Total of 50 questions

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Finance

Finance Part 1 Completed

Finance Part 2 Completed

Finance Part 3 Completed

Finance Part 4 Completed

Finance Part 5
Today
 Q.1

Identify the type of bond which are speculative in nature. They have low credit rating and have high yields.
They have high coupon rate. They may give good returns, but they are highly risky, and company might go
bankrupt, and person may not get back the Principal itself.

A. fixed-rate bonds
B. Floating rate debt instruments
C. Green bonds
D. Zero coupon
E. Junk Bonds
Answer: Option E

Bond issuers may choose from a variety of types of coupons, or interest payments.

1. Straight, plain vanilla or fixed-rate bonds pay an absolute coupon rate over a specified period of time. Upon maturity, the last coupon
payment is made along with the par value of the bond.

2. Floating rate debt instruments or floaters pay a coupon rate that varies according to the movement of the underlying benchmark. For
example, if the coupon rate is floating as per Mumbai Inter Bank Offer Rate (MIBOR) then as the MIBOR changes coupon rate will also
change

3. Inverse floaters pay a variable coupon rate that changes in direction opposite to that of short-term interest rates. An inverse floater
subtracts the benchmark from a set coupon rate. For example, an inverse floater that uses MIBOR as the underlying benchmark might
pay coupon rate = (6% - MIBOR). As and when MIBOR increases the coupon rate of this type of bond decreases and vice versa

4. Zero coupon or accrual bonds do not pay a coupon. Instead, these types of bonds are issued at a deep discount and pay the full-face
value at maturity.

5. Junk Bonds: Junk Bonds are the ones which are speculative in nature. They have low credit rating and have high yields. They have high
coupon rate. They may give good returns, but they are highly risky, and company might go bankrupt, and person may not get back the
Principal itself
 Q.2

The SEBI introduced the concept of anchor investor on June 18, 2009, to enhance issuer’s ability to sell the
issue, generate more confidence in the minds of retail investors and better price discovery in the issue
process. The minimum application value for an investor to be an anchor investor is _____________.

A. 15 Crore
B. 25 Crore
C. 35 Crore
D. 45 Crore
E. None of the above
Answer: Option E
• The SEBI introduced the concept of anchor investor on June 18, 2009, to enhance issuer’s ability to sell the issue, generate more
confidence in the minds of retail investors and better price discovery in the issue process.
• The anchor investor would be a qualified institutional buyer (QIB) and an issuer can allot up to 60 per cent of the Quota for QIBs. The
anchor investor/s cannot be related to the promoter or promoter group or the lead managers.
• The anchor investor subscribes to the issue prior to its public opening, pay an upfront margin of 25% and follows it up with the
remaining 75% within 2 days of the closure of public issue. The minimum application value for an investor to be an anchor investor is 10
crores.
• Hence, option E is the correct answer.
 Q.3

Identify the special type of ATM’s wherein RBI reviewed the extant policy on ATMs and it was decided to
permit non-banks to set up, own and operate ATMs to accelerate the growth and penetration of ATMs in the
country

A. Brown Label ATMs

B. Pink Label ATMS
C. White Label ATMs
D. Green Label ATMS
E. None of the above
Answer: Option C

White Label ATM’s: Another major technological development, which has revolutionized the delivery channel in the
banking sector, has been the growth of Automated Teller Machines (ATMs).

The banking space has seen considerable growth through the ATMs, but the same had been restricted principally to the
urban/metro areas.

In the above context, RBI reviewed the extant policy on ATMs and it was decided to permit non-banks to set up, own and
operate ATMs to accelerate the growth and penetration of ATMs in the country. Such ATMs will be in the nature of White
Label ATMs (WLA) and would provide ATM services to customers of all banks.

Non-bank entities proposing to set up WLAs have to make an application to RBI for seeking authorization under the
Payment and Settlement Systems Act 2007
 Q.4

SHGs linkage with the bank is most popular model of microfinance. This programme was launched by NABARD with the
support of the RBI. The programme initially aimed at promoting and financing 500 SHGs across the country. This
programme was launched in which year ?

A. 1997
B. 1992
C. 1993
D. 1994
E. 1995
Answer: Option B

SHGs linkage programme was launched by NABARD in February 1992 with the support of the RBI. The programme initially
aimed at promoting and financing 500 SHGs across the country.

Under this, small groups of the poor were encouraged to pool their savings regularly and from this pool, small interest-
bearing loans were made to members. Subsequently, bank credit was made available to the group to augment its
resources for lending to its members.
 Q.5

Read the following statements and then select the right code from below

Statement A – Forwards are standardized contracts

Statement B – Future are customized contracts
Statement C – The counter party risk in futures is less than the forward contract

A. Only statement A is correct

B. Only statement B is correct
C. Only statement C is correct
D. Only statement A and B are correct
E. Only Statement A and C are correct
Answer: Option C
 Q.6

Futures are derivative products whose value depends largely on the price of the underlying asset. However, the pricing is
not that direct. One such model for calculating the prices of futures is cost of carry model, in the same regard, future
price can be expressed by a formula, wherein Future Price = Spot Price + ___”X”____ - ____”Y”_____

Identify X and Y from the given below options

A. X – Cost of sales and Y – Return Expected

B. X – Cost of carry and Y – Dividend
C. X – Cost of sales and Y – loss Expected
D. X – Cost of carry and Y – Return Expected
E. None of the above
 Answer: Option D

Cost of Carry Model (Cash and Carry Model)

FP = Spot Price + Cost of Carry – Return Expected

The price of a futures contract (FP) will be equal to the spot price (S) plus the cost incurred in carrying the asset till the
maturity date of the futures contract minus the return expected on the asset
Here Carry Cost refers to the cost of holding the asset till the futures contract matures. This could include storage cost,
interest paid to acquire and hold the asset, financing costs etc.

Carry Return refers to any income derived from the asset while holding it like dividends, bonuses.
 Q.7

Under Basel 2 framework, the Basel committee introduced how many pillars ?

A. One
B. Two
C. Four​
D. Five
E. None of the above
Answer: Option E

The Basel committee, under Basel 2 framework, introduced three pillars

Pillar 1 - Minimum capital requirements - The minimum capital ratio remains the same i.e., 8%

Pillar 2 - Supervisory review process - Banks’ internal assessments of their overall risks was done. To
ensure that bank management is exercising sound judgment and had set aside adequate capital for these
risks.

Pillar 3 - Market discipline - This pillar is about effective management such as degree of transparency in
banks’ public reporting. Thus, adequate disclosure of information to public in timely manner
 Q.8

The National Housing Policy, 1988 envisaged the setting up of NHB as the Apex level institution for housing. In pursuance
of the above, NHB was set up on July 9, 1988 under the National Housing Bank Act, 1987. In the same regard, The
Committee of Secretaries considered’ the recommendation and set up the High-Level Group under the Chairmanship of
__________________?

A. N.S. Viswanathan Committee

B. Bimal Jalan Committee
C. Urjit Patel Committee
D. Rangarajan Committee
E. None of the above
Answer: Option D
 Q.9

Read the following statements and then select the incorrect statement from below

A. Debt holders are not the owners of the company

B. Interest payment on the debt capital is an obligation for the company
C. Debt Capital leads to dilution of control of business
D. In even of winding up, debt capital will be paid before equity share capital requirement
E. None of the above
Answer: Option C

Making a Choice between Debt and Equity Capital

The implications of raising equity or debt capital are evaluated by a business before the decision is made. The following are the key factors
to consider

1. Ability to pay periodic interest: If a business generates stable profit, such that it is able to pay interest on a regular basis then in such
cases, the businesses can consider raising debt capital. Banks fund most of their loans with deposits, which are borrowed funds.

2. Willingness to dilute the Ownership of the Company: Equity capital represents ownership and confers voting rights to holders. Raising
fresh equity capital reduces the proportion of the business holding and therefore the profits that accrue to the existing equity holders.

3. Time period for which Capital is required: If capital is required to tide over short-term capital requirements, a firm may choose debt
capital for such needs. It is common for businesses to borrow from banks or issue debt instruments to fund working capital. If there is a
long-term need and if debt investors are unwilling to take the risk, a firm issues equity capital
 Q.10

Identify the system which has been introduced by the RBI and its an anonymous screen-based order
matching module. It is an order driven electronic system, where the participants can trade anonymously by
placing their orders on the system or accepting the orders already placed by other participants.

A. Over the Counter (OTC) Market

B. NDS-OM
C. Retail Direct
D. Purchase Direct
E. E-kuber
Answer: Option B

Negotiated Dealing System-Order Matching (NDS-OM)

NDS OM: In August 2005, RBI introduced an anonymous screen-based order matching module called NDS-OM. This is an
order driven electronic system, where the participants can trade anonymously by placing their orders on the system or
accepting the orders already placed by other participants. Anonymity ensures a level playing field for various categories of
participants.

NDS-OM is operated by the CCIL on behalf of the RBI. Direct access to the NDS-OM system is currently available only to
select financial institutions like Commercial Banks, Primary Dealers, Insurance companies, professionally managed and
financially sound UCBs and NBFCs, etc. Other participants can access this system through their custodians i.e. with whom
they maintain Gilt Accounts. The custodians place the orders on behalf of their customers. The advantages of NDS-OM are
price transparency and better price discovery.
Your score?