LOVELY PROFESSIONAL UNIVERSITY

Home Work # 3

Lovely School of Business Department of Management

Name of the faculty member: Sweta

Course No: MGT625 Course Title: Derivative and Risk Management

Class: Semester: Section: SP111

Batch:

Max. Marks: 15 Date of Allotment: 1st April ,2011 Date of Submission: 9 th

April,2011

S. Roll Topic Objectives Topic Organisation Model

No No No. of
Academic
Activity
To write a Credit Risk This is an Individual One Soft copy of consolidated final
note / review Management assignment. Students will report should be submitted on UMS
on a case / SWAP write the report and submit a on or before date of submission,
study either System in soft copy of it. Every student after which no consideration would
provided by Financial will undergo study of the be given to the report for
faculty or to Companies case study chosen by them evaluation. The report should be
search from or provided by faculty to original and note more than 08
internet and them. pages including the analysis part
chosen by and data, if any, attached as
individual Students have to specifically appendix within report.
student. answer the following
questions in above exercise: Numerical Problems, if any, should
also be submitted online (UMS) on
(i). Why and the same report after the end-page
how company faces giving the heading “Annexure”.
the credit risk?
Marks Allocation:-
(ii). How does
company manage their Final Report- 15 marks
credit risks through
SWAP systems? Guidelines for Report:- Each
student is supposed to work
(iii). The honestly, efficiently and contribute
Challenges faced while actively. Plagiarism should be
implementing credit avoided strictly. Zero marks
risk management would be assigned if report tests
system. plagiarism more than 20%

(iv). Student’s
comments and
conclusion on
understanding about
the management
system.

Date: Sig. of Course Coordinator/s

Sig. of COS-F with date

MUMBAI: ICICI Bank has structured a derivative transaction for Rural Electrification
Corporation (REC), which allows the bank to swap its rupee interest rate exposure to
REC with a dollar-denominated one. This implies that REC pays an interest rate linked
to the dollar on a rupee borrowing.

At the basic level, the transaction works like this. ICICI Bank had bought REC's 10-year
bonds worth Rs 250 crore, for which REC was to pay a coupon rate of 7%. Anticipating
dollar interest rates to rise, ICICI Bank structured another transaction over the base
deal.

According to this deal the bank gets a dollar-denominated rate of interest, which is 225
basis points (bps) over the six-month Libor. The six-month Libor rate is at 2.9% now.

Adding the spread of 2.25%, the gross cost works out to 5.15% for REC. However, since
REC has capped the six-month Libor at 5%, its interest costs will not exceed the 5%
mark.

The Libor rate is denominated is US dollars. The said transaction is known as a currency
swap in financial markets.

The dollar has been depreciating against major global currencies. The huge US fiscal
deficit on the one hand, and improving economic outlook on the other led the US Fed to
hike interest rates.

Since June 30, '04 the Fed raised its benchmark overnight rate from 1% to 2.5%. "In
such a scenario, firms would bet on a dollar depreciation and move their exposure in
other currencies to the dollar," said an analyst.

Govt may allow currency swap in core sector loans

AGENCIES, Oct 30, 2006, 12.51am IST
NEW DELHI: With infrastructure crying for long-term funding and external commercial borrowing
having a cap of $18bn in a year, the finance ministry is toying with the idea of allowing currency-swap to
allow foreign funding in rupee-denominated loans.

Other such innovative financial instruments and development of corporate debt market may soon see the
light of the day with the finance ministry planning to hold talks with the RBI, Sebi, merchant bankers and
multilateral agencies to woo private lenders to fund infrastructure projects, said a key official in the
ministry here.

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As there is a cap of $18bn in ECB for the entire economy in a year, it would not be possible to fund
infrastructure needs through this source to a significant extent, he said. As such, an instrument of
currency swap may be allowed to give an option to foreign lenders to give funding in a rupee-denominated
form, he said. "We will explore that possibility. We are not yet certain about the exact nature of such
financial instruments," the official said.

Infrastructure like roads, power, railways and aviation require an enormous amount of $320-350bn by '12
to raise rate of investment in the key areas on par with economic growth. About 20% of the required
investment will have to come from the private sector, the official said.

As such, the total requirement of private sector investment in infrastructure is somewhere near $65-70bn,
of which $25bn should come from equity and the rest through debt in public-private partnership projects,
the official said.

While the finance ministry is quite certain about the quantum of funds needed from the private sector in
infrastructure projects, it is yet to do an analysis of the policy requirements that are needed to attract this
kind of money, the official added. "This analysis, we will do now. We are in the process of working out a
concept paper and will come out with it in four weeks," he said. The official said the ministry will hold
consultations with merchant banks, RBI and Sebi on the ways to attract the private capital in
infrastructure.

Huge private sector funding is required since public investment in the area is constrained by limitations
on the government borrowing programme imposed by the FRBM Act and demand for investment by other
growing sectors of the economy.

He said the consultation paper will not only touch the issue of the requirement of $20-25bn equity from
the private sector but also on the availability of such equity backed by specific technical knowhow in the
particular sector.

Citing an example, he said the private player offering equity in the aviation sector must also have technical
expertise to carry out work in the sector.

Besides, the paper will analyse whether there are enough number of ppp projects in the country. It would
seek suggestions on the ways to develop such projects with the help of the centre and state governments.
The paper will also assess the ways to create capacity in states for coming out with such projects, he said.
Earlier this month, finance minister P Chidambaram had admitted a virtual absence of long-term
instruments for infrastructure funding.
IFC currency swap with Mizuho Corporate Bank to finance power
transmission line project in India

IFC is helping Mizuho Corporate Bank finance a power transmission line project that
operates transmission links between East and Northeast India and power-deficit North
India. IFC’s long-term maturity currency swap will enable Mizuho Corporate Bank’s
participation in the project without any need to fund in local currency. It addresses one
of the issues for foreign banks looking to fund infrastructure projects in the country.
Operating since September 2006, electricity generated by Tala hydroelectric power
plant in Bhutan is transmitted to power-starved parts of North India. The project
facilitates improved evacuation of hydropower from Bhutan contributing to its economy
in addition to reducing power shortages in North India.

“IFC’s innovative structure, the first of its kind to be executed globally, allows a bank to
invest U.S. dollars to participate in a local currency loan. This will enable Mizuho
Corporate Bank to invest in Indian infrastructure projects,” said Takeshi Kurita, General
Manager, Global Structured Finance Division, Mizuho Corporate Bank. “We are keen to
do more through creative financial structures that address the needs of projects and
meet the requirements of international lenders.”

Such methods from many more international commercial banks can help meet India’s
rising project financing needs to address the country’s tremendous infrastructure gaps.

Paolo M. Martelli, IFC Director for South Asia, said, “India, its infrastructure, and
especially its energy requirements are a priority for IFC. To meet India’s needs for
project financing in the sector, our strategic focus has been one of evolving innovative
frameworks to support private sector participation in generation, transmission,
distribution, renewable energy, and rural electrification.”

IFC provided a 15-year loan in 2004 to Powerlinks Transmission Limited, a joint venture
between Tata Power Company Limited and Power Grid Corporation of India, for their
project connecting Tala Hydro power project in Bhutan with the grid in India. This was
the first public-private partnership transmission line project in South Asia.

ADB may go for currency swap in Indian mkt

TNN, Oct 18, 2006, 02.23am IST
NEW DELHI: Demonstrating its support for development of the currency market in
India, the Asian Development Bank (ADB) is likely to go in for currency swaps for its
entire India investment portfolio from next year.

The bank held talks with the finance ministry recently and is expected to apply for a
licence to operate as a dealer in the market soon. At present, dealers in the currency
swap market are almost exclusively banks and domestic financial institutions.

The total annual investment portfolio of the Manila-based institution is over $2 billion
in India and is expected to go up by at least $1 billion.

The total turnover in the Indian currency swap market is about $100 billion. The sum
involved in the case of ADB may not be substantial in terms of turnover, but it is being
portrayed as an endorsement of the level of maturity that the Indian money markets
have reached.

ADB was the first to raise $500 million in debt from the Indian market a few years ago
in a move to give fillip to the development of the corporate bond market. While the
bonds did not get SLR status, the issue was heavily subscribed. Subsequently, ADB has
raised another tranche of debt from the debt market to finance its portfolio.

The move towards a currency swap is in line with the bank's policy to support the
development of Asian debt markets.
Currency swap means an exchange of two currencies at the spot exchange rate. Over the
terms of the agreement, the counterparties exchange fixed or floating rate interest
payments in their swapped currencies.

In the next stage –– at maturity –– the principal amount is reswapped at a

predetermined exchange rate, so that the parties end up with their original currencies.

The swap helps the counterparties to hedge currency fluctuation risk. Such swaps help
companies to take large international exposure and usually it is a signal of maturing of
the money market of an economy.
Nov 22 (Reuters) - The recent global financial market turmoil could
lead to a reversal of capital flows into the East Asian region amid a
wave of risk aversion and repricing of credit risk, the Asian
Development Bank (ADB) said on Thursday.

Strong economic growth and improved financial systems in the region, along with limited exposure to
U.S. subprime mortgages, have so far helped to contain the ripple effect of world-wide credit
problems, it said.
"Prolonged global financial market volatility, persistent risk aversion together with a re-pricing of
credit risk could lead to a reversal of capital flows (particularly "carry trades") to the region," the ADB
said in its November edition of the Asia Bond Monitor.
The Asia Bond Monitor examined bond market developments in ASEAN, plus China, Hong Kong
and South Korea.
ASEAN groups Singapore, Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, Philippines,
Thailand and Vietnam.
Amid the turmoil, however, the bond markets had continued to grow.
Bond markets expanded more rapidly than the gross domestic product in all countries in the region
except in The Philippines, the ADB said.
It said that policy reforms and liberalisation of bond markets in emerging East Asia had resulted in
several sovereign ratings upgrades.
Overall local currency bonds outstanding in the region grew 9.9 percent from end-2006 to $3 trillion
in June 2007 mainly as a result of central banks issuing more debt to absorb excess liquidity
resulting from large foreign inflows. But corporate bond markets grew more slowly than most
government bond markets as the cost of short-term financing rose, it said.
It said that tight short-term financing conditions could hurt corporate and household spending,
reduce new debt offerings and delay new issues which were already in the pipeline.
Market trading liquidity rose sharply in the first half of 2007 in Indonesia, China and Thailand, while
the improvement was more modest in Malaysia, Hong Kong and Singapore, the ADB said.
The rise was mainly due to investors shuffling their portfolios and after some markets introduced
new regulations to encourage trading.
While the region has been resilient amid global financial market turbulence, there were several risks,
the ADB said.
It said worsening global economic growth and credit conditions, prolonged volatility, a sharper-than-
expected slowdown in U.S. growth and a resurgence of inflationary pressures could hurt domestic
bond markets
What is the impact of the Asian Development Bank\'s rupee bond
issue?
ISSUE

Our Banking Bureau / Mumbai March, 08 2004

The debt mart gets its due

R H Patil
Chairman, CCIL, and former MD, NSE

The Asian Development Bank’s (ADB) Rs 500 crore bond issue with a bullet maturity of 10 years is unique in several
respects.

It is the first of its kind in India by an international lending institution, the debt of which is backed by the 63 member
countries including the US, Japan and several other OECD countries.

This is its first issue in the domestic bond market of a developing member country. At least in this respect we have
scored over China!

Insofar as the Indian bond market is concerned, it is as sound as the issue of the government and therefore one of
the soundest in terms of its credit rating.

One of the primary objectives of ADB in raising rupee debt is to diversify sources its loanable funds from one of the
regional countries.

When ADB lends rupees in India the borrowers would not face foreign currency risks, which they normally face if the
debt is denominated in one of the foreign currencies.

This issue is also an acknowledgement on the part of ADB that Indian debt market has come of age and also that the
country is not short of resources to that extent.

In its press release ADB has stated that “The bond issue underscores ADB’s confidence in the Indian capital market.”
When ADB lends these funds to the Indian borrowers it means that there has not been net inflow of resources form
the rest of the world.

All that ADB is doing is to act as a financial intermediary like one of the domestic institutions/banks in raising
resources from the domestic market for on-lending to Indian borrowers.

Thus, there is going to be one more financial intermediary to compete with other domestic institutions in similar type
of activities. If we use the language of financial economists it amounts to further diversification of the structure of
financial institutions.

This should help in deployment new tools of appraisal as ADB is a DFI with an international brand.

The basic question one needs to address is whether the entry of ADB will have any positive impact on the Indian debt
market.

There are some obvious reasons why the answer to this question is a small Yes.

Since in relation to the size of the outstanding government debt as of December 2003 of Rs 9,59,903 crores the
amount of ADB’s borrowing is quite small, ADB’s bond issue therefore is not going to create waves — but only small
ripples — in the Indian debt market.

ADB has indicated that the current issue would help enhance liquidity in the Indian swap market since ADB is
planning to actively undertake interest rate swap transactions for asset and liability management purposes.
This is obviously for the purposes of hedging ADB’s risks until the borrowed funds are actually dispersed to its
borrowers. Indian derivatives market is growing rapidly and through ADB we will have one more intelligent player in
the market.

But we need to recognise the fact that ADB will continue to remain a small player in the Indian derivatives market as
ADB’s outstanding borrowings and therefore its deployable resources in the Indian market during the next several
years would continue to remain relatively small.

A path-breaking offering

R V Joshi
Managing Director, STCI

The Asian Development Bank (ADB) bond issue is of significance to the Indian debt market in many ways.

Although there have been bonds issued by ADB in other countries, this one distinguishes itself from others as ADB
has, for the first time, raised funds from domestic bond market of a country which also borrows from it.

ADB’s entrance as an issuer indicates that country’s debt market infrastructure has come of age. Other supranational
issuers such as the International Finance Corporation, Washington are also expected to float rupee bonds in India
soon.

There are benefits that accrue to India with the opening of its doors to responsible, creditworthy issuers. ADB itself is
expected to repeat such a programme again, which is likely to have a positive demonstration effect for other
international issuers in due course.

This would only result in enhancing the confidence level of international institutions and other issuers in the efficiency
and strength of Indian debt market and perhaps confidence in its currency too.

This ADB-initiated breakthrough is also expected to enable the Indian market to move a step further in encouraging
highly rated global MNCs who might be planning to undertake investments in India funded by local borrowing itself.

This would, indeed, have a strong impact on the further development of the Indian debt market in providing high
quality debt papers. Both for investors subscribing to and for issuers like ADB, it is a win-win situation.

The issuer is able to source local currency funds at a reasonable market related costs and the investor is also
assured of high quality assets.

Such issues which are several notches higher than the sovereign bond rating would also give investors an
opportunity to diversify their portfolio risk.

Foreign investors who may be allowed to invest in such bonds would also have the benefit of doing away with or
minimizing credit risk though they do have to manage currency risk to some extent. The ADB issue has a maturity of
10 years.

It can spur longer maturity swaps in Indian bond market in course of time. This could be another positive fillip to
Indian debt markets as in the initial stages of swap market development in Indian bond market it is still limited to
shorter periods though it is gradually changing.

Despite many positives, there could be some reservations in allowing international institutions and MNCs to raise
such rupee denominated bonds in India.

One of the concerns could be that such issuances which have highest ratings may result in crowding out of local
issuers. However, such concerns appear may not be pertinent now given the huge developmental activities on hand
and the enormity of resource requirement to meet those infrastructural and development activities.

Indeed, there is a lack of adequate supply of quality debt papers in Indian market today. Therefore, issuance of
quality papers by supranational institutions like ADB and IFC would only add to the strength of Indian debt market.

Finally, the ADB issue will also lead to supply of cost-effective resources to various infrastructure and core projects in
India. The present issue is only the beginning and it’s a welcome development in all respects.
RBI to provide forex swap facility to banks
BS Reporter / Mumbai November 7, 2008, 20:25 IST

The Reserve Bank of India (RBI) will provide foreign exchange liquidity to foreign branches and subsidiaries of Indian
banks through currency swaps.

The central bank said today the move would provide flexibility to Indian banks in managing their short-term
requirements at their overseas offices in the context of the global credit crisis.

Lenders can borrow rupees via RBI’s daily securities repurchase auctions to fund such currency swaps, the central
bank said in a statement today. RBI will also consider easing banks' requirement to buy government debt in specific
cases to free up cash to fund the currency swaps.

RBI will offer currency swaps maturing in up to three months. The swaps will be priced using domestic and overseas
money-market rates and the dollar-rupee reference rate published daily by the central bank.

RBI said central banks across the world have taken action to ease the liquidity situation through measures such as
inter-central bank swap lines, collateralized lending and forex swaps, in response to the unfolding events relating to
the global turmoil and its impact on international money markets.

Explaining the implications of the decision, a State Bank of India official said those who are not able to get credit from
foreign banks can now tap the RBI window. This will help Indian banks with overseas presence to tide over the
liquidity crisis. The official, however, said SBI is not facing any problems as it has surplus dollars.

However, other bankers said the move is at best a temporary relief. Banks have to give back the dollars to RBI in
three months. This means they will have to either arrange another line of dollar credit or reduce the size of the
overseas book, generating surplus dollars. “We will back to square one in three months unless of course the liquidity
situation overseas improves,” a banker said.

While there is no mention about how much banks could draw under the swap facility, RBI is likely to set bank-wise
limits on drawals. The limit may be linked to the size of banks’ overseas books.

Apart from SBI, the other banks, which have a sizeable overseas presence are Bank of Baroda, Bank of India, ICICI
Bank and Axis Bank.

Due to the financial crisis, Indian banks have changed their business strategies for overseas branches to protect
them from any downside risks. In some cases, they have purchased dollars in the domestic market and sent them to
their overseas branches to meet business requirements.

1. RBI’s open market operation transactions are carried out with a view to regulate—
(A) Liquidity in the economy
(B) Prices of essential commodities
(C) Inflation
(D) Borrowing power of the banks
(E) All the above
2. When more than one banks are allowing credit facilities to one party in coordination with each other
under a formal arrangement, the arrangement is generally known as—
(A) Participation
(B) Consortium
(C) Syndication
(D) Multiple banking
(E) None of these
3. Open market operations, one of the measures taken by RBI in order to control credit expansion in
the economy means —
(A) Sale or purchase of Govt. securities
(B) Issuance of different types of bonds
(C) Auction of gold
(D) To make available direct finance to borrowers
(E) None of these
4. The bank rate means—
(A) Rate of interest charged by commercial banks from borrowers
(B) Rate of interest at which commercial banks discounted bills of their borrowers
(C) Rate of interest allowed by commercial banks on their deposits
(D) Rate at which RBI purchases or rediscounts bills of exchange of commercial banks
(E) None of these
5. What is an Indian Depository Receipt ?
(A) A deposit account with a Public Sector Bank
(B) A depository account with any of Depositories in India
(C) An instrument in the form of depository receipt created by an Indian depository against underlying
equity shares of the issuing company
(D) An instrument in the form of deposit receipt issued by Indian depositories
(E) None of these
6. An instrument that derives its value from a specified underlying (currency, gold, stocks etc.) is
known as—
(A) Derivative
(B) Securitisation Receipts
(C) Hedge Fund
(D) Factoring
(E) Venture Capital Funding
7. Fiscal deficit is—
(A) total income less Govt. borrowing
(B) total payments less total receipts
(C) total payments less capital receipts
(D) total expenditure less total receipts excluding borrowing
(E) None of these
8. In the Capital Market, the term arbitrage is used with reference to—
(A) purchase of securities to cover the sale
(B) sale of securities to reduce the loss on purchase
(C) simultaneous purchase and sale of securities to make profits from price
(D) variation in different markets
(E) Any of the above
9. Reverse repo means—
(A) Injecting liquidity by the Central Bank of a country through purchase of Govt. securities
(B) Absorption of liquidity from the market by sale of Govt. securities
(C) Balancing liquidity with a view to enhancing economic growth rate
(D) Improving the position of availability of the securities in the market
(E) Any of the above
10. The stance of RBI monetary policy is—
(A) inflation control with adequate liquidity for growth
(B) improving credit quality of the Banks
(C) strengthening credit delivery mechanism
(D) supporting investment demand in the economy
(E) Any of the above
11. Currency Swap is an instrument to manage—
(A) Currency risk
(B) interest rate risk
(C) currency and interest rate risk
(D) cash flows in different currencies
(E) All of the above
12. ‘Sub-prime’ refers to—
(A) lending done by banks at rates below PLR
(B) funds raised by the banks at sub-Libor rates
(C) Group of banks which are not rated as prime banks as per Banker’s Almanac
(D) lending done by financing institutions including banks to customers not meeting with normally
required credit appraisal standards
(E) All of the above
13. Euro Bond is an instrument—
(A) issued in the European market
(B) issued in Euro Currency
(C) issued in a country other than the country of the currency of the Bond
(D) All of the above
(E) None of these
14. Money Laundering normally involves—
(A) placement of funds
(B) layering of funds
(C) integration of funds
(D) All of (A), (B) and (C)
(E) None of (A), (B) and (C)
15. The IMF and the World Bank were conceived as institutions to—
(A) strengthen international economic co-operation and to help create a more stable and prosperous
global economy
(B) IMF promotes international monetary cooperation
(C) The World Bank promotes long term economic development and poverty reduction
(D) All of (A), (B) and (C)
(E) None of (A), (B) and (C)
16. Capital Market Regulator is—
(A) RBI
(B) IRDA
(C) NSE
(D) BSE
(E) SEBI
17. In the term BRIC, R stands for—
(A) Romania
(B) Rajithan
(C) Russia
(D) Regulation
(E) None of these
18. FDI refers to—
(A) Fixed Deposit Interest
(B) Fixed Deposit Investment
(C) Foreign Direct Investment
(D) Future Derivative Investment
(E) None of these
19. What is Call Money ?
(A) Money borrowed or lent for a day or over night
(B) Money borrowed for more than one day but upto 3 days
(C) Money borrowed for more than one day but upto 7 days
(D) Money borrowed for more than one day but upto 14 days
(E) None of these
20. Which is the first Indian company to be listed in NASDAQ ?
(A) Reliance
(B) TCS
(C) HCL
(D) Infosys
(E) None of these
21. Which of the following is the Regulator of the credit rating agencies in India ?
(A) RBI
(B) SBI
(C) SIDBI
(D) SEBI
(E) None of these
22. Who is Brand Endorsing Personality of Bank of Baroda ?
(A) Juhi Chawla
(B) Kiran Bedi
(C) Amitabh Bachchan
(D) Kapil Dev
(E) None of these
23. The branding line of Bank of Baroda is—
(A) International Bank of India
(B) India’s International Bank
(C) India’s Multinational Bank
(D) World’s local Bank
(E) None of these
24. The logo of Bank of Baroda is known as—
(A) Sun of Bank of Baroda
(B) Baroda Sun
(C) Bank of Baroda’s Rays
(D) Sunlight of Bank of Baroda
(E) None of these
25. Which of the following statements(s) is/are True about the exports of China which is a close
competitor of India ?
(i) China’s economic success is basically on the fact that it exports cheaper goods to rich nations like
the USA, etc.
(ii) In the year 2007 China’s exports became almost 40% of its GDP.
(iii) When compared to India China’s share in the World Exports is more than 30% whereas India’s
share is mere 6% of the global exports.
(A) Only (i)
(B) Only (ii)
(C) Both (i) and (ii)
(D) All (i), (ii) and (iii)
(E) None of these
26. One of the major challenges banking industry is facing these days is money laundering. Which of
the following acts/norms are launched by the banks to prevent money laundering in general ?
(A) Know Your Customer Norms
(B) Banking Regulation Act
(C) Negotiable Instrument Act
(D) Narcotics and Psychotropic Substance Act
(E) None of these
27. Lot of Banks in India these days are offering M-Banking Facility to their customers. What is the
full form of ‘M’ in ‘M-Banking’ ?
(A) Money
(B) Marginal
(C) Message
(D) Mutual Fund
(E) Mobile Phone
28. Which of the following is/are true about the ‘Sub-Prime Crisis’ ? (The term was very much in news
recently.)
(i) It is a mortgage crisis referring to credit default by the borrowers.
(ii) Sub-Prime borrowers were those borrowers who were rated low and were high risk borrowers.
(iii) This crisis originated because of negligence in credit rating of the borrowers.
(A) Only (i)
(B) Only (ii)
(C) Only (iii)
(D) All (i), (ii) and (iii)
(E) None of these
29. Which of the following is not the part of the structure of the Financial System in India ?
(A) Industrial Finance
(B) Agricultural Finance
(C) Government Finance
(D) Development Finance
(E) Personal Finance
30. Which of the following is not the part of the scheduled banking structure in India ?
(A) Money Lenders
(B) Public Sector Banks
(C) Private Sector Banks
(D) Regional Rural Banks
(E) State Co-operative Banks
31. As we all know Govt. of India collects tax revenue on various activities in the country. Which of
the following is a part of the tax revenue of the Govt. ?
(i) Tax on Income
(ii) Tax on Expenditure
(iii) Tax on Property or Capital Asset
(iv) Tax on Goods and Services
(A) Both (i) and (iii) only
(B) Both (ii) and (iv) only
(C) All (i), (ii), (iii) and (iv)
(D) Only (ii), (iii) and (iv)
(E) None of these
32. We very frequently read about Special Economic Zones (SEZs) in newspapers. These SEZs were
established with which of the following objectives ?
(i) To attract foreign investment directly.
(ii) To protect domestic market from direct competition from multinationals.
(iii) To provide more capital to agricultural and allied activities.
(A) Only (i)
(B) Only (ii)
(C) Only (iii)
(D) All (i), (ii) and (iii)
(E) None of these
33. Which of the following groups of countries has almost 50% share in global emission of carbon
every year ?
(A) US, China, India, South Africa
(B) India, China, Russia, Britain
(C) South Africa, Nepal, Myanmar
(D) US, Russia, China & India
(E) None of these
34. Which of the following correctly describes the concept of ‘Nuclear Bank’ floated by International
Atomic Energy Agency ?
(i) It is a nuclear fuel bank to be shared by all the nations jointly.
(ii) It is a facility to help nations in enrichment of uranium.
(iii) It is an agency which will keep a close vigil on the nuclear programme of all the nations.
(A) Only (i)
(B) Only (ii)
(C) Both (i) and (iii) only
(D) Only (iii)
(E) Both (i) and (ii) only
35. Many times we read about Future Trading in newspapers. What is ‘Future Trading’ ?
(i) It is nothing but a trade between any two stock exchanges wherein it is decided to purchase the
stocks of each other on a fixed price throughout the year.
(ii) It is an agreement between two parties to buy or sell an underlying asset in the future at a
predetermined price.
(iii) It is an agreement between stock exchanges that they will not trade the stocks of each other
under any circumstances in future or for a given period of time.
(A) Only (i)
(B) Only (ii)
(C) Only (iii)
(D) All (i), (ii) and (iii)
(E) None of these
36. Inflation in India is measured on which of the following indexes/indicators ?
(A) Cost of Living Index (COLI)
(B) Consumer Price Index (CPI)
(C) Gross Domestic Product
(D) Wholesale Price Index (WPI)
(E) None of these
37. As per the reports published in the newspapers a section of society staged a demonstration at the
venue of the G-8 Summit recently. What was/were the issues towards which these demonstrators
were trying to draw the attention of G-8 leaders ?
(i) Food shortage which has taken 50 million people in its grip.
(ii) Inflation which has gone up substantially across the Globe.
(iii) USA’s consistent presence in Iraq.
(A) Only (i)
(B) Only (ii)
(C) Only (iii)
(D) Both (i) and (ii) only
(E) None of these
38. Hillary Clinton formally suspended her campaign to ensure election of who amongst the following
for the next President of USA ?
(A) George Bush
(B) Barack Obama
(C) John McCain
(D) Bill Clinton
(E) None of these
39. Hugo Chavez whose name was recently in news is the—
(A) President of Congo
(B) Prime Minister of Uganda
(C) President of Venezuela
(D) Prime Minister of Brazil
(E) None of these
40. The Govt. of India has raised the amount of the Loan Waiver to the farmers by 20%. Now the
amount is nearly—
(A) Rs. 60,000 crore
(B) Rs. 65,000 crore
(C) Rs. 72,000 crore
(D) Rs. 76,000 crore
(E) Rs. 80,000 crore
41. Delimitation Commission has made a recommendation that next Census should be Panchayat-
wise. When is the next Census due ?
(A) 2010
(B) 2011
(C) 2012
(D) 2013
(E) 2015
42. The World Health Organisation has urged that advertisements of which of the following should be
banned to protect youth from bad effects of the same ?
(A) Tobacco
(B) Alcoholic drinks
(C) Junk Food
(D) Soft drinks with chemical preservatives
(E) None of these
43. Which of the following countries has allocated a huge amount of US $ 10 billion to provide relief to
its earthquake victims ?
(A) Japan
(B) South Korea
(C) China
(D) South Africa
(E) None of these
44. India and Nepal have many agreements on sharing of the water of various rivers. Which of the
following rivers is not covered under these agreements ?
(A) Kosi
(B) Gandak
(C) Ganga
(D) Mahakali
(E) All these rivers are covered
45. Which of the following names is not closely associated with space programme of India or any other
country ?
(A) CARTOSAT
(B) NLS – 5
(C) RUBIN – 8
(D) GSLV
(E) SCOPE
46. Vijay Hazare Trophy is associated with the game of—
(A) Hockey
(B) Cricket
(C) Badminton
(D) Football
(E) Golf
47. Which of the following was the theme of the Olympic Torch ?
(A) Journey of Harmony
(B) Green World Clean World
(C) Journey of Peace
(D) Journey for Hunger-free World
(E) None of these
48. Which of the following schemes is not a social development Scheme ?
(A) Indira Awas Yojana
(B) Mid Day Meal
(C) Bharat Nirman Yojana
(D) Sarva Shiksha Abhiyan
(E) All are social schemes
49. Which of the following is not a member of the ASEAN ?
(A) Malaysia
(B) Indonesia
(C) Vietnam
(D) Britain
(E) Singapore
50. Which of the following Awards are given for excellence in the field of Sports ?
(A) Kalinga Prize
(B) Shanti Swarup Bhatnagar Award
(C) Arjun Award
(D) Pulitzer Prize
(E) None of these
Answers :
1. (E) 2. (B) 3. (A) 4. (D) 5. (C) 6. (C) 7. (D) 8. (C) 9. (A) 10. (E)
11. (D) 12. (D) 13. (C) 14. (D) 15. (D) 16. (E) 17. (C) 18. (C) 19. (A) 20. (D)
21. (D) 22. (E) 23. (B) 24. (B) 25. (C) 26. (E) 27. (E) 28. (D) 29. (E) 30. (A)
31. (C) 32. (A) 33. (D) 34. (B) 35. (B) 36. (D) 37. (B) 38. (B) 39. (C) 40. (A)
41. (B) 42. (A) 43. (C) 44. (C) 45. (E) 46. (B) 47. (A) 48. (C) 49. (D) 50. (C)

Provide local currency denominated lending through structured and straightforward alternatives

** developing and accessing local capital markets.

** local currency swaps.

** local currency guarantees.

• Applicable in countries where local currency is freely convertible at least on trade

account.
• Dictated by market based pricing mechanisms.
• Direct linkage to solvency of banking system
ADB’s local currency initiative is under its private sector window. ADB will use only private
sector banks as financial intermediaries without requiring sovereign guarantees.

Issues and Challenges

• Lack of market depth for local currency.

• Underdeveloped legal, political, and institutional infrastructure for local capital
markets.
• Underdeveloped local currency swap markets.
• Lack of acceptable swap counterparties.
• Short tenors in local markets.
• Risk protection and capital allocation.
• Willingness of host sovereign as it may affect their own borrowing programs

Capital markets in developing countries are in their infancy. They do not only comprise of bond
markets but also include equity and derivative markets)
Role of ADB

ADB’s local currency lending initiative would

 strengthen long term domestic debt/capital markets.

 provide depth for extended tenors to investors.
 strengthen banking sector
 improve financial intermediation
 develop local currency swap markets.
 facilitate access to financing of institutions.

Assist DMCs in development of a regulatory framework.

ADB involvement would send an important message to private sector.

ADB’s participation is intended to catalyze financing from local and foreign sources, and not to
compete with them.

Capacity creation.

Promote private sector development.

Support strategic objective of its developing member countries in attracting private capital.

Promote partnerships, transparency, corporate governance, and corporate social responsibility.