Semester End Examination June 2014

Master of Financial Management

Ques : 1
Option A
Option B
Option C
Option D
Ques : 2

Financial Services (AMF 203)

The market where new securities are bought and sold for the first time is known as a
__________ market.
primary
secondary
tertiary
capital

Option A
Option B
Option C
Option D

A market for existing (used) securities, such as the NYSE or AMEX, rather than new issues is
known as the __________ market.
primary
secondary
tertiary
capital

Ques : 3
Option A
Option B
Option C
Option D

A primary market would be utilized when:

investors buy or sell existing securities.
shares of common stock are exchanged.
securities are initially issued.
a commission must be paid on the transaction.

Ques : 4
Option A
Option B
Option C
Option D

The primary distinction between securities sold in the primary and secondary markets is the:
riskiness of the securities.
price of the securities.
previous issuance of the securities.
profitability of the issuing corporation.

Ques : 5
Option A
Option B
Option C
Option D

Primary markets can be distinguished from secondary markets in that primary markets sell:
lower valued shares.
previously unsold shares.
only the shares of large firms.
shares with greater profit potential.

Ques : 6

Which of the following financial assets might be least likely to have an active secondary
market?
Common stock of a large firm

Option A
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Option B
Option C
Option D

Bank loans made to smaller firms

Bonds of a major, multinational corporation
Debt issued by the United States Treasury

Ques : 7
Option A
Option B
Option C
Option D

Which of the following are primary markets?

The New York Stock Exchange
The U.S. government bond market
The options markets
None of the above

Ques : 8
Option A
Option B
Option C
Option D

Which of the following are secondary markets?

The New York Stock Exchange
The U.S. government bond market
The options markets
All of the above

Ques : 9
Option A
Option B
Option C
Option D

Which is a credit rating agency in India ?

CRISIL
ICRA
CARE
All of the above

Ques : 10
Option A
Option B
Option C
Option D

Credit rating helps in measuring the credit risk and facilitates?

Considering higher credit limits
Making loan provisioning at an early stage
Accurately calculate the probable loan losses
Pricing of a loan

Ques : 11

When a non-profit organization, like a university, purchases copying paper for its
photocopying machines, what is it purchasing?
A consumer good.
A consumer service.
An industrial good.
An industrial service.

Option A
Option B
Option C
Option D
Ques : 12
Option A
Option B
Option C
AMF 203

In addition to being provided with physical objects, peoples needs may be satisfied in a less
tangible form through:
differential forms.
products.
goods.
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Option D

services.

Ques : 13
Option A
Option B
Option C
Option D

__________ lease is a lease where the lessee maintains and insures the leased asset rather
than the lessor in a full-service lease.
A financial
An operating
A net
None of the above answers are correct.

Ques : 14
Option A
Option B
Option C
Option D

One difference between a financial lease and operating lease is that:

there is a often a call option in a financial lease.
there is often an option to buy in an operating lease.
an operating lease is often cancellable by the lessee.
a financial lease is often cancellable by the lessee.

Ques : 15
Option A
Option B
Option C

The principal reason for the existence of leasing is that:

intermediate-term loans are difficult to obtain.
this is a type of financing unaffected by changes in tax law.
companies, financial institutions, and individuals derive different benefits from owning
assets.
leasing is a renewable source of intermediate-term funds.

Option D
Ques : 16
Option A

Option C
Option D

A way to analyze whether debt or lease financing would be preferable is to:

compare the net present values under each alternative, using the cost of capital as the
discount rate.
compare the net present values under each alternative, using the after-tax cost of borrowing
as the discount rate.
compare the payback periods for each alternative.
compare the effective interest costs involved for each alternative.

Ques : 17
Option A
Option B
Option C
Option D

The type of lease that includes a third party, a lender, is called a(n):
sale and leaseback.
direct leasing arrangement.
leveraged lease.
operating lease.

Ques : 18
Option A
Option B
Option C
Option D

A direct lease, a sale and leaseback, and a leveraged lease are all examples of
operating leases.
financial leases.
full-service leases.
"off-balance sheet" methods of financing.

Option B

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Ques : 19
Option A
Option B
Option C
Option D

A company which pools money from investors and invests in stocks, bonds, shares is called
a bank
an insurance company
bancassurance
mutual fund

Ques : 20
Option A
Option B
Option C
Option D

Closed-end funds have lower cash requirements than open-end funds because:
open-end funds allow investors to redeem their shares at any time.
closed-end funds have limited lifetimes.
open-end funds tend to invest in less liquid assets.
open-end funds pay more taxes than closed-end funds.

Ques : 21
Option A
Option B
Option C
Option D

Which type of fund invests in debt securities with very short maturities?
Money market mutual fund.
Certified fund.
Growth fund.
Bond fund.

Ques : 22
Option A
Option B
Option C
Option D

Most mutual funds are members of a group of mutual funds known as:
an investment trusts.
dual purpose funds.
a money market funds.
a family of funds.

Ques : 23
Option A
Option B
Option C
Option D

Shares of closed-end funds often sell:

exactly at the net asset value.
at a premium to the net asset value.
at a discount to the net asset value.
at the net asset value, plus a load fee.

Ques : 24
Option A
Option B
Option C
Option D

Which type of fund is most likely to have the lowest management fee?
Equity growth fund.
Index fund.
Bond fund.
Equity income fund.

Ques : 25

______ fund managers try to replicate the performance of a benchmark index, by replicating
the weights of its constituent stocks.
Active

Option A
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Option B
Option C
Option D

Passive
Aggressive
Neutral

Ques : 26
Option A
Option B
Option C
Option D

Which of the following is not true regarding money market funds?

They charge no sales charge, redemption fee or management fee.
Their maximum average maturity is 90 days.
Normally, there are no capital gains or losses on their shares.
All of the above are true.

Ques : 27
Option A
Option B
Option C
Option D

If a mutual fund holds a substantial amount of Treasury bills, this is probably a(an):
tax-exempt fund.
conservative bond fund.
income fund
money market mutual fund.

Ques : 28
Option A
Option B
Option C
Option D

Each investment company is run by an _______.

asset deployment company
revenue management company
asset management company
asset reconstruction company

Ques : 29
Option A
Option B
Option C
Option D

The NAV of a mutual fund:

is always constant
keeps going up at a steady rate
fluctuates with market price movements
cannot go down at all

Ques : 30
Option A
Option B
Option C
Option D

The act of buying an asset without having to make full payment in the immediate future is
known as:
Finance lease
Hire purchase
Operating lease
Sale and leaseback

Ques : 31
Option A
Option B
Option C
Option D

Which of the following is a disadvantage of going public issue?

Provides liquidity to existing shares
Commands better pricing than placement with few investors
Increased regulatory norms
Enables valuation of the company

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Ques : 32
Option A
Option B
Option C
Option D

Which of the following would not make a distinction between a hire purchase and a normal
purchase?
Cost to buyer is likely to be higher than it would be for a normal purchase
Purchaser pays for item by instalments over a period of time
Asset does not belong to purchaser when delivery is received from supplier
Trade discounts cannot be offered on hire purchase

Ques : 33
Option A
Option B
Option C
Option D

Corporate financing comes ultimately from:

savings by households and foreign investors.
cash generated from the firm's operations.
the financial markets and intermediaries.
the issue of shares in the firm.

Ques : 34
Option A
Option B
Option C
Option D

Which of the following is not a type of financial lease arrangement?

Sale and leaseback
Indirect leasing
Leveraged leasing
All of the above answers are types of financial lease arrangements

Ques : 35
Option A
Option B
Option C
Option D

__________ lease is a long-term lease that is not cancelable and its life often matches the
useful life of the asset.
A financial
An operating
A net
None of the answers are correct.

Ques : 36
Option A
Option B
Option C
Option D

The consumer credit process includes the following EXCEPT:

credit origination.
credit post mortem review.
credit verification.
loan collection and recovery.

Ques : 37
Option A
Option B
Option C
Option D

Which of the following is NOT an irregularity in a consumer loan application?

Credit history is less than 3 months old.
Overly aggressive and persistent applicant.
Warning indicators on credit reports.
All references are closed accounts.

Ques : 38

Corporate debt instruments are most commonly traded:

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Option A
Option B
Option C
Option D

on the NYSE.
on NASDAQ.
in the money market.
in the over-the-counter market.

Ques : 39
Option A
Option B
Option C
Option D

Short-term financing decisions commonly occur in the:

primary markets.
secondary markets.
capital markets.
money markets.

Ques : 40
Option A
Option B
Option C
Option D

Long-term financing decisions commonly occur in the:

primary markets.
secondary markets.
capital markets.
money markets.

Ques : 41
Option A
Option B
Option C
Option D

You can buy silver in the:

capital markets.
foreign-exchange markets.
commodities markets.
option markets.

Ques : 42
Option A
Option B
Option C
Option D

A financial intermediary provides financing for:

individuals.
companies.
other organizations.
All of these.

Ques : 43
Option A
Option B
Option C
Option D

Equity financing (or funding) means:

exchanging partial ownership in a firm, usually in the form of stock, for funding
getting a grant or outright gift
getting a loan
getting a lease

Ques : 44
Option A
Option B
Option C
Option D

Which of the following is not a source of equity funding?

angel investors
initial public offering
commercial banks
venture capital

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Ques : 45
Option A
Option B
Option C
Option D

Why are securitized loans often issued through a special purpose entity?
Because the securitized loans often add risk to the bank and need to be held separately
Because the securitized loans are not profitable for the bank and need to be held separately
Because the special purpose entity might fail and this prevents the failure of the bank
Because the bank might fail and this protects the credit status of the securitized loans

Ques : 46
Option A
Option B
Option C
Option D

Which of the following is not a service provided by factoring companies?

The provision of finance
Credit insurance
Sales ledger administration
Bond issuance facilities

Ques : 47
Option A

The major difference between hire purchase (HP) and leasing is:
With HP, the user of the equipment generally owns it eventually after a set number of
payments, whereas with leasing the user never owns the equipment
In HP the payments are made annually, whereas with leasing monthly payments are more
common
The effective rate is much higher on HP than on leasing
HP is easy to arrange at point of sale, whereas leasing involves a prolonged legal process

Option B
Option C
Option D
Ques : 48
Option A
Option B
Option C
Option D
Ques : 49
Option A
Option B
Option C
Option D
Ques : 50
Option A
Option B
AMF 203

Once a venture capitalist makes an investment in a firm, subsequent investments are made in
rounds and are referred to as:
later funding
subsequent backing
ensuing backing
follow-on funding
In regard to the stages (or rounds) of venture capital funding, the stage of funding that occurs
when the firm has stated commercial production and sales but requires additional financing
to ramp up its production is called:
seed funding
second-stage funding
first-stage funding
mezzanine financing
In regard to the stages (or rounds) of venture capital funding, funding made in a firm to
provide for further expansion or to bridge its financing needs before a public offering of stock
or before a buyout is referred to as:
second-state funding
first-state funding
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Option C
Option D

seed funding
mezzanine financing

Ques : 51

AusAmer is an exporter who has sold outright their accounts receivable to another
institution. This is an example of __________.
export factoring
forfaiting
striding
countertrade

Option A
Option B
Option C
Option D
Ques : 52
Option A
Option B
Option C
Option D
Ques : 53

Angel investors, private placement, venture capital, and initial public offerings are the most
common sources of:
equity funding
debt financing
guaranteed loans
grants and outright gifts

Option A
Option B
Option C
Option D

__________ is/are money that is invested by venture-capital firms in start-ups and small
businesses with exceptional growth potential.
At-risk capital
Institutional capital
Venture capital
Angel dollars

Ques : 54
Option A
Option B
Option C
Option D

Loan securitizations have occurred for:

automobile loans
credit card receivables
mortgage loans
all of the above

Ques : 55
Option A
Option B
Option C
Option D

Securitized assets carry a unique form of risk called:

Default risk
Inflation risk
Interest-rate risk
Prepayment risk

Ques : 56
Option A
Option B
Option C
Option D

Securitization had its origin in the selling of securities backed by _____________

Credit card receivables
Residential mortgage loans
Computer leases
Automobile loans

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Ques : 57
Option A
Option B
Option C
Option D
Ques : 58
Option A
Option B
Option C
Option D
Ques : 59
Option A
Option B
Option C
Option D
Ques : 60

The difference in interest rates between securitized loans themselves and the securities
issued against the loans is referred to as:
The funding gap
Residual income.
Service returns
Security income
A securitized asset where the asset used to back the securities is a loan based on the residual
value of a homeowner's residence is called:
A mortgage backed security
A credit card backed security
An automobile backed security
A home equity loan backed security
Loans that are to be securitized pass to ____________________.
This helps
ensure that if the lender goes bankrupt it does not affect the credit status of the pooled
loans.
The originator
The special purpose entity
The trustee
The servicer

Option A
Option B
Option C
Option D

When an issuer of securitized loans divides them into different risk classes or tranches, they
are providing an:
Internal credit enhancement
External credit enhancement
Internal liquidity enhancement
External liquidity enhancement

Ques : 61
Option A
Option B
Option C
Option D

Who of the following is not a party to the IPO?

Registrar of Issue
Investment Banker
Advertisement Agency
Registrar of Companies

Ques : 62
Option A
Option B
Option C
Option D

Every financial market performs the following function:

It determines the level of interest rates.
It allows common stock to be traded.
It allows loans to be made.
It channels funds from lenders-savers to borrowers-spenders.

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Ques : 63
Option A
Option B
Option C
Option D

A country whose financial markets function poorly is likely to

efficiently allocate its capital resources.
enjoy high productivity.
experience economic hardship and financial crises.
increase its standard of living.

Ques : 64
Option A
Option B

Which one of the following most accurately describes factoring as a source of finance?
A factor buys invoices not yet settled by customers at a discount on their face value
A factor sells a financial security to the firm needing funds. The firm can then use this to
obtain finance from banks
A factor lends money to a firm on the security of its fixed assets. It charges fees and interest
A factor will give an advanced payment on the security of outstanding invoices. When the
invoices are paid the factor provides the company with the amount of the invoice not
advanced, less fees and interest

Option C
Option D

Ques : 65
Option A
Option B
Option C
Option D

Which one of the following is not a feature or characteristic of hire purchase?

The hirer can use the asset immediately (or within a few days) of agreement
Regular interest and capital payments (e.g. monthly) are made by the user to the hire
purchase company
A small initial outlay (deposit) is required
The user of the asset never becomes the owner

Ques : 66
Option A
Option B
Option C
Option D

Which of the following is not an advantage of hire purchase?

Hire purchase is easy to arrange
Hire purchase usually represents a fixed rate form of finance
Hire purchase agreements can be cancelled at short notice with no penalty
Hire purchase is often available when other sources of finance are not

Ques : 67
Option A
Option B
Option C
Option D

Which of the following resources cannot be securitized?

Credit balances outstanding in cash credit accounts
Credit Card receivables
Hire purchase receivable
Mortgage in lieu of future payments

Ques : 68

The advantage of consortium finance is? i. Speedy transactions and individual approach. ii.
Involvement of huge amounts. iii. Use of expertise of all the banks
(i) only
(ii) only
(iii) only
(i), (ii) and (iii)

Option A
Option B
Option C
Option D
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Ques : 69
Option A
Option B
Option C
Option D

Which of the following is not a function of the agent bank in loan syndication?
Ensuring the compliance of conditions precedent under the loan agreement
Determining the LIBOR interest rate for each interest rate
Planning for future syndication of loans
Receiving notices relating to cancellation of any part of the loan

Ques : 70

Which of the following is a function of the agent bank relating to flow of money in the
process of loan syndication?
Receiving notices relating to cancellation of any part of the loan
Calling of loans in the event of default
Receiving the fee from the borrower and distributing among the participating banks
Receiving notices relating to transfers of banks

Option A
Option B
Option C
Option D
Ques : 71
Option A
Option B
Option C
Option D
Ques : 72
Option A
Option B
Option C
Option D
Ques : 73
Option A
Option B
Option C
Option D
Ques : 74
Option A
AMF 203

In _____________, a merchant bank is a financial institution primarily engaged in offering

financial services and advice to corporations and to wealthy individuals.
Offshore bank
Investment banking
Commercial bank
Bank
At the time of public issue each company enters into a memorandum of understanding with
its________
Auditors
Directors
Merchant Bankers
SEBI
Which one of the following is an exception to the rule that an exempt agreement is not
regulated by the Consumer Credit Act?
Where the court has the power to reopen an exempt consumer credit agreement in the
event that it gives rise to an unfair relationship between the creditor and the debtor.
Where the court has the power to reopen an exempt consumer credit agreement where one
of the parties is a minor.
Where the court has the power to reopen an exempt consumer credit agreement where the
creditor misrepresented the true rate of interest.
Where the court has the power to reopen an exempt consumer credit agreement where the
creditor and the debtor have been advised by the same solicitor.
Those who buy goods and services for resale, as inputs to production of other goods or
services, or for use in the day-to-day operations of the organization are:
intermediaries.
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Option B
Option C
Option D

ultimate consumers.
organizational customers.
utilitarian consumers.

Ques : 75
Option A
Option B
Option C
Option D

Which of the following are securities?

A certificate of deposit
A share of Texaco common stock
A Treasury bill
All of the above

Ques : 76
Option A
Option B
Option C
Option D

Intermediaries who are agents of investors and match buyers with sellers of securities are
called
investment bankers.
traders.
brokers.
dealers.

Ques : 77
Option A
Option B
Option C
Option D

Which of the following is NOT a credit rating agency?

Credit Analysis & Research Ltd (CARE)
Lintas India Pvt Ltd
Moody's Investors Service
Standard and Poor

Ques : 78
Option A
Option B
Option C
Option D

Which one ( mentioned ) is not a credit rating agency . Response:

CRISIL
CRY
FITCH
MOODY'S

Ques : 79
Option A
Option B
Option C
Option D

Venture-capital firms are __________ of money managers who raise money in funds to
invest in start-ups and growing firms.
corporations
formal associations
loose collections
limited partnerships

Ques : 80
Option A
Option B
Option C

Which of the following is not a phase/step in the formation of loan syndication?

Finalization of supply agreement
Identify the needs of the borrower
Preparation of information memorandum

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Option D

Invite other banks to participate

SECTION B : CASE STUDY

Your job is to market the financial services. As a financial advisor, you have been approached by
a client called Joseph, who wants some help in investment related matters. Joseph is currently 45
years old and has Rs. 600000 in the bank. He plans to work for 15 more years and retire at the
age of 60. Josephs present salary is Rs. 400,000 per year. He expects his salary to increase at the
rate of 12 % per year until his retirement. Joseph has decided to invest his bank balance and
future savings in a portfolio. You receive compensation for giving advice on investing in stocks,
bonds, mutual funds, or exchange traded funds etc. You also manage portfolios of securities. You
assess every aspect of client's financial lifeincluding saving, investments, insurance, taxes,
retirement, and estate planningit help you develop a detailed strategy or financial plan for
meeting all client financial goals. Joseph believes that bonds would provide a return of 7% and
stocks a return of 13 %. You concur with his assessment. Once Joseph retires at the age of 60 he
would like to withdraw Rs. 500,000 per year from his investments for the following 15 years as
he expects to live up to the age of 75 years. He also wants to bequeath Rs. 1,000,000 to his
children at the end of his life. How would you market him the financial services keeping him
satisfied?
Ques : 81
Option A
Option B
Option C
Option D

As per the case, a client Joseph approached you because you are a(an):
chartered accountant
financial advisor
doctor
lawyer

Ques : 82
Option A
Option B
Option C
Option D

What is the current age of Joseph?

45 years
60 years
55 years
40 years

Ques : 83
Option A
Option B
Option C
Option D

Joseph's present salary is ______________per year.

Rs. 6,00,000
Rs. 4,00,000
Rs. 3,000,00
Rs. 5,00,000

Ques : 84
Option A
Option B
Option C

What is the age at which Joseph plans to retire?

58 years
60 years
62 years

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Option D

65 years

Ques : 85
Option A
Option B
Option C
Option D

Joseph expects his salary to increase at the rate of ___ % per year until his retirement
8
10
12
14

Ques : 86
Option A
Option B
Option C
Option D

What is the current bank balance of Joseph?

Rs. 5,00,000
Rs. 4,00,000
Rs. 3,000,00
Rs. 6,00,000

Ques : 87
Option A
Option B
Option C
Option D

What is the amount that Joseph wants to bequeath to his children at the end of his life?
Rs. 6,00,000
Rs. 4,00,000
Rs. 3,000,00
Rs. 10,00,000

Ques : 88
Option A
Option B
Option C
Option D

Till what age Joseph expects to live?

80 years
90 years
75 years
65 years

Ques : 89
Option A
Option B
Option C
Option D

Once Joseph retires, he would like to withdraw Rs. _______ per year from his investments
Rs. 5,00,000
Rs. 4,00,000
Rs. 3,000,00
Rs. 6,00,000

Ques : 90
Option A
Option B
Option C
Option D

Joseph believes that bonds would provide a return of __% and stocks a return of ___ %
6,12
5,12
7,13
7,12

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