supply. Hence statement I isincomect and (2) the corect Reason : Switch deals vole simnltaneou purchasing and seling of difrent securities, KEbauns pane esse = ‘Number of existing cares required for a rights sare (10,00,0002,00,000) 4 “The vale of share after the rights issue: B83 L2, Answer: @ < ‘Reason = Allaethe isk associated with the money marke instruments. ence (isthe comet answer. 13, Answer: @ Reason > Switch eas involve simitaneous purchasing and selling of cfferent securities This is wed to change the composition of portfolio without sizificant costs. Switch deals do not have any impact onthe money sappy. Hence statement I is incorect and (isthe coect MA. Answer: 6) ‘Reason = Following statements re correct with espectto rep ries fhe cument ils lower than repo rate capitl loss wl occur dve to adjustment in repurchase x a price. ‘Adjustment in price a he repurchase stage snot required if bo epo rate and coupon interest rae ar equal The rezed rate is fund by calcating the sale and repurchase pices afer adjusting the accrued rte of interest. Hence () isthe comest answer. 1S. Answer: (6) s Reason me [esi amount eligible - ‘Name of customer Total Deposit a Me. Shyam 2, 90) piomicbiag agp IOAELOTm Wel HORII MLMs Ghantyam Me Radheshyam 74530 10,00 ws Me. Ram 95,00 950 Me Rajaram 11.006 uy Mc Ram and Me. Ghanshyam (joiataccouat) 1.46.00 1.0, Me Ram and Mc Raj, (joint account) 101,00 1.0, Total 505 ‘Therefore the insurance premium paid 700 * 0.057100 =Rs 28595, ‘Hence (b) is the comect answer. 16, Auswer: (D) Reason The followings arte wit espe o Mortgage Pass-Through Sees: ‘The mos active issuers of mortgage pas through secuities are the morgage originators suchas savings and loan associations, commercial banks and mortgage companies The cash Hows fom aps trough security willbe exact equ in magnitude to that of cash flows fom a mortgage dirty financed bythe ivetri the elements of servicing fees and repayments ae not there Inpass trough sects the older ofthe security basa proportionate interest in each cash ‘low generated inthe poo! ‘When pas trough secures are sldis ons as 2 sale of ast as frogh seuttes promise tat he cash Cow fom the undrving motgage would be passed through tothe bolder of the securities inthe form of monthly payments. “Hence (isthe comectansver. TT Answer: @) Reason : The following statements are re The puciaser of interes:-only prion of the STRIP invests in the sey with il potenti fhigh-coupon colt. The pciaser of eincigal-anlypetio of STRIP expt the interest ates would confine fll sath borer ofthe mortgage loan woul resort large-scale prepayments. ‘Both inerest only security and prncipal-ony security have age impact associate with small lange in interest ates Theretum othe investors of atest oly security aud Picgl only securities moe in the opposite dietion “Hence (a) isthe comectanswes. 18 oesers w aeBh interest sew and praia seu hav age impact asocied ith a soll change in interest tes These the ines oles eu 2 ay scien he posted eae) cnet ase 1 Asser: () < Reson: (Rs ts) 2 Yea eae Inestconeat | Capitalcotent | Ret 1 WB 2001 BI 53.28 2 | 46 136 um | 38 7) se TH rr) cae) se comet ase 1 answer: @ Reasoa Sap ease isa ene bichallows thelese toerctangeeppmestinaned of 2 aj epi it pope king replacement epment tee bye te ese tad > cosy mitenane and epi delays Hence te comets 10, Answer: () soa Stt-apnsng is proved to companies completing produc deropment ad inal mrkeing. Company maybe inthe proces of organizing it ay aeay bein te busns fr one year rest may ot ve sods prod comme ~ Br Hence (is te conect anne 1 Answer: (3) ‘ Reason : The quas equity loans canbe inked ently tothe company's perfomance and thus © ticipate totally inthe downside an significant inthe upside in a manner agreed upon > ep renin agp OETA OTT20. Aaewer: 23, answer: 27, Aaewer: Rawos spat The qua ecu lms canbe a enon which hres ssn oligos cousacdat ‘esol wiv inespecite of peromance ad ax upsdeshanagcompozet ‘The qua ecu avesmeat lio come witha mumberofprtctvecovenans ie sppoBsmist fannie opton 9 conve th oan 0 egy shares. Thedisedvange wa ua eguty ft at votes tech ayo ome avesee conpsay daring the growth he, whes the company aedsto conserve cash mst Prom vero soit of iw nicking ad scconatig te poynets nd ensring te eccrcy ofa accomtng by he vente company. Hence () iste conact nsrer ® é Reason: Egupmeat delivery dius ofthe lessee agreement exiles the lesor mist te sareemant nd te indemnified bythe lesee rel expeasesincured on account aroen of Seles -Heace)# the comectanower ® Renson =A ow iis designed o protect th hebonowe ante lnderagast ole inet mts ® ‘Atlee whee te lessee puranees he esiualvale called ett ase Hence) isthe comet snaver ® enon | A recoune fcosng fly wher he inoicedicoutig fii is aot one: ‘ante ad the catomer of th centre adveedto make payment drei tothe factor, is ‘ity is caledbul fcorag Hence 0s theconet nse, @ = enon - Replat en vere cpl investments a low as compared w bugt out des. 7 Aller dfereaces accor > Hence () iste conect mer @ wee fe ld 4 Re tab Advance poviied 45.000 ‘Las: Comeneion 1489 sa ‘Les: Discamt charge 1515 ‘Funds made suiable 956 Eiiecive ra per quarter: 157541956 Anmusizd te=[(.0375)* 1] #1 Heace (is the comect answer © (Cost ofequpmenr=Re24 hia Aggregate Ieaserenal= 0,20. THIDO46R. 4032 lth Apzregt interest charged forthe lus ove the ete parioé= Be, 402-28) =Re, 1632 Add-on yelt= 16 3277=23914,Xaw (23324) « 100=9.71%. Hence () ee coret answer, @ 4 Reason : Hever, and wien defemeat period is siher equal too gresterthen number of level insalinen the arenotdue and oustanding, then mn rebaeis lowed. Hence (1) isthe = comect answer. wo Reason : The company shall st buy-back the locked-in shares and non-ransfenbl shares tit [22 ‘he shares become mansfratle a pr SEBI guideline, Al oter statements are core E » feWhich oft folowing fase? (© Tem er wh teins ebro sine cllmmey mae, te dnd a (©) Tbe liquiity crunch ofthe banks spaced en ote sytem itrmy lend to high volatility incall ates (Q. Calne: seunder the nonual ligudiy sondeons, xe the Soc mt for the tems money make: (© Thepeaing PR nfune ite En Pacis (BP oe ne i ding ita aeet (© Thebanks which have an agresve approach would prefer inven BPs rater an call mney paket, ‘Whack of the following bill become: clean bll immediately after the delivery of the document=? @ Documentary bill ® bladbl @ DPbn @ Daw © Sapiytal ‘Therate at wich the RBI rediscomts eile ils fom commercial basis own 1s @ Bakae ©) TheSBTiund te © Bastille (© Commeril bak’ il fiaance ate (© TheSBldiscomt at Which oft folowing fale wthrepecttonepetanaction:? (@—Arepo will hl the holder ef he secwity to sequel fora short em without necesarly ligating the cecurty (©) TheRBlamouce: hemunberf curtis sible forthe repo ransaction (0. PU bende which ae in dat form 2 lice for po tancacton @ Teint ate on borowing fer th interbank rep deal is decided by the RST (© Bomoming under epo 2 cued boowing, + Essysnpny scp pb petal lero fost wi ie Reps ofCompi oct @ 2*Naxbeey yer ©) 308 Tame every year © Ahlyerey yer @ 2 Ochberveyyar © US Decomber ever year ‘Which ofthe folowing false with respec tothe nsurnce of deposit? (The deposi will ave acover of actual amout of depot subject toa maim of Rs1,00,000 for exch éeporiterire-pacv of ruber and snout of depot: coe as wih bark (©) Thepremiumpycbl by the depositor forth iurance ofthe deposit ic 5 pase por balf year forevery Ores (Q Forts purpose al the deposits ofs depositor at diffrent ranches ofthe same bank te culbed togutbar (@ Deposit: held inthe ame of 2parcn indviduly andthe same depstor aca halés 2 depot nny vith anther person thn they are treated a to diffrent deposit: (© Toeizarmnce promi icpaysble ttheend of Manch and October vary ye, ‘SEBU x: insued a mechanism for redress of irvestr gevance related totus of secures. SEB has made t mance forall ues to depot__of the size ofthe iene sa vesunty with esceal sock exciange @ 050% o O% ‘eps M6292 eg NEP Th Lf 16D EPLuL © 100% @ 300% © 5.00%. ‘A company as issued Pass Through Cetifiates (PTCs) backed by a pool of property receivables agaregating flings wot coec with espect tothe compliance norms to gethe repisration cerca? (@) Theappicant sould be 2 body emporate (0) Theapplicantas teas S employees with prior expen in merchant enking (©) Thespplicat shoud bce mismo set worth of RS ere (@ Theasccite company, group company or subsidiayof the applying company bas not been registered 2sinvestnnt banker (©) Theapplicant shoul have necessary ntsc. ‘Which ofthe foloing nat the function of the regia tthe ue? ae (2) Asrange to collet he application forms fom the varios collection cents (®) Seren he inal application and mule aplication (©) Pring an spt freind orders aonmen vices and share cenficates @ —Redtessal ofimestorrevnces (©) Agretosbscrbea specified mnber of scutes inthe event ofa sutsription, nts ‘Which of te following snot coect egading guideline fer the advertisement of an issue? @ —Theadvertisement shal nt contin any infomation or anguage which sextraneons othe prospectus (0) SEBTapproved madels, celts, conal characters, landmarks or caricames can be spay in the advertisement (© Theadverisement should ot include any slogans or brand names fr tess except he commercial ‘rand names ofits product (© Advertisement stating thatthe sue is filly subscribed o oversubscribed shall nt be sued dain the riod when the isu is open fo subscrigtion (© Anouncement bout the closing ofthe issue mast be made on the date of closure of these ‘Which ofthe flowing franc nstumen isissueda face value and dono cay any interest and re <> redeemed by repayment in seis of instalment?(W) seDrayOvea moun, comms, ueuoua cAI, ANAS oY CCAS Cu UE Mpa advertisement (0) Thezbversement told ntineueany slogans or rand names fr te sexe the comme tran anes fits prot (6) Advisement sang hatte seis fly obser or vests halt be ised ding the period wen these soe fe sbcrition (€) Announcement about the closing ofthe issue mst be made onthe date of closure ofthe issue. Which ofthe following enc intranet issued ata fc valve and donot cary any imerestandae 21SogenSFKLO0 im of On 906107Saget aoe wi esa edo 29, Which ofthe following CDs camy bo ied and floating interest rates? (@) AsamDollrCDs (t)lsallment CDs See (© RsingRae CDs © Tuts @ (© Yankee (Ds ‘crews > Consider ite following data egg a taonal loa? Tere fle: 15yeus Raeoflaeret: 15% pa. Lomamomt = Rs 10,000 Payment pattern Equted noni inalinents. The pig amount outstanding afer second installment is (@) Rs996900.56 ) R:996589.00 (©) Rs9390.65 @ Rs91250055 ©) R913. 16464 END OF SECTION A Section B : Problems ($0 Marks) + Thiscecion coms of questions with eral mabe 1-5 «Answer all questions Nas are indicated aginst each question. Detailed woking shoul fom pat of oor as. Domo spend mor tan 110-120 ines on Seton. 1 Indian powersecoris zoving pil. Considering tis Shh romp as decided to expand their compaay Powel Pt Le’) <> inthe proposed Gujrat SEZ Thee cost of te lp il be Rs 1 cr. This invesmen willbe required at he‘Todia was amongst the pioneers wit Asian nations in leveraging secunzation. Ln India, two sectors sige eth pig bneies of semiton bakin and instr sector Explein the beets ‘weach sector. Also discus the factors that hinder the prow of secuntization in Inia (mais) Ceca dots a ect navaton bt sites thoes oft min iite ts fi ssid wiht Engin te cts oe conser ee cosng ceca (mais) END OFSECTIONC END OF QUESTION PAPER Suggested Answers Investment Banking and Financial Services-1 (MSF2K1): October 2007 Section A : Basie Concepts 1 Aaswer Reason: Felling stamens ar conc: Themujr fioricet i rowing inthe call ony mat isthe demand ply codon ft iy rch often sed noth syste ity eo ih voy in cal tes (Cal ates re under somal fit oto arth for rae forthe tem mney mak ‘Theprevaing PLR afloeceheer Bank Parcgations (BP) re The banks wich Raven cosa proach, wd pref tinvesin BPs rate hn ll ney mate. Hence () isthe cone ane 1 Aamwer Reason: The DIA bill becomes clean il iumedately after the delivery ofthe documents. Hence (isthe comet ene. 4 Aner @) op 06256 20 gg FL Te 1908 060024 Answer: Rexon: 3 Answer: 6 Answer: Reson: 7. Answer Reason: Therateat wich the RBI reisoouts elle ils fom commercial banks s know as Bankrate, Hae) comet ase @ ci Following are rz with respect to repo transactions: ‘Arp il hehe her ofthe sexy tage ity fr ahr em witness iain he seoly The RBL announces the numberof sects eligible forthe repo transaction PSU bonds wich ar in demat formar eile for repo transaction Tae ees te onbonoing rhe ered i mal decided depending nthe, ant aad the prevading cll money and term mooey rates, Bonovig deep’ asewed booing “lence (fis the ecomet answer ) 2 Resco: Frey conpanysseping pall depots hl ere of depos ithe Regia of Compas, onc before ine every ea “Rnce (bis the comet ans 0 cy Following is tu with respet to the insurance of deposits: The deste aoe fatal ant opts amin of Bs 000 ech psionic of bead ann of posts nas ihabank The prin pple yh nsf nae ft posts iS pie petal yn ery 10 pes Fortis paps depos ofa depsin ste ashes ot san taka che togetir Deposits eine ane fs psn inl andthe sme dgstr ails depos iy ith another person then ty are treated astro diferent deposts Tae isee rein slat i eof Decenber ad eevee “lence (isthe conect ans @ Reason: SEBT as insted a mechanism forrdresslof investor grievances relatd to sue of sects1. Answer: () me Reason: SEBI has instituted a mechanism for redressal of investor grievances related to issue of securities. SEBI has made it mandatory forall issues o depos 1% oft size ft isu as scat wt te eon stock exchange. Hence (cis the comect answer. 8. Aasver: (@) me Resoa: Deine Ins the monly ate fen inpld by the cas ow steam 31586 1SPVIFA (in2)+[12 * PVIEA(n 2) *PVIE(n.12)] #8 *PVIEA(in 6 *PVIE(n2)] The equations sated by Im = 1% By ander) nonaled emis =(l+in)"-1 ) =(015) =19.56% Hence (@) isthe comet answer 9. Aaswer: 0) <1 Reason: Following athe compliance norms Te appa sould be a body corporate Te applicant has at last employees wi prior experience merchant ening Te applica sould have mismo net woth of Rs Score Tie associate company, group company or subsidiary ofthe applying company bas ot been egiered as investuent banker Te applicant sould have cesar infact Hence (b) isthe comect answer. 1, Aaswer: (9 me Reason: Are to subscribe a specified amber of stunts inthe event of om-subscigin isthe function of sneer Remazing lathe faction ofthe regis. Hence (¢) isthe comect answer. TL Answer: () <1 Reason: No models, celebrities, ictional characters, landuarks or caricatures shall be displayed in the 5.5 pened FL 07h of C0007 6 EL2. LB. u 1s roa v. cy w. 2. a. n. Answer © ‘Reason: Secured premium notes reissued at face val and donot carry any interest and are redeemed by repayment in sere of instalment Hance (ithe comect answer, o Rescon: A lomsing company which ic fonmed a: a subsidiary of manficuring company for loning the products ofthe parent company, is called Captive lesing company Hence) isthe corect nem. a Reason. Theinsrumen which provide the investor the option to conver the paper into flat interest paying instrument tthe end of particular period is known as Fip-flop FRNS. Hence (9s the comect answer. o Reason: Regulations on venmre capital investments are low as compared to bought out deals. ll oher frances axe comect. Hence) isthe comect answer. o Resson: Loma amount =06:175=140 rome Anwar Ranson: ousted sumua installment Hence () isthe comect answer. @ = Alangeupoat payment incesces the brea even rental, ~ —Aligher te relevant rate of depreciation deceass th brea even rental = Alonger primary less period decreases the resk even rt ~ Higher os of capita inreases the brea even rental, = ABighernet salvage vue decesss the bresk even ret Hence (isthe comect answer. Answer (8) i Reason. The ini-pem feare of constuction loans provided by the commercial banks allows eborower fo ‘borow a medium-iam loan fom the commercial bank to pay-off the constuction loan tea from the same ‘commercial bank on completion ofthe constuction Hence, opon (bis the conect answer. © Reason: Credit rang aot require for suction rated debt because the enue less han 18 moths Al oer options are come. lence (6s the comect answer. ° Reasou: Supplier quarame factoring agreements was developed by the American factors primary to help ‘thei importers dstibuors involved in execung import ordars on behalf oftheir customer. ince (6s the comect answer. ° “The following are tue wi respect othe credit rane: ‘© A cediaing is a professional opinion given afer staying all avalble information at parcaar point of time. ‘+ There is no privity of contact berveen an investor and rating agency and he ivestoris to accept or reject the opinion ofthe agency. ‘+ ating agncy does not compensate the investor who has made an avestment relying onthe ating sadmabes loss on nvermnent ince (9 isthe comec answer. © Reason: Ina fixe price isu the issuing company can mentoa cep oa he price band, which sould not be sore then 20% ofthe Door price.2. ue 26 26. n. 28. 2». 30, Answer © ‘Ressca: Under Home om accountschene the maximum amount of lesa that cn be Gsbursd is follows: Bailtup area ‘Maximum amoust oflean Upson. & Four tines of mount saved Upmann. & Three mes of amount sved Exceeding 650 5g, ‘Two tines of amount saved ‘Therefore lon to Mr. Preshant= 162000 *3 = Re 46000 Hence (6 iste corect aster Answer: (0) wale Reson ‘Reasca: The facor takes therespouslites of ceivables accounting wile, the forSater does uotassume ay ofthe resqonsbitis “Hence (b) she comect answer, @ stots ‘Ressea: The company, which want tris funds trough IDR, hs been making profts forthe las five years Proceeding i issue and bas been declaring dividend of mt ess than ten percent earh yer for he sidperiod Hence (isthe corect answer o stots 1 Priceper sare aftr the ight sue ‘Curent matietvahe for Mr Vinod = 600°61 =e. 36,500 ‘Value of shares afr rit is expired = 600859.43 =Rs. 35,658, ‘Tharfore reduction in he vale of srs = 42 @ sto ‘Anmal perenagerste = [u(0-1)]*2F 635° (0%) 085 lence (@ isthe conect answer. ° ‘essen: A bought outdeal, aca lom, housing nance and private placement all are the examples of ‘Begotated market. Only poblicsrue of ecuties the example of open maka. Hence option () i he comect o stots Asian Dollar CDs cary bot sed and Goong irest mes. Hence) the comect mews. o sto EM= mwet | cpm | commer | mo Opening tlace couponest Homponce | s2sooo0 | 14957 | geestass | seesa7 Sess) aaatiae | astas7 | gpeos0ss | socs7 Hlonce (a) isthe carect nswer1L,_Expor Creditand Guzates Coperation (EOGO)afira sk corer for ood: which re experted on sh-erm ced (edit not extending 180 dae) icellad (@) Specf Pokey ©) StunindPalicy (© Pectshipment Eport Credit Gnrantee @ Small Borers Paley © BpatFems Ganmes 2. Whithof the following ise true rezading Coster] Mutraze Oblizatin: (CNO®)? Lh Ozarecested to protetthe iver: fom pr pmant sek TL Invetors seeking lw xporuetoinferetrat ric prefer longer trance CMOs. I. Investor seeing to aod cll end eivertmentik reir hater trance CMO. @ Oey Dabo © Orly atore © BothD and ()sdowe @ Beth) snd I) shove @ AO, si aoe 3 ABunk ic rung 9 mom CDs wort Re 10 alas pie of R95 78460, Ta tay pycble is G) Re 50.000 by the absorber @) R500 he ieee (R370 y theta @ R250 he absorber (@)— R:25,00by he ious 4. Whishof te following ica private sector sana? () Callan Notice Maney (Tem Moxey © Pattiaion Catia: @ Candas ofDepat (© Fanzone, Which of he following cnet ic trae ith pet to Rel Ete Investment Trt (REIT)? @)—Tosetsin thir special tx ooh, REIT: have to tbat 90 of eirisome to carholdes @) Intec agutyivestomt in RETTo by investor wal ladk guy (2) According to fhe federal, RETT: cn nly be inne if ace (@ The moatpronizent fam oflendng by RET the consnuction developmental lending @) RETTeenotallowel to riz fnane hough dtc they sm equity imvermmet velide 6 Whichof te following feof fctoringic asolaowe a confidential factoring? () Bask pariepstion itoring @) Advance icons (Supplier uate factoring @ Fullctense (©) Invoice decounting 7. RBlicoda tender aotfistio for 1-day teem bile of Re 10 each or ring Be 750 rre (Ms Pacaat, one of th compattive bidder, hos buted th ender quitinga pce of Fe 980. aca off pice wa: determined 2» Re9824 andthe tender of Mr. Pracant was scceptd, he yield enmed by Mr. Pact wwouldbe ep 0056.2 Sgt a0 DETEDANY@ 6% © 65% 8, Whichofie ling iar no trae wik espe to underming of publicise? 1. Minievoadertingcomnient fr te Led manager tote isis 5 ofthe of size oc Bs. 2S ts, hicheer iia IL Tvl udevotng commie ofa wader cmt es tan 20 isis at wor TL Maino ne wor ofan ues Rs 20s TV, Tot cotndingwndernting commen fr ander eno ceed RS, aks (aly above () Bot Dani UD abe (©) Bath I) and N) above @ OW) adoe © O.Mani W)abore. 9, Under tak paricipaion ictring Hsin ance Lined bas agreed fart recrabls of Gasket Lied of Bs 00th nd ares to poi certn proportion ofrecer sane. Dlg Buk is agreed io fine op io 75% ft aor eserves Diet Buk proves 60 ah te poption ofrecrabls immed by Hosin Fiance is @ Ws 0) 5h © @ @ 1 @ mf 1), Whichofte fling sateen ire re egg i pce? 1. Theownerof gods ie. te ie orth face companys reed to anange era compebesire insures cove, TL Theta the goods is tafe othe hier oly hen he ire eres the option to parca cn eps othe at install TL Abie purchase transactions aut he sales tx bt ae mot sb to cet st @ Ody Dabwie () Only above (©) Both ()and (above (Bot and Mabe (AUC), and UM) oft above TL Tse i seed npg cosing 40 ls om ues Lens ined raped yeast essen ofR6 320 pe payable anally in areas. Te maga ost of and ug cost of cpt of Trion Li, 14 percent nd percent epee. [the cos of debt and aril cos of capital of Suresh Teases [1d is 10 nercent and & nercentresnectively the asset should he canitalized atIL B. iu (8) Only abore (©) Both @) and (I) above (@ Both (0) and above (9 ANQ, Q) and) oftheabore Tse Leland an equip costing Rs 0s fom Sires ess intel aap of yeast. ASE ease ental of Rs 300 pp poyable nally in anes, Te marginal cot of deb and margin cost of capil of Tron Lid, is 4 percent and 12 percent especie. Ite cost of debt and maria cot of capil of Sues Leases Li is 0 percent and 8 pet spectively, te ase shoul be capilized at (sume saage vale ofthe aset isi). (@)—Rs37.30 Jaks in the books of Tristone Ltd (b) —Rs3887 lakhs in the books of Tristone Lid (6) Rs-40.00 is inthe books of Suresh Leases Lamited (@ Rs 40.00 lakhs in the books of Trisone Lad (2) Rs46l latin the books of Suresh Leases Limite. Pavano iis planing sighs isu ofequty shares. The coment market peo te tv is Rs 0 andthe ries sue can be piced sam at 60 ofthe cunt mat price te esghtspce shoul not fall below Rs 35 the marina rights shares th compen canoe fo every share eld is @ 0 ) 04 @ 06 @ os (9) losin information Therikfobsslescence of ld egipmets can be edged by © Sraplease ) Inkerdlease (9 Cossbardereae @ Level (©) Uperatelese Answer Gap on, a fom oftel esate lan is 8 (@)Lomon whic the nest charged is generally loner than te prin ending te (Lom enened tote bye fo cover the difference betvee the registered va ofthe property and act pcas rice 2p TAB 621 aged 21 ia 1ST DAMSoggted dames Fed (Coan extended a which ional payments guise tobe deo cvethe ap een mkt interest aad the cela ate aged pon (Loan exended ote devloeo cover dence betien ak constuction an nthe ta costof he project (© Leaestende nigh pro tel omonerin nding uta ule lender 1S. Whichoftefllovig ae te reguding REDO tension? stsee (@ Now taking ens ling th coet nd SGLacomts ith RB, Mimi cn ol booth repo maict (0) ewnbe ise fra mim of Rs |e and in mls of. core (0) Teint ates decided po bythe of ch instants (@ Inet oo REPO ise toe hihi te prvaig all te (©) Theyre bowing of usec ate 16, Consider te folowing infomation: a Tamafofccumnerlon R000 Repsmea period ams Enid any slat Bag ec mo if bono ote te ites eae alowed ote one aspera of 18a @ Relog0e ) Rel0g3s @ Rll @ RLM (Rll - ; @ Only Datore ©) Only MD above (© Both() and (I) above (@ Both CD and A) above (© Both (I) and (V) above 1A, The probably ofthe mvestnent being confiscated is 113 Ifthe cash ow when confiscation doesnot oouris, “Ausier™ Rs 32 lah andthe discount rate is 1%, then expected cash wis (@ Bs 66h @) R 4552bka (© Bs 61s4hta (@ Rs 8841 hk © Rslovernka 18, Rao Finance Lida company engaged in ie purchase ems Rs 50,00 intrest inthe Sal yar 2007.8 ‘Which case ofthe ease agreement ets he lessor oem the agreement and be indemnified by the lessee forall expense incued on account ofthe action ofthe lessee? (@) Somender clans @) Exemption clase (© Ovmership clase (@ Description clase28, Whichofthe lowing sare mo trae wth respec to Residual Value surance RVI)? (©) Eauipment delivery case SSeege ND OF SECTION A Section B : roblems (50 Marks) ¢Thssecion consis of questions wh seal mumber I -5 Answerall questions Maksare indicted puns each questionWw aks) 7, Discs the fcios cosine by aceitratingageacy while asioning asatngsyubo tan sdusueee isa ( oT) END OF SECTION C Suggested Answers Tnvestment Banking and Financial Services - I (MSF2K1) : January 2008 Section A: Basic Concepts. Anower Reason L Stan isik cover aed by ECGC wiih ie covets = vist gods chr egoed on hot mca neti 180 TOP> days, comet ae Tie cole mnpge bigs tks te sane ch owt coment as thong sey gents and then cates cele mes or techs. TOP> Hee, COs potest fom ery i As ng er as cay ghee a ik te ests preening velo expos nest ere shores tances CMOs an stare tach COs cine rcp pet ee lagers, ger traces CMOS fered by nests hoe oad allan revstnen isk eae, (1 ad (0) azine alte (stealth aes) 4 C——_Thecarentnesofstny dasa yer onthe eva cf < the CD aeas fans: > Pao Stamp Duy Peo Bev) p03 mons us ove 3} mots Up 06 mats i) ove 6 mots Up 09 mats 135 pK gg) ITD A1, 1. [Pbore9 montis Up to 12 mons 0500 ‘Therefore fora 9 mouth CD of Face Vane 100 as the ctamp duty payable bythe issuers 375% of Rs 100 (0,000 =R: 37,500, Hence) isthe net EFacerizton bills comes under private secorsecwites Allocbersareintebmk = ‘secu. Hance () che mower ite mos prominent fm of lending by REITs the coustucion developmental lending To resin hi spel tax statu, REIT: have distribute 95% of thr ‘mcomeio shareholders. Thee can bemrzage REIT. Invert equty vestments sn RETTs by investor a hichy quid ETT ca be infinite life musts or fit ie Hae aay @ ue Elnvoie discomming i abo known 2s confidential factor jagge 8 ~~ She ido | es fe ps 70 = 0.0652 EWehrepectiopublicieme the following we tvs 2 ‘Minimum net worth for an underwriter is Re. 20 Lathe = Minimum undermtrg commitment forthe Lead managerto the ess i 5 the fier size or Rs. 25 aks, whicheverisless ‘oval underwriting commitnent ofan uiderwiter aunot exceed 20 tess aet wart. So, Satamant(), (1) and (V) aenot tue So, the caest an-wer is (2) (Under bunk paricipatingfctrng, abank contribute: tthe pat offictorsecares. = Inthe ive ca, Tops Amomtofreceiable © = —-Re200Lde Fadler esarves io be nanced by Diligeat bark = Bs. 60]aihs=75% So the ot etree fe SOIsihe So, Hwssn Fines La wil poride fr Re 200lalhe—Re $0 ikke = Re, 12) ike. So, th proportion of recaiatls flamed by Hussain Fiance Lid = 120200x 100= 60% Din anhize puchaseapeement,thehinerisrequied to arange forthe comprebesive insurance cover, Hence, [isnt tus, The tle to goods i Tae srmafaned tothe rer only when the her ecrcices th option of puchacng the set oronthe payment ofthe lt ncallment Hewe Tis tue Ae pclae tramishons are bjt o ale but arene bj’ to Cental le tae Hence, iste, andthe anes (D. ‘AAssordiag tothe new ICAL guideline the lesed eet could be copitalized i the books of lessee at thefar maker vale or hepresentvaueofthe minum = 95 armen, wilchever owe = Far Market Valu ofthe egupment - R40 bikie Present ofthe rion lence payment fr Tetons Be age ‘000 Z *PUFAG (9x03) x2914=312992 Re373D Lis ‘Asthe resent ale of the minimum eosepaymens iss thanthefirmmkot(40x03) x21 Re3730|akke ‘As he resent va of he minimum lease puyments icles thn the far maket| ‘asthe ace should be capitalized at R370 lakhs in Taste Led Suwech Lees Led. could record the present value of lence etale 2 pat of iG DSM vice >35 uaetOnes 08: Wii sas 40N2350N+1)-32 5N23 p06 gens NGF Lies 19 Ne35-06 1. for every shores ho atthe most? shares ts offered 3e right chutes an for every I shares eld, manmm C6 share wil be offered 2a the answer (©). 1s. EUparade lease proses for automatic exchange cfout-model equpmnt with the Inte updated veraon of such equpments. Hence tistypeof lace Relpsim TOP is ‘Dn Gap Ian the ean arangemen 3: desrbedin aemanve (i andthe nest charged gaara highr fan he pre landing rt. Honc, covet anwar © SSG account: woth RB, Mumia can borrow well laa tm the repo matkot a EN ey Sey ee yi Coe 16. a Interestrobste a: par mle of 78 = "4" 9 Where ti:muabe of installments oustanding = 15, 085 oe Distal ckazeforaedit= _ 36%9999~ 300.000 = F386 pete, Interest ate exw = R090. Vv. DAsper the equvalent loan model of ease evasion, the amount of debt thats ‘itd nin of debt sonidaed tobe aa othe pacar va oflancevantals, DOD 0.325 «50 xPVIFA(2%45)~ 1.12 which sequal to Rs.6561 Likh. 18. Option ¢ is tue because inan operating less where the lessee bears the costs of = Insuring and mains the eased equpumat iis cled "dry lease’. Statement TOP (i fabe beeauce the lessee enjoy: the ak to tenminate fe lene ashor none ‘Wuhout any significant penalty ina operating lee (ad notin finance lea) ‘Stotement (not mue According tothe FAST definition ifthe lease ta exceeds 75%eof th well eof he aset or iftie recent Yalueof the misimuma Jeze parents exxeed: 90% of the fay maket value ofthe ase a he inception ofthe lene ic tamed 2¢ fnance lace, Statement (© isnot gue becuse nance Jezes ae siucured for lexsng invesment-ntensive sets and opersong lace: ze generally stucured in Sunnie Indestes which ae chaactenizedby high degre ef tecanolegical sk. Statement (2) not rue boca InOpETTANE TERS, the eae isnot filly amortced ve. [BTbe following statements are rus = ‘Bosh intest only 2ecusity sad principl-ony seurity have arg mpuctazocsted IE webs caull dase mteet “The retum tothe vests of Interest ely secunty and Pramipal only secunes rmoce inthe poste drecton The puchave of interest-only postion oft STRIP invests in the security with» Yield pont ofbish-coupen colaterl. “Ths purchacer of rancipal-only portion of STRIP expats he inieactrter ould pepsyments Flee () i the comet answer 2». CTs sponse atjacnes of SDs topromota etl mvecmant Allathar statment = se comsct for PD Hance (-) te conect sarnar 1082. (The company who wants o raise funds through IDR, has been making profits for = the last five years preceding to issue and has been declaring dividend of not less TOP than ten percent each year forthe szid period. Hence (¢) is the comect answer, ‘Bin cave of Book built issues, the minimum and maximum period for which bidding = = vill be open is 3-7 working days extendable by 3 days ineace of a revision in the TOP. price band. Hence (b) is the comeet answer 23. ‘BTotal reservation for all NRIs and OCBs cannot exceed 10% of the post-issue capital ac per RBI guidelines. All other statements are true. Hence (b) is the correct TOP: answer. Mu Elt can be calculated wath help of the formulae ie. V= CF (1-P)t,+P = “ToP: V= (G2 xO85)(0.11 +0115) = Rs 108.62 lakh Hence the answers () The service tx plus sumcharge paysble on the intrest enmed by the hire purchace companies iz 12 36%. Therefore, service tax pay2ble by Rao Finance forthe ficeal TOP yyear 2007-08 = 12.36% of Re 4,50,000= Rs 55,600. Fence (c) isthe correct 26, Fined asset tumover ratio = 25 z 2.5 = SaleslFined Assets Top> Fined Assets =Rs 104 lakh the asset is bought, Fixed As FA tumover = 260/164= 1.59 n. Equipment delivery clause of the lessee agreement entitles the lesortotermimte = the agreement and be indemnified by the lessee forallexpensesincured on TOP. account of te action ofthe lessee. Hence (eis the comect answer 3 DFollowing are sonect for RVI s RVI coverts the product risk into receivables. Top> The cost of RVI isthe premium payable to the underwriter or the insurance company. The cbviows advantage of buying of RVI is thatthe lezor able io offex competitive rates. Hence (d) ic the comect answer. 2», Altcdenotes the amount of cach being brought into the particular ound of financing by the VC investor, Hence (a) is the conect answer, Top: 8 Rea see fEnite of terest let akh Tor. mg -"t = Bs 4.650. Hence (isthe comect answer. Section B : Problemsrs 4 Question Paper Investment Banking and Financial Services — I (MSF2K1) : April 2008 For public deposits the issuing company is required to maintain the Liquid assets to the extent of a certain percentage of the deposits maturing during the financial year ending 31% March. For this purpose, the permitted investment(s) is/are 1 Deposits held with any Indian bank, free from any lien I Unancumbered securities of central or state government. IIL Unencumbered securities approved by Indian Trust Act, 1882. IV. Unencumbered bond: sued by HDFC. @ Only Mabove (®) Only (ID above (© Both QI) and QV) above @ QD, i) and GV) above () All@), @), CM and QW) above. ACD issued by large saving: and loan associations which can be covered under the FDIC x: called (a) Installment CD ) = Tht CD (©) Iumbo CD (@ Declining rate CD (© Rising rate CD. Which of the following statements is not true with respect to the lock-in requirements of the promoters’ contribution? (2) The minimum contribution to be made by promoters’shall be locked-in for 2 period of three years (b) Incase the promoters’ contribution in the proposed issue exceeds the minimum specified contibution, uch exee2: contribution will azo attract lock-in period of ome year (©) The lock-in period commence: from the date of allotment or from the date of commencement of commercial production whichever is later (@ Bonus chare ismed to the promoter out of revaluation reserve: during the preceding three accounting _yent: are required to be lock-in for a period of one year (©) Shure: issued te the promoter ata price lower than the curent issue price during the preceding 12 months period are required to be locked-in for a period of three years, Which of the following statements is falve regarding different types of leases? (@) Ina leveraged lease transaction, the loan participant obtains an assizument of the leave and the rentals to ‘be paid by the lessee, and a frst mortgage on the leaved asset () A leveraged lease transaction entitles the lessor to claim tax shields on depreciation (©) Ina sales-aid lease the equipment supplier catalyzes the lease transaction (@) Ina single investor lease. the debt funds raised by the leasing company are with recourse to the lessee (©) Anuperade lease is an operating lease which has in-built facilities like up-cradation of the equipment. ‘Which of the following are not true in the context of ‘Credit Rating”? 1 Rating is useful in differentiating credit quality. IL Rating isa general-purpose evaluation of the issuer IL Rating is an isolated function of a credit risk evaluation. IV. Rating is an extensive audit of the issuing company. ‘V_ Rating reflects borrower's accountability. () Both @) snd (lll) sbove (&) Both (I) and (IV) above (© ©, snd MI) above@ ©. Cand (v) above © DG). W\)and W) above Blue Fox is coming up with an IPO worth Rs.50 crores. The issue will be underwritten by Goldmine Financial ‘Services. the lead Merchant Banker. The minimum underwniting commitment of Goldmane in this issue will by @ Rs. 25 lakhs () Rs. 50 Lakhs © Rs.100 lakhs @_—_Rs.200 lakhs (© Rs.250 lakhs. Which of the following is/are not true in the context of real estate investing? 1 Real estate investment is perceived as high-risk investment area, IL Active management commitment is required to produce high returns. TIL Data concerning the historical returns and risk of the various types of possible seal estate investment is freely available @) Only @) above () Only (above © Only CID above @ Both (1) and (I) above (© All@, GD) and GD above. Which of the following is not true with regard to Mortgage Backed Securitization and Asset Backed Securitization? (a) The former is backed by easily traceable immovable asset whereas the latter is backed by movable assets, which may not be easily traceable (b)The former takes into consideration appreciation in the value of assets whereas the latter takes into consideration depreciation in the value of assets (©)Legal hassles are relatively less in Asset Backed Securitization (@Mongage Backed Securitization gives high yields to the investors whereas Asset Backed Securitizatio gives low yields to the investors © Incase of Asset-Backed Securitization, asset need not exist at the time of securitization ‘Sunder Finance issved a commercial paper with the issue size of Rs.5 crore for a period 3 months. The maximum brokerage paid would be (a) Rs.0.125 lakh ()—-Bs.0.500 lakh © Rs.1.000 lakh @_—_-Bs1.125 lakh © — Rs1500 Lakh10. nL. n he sastruments which enables investors to benetit from arbitrage arising on account of ditierentials 1n anterest rates for different maturities are known as (@) __ Flip-flop FRNs (0) Rolling rate FRNs (©) Mini-max FRNs (@ Capped FRNs (© VRN-structured FRNs. Which of the following measuces were taken by the Central Govemment to enhance the level of efficiency of the Indian Credit Market? I Deregulating the interest rate environment TL Withdrawing the Govemment funds as a source of funds to Financial Institutions. IL Permitting offshore banking. IV. Setting prudential norms for the intermediaries V. Permitting access to overseas funds. (@ Both () and (IM) above ©) ©. Mand (IV) above © — @), and (Vv) above @ — ©, and (V) above © All, ), (HD, QV) and (V) above. Which of the following is true regarding repo transactions? (@)A severse repo is an agreement which involves a sell of security with an undertaking to buyback theua Bi same security ata predetermined future date and price (A repo transactions generally done for instraments wit long maturities (Provident funds ar eligible to participate in repo auctions but are nt eligible to participate ina severse repo auction (Unlike call loans, repos are secured in nature (©) RBLenters into reverse repos o suck out liquidity from the system same Which of te following islare true regarding risk exposure in money matke nstrumeats? LAs the maturity of money market instruments is short, these instruments are not exposed to reinvestment risk All the money market instruments including government securities are considered as risk fee TIL Compared io longterm securities, money market instruments have minimal inflaton risk. TV. Theinteresrate risks minimum inthe money market Only) above (8) Only (1) bore (Bots) and (V) above (QD, Gand (A) above © All, (CA) and (V) above a bank sued a Cesifcate of Deposit of face value of Rs. aks with matty period of 91 days and ata ddscouat rate of9 percent pr annum, the discounted value ofthe deposits a) Rs 489.027 b) Rs 458.716 c)-Rs457.422 J Rs 2.85321 (©) Rs3,63,750. Under which ofthe following aspects, factoring differs fom bill discounting? 1 Ina bill discounting arrangement, the financial intermediary does not assume the responsibilities of sales ledger adnistration and collection of debs, which the factor does under the factoring anangemeat. IL Unlike bill discounting ao notice of assignment is provided tothe customers ofthe cient under the factoring arrangement. IIL The ill discounting arangement is recourse tothe client whereas factoring arrangement can be with of without recourse. ( ( ( ( dames (2) Only (above () Only (U) above (9 Bott () and () above (Bott () and (I) above © AO, Q) and CID above16. a. 1s. Which of the following statements 1s false regarding fuealiues given to Prmary Dealers (PDs) 1n the Indian market? (2) The PDs are permitted o borrow and lead in the money market ©) The PDs are provided with Cusreat and SGL accounts, (©) The PDs cannot access inance through REPOs (@__ The PDs can raise fonde through commercial papers (© The PDs can tausfer finds ffom oue ceates to another under Reserve Bank's Remittance Facility Scheme =n} Manilal Finance Company curreatly pay’ interest on the public deposits atthe folowing sates: [Ferm of deposi Tate of interest) {One year 1 [Tivo years 13 [Three vests 15 Mr. Mustaza, one ofthe deposit holders with Manilal Finance Company. wants to withdraw his 3 year public deposit tthe end of 9 moaths from the time of deposit. The manimrum interest sate payable to Mi. Murtaza on his public deposit is @ x @ 10% © 11% @ 1m © 3% oy ‘Vijay Limited is planaing a rights issue of equity shares in the ratio of 1:5. 1f the current mazket price of theshare is Rs-45 and ex-rghts price should not fll below Rs 43, subscription price should be more than @ R10 &) -Rs30 © B33 @ Bsa (© Rsdt If an IPO is under-priced, which of the following cam be considered as consequences/implications of the same? 1 The company looses the opportunity to raise more funds. IL Under pricing would give less retums to the investor. TI Under pricing results in lower net worth on an increased equity @ Only Qatove ©) Only (ID above © Both and UID above @ Both () and A) above © All. CD) and ID) above. Which of the following statements is/are true regarding instruments in the intemational markets? 1 Foreign bonds are the bonus floated in the domestic market denominated in domestic currency by non-resident entities, TL Yen denominated bonds issued in the US are yankee bonds, TIL Euro commercial papers issued with maturity of up to one year are underwritten and secured. TV. Note Issuance Facilities are underwritten and have maturity of up to one year. @ Only Dabove ©) Only (ID) above (© Both (1) and I) above @ Both (and QV) above © ©. GD and) above. Sumeet Industries Limited leased an asset worth Rs.50 lakhs from Nahar Finance Limited fora period of 3 year at arate of Rs.115 ptpq, Lease rentals are payable annually in advance. Ifthe marginal cost of debt and tax are 14% and 30% respectively, the amount of debt displaced by Lease to Sumeet Industries, according to Bower- Herringer- Williamson Model is (@ Rs 61.88 lakhs (&) —_Rs.60.89 lakhs (© —_Bs55.25 lakhs (@__Bs53.41 lakhs © _Rs50.00 lakhs. In the context of leasing, “hell or high water” clause is defined as 1 The clause under which the lessee is responsible for repair, maintenanee and insurance of the asset TL The clause under which the lessee undertakes obligation for the payment of rental regardless of the condition or the suitability of the asset TIL The clause under which the risk of obsolescence is shifted from the lessor to the lessee. (@) Only @)above (©) Only (I) above (©) Only (Il) above (@ Both (1) and (Ill) above (2) AU®, D and CD) above,hare prema W00 aptal Reserve (75% of reserve ansing out of prodt onsale of asels) 0.00 evaluation Reserve 45.00 Patents BO an advances fo Subadlary Companies 3050 Deposits with Group Companies 20.35 Calculate the amount of owned fund: G@) —R5269.45 crore ©) Rs.303.50crore © Rs340.50crore (@ — Rs464.25 crore © — Rs.526.00crore. 25, While evaluating hire purchase proposal, under which ofthe following situations, replacement cost isthe appropriate measure of valuation? 1. Realisation value > Economic value > Replacement cost TL Economic value >Replacement cost > Realisation value TL. Economic value > Realisation vahte > Replacement cost. TV. Realisation value> Replacement cost> Economie value @ Only) above (®) Only (if above (©) Both) and QV) above @ — D,)and @Y) above © — All@, QD, CD and CV) above. 26, Which ofthe followingis/are true regarding the accountng treatment of ahire purchase transaction? L Capital content of outstanding hire purchase installments is shown as liability inthe books of hirer. TL Present value of ire purchase installments or cash price of the asset, whichever is minimum, is capitalized in the books of hirer. IIL Financeincome component of bite purchase installments is recorded as curentibiity in the books of the finance company. @ Only) above (&) Only (If above (©) Both) and Gi) above (@ Both I) md (I) above (© Both) and (I) above. 27, Which ofthe following types of guaantes is/are generally issued by the inswance companies? L_— Guarantees extended to financial contracts. TL Guarances on betalf of hire purchase companies to banks and other institutions ‘TL Guarantees to cover long-term loans from banks. TV. Guarantees o covered defeved payments to suplir of equipment, either supplier's or buyer's banker. @ Only) above ©) Only QV) abore (© Both@ and UD above (@___ Both() md (ID atove © OW, Mad Matove.28, The probability ofthe firm being confiscated is 0.4. Ifthe discount rateis 8%, then expected cash flow for the investment of Re 16 lakh ie @ —-Rs20akh © Bsa lakh © -RedS lakh @_~_Rs50lakh © P56 lakh 29. Under bank participation factoring, Facy Finance Limited has agreed to factor the receivables of Casper ‘Manafacturers Limited (CML) of Rs.500 lakh and agrees to provide certain proportion of receivables as advance. Reliable Bank hae agreed to finance $0 % of the factor reserves. If Reliable Bank provides Re. 120 lakh, the proportion of receivables financed by Easy Finance is @ 20% ® 24% © 3 @ 6% © 3 Elegant Emeralds have taken a machine worth R100 000 inte purchase fom Fublous Fiance Linited at the following ers Rate ofintrest ta Bat Repayment period 4 yeas Frequency of payment Monthly in amears Downpayment 2% IFafe paying the 30h installment Elegant Emerald want to epy te lon and purchase the machine, what interest rebate it can enjoy according tothe Rule of 8 method? @ R500 () Bs56965 (© Rs60000 @ BssLon © Rs8D465, END OF SECTIONAL ‘+ Inaleveraged lease tansaction, the loan participant obtains an assignment of the lease and ‘the ental to be paid by the lessee, anda firstmortgage onthe leased asset A leveraged lease transaction entitles the lessor to claim tx shields on depreciation ‘© Inasales.sid lease the equipment supplier catalyzes the lease transaction + Inasingle investor lease, the debi fimds raised by the leasing company are without recourse to the lessee An upgrade lease is am operating lease which has in-built facilities like upgradations ofthe ‘equipment Hence (is aflse statement and therefore the answer. 5 ‘p Credit rating reflects the borrowers’ accountability, expected cxpabilty and inclination to pay interest = TOP = and prinepal ina timely manner. ‘© Rating is an isolated fimction of a credit risk evaluation, + Rating is useful in differentiating credit quality. + Rating will involve issue-speific evaluation, + Rating is nota general-purpose evaluation of the issuer. ‘Rating is not recommendation to buy/sel/hold a security © Rating is not an extensive audit ofthe issuing company. + Rating is nota one-time assessment of creditworthiness valid over the future life of the secusty Hence, aernative(b) is answer 6 ala cases of underwritenismies, the miximum underwriting commitment of the Lead Manager shall be TOP = to the extent of5% ofthe siz ofthe offer or Rs 25 lakhs, whicheveris lest. Issue size of Blue Fox = Rs 5000 lakhs1. LL. Me 15. Mininsum underwsiting commitment by Goldmine, the Lead Manager will be the lesser of the two: + 5% of Re 5000 lakhs = Rs 250 lake = Re 2Slakhe Hence minimum underwriting commitment by Goldmine shall be Rs25 lakhs. Therefore (a) is the comect answer. Real estate investment is perceived as high-risk investment area because of ts’ complicated and ‘unstandardized nature. Active management commitment is required to produce high returns. Data conceming the historical retams aud risk of the various types of possible rel estate investments is adequate ‘Since statements (1) and (I are true ané statement (II) is false, altemative (€ is answer. Mortgage Backed Securization is backed by easily taceable immovable asset whereas Asset Backed ‘Securitization i backed by movable acsate, which may not be encily naceable. Mortgage Backed ‘Securitization takes into consideration appreciation inthe value of assets whereas Asset Backed ‘Securitization takes into consideration depreciation inthe value of assets. Legal hassles are relatively less in Ascet Backed Securitization. Mortgage Backed Securitization gives low yields tothe investors ‘whereas Asset Backed Secuntization gives high yields to the mvestors. In case of Asset-Backed Securitization azcet need not exict at the time of cecurtzation but in caze of Mortgaze Backed ‘Securitization mortgage has to exist necessarly at the time of securitization. Hence (@) isthe answer. =10P> AThe maximum brokerage to be payable on a commercial paper issue fora period of} months is 0.025% of issue amount. Hence, in the precent cae, itis 0.125 ath (Scrore 0.025 ‘bMismatch FRNs also known as rolling te FRNs have semi-annual interest payments though the actual rate is fixed monthly. This enables invertors to benefit fom arbitrage ariing on account of differentials {minterest rates for different maturities. Hence, alternative (b) is answer. ceAll the following measures taken by the Central Govemment endeavors to enhance the level of ‘efficiency ofthe Indian Credit Market: © Deregulating the interest rate environment ‘© Withdrawing the Government funds asa souree of funds to Financial Institutions ‘© Pemutting offhore banking ‘© Setting prudential norms for the intermediaries. + Pemmitting access to overseas funds Hence (¢) is the correct answer. An agreement which involves a sale of security with an undertaking to buy back the same security at a ‘predetermmed future date and price is temmed as a repo whereas a reverse repo involves a purchase of becurty with on undertaking to oell the eame. Hence, (s) ia not comec. Repo transactions are generally done for short term and hence (b) is also not correct. Provident funds are not eligible to participate in the repo auctions and hence (c) is also nat correct. When RBI undertakes reverse repos, it purchases the securities with an undertaking to sell the same and thus increases the liquidity in the money market. Hence. (e)is also not corec. Ina repo transaction. the underlying security is held with the lender ofthe finds and hence a repo transaction is considered as a secured transaction whereas the borrowings ia the call money market are unsecured in nate. ‘All money market instruments though sort tena in nae ae exposed to remvestment gk ie the risk of remvesing the redeemed funds at lower rate cave of falling interest rte scenario. Hence, (Dis fot tue 1). Hence, altemative () ie Except for government securtias other securities have the probability of dafault by the borrower in the eed oa eee erie tee od ‘As money market instruments are short tem in nature the inflation rid ie considered to be minimal a2 ‘compared o long term securities. Hence, (II) is tue. Generally, interest rate risk is ata higher level in cease of money market incruments Hance (IV) is not tie Hence, alemative (b) is answer a Discounted value (DR) F~Face Valie—Rs 5,00,000 I-discount rate~ 9% N=Daysto Maturity -91 days DR= = Rs.4.89,027, <@Factonng differs from bills discounting in the following respects =10P>© Inabill discounting arangemen, he financial intermediary dos not assume the responsibilities of sales ledger administration and collection of debts, which the factor does under the factoring rangement. Hence, Tis tue The ill discounting arangement ic recouse to the clint whereas a factoring amangeneat canbe with or without recourse. Hence, II is tue alle ficorng no notice of assignment is provided tothe customer ofthe cient under the bil dzcounting arrangement. Henee, Is not tu. Hence (fis th eonet answer 6 Following are som of ight: given to PDs in Ind: TOR» ThaPDs xe permed to bomow and lend in the money market + ThePDsare having acess to Cunent and SGL accom. ThaPDs can aces: finance through REPO:. + ThePDscanraise finds tough CPs +The PDs can transfer funds fom one center to another under Reserve Bank's Remittance Faclity Scheme Hence (isthe fae statement Therefore (cis the answer n b The interest payable on premature withdrawal of public deposits is as under 10 foretian 3 montis butup toOmontis _ [IL (orethan 6 montis buuptolyear___Notexceedng 10% ove one year (12 months) sez than the ate of whic he company rold have pid the deposit ad been accepted forthe period for which the deposit had zetually Murtaza want to withdraw bis 3 year public deposit the end of 9 months fom the tie of depos Tharefore intrest payable to him by Mandal Finance Company shouldbe 10%, Hance (iz the comect mere, 18. ln the given cae, exishts price shouldbe equal oor more tan Re ie 70D [NPO+ S)/+I] shoud be more than or equal to 43, where Nis the mumber of share required to subsrbe fr | right share Le 5, PO isthe curent marke price ie 45 an S isthe Subscntion price per ght shar. 25+5 2258 $233.Under pricing of an IPO implies that pricing the share ata price less than what could have been market baad paid for that Naturally i case, an IPO 1s under priced then, the company looses the opportunity to raise more finds and also it results im lower net worth on an increased equity. At the same time if an ‘PO under priced is evaluated from the investors point of view, then the investor purchases it ata lower price and can sell t off.at a higher price. Hence, under pricing gives a higher return to the investor. ‘Hence ({) and (I) are true and (II): false. So (is the comect answer. ‘Which of i fllowingsttements sare nat tru regarding to the ‘Auction Rete Debt”? These re filyedeemsble non-convertblelng-erm debentures, secured by specific movable and immovable assets of the company. TL Theinstumetis privat placed t compete bids TL. Thareis uo dion of uy. IV. The instrument does not require credit rating @ Only Qatove () Ont) above (Both and (1) above @ O,Qai dy adove © G,Chas gator. Me Sth ithe older ofthc card isd bye Cy bank. Hei notable to make en ifentiion been charge AUS card and credit card because both give the credit to the cardholder. He is assuming that following terms and conditions are plicable his charg card Which of the flowing is wt true wi respect othe charge car? (@) Hees tomske payment tothe issuer fr 100 percent of purchase (©) Payment periods normally within 30 days of purchase () No imereis charged and there ino emanson of payment period (@ Both anmel peyment ond common is charged (@) His spending limits tims ofhis nt incomeUL, Which ofthe felling isfare true with respect tothe guidelines for stock buy-back, sued by SEBT? 1 Thecompany shall ot sue any shares including byway oFbonus share tl the date of clone of te off made ude the stock repurchase rogram. TL The company shall not witha the offer to buy-back afer th dat ene ofthe of i fed with the board The company can buyback the och in shares and non-tansferable shares by passing the resolution in bord meeing. (@) Only Q)above () Both Q)and Dabove (©) Both ()and stove (Bot (and QI) above (© AL @, Gand (i) above 12, Which ofthe following statement iste true with respect o Collateralized Mortgage Obligation (CMO)? 1. CMOs protect the investors fiom pre-payment rik TL CMOs are considered to have high lve of cet quality, because of the quality ofthe undesying collateral TL. Longer tranche CMOs are del investment forthe long tem ivestrs who want to avoid call and reinvestment rik IV. Keay amounts lf, itis stated equally tall the tranches forthe payment of principal emomn, afer peying interest to hem. (@) Both ) and (ID shove1B ua 5 16. i (©) Both) and (1) above (© Both i) and QV) above @ O,@ad tore © All), GD, (HD and qv) above. ‘Which of the following is false with respect tothe ise of debemmures? (0) Credit rating is mandatory for any debenture issue where the conversion period exceeds 18 months (b) Appoinment of SEBI registered Debenture Trustee is mandstory ifthe manrity period ofthe instrument exceeds 18 mous (©) Crattion of Debennre Redemption Reserve is mandatory ifthe manmity period of the instrument exceeds 18 months (@ Incase the:non convertible partion ofthe PCD is to be rolled over, a compulsory option isto be given to debenture holders to redeem and encash their debentures (©) Noissue of FCDs brving conversion period exceeding 18 months can be made unless couversion is ‘made optional with put and call options. ‘Which of the following is not a variable of Economic Risks for sovereign risk rating purposes? (@) Resource endowments, degee of diversification (©) Publi sector fiscal balances (©) Living standards, income and wealth distribution (@)_— Public debt and interest borden (©) Trendsin price inflation Sondhya Ltd, has been working on the development of¢ new product since lst 9 months and-now the product is ready for leunch. For this, company required Rs 20 lakh forthe inti marketing of the product. Yes bank is ready to provide the fund to the company. This kind of company financing is referred as (@) Seed Financing (&) Start-up Financing (© Fist Stage Financing (@ Mezzanine Finencinz ©) Bridge Finmcing ‘An adjustment made for offsetting the market risk 1o save the borrower or the lender ftom the transection price movements in & repo transaction, is caled (@) Baireur b) Hair (© Bairon (@ — Haradjustment @ ~~ Cenc adjusment. ‘Due to boom in the consumer finance market, Canarian bank bs entered into the consumer Suance serment. Bank bas approached the Onida Individual Credit rating Azency (ONICRA) for the assessment of individual credit rating. Which ofthe following is mot trae with respect to individual credit rating agency”? (@) __Itprovides scope to minimize risk of defeult () It determines the willingness and ability ofthe borrower to pay (©) Its relatively easy to rate individual than comporate due to availability ofthe information (@) tis easy fora borrower, to get durables orany other products om lorn installment (©) __Itis more costeffectve, ifthe agency has large databaseWe. 20. a. 2. 23. 4. (@ Triste shorter bench mark rate used in Jepanese markets (®) Tris he bench mak rate weed to price the Samurai bonds (©) Tristhelong-term prime rte used in the Swiss markets (© iste ueasury ete used in the US market (© This the long-term benchmark rate used in British markets ‘Anis Lid, has an expomt order for which it required shor term credit for 100 days. Fim wants to caver commercial and politics! isk under serice offered by Export Credit and Guarantee Corporation (ECGC). Which of the following service issuable to the =F (@) Expor Performance Guaramiee ©) Spocific Policy (© Expon Finaace Guaraatee (@_—_ Standard Policy (©)Post-shipment Export Credit Guarantee There is 2 lease apreemant berween Suraj Equipment td and Chandraj Mamnfscruing 114, where Suraj Equipment Lr. acts as a lessor snd provides the operating know-how, snd the related services to Chanda) Manufacturing Ltd and undertakes the responsibility of insuring ond maintaining the equipment. This type of laase can be defined a= (2) Hellor high water lease ® Drylewe (© Capital lease @__ Fullpoyourlesse (Werlease Arvind Industries has made an isoue of debentures of worth Re. 10 lakhs. The entire issue was underwritten and subscribed by the public. I Global consukanr Lid, has underrinen balf of the issue, the commission paysble's, @ Rs 5,000 @® — Bs10,000 © 8520.00 @_—_Bs15,000 © — R25,000. ‘Which of the following isare true with respect to mortgage Real Estate Investment Trusts (REITS)? 1 The most predominant form of mortgage lending by REITs is the constmction development lending TL Themorwage RETTs cbin capital gxins whenever there is rise in long term interest rates. TOL eis subject to defaal risk, intrest ate risk and purchasing power risk TV. The main source of income forthe mortgage REITs i the rentals ()Only @ above (@)Bosh () and GHD above (©)Both (I) and GA) above (@@, GD ana GV) above (©), CD) and) above. [US-based credit rating agency ‘FITCH has appraised the risk associated withthe ‘Bonde’ of company and opined thet there ie ‘Tmminent Default, The rating given by ‘FITCEY tthe boads is aE @ecce foc @c (Dp. ‘der bank paricipetion factoring, First Factors Limited hes azreed to factor the receivables of Standard Manufacturers Limited (SML) of Rs 500 lakhs and provide an advance of 70 percent ofthe receivables. ABC Bank has agreed to finance £0% of the factor eserves. The amount of receivable that SME ls to finance rom its own fade is (@)___Rs3501akhs (ORs. 150 lakhs | (© Bs 120 lakhs @ Bs 50lakhs (@)Rs. 30 lakhs(wns, au ums 25. Which of the following is/are not true with respect to call and notice money? L_ Both thecell money and notice money serve the general purpose of meeting reserve requirements, LL Inthe notice money matket, funds ae lent fora predetermined mauity period and in call money market here is uo such predetermined maturty period TL. The reliance ofthe banks is mostly on the call money rather than notice money, 25 it raises overnight money. TV. Maturity period for both the call and notice money markets varies fom one day to fourteen days. () Only) above @) Only above (9 Both and QV) bore OO Om Madore @ ©, Maid) ator. 26. Bharat Cements Limited (BCL) proposed to purchase an equipment costing Rs 40 lakhs inclusive of sales tax of 4 per cent. BCL is considering the alternative of leasing the equipment from Finlease Limited (FL) at annual lense rentals of Re 30 per thousand pet month The annual lave rentals payable by BCL are Rs. 1300 as () Rel4s0 as (Rs 498 kts (R523 bts @) Rslit4htis 17, Which of the following is the difference between the issue of ADR Level and ADR Level -I? (3) Complying with the US GAAP is necessary in case of ADR Level-II issue, but notrequized in case of ADRLeval (0) The minimum disclosures have to be made in case of ADR Leval-I issue, but substamtsl disclosures are8, 20. required incase of ADR Level -I (©) Fresh copita canbe raised im case of ADR Level], but not permitted in case of ADR Level-IL (@ The company is allowed to be listed in the American Stock Exchange or New York Stock exchange ia cave of ADR Level I issu, but not permitted in case of ADR Level (©) Meeting the isting requirements ofthe a particular stock exchange is nat required in case of ADR Level- TL but required in case of ADR Level 1 Expert Lod, iss lessing company, Following ae the relevant information for s lease transaction undertaken by it: eee’ Rs, 225 crores Rs, 3.25 crores Rs, 2.75 crores Bs.11.00 crores ‘The amoutdrawa as cash creit for this transaction from the bank i (6) Bs1.90 crores ( —Rs.183 crores (Q Rs153 cores (@ — RS143 crores (© ReL.35 crores, Novice Finacial Services Ltd, (NPSL) has recendy structured a lease transection involving an asset whose ir make value is Rs 140 cores and bas an useful life of 8 years. In which ofthe following situations, the lease con be classified as finence lease according FASB? 1 PV of lease payments is Bs 105 lakhs and the lease term is 5 years TL. PV oflease payments is Rs 105 Inks and the leave tem is 6 yeas. TL. PV oflense payments is Rs 126 lakhs and the lense term is 5 years. (@) Only above () Only CD) above © Both @ and () above @ Both Cand QM) above (© AN, Wand CD store Sadhan Financials Le, incorporated under the Companies Act, 1956 engazed inthe goverament securities business forthe last few yeas, is planning to apply for primary dealership business. Ir has authorized capital of Rs 50 crores ont of which Rs 25. crores was issued and poid-up. In additions to this, its balance sheet shows the following balances in various eccoumts. Free reserves account Rs 15 crores Capital reserves account Sale of assets 2Bs3.cores Revaluation ofasets Bs. crores Book value of inungible asses <5 crore Accumulated los balance 2Bs05 crore 1s Sadan Financials Lid, eligible to apply for primary deslersip business? Ge) Yes.ithas the paid up eapitl of Rs 25 crores (0) No, ithnsthe peid-up capital of ess than Rs 50 crores (©) No, ithasthe net owned funds of less than Rs 50 crores (@__ No. ithns accumulated loss balance of more then Rs 0.25 crore (@)— Yes, it has the capita reserves of more then Rs. crove asing out of revaluation of asses, rT10, Vnquoted shares are tobe valued at lower of cost or break-up value ofthe shares. So, option (i not ous. Al other cpvtons are tme with respect to the valuation of nvesmmens fae Boaus can:made out of slgble reserves such as genera reserve, share preminm collected in cash realized revaluation reserves et. Inte given case, the ene genera eserves andthe realized amount of revalotion reserves i. Rs. $ crores canbe pat of ligble eserves, Hence, 40-+5=Re45 crores are elisble reserves. 2 © Fimcaninsureits receivables agnnst credit ck. While insurance company does uot help in th collation of receivables, t sete the claims arsing on account of insured amount which have delinquent. + Theinsurance company specifies the maximum amount wil cover for accounts witha paricalar credit rating, +) Creditinsrance is sims to non-recourefictorng in so far as credit protection is concemed. * Crditinsuranceis more cos fective than nou recuse ctring forthe firms ich want proecion only seins bad debe Hence statment (7) mot tm and correct answer is (3). lua hire purchase agreement, the ite to goods is wansforred tothe hirer only when the iver exercises the option of ‘purchasing the asset or on the payment of the last installment. Hence, [is not tue. The hire agreement expressly ‘provides that the hirer has to indemnify the owner for any loss due tothe hirer’s nesligence. Hence. siafement I is te ‘Though the payment of he ire ental om the tine seeds an implied obligation ofthe hirer some occasional delays in ‘yet des not empower the owner to termine th couract Hence, sttement I is also rue, Ahir purchase transection are subject to the sles ax but are not subject to central sles ins. Hence statement IV is ls te +, LYONS is also known as zero coupon convertible not so this is a zero coupon bond, which canbe converted into common stock ofthe ise. Hence option a) i rue. The investor allows to subscribe oth equi share of suet company ony, so option (2) i wot mus. Other option (c), (@) an) ae tue with respect to LYNOS, Hence correct answers (0). A preliminary regsnationstarement that musth fied with the SEBI describing new issue of stock (PO) andthe prospects of the issuing company is cll Rad erring prospec, Hence, lterative (is answer aq PDs have mn important role to play ia the development of secondary market forthe Goverament Securities. All ober statment are comect for PDS. ence (isthe comect answer lfthe company doesnot receive at east 90% ofthe ised amount including accepeddevolvement fom underwriter, if + sy, within 42 days fom the date of closing ofthe issue the amount of subscription received is required tobe refinded IE there is any delay inthe refund of amount collected by more than 8 days, the company and directors ofthe company stall be jointly and severally able to repay the amount due by way of ref with interest 15% pa. forthe delayed ‘period. Since closing date of its issue is 28% Janusry 2008, it completed 42 days by March 10% 2008, Since Suntech Lic. refunded amount om 31* March 2008, the delayed period was 21 days, for which it was required to pay the amount cue by way of refund with interest) 154ap a. for days. Hence, comect answer is (0), Auction rated debt ae fully redeemuble noo-converble shor tem debennres, secured by specific movable and ‘movable assets of the company. Tare tuo duo of equiy. The insmumen is privately placed at competitive bis. Ii does not require credit rating as the tenure is less than 18 months. Therefore (b), (c),(@) and (e) are true andthe answer i (a) ‘The cardholder needs to make payment tothe issuer for 100 percent of purchase payment period nomually within 30 days of purchase ‘No interests charged and there is no extension of payment period. Both annul payment and commission is charged ei. nh Le u ts + Bodh ammel payment and commision is charged These so spending Kimi in cave of large card In cae of cet cad, spending limit pen 0 the copdivotiness usual 5 tines ofthe et ncome of mia. So this option is ot ue Hence conect answer is (6). The compony shall mot buy-back the locked-in shares and non-ranseabe shares the shares become transebl os per SEB uiele. Al ober statements ae conect. Hence (b) i the comet answer a * CMOs protect the investrs fom repayment risk ‘+ CAOs reconsidered to have igh evel of cet quay, because ofthe quality ofthe underlying collateral Longer vache CMO re ideal investment forthe Long tem investors who want avoid call and reteset rk ‘fer paying interes oll the ences, fsny amount ef is sed for the py of ppl amount only ‘one tranche at a me. Hence comect nsw i (0) ¢—_Creditrtngs mandy for any debeane tise wie te coaveion ped enceds 18 mous Appointment of SEB reistredDebente Trustee is mando if th matty period of he intent exceeds 18 nas Caton of Debenue Redemption Reserve is mandatory if the matty period of he inset exceeds 18 months Incase te non convert portion of the PCD sto be rl ove, compulsory option is tobe given mo debeare olde to redeem and ecash thei debentures ‘Nossu of FCDs having conversion prod exceeding 36 moms unless conversion i made optional wit put and call options Hence eis the comect answer. Hllowing arte variables of Economic Risks for soverein ris rating purposes: Resource endowments, degre of divensication Public sector fiscal balances Public debt end meet burden ¢ Trends in price ination. Living standards, come and wealth tibia i vara of Police! Risk for sovereign is ang purposes. Hence (0s the corect ansvat. peed Fincng sa eavely smal mont of capil provided to en eaverener for prod development and market research aswel as Uiiing of management team and developing a buns: plan. Star-apFincng is povided to companies completing prac development nd intl makeing. These companies ay bein busines fo a year or ls ut may bave not sold thr produc commercial. Fist stage Fnmcing provided to companies hat have expected hein opt nd regu fund to int ful sale namficming nd sles, Mezzanine Financing is provide for major expnsion ofa company when sles volume is incesing and that is wofinble Bridge Fencing s needed at times when compeny plas to go public within six moths toa yea. 4g g16. n 8. ws. 20. a. 2. 23. u. 26. Heace conect opin is). The harcuis an adjustment made for offsetting the market risk to save the borrower or the lender for transaction price movements in repo taasecioa lence (a) isthe correct answer. tis relatively eny to ate corporate because of evailablty of audited balance sheet, market data about suppliers and customers, the inusty scenario andthe quality of management. So option (isnot tre, ber options ae true wit respect othe individual credit rating agency. Hence comect sw is (©). Geass rates the short-term bench mark rate used in Japanese markets a Standard Policy i designed to cover ssks with respect to goods which are exported on shor-enm cet uo exceeding 180 days, Tae standard policy covers to types of risk namely, commercial risk and political rsk. So, he correct xaswer 8. _ Ina operating lease, the lessor usally provide the operating know-how, suppliers, and related services snd also ‘undertakes the responsibility of inuring and mainsning the equipment such operating lease is called as ‘wet ene’ ‘When in a operating lease lessee bea the cost of insuring and mainsning the equipment then such less is called as “dy last, Other options are types of fiancial ease where ese is responsible for epi, maintenance and insurance of te equipment. Hence, option (2) is amswe. The underiting commission incase of debentures exceeding Rs 5 las is 1% on the amounts subscribed by public snd 26 incase of amounts devolved onthe underwriter. Inthe given case asthe entre amounts uderwriten and subscribed by the publi, the underwriting commission payable to OVZ nd is 1% of lf of Rs. 10 Laks =Rs 5000. ‘> + Themostpredominant form of mortzage lending by REITs the constuction development ending, So, statement (is tue ¢Themorzage REITs obtain copitl nins whenever long term interest rte op So, satement (fs note + Teéssubjectn defi risk, terest rate sk and purchasing power ris, So, statement (i tue © Taemain source of income forthe mortgage REIT are the interest enrnd on mortgages, commitment fees, ‘commission eared on mortgage purchases. The main source of iacome forthe equity REITS isthe ret. So, statement (1) snot ue Hence comect ansreris Fitch Ratings to bonds ae follows: FHiehest safety aR High stay a (eam ans Low Mea EEE 5B B alae High spective Posntiiny of Detukaerdear [CCC] Higher Possibility of Detaut ec Hinear Default Ee fal Hace comctansweris @- Under bank parcipaing factoring, a bank comributes to the part of factor reserves, Inthe given case, Amount of receivables Factor reserves Bask partopaion Bence, own funds required Bosh call an noice money represnt borrowings made fora period of one day up to afrmight. However, thee exist 2 ference inthe mechanism adopted fr lending funds between the cll nd the noice money makes. In the call money ssarkt fds a lent for predeernned muminty period tht can rags from single day ta feraieht. However, with ‘identical ranze for marurity period, the funds lent in the notice money market do not have specified repayment date ‘when the de is entred Ts lender wl simpy sus a nonce tothe borrower 2-3 day: before the fd ae tbe repaid, On receipt ofthis aotice the borower wall ave fo repay te fins within he given time, While bot thse funds ‘serve the general purpose of meeting reserve requirements, the reliance of the baaks, however, is mostly ou the call voney musket. Is bere hit uses ovemight money Le. fds fr single dy. Since statements (), (HD) and (QV) are ‘true and (0) is false, alterastive (a) is answer.4 Ashe lensing company i not iil forthe concessional sales tu, the sls tx ate aplcble to he esos LOM and: ence the cos of ie ast to te lasing company wil be = My LI/(LO8)=Rs 42308 ks The snl lee rentals poyble by Bharat cements Limited ae = 008 12x42 300=Rs 15.23 as Complying with the US GAD isnot necessary incase of bth he issues. i The minimum estos have tobe mae incase of ADR Level Tisue, but substantial iscosmes re eguied incase of ADRLevel-I1 Fresh capital cannot be ised incase ofboth theses. The company is allowed tobe listed in he American Stack Exchange or New Yok Sock exchange incase of ADR Level ise, bu uot permed in case of ADR Level ‘Meeting the listing requirements ofthe particular stock exchange is not required in case of ADR Lavel-1 bur required. incase of ADR Level Since, stemative (fis tue snd answer Ap rseLRS) LRM] C 20.15* 225/325 * 275 =RlGa Hence (d) 5 the comect answer. According to FASB, lease transaction is classified as a finance lease if one ofthe condition stated below is fled i Lease term exceeds 754 of the weft life of the asset or 1 Present value of lease payments exceeds 90% of the fair market value of the asset. ‘As stement (0) satis he contin (i and statement (1) satisfies condition (i) and sntement() does not satisfy ‘gy, statements (11) and (ZT) can be classified as finance leases and the answer is (d). To decide the eligibility criteria, its net owned fimds should be computed. Not Owned Funds: Paid up capital + Fre eserves + Capital reserves arising out ofsale of assets ~ Book vale of intangibles ~ Accumulated Joss balance Recue+ Rel cme+Bs 3 coe-Rs] cow -Rs 5 qme= Bel 5 coe ‘The minimum emioumt of net owned funds required for applying for primary dealership business is Rs 50 crore. Hence, Sadan Financial Ltd is not eligible Section B ; Problems Taane and advenrae