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1.An underwriter ______________.

a. guarantees & makes good of any shortfall in subscription to the extent of his
underwriting
b. decides the insurance premium
c. is typically an investment bank
d. guarantees that the capital issue will be subscribed at premium
e. All of the listed options

2. Which of the options best describes the sequence of following events?


1. Issuing bank arranges for advising bank to make payment
2. Freight forwarder sends documents to the advising bank
3. Issuing bank issues the letter of credit (LC)
4. Advising bank advises seller that an LC has been opened
5. Advising bank sends documents to the issuing bank
a. 4,1,3,2,5 b. 4,5,2,3,1 c. 1,2,3,4,5 d. 3,4,2,5,1 e. 2,5,1,3,4

3. Corporate Lending refers to:


a. Loans provided by companies to individuals
b. Loans provided to high net worth individuals
c. Loans provided to individuals
d. Loans provided to companies by Government
e. Loans provided to companies

4. A choice quote is _______________.


a. price at which a firm is ready to buy or sell. It also means when bid is equal to offer
b. when bid is equal to offer
c. where the firm has a choice of deciding the security to take
d. price at which a firm is ready to buy or sell

5. In an international securities transaction, which of the following participants will NOT be


involved?
a. Domestic Sub-custodian
b. b. Stock exchange in foreign country
c. c. Global Custodian, Domestic Sub Custodian, Depository in Foreign Country and
Sometimes Stock exchange in foreign Country
d. d. Depository in foreign country e. Global Custodian

6. Stock A is more volatile than Stock B. Which stock is more risky?


a. Data on SD is required for this b. A c. B
d. Depends e. Both are equally risky

7. Which of the following would be most attractive private banking destination


a. Delhi b. Jakarta c. Thimpu d. NewYork e. Lahore

8. A good risk management system


a. sends alerts automatically when the risk crosses a defined tolerance limit.
b. allows the risk managers to drill down the risk to lowest components
c. All of the given options
d. carries out sensitivity, what-if analyses,
e. generates customizable reports

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9. On a trading day at the NYSE, a broker undertakes the following trades:
Buy 100 IBM shares for $10.00 each
Sell 50 IBM shares for $10.50 each
Buy 100 MSFT shares for $20.00 each
Sell 20 IBM shares for $11.00 each
Sell 10 MSFT shares for $20.50 each
Sell 30 IBM shares for $9.00 each
How much did the broker pay out to the exchange in total in case of (a) gross settlement
system (b) net settlement system?

a. (a) $1,780 (b) 0 for IBM, $1,795 for MSFT


b. (a) $1,780 (b) $3,000 c. (a) 0 for IBM, $1,795 for MSFT (b) $1,780
d. None of the listed Options e. (a) $3,000 (b) $1,780

10. Which of the following is likely to have the highest interest rate
a. 12 month deposit with minimum balance of 1000$
b. Cannot be determined
c. 6 month deposit with minimum balance of 1000$
d. 3 month deposit with minimum balance of 4000$
e. 6 month deposit with minimum balance of 2000$

11. A Central Bank in an economy is also known as:


a. The Retail Depositors' Bank b. The Banking Boss
c. None of the listed Options d. The Big Boss e. The Bankers' Bank

12. Retail loans are asset products offered by the bank. State True or False .
True False

13. Which of the following methods of payment is most risky to the Seller?
a. Counter trade b. Open Account c. Cash in Advance d.
Letter of Credit e. Documentary Collection

14. If the price of a security on day 1 & 2 are $ 100 and $ 102 respectively the return is
a. 1% b. 2% c. Very high d. -1% e. -2%

15. Cash management solutions help corporations to ___________


a. manage surpluses and deficits b. reduce float on collections
c. outsource collections d. All of the listed options e. automate collections

16. What is the role of a Central Bank in Forex market of a country?


a. Acts as a trader for maximum profit making
b. Encouraging trading in all currencies and not be limited to USD only
c. Seller of USD
d. Regulatory role depending on country's economic policies
e. No role

17. If a bank gets a deposit of $1000, assuming a reserve requirement (CRR) of 10%, and
that it circulates through 2 more banks, leading to the following money multiplier effect

a. Loan of $1710 b. Create reserve of $190 c. None of the listed Options


d. Create a reserve of $100 e. Loan of $2439

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18. High-Net worth individuals generally have _______.
a. Networth greater than $500,000 b. All of the listed options
c. Market capitalization more than $200,000
d. Household income of maximum $50,000 per year

19. Which of these instruments is not included as part of Asset servicing services under the
category "Pricing/Holdings Valuation", which includes accurate pricing, ratings, etc. ?
a. Equities
b. The service may be provided for all of these instruments
c. Government securities
d. Certificates of participation
e. Certificates of deposit

20. In the Historical Simulation method of VaR calculation


a. no assumption is made about the distribution of returns
b. random returns are generated to calculate VaR
c. returns are assumed to be not normally distributed
d. returns are assumed to be normally distributed
e. returns are not required at all

21.Which is the most risky of the following:


a. An asset with a standard deviation of 3
b. An asset with a standard deviation of 1
c. An asset with a standard deviation of 2
d. An asset with a standard deviation of 5
e. An asset with a standard deviation of 4

22. A mutual fund with investment objective of achieving high capital growth approaches an
investor services firm for advice. The firm advises the mutual fund to invest 80% of the fund
in govt. debt, and 20% in equity. The allocation towards debt advised by the firm:

a. Cannot be determined, depends on market conditions prevailing at the time


b. Is too high c. Is about right d. Is too low

23. In which of the following cases can the Securities Lending service of a custodian be
used to borrow securities?

a. A broker has made a sale of securities, but some of the securities were delivered
defective
b. All of the listed options
c. A hedge fund manager wants to trade with borrowed shares as part of his arbitrage
strategy
d. A broker has made a short sale of a security, and wants to cover it

24. The process of transferring obligation from one party to another is called _________
a. Settlement b. Novation c. Netting d. None of the listed Options e. Counterparty risk

25. Which of the following methods eliminate country risk and commercial risk upon
confirmation?
a. Standby Letter of Credit b. Both Standby Letter of Credit & Letter of Credit
c. Letter of Credit d. Back to back Letter of Credit e. Documentary Collection

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26. ADR stands for which of the following?
a. American Demand of Russian bond b. American Demand of Rented homes
c. American Demand Receivables d. American Dollar Receivables
e. American Depository Receipts

27. Which of the following are examples of Payment Methods?


a. Letter of credit b. Open account or credit c. Cash in advance
d. All of the listed options e. Documentary collection

28. All broker/dealers involved in the underwriting of non-exempt securities must be


a. NASDAQ Member b. No such membership is required c. NYSE Member
d. SEC Member e. NASD Member

29. Credit derivative have all of the following characteristics EXCEPT:


a. Traded over the counter b. Financial Instrument c. None of the listed Options
d. Transfers risk e. Facilitate greater efficiency

30. Risk Management is a function of


a. Back Office b. Mid Office c. Traders d. Front Office e. Specialists

31. Pick the odd one out


a. Demat b. Personal Loans c. None of the listed Options
d. Hire Purchase e. Auto Loans

32. The term CP is used in Corporate Lending for:


a. Client Partner b. Credit Provision c. Commercial Paper
d. Commodity Put Options e. Collateral Provision

33. In defined contribution retirement plans, Tax-sheltered Annuities fall under Section
______ of ERISA
a. 401(b) b. None of the listed Options c. 401(k) d. 403(b) e. 403(k)

34._____________ is typically the largest part of the spread and is paid to the broker/dealer
that actually took the clients order.
a. Underwriter's Allowance b. Wage c. Manager's fee d. Concession e. Salary

35. Which of the following type of loan requires the amount of interest that would be earned
on the loan to be paid upfront by the borrower?
a. True discounted Loan b. Discounted Loan c. Capitalized Loan
d. Demand loan e. Amortized Loan

36. Auto loans are loans financed for vehicles for business use. State True or False.
True False

37. The real rate of interest is 9.50% while the nominal rate of interest is 11.70%. The
applicable inflation rate is:
a. 2.2 b. 2.1 c. None of the listed Options d. 0 e. -2.2

38. If the price of a security on day 1 & 2 are $ 102 and $ 100 respectively the return is
a. 2% b. -2% c. -1.96% d. 1 to 2% e. Very high

39. Which of the following is NOT a category of health & welfare plan?
a. Property insurance b. Survivor benefits c. All of these are valid categories
d. Disability income e. Health care plan

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40. If total spread on underwriting is $ 500000 and Manager's fee is $ 100000, what is the
amount which will be distributed in the syndicate?
a. $400,000 b. $500,000 c. $600,000 d. Cannot be determined e. $100,000

41. What are the risks associated with Hedge Funds?


a. High Leveraging b. High Speculation
c. High Exposure in Derivatives d. All of the listed options

42. Which is the best VaR estimation model


a. Variance-Covariance Matrix b. Cannot Say - depends on case to case
c. Historical Simulation d. A combination of Monte Carlo and Historical Simulation
e. Monte Carlo Simulation

43. A bank decides to sacntion only 10% of the loan sought by a company. The company
goes and pledges extra assets with the bank and the bank then agrees to sanction 50% of
the loan sought. The company has indulged in the process of:

a. Credit Revision b. Credit Increase c. Credit scoring


d. Credit Enhancement e. Credit Incrementation

44. A purely competitive financial market is not characterized by:


a. Many Traders b. Government Regulation
c. Cost effective Trading d. Full Information

45. On a trading day at the NYSE, a broker undertakes the following trades:
Buy 100 IBM shares for $10.00 each
Sell 50 IBM shares for $10.50 each
Buy 100 MSFT shares for $20.00 each
Sell 20 IBM shares for $11.00 each
Sell 10 MSFT shares for $20.50 each
Sell 30 IBM shares for $9.00 each
Given that a net settlement system is being used, find out the net position of the broker at
the end of the day.

a. IBM: 70 shares to give out; MSFT: 90 shares to receive; $3,000 to pay out to the
exchange
b. IBM: no exchange of shares; MSFT: 90 shares to receive; $3,000 to pay out to the
exchange
c. IBM: no exchange of shares; MSFT: 90 shares to receive; $1,780 to pay out to the
exchange
d. None of the listed Options
e. IBM: no exchange of shares; MSFT: 90 shares to receive; $1,780 to receive from the
exchange

46. Card associations provide which of the following services ?


a. Set interest rates b. Set card fees c. Issue cards
d. Set credit limits e. Security/Risk management

47. FX Spot Deal in US assumes a maturity of how many business days ahead?
a. Five days b. Three days c. Four days d. Two days e. One days

48. A fixed income analyst will analyze all but


a. Municipal Bonds b. Shares c. US Treasuries
d. Corporate Bonds e. Bonds of Government Sponsored Enterprises

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49. Which of the following is not correct for a personal loan?

a. Loan amount is not linked to borrowers repayment capacity


b. No security required
c. The financer is not interested in the intention of the loan
d. They are short term loans e. None of the listed Options

50. In Check 21, IRD stands for:


a. Investor Replacement Document b. Institutional Replacement Document
c. Internal Rating Document d. Image Replacement Document

51. In an account earning simple interest, the interest from the first year is reinvested at the
beginning of the second year. State True or False.
True False

52.Which of the following is not a Charge Type


a. Hypothecation b. Pledge c. Collateral d. Lien

53.Jo inherited an antique tie pin. It was valued at $1350. Each year its value appreciated by
5%. Approximately how much was the tie pin expected to be worth 5 years later
a. $1,723 b. $1,450 c. None of the listed options d. $1,688 e. $1,045

54. Which of the following represents the correct hierarchy of corporate ratings (highest to
lowest)?
a. AAA, AA+, BBB, D b. AAA, AA-, D, BBB c. D,C,B,A
d. D, AA-, B, AAA e. AAA, AA+, D, AA-

55. The rate at which the bank will purchase US dollars against home currency is called as
___________.
a. Direct Rate b. Ask Rate c. Bid Rate d. Indirect Rate e. Cross Currency Rate

56. Which among the following is an investment company that pools money from unitholders
and invests in a variety of securities?
a. Mutual Fund b. None of the listed options
c. Stock Exchange d. Mortgage Company

57. Pick the odd one out.


a. George Soros b. Bill Gates c. Warren Buffet d. Ben Graham e. Peter Lynch

58. USExport and EURImport agree to carry out the transaction, goods worth $1,000,000
under a confirmed term Letter of Credit with a maturity date of 60 days from the time of
shipment. The Acceptance commission @ 1.5% pa equals ___________.
a. 2500 b. None of the listed Options c. 300 d. 250 e. 3000

59. Which of the following, according to you, has resulted in defined contribution plans
gaining popularity over defined benefit plans?

a. All of the listed options


b. Employers increasingly want employees to share responsibility for their retirement
c. DC plans fix the monthly contribution from the employee, making his financial planning
easier
d. DC plans are seen by employees as an investment vehicle to accumulate retirement
income

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60. Which of the following financial institutions are covered under the Anti-money
laundering, US Patriot Act
a. Mutual Funds b. Securities brokers and dealers
c. All of the listed options d. Banks and Trust companies

61. All the following statements concerning U.S. Government securities are correct EXCEPT:

a. Treasury bills have a greater interest rate risk than either Treasury bonds or
Treasury notes.
b. None of the listed options
c. Treasury notes have maturity dates up to 10 years.
d. Treasury bonds have maturity dates up to 30 years
e. Treasury bills have their interest paid in a lump sum at maturity.

62. Legitimate ways to cancel the credit card transactions within a limited time frame are
_________________
a. Chargeback and Chargeback reversals b. Chargeback reversals
c. Chargeback d. Presentment

63. Syndicate helps in all the following activities but


a. raising huge money from the banks b. managing large capital raising activity
c. IPO Distribution d. managing conflicts between investment banks
e. managing large bond issues

64. Bank New has a portfolio of $30 million worth of loans, which it wants to hedge. This is
an example of what kind of loan?

a. Held for Sale Loans b. Trading Loans c. Committed Loans


d. Accrual Loans e. Undrawn Loan

65. Operational Risk is defined as

a. the risk of loss resulting from errors in processes, people and systems
b. he possibility of loss as a result of default, such as when a customer defaults on a loan
c. the possibility of loss over a given period of time related to uncertain movements in
market factors
d. the possibility that a firm will be unable to generate funds to meet contractual obligations
as they fall due.
e. the possibility of loss when a contract cannot be enforced

66. Open ended loan allow the borrower to borrow additional amount subject to the
maximum amount less then a set value. State True or False.
True False

67. Which risks may bring gains as well as losses?

a. Credit risk and interest rate risk


b. Liquidity risk and credit risk
c. All these risks may lead to profits as well as losses
d. Credit risk and foreign exchange risk
e. Interest rate risk and foreign exchange risk

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68. Banks are financial institutions that are licensed to accept deposits and issue loans
True False

69. Bank A, based in the US, provides safekeeping services for securities to its US clients. It
also has clients in France and Belgium, and provides securities safekeeping services to
these clients through Banks C and D respectively. Which of the following terms best
describes Bank A?
a. Sub Custodian b. Secondary Custodian c. None of the listed Options
d. Main Custodian e. Global Custodian

70. Credit derivatives can be used to ___________ the risk and ___________ the regulatory
capital requirements.
a. Diversify; reduce b. Manage; avoid c. Transfer; increase
d. Assess; estimate e. Eliminate; improve

71. Liquidity refers to the ease with which an asset can be converted into cash. State True
or False.
True False

72. Trade Finance helps in:


a. Facilitating corpoate lending b. Facilitating intra-company transactions
c. Facilitating International transactions, corporate lending and setting up of new factories
d. Facilitating International transactions e. Facilitating setting up of new factories

73. Which of the following is not a core private banking function?


a. Investment Analysis and Advise b. Sales and Marketing
c. Deposit Mobilization d. Client Management e. Research

74. An insurer undertakes an analysis of a portfolio of insurance policies by exploring


scenarios for the paths followed by swap rates, policy surrender rates, mortgage
prepayment rates for the mortgage-backed securities in the portfolio, etc. What is this
process called?
a. Cash projections b. Fund Administration c. Asset/Liability analysis
d. Investment Manager Universe e. Asset allocation

75. The Brokerage firms are regulated by:


a. State regulatory agencies b. Industry wide SROs c. SEC d. All of the listed options

76. Which of the following factors affect the choice of payment methods?
a. Government Guarantee Program b. All of the listed options
c. Cost of financing d. Time frame e. Exporters Fund

77. Which of the following is associated with the purpose of regulating financial institutions?
a. To offset the moral hazard incentives provided by deposit insurance and other
guarantees.
b. To provide stability of the money supply c. None of the listed options
d. To prevent failure of any financial institution
e. To serve certain social objectives

78. Retail banking is banking services provided for corporates. State True or False.
True False

79. If the funding cost of a Company goes up due to hardening of interest rates, this can be
attributed to

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a. Commodity Risk b. Liquidity Risk c. Operational Risk
d. Legal Risk e. Interest Rate Risk

80. I deposit $100 in a bank. Bank loans out $90 out of it to someone else who then invests
the money in setting up a new factory. This process is called?
a. Profit making tendancies of the Bank b. None of the listed options
c. Monetery Policy d. Money Multiplier Effect e. Fiscal Policy

81. Which of the following is NOT an example of an Asset Based Loan?


a. Auto Loan b. Home Loan c. Personal Loan d. All of the listed Options

82. The purchase of any stock for immediate delivery is a ______ market transaction.
a. Option b. Forward c. Spot d. Futures e. Stock

83. Universal banks provide commercial banking as well as investment bank services under
one roof. State True or False.
True False

84. If 1 day VaR is $ 1 million, 9 Day VaR is


a. $ 9 Mn b. $ 3 Mn c. $ 4.5 Mn d. $ 4.4 Mn e. $ 1 Mn

85. Which of the following is NOT a potential benefit of Straight Through Processing ?
a. Increased diversity in IT systems of various players supporting the trade cycle
b. Increased liquidity
c. Reduction in trade processing time
d. Drastic reduction in operational risk through reduction of human element
e. Elimination of delays in settlement

86. The "Compliance reporting" service, offered as part of Investor services in the US,
provides automated, __________, information highlighting potential violations of pre-agreed
investment guidelines, external regulations & internal risk exposure limits
a. Risk-based b. Exception-based c. Rule-based d. Client instruction-based

87. The Advising bank is used as a trusted bridge between the __________ and
_______________ when they do not have an active relationship
a. Issuing bank; Confirming bank b. Beneficiary bank; Reimbursing bank
c. Issuing bank; Beneficiary bank d. Importer; Exporter
e. Reimbursing bank; Beneficiary bank

88. Pick the odd one out


a. Merill Lynch b. Federal Reserve c. CSFB d. UBS
e. Saloman Smith Barney

89. Which of the following are disadvantages of using LC (Letter of Credit)?


a. Credit Line tied up. b. Costly c. Specific and Binding
d. Deals with documents and not with products
e. Time consuming

90. CPI stands for which of the following?


a. Consumer Popularity Index b. Consumer Product Index
c. Consumer Price Index d. None of the listed options
e. Consolidated Price Index

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91. Which of the following holds true for an LC (Letter of Credit)
a. Are typically revocable unless specified otherwise.
b. Advising bank has the liability for the payment of the LC.
c. Shifts credit risk from the Importer to the Importer's Bank (Issuing Bank).
d. Deals with products and not with documents
e. One of the relatively cheaper forms of payment guarantee.

92. Which of the following is not a derivatives instrument?


a. Futures b. Corporate Bonds c. Put Options d. Call Options e. Swaps

93. In a 2 way quote for a share the bid is


a. more than offer b. equal to offer c. less than offer
d. 2% less than offer e. dependent on dealer's skill

94. HPPL shares are currently selling for $25.00 each. You bought 200 shares one year ago
at $24 and received dividend payments of $1.50 per share. What was your total dollar
capital gain this year?
a. $300 b. $200 c. $400 d. $500 e. None of the listed options

95. A bank providing custody services is in a good position to offer securities lending
services to its clients as well. State True or False.
True False
96. Which of the following operations can be done on a LC (Letter of Credit)?
a. Purchase b. Negotiate c. Acceptance d. All of the listed Options e. Discount

97. Under what category can services like asset/liability analysis, asset allocation, cash
projection, compliance reporting, fund administration, investment manager universe, etc.
provided by an institution be classified?
a. Asset servicing b. Investment management c. Investor services
d. Trading e. None of the listed Options

98. Which of the following best describes bank systems?


a. Unregulated and safe b. Unregulated and unsafe
c. Regulated and unsafe d. None of the listed Options
e. Regulated and safe

99. In a economy where inflation is 9%, future value of 100 units of money after 2 year
would be which of the following?
a. Around Rs 109 b. None of the listed options c. 118.8
d. Exactly 120 e. Exactly 100

100. An investor wants to undertake a cross-border transaction in a security. Which of the


following does NOT correctly represent a way in which such a trade may be settled?
a. Directly through a local agent who is a member of the local depository
b. All of these are valid ways for settling the cross-border trade
c. Through a Global Custodian, operating through a local agent, who is a member of the
local depository
d. Through an International Central Securities Depository, which has direct links with the
local depository
e. Through direct communication link between investor's depository and local depository

101. You purchased a stock for $40. One year later you received $2 as dividend and sold
the share for $48. What was your holding period return?

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a. 10% b. 50% c. 45% d. None of the listed options e. 25%

102. NASD is an not an SRO for ____________.


a. Over the counter market b. Second Market c. Fourth Market
d. Listed Market e. Third Market

103. A successful wealth manager needs to know about ___________.


a. All of the listed options b. 401 k rollovers c. tax and estate planning
d. fixed income investments e. equity investments

104. Offer is the price at which a firm


a. intends to buy b. trades in securities c. quotes when it does not want to trade
d. quotes to its best customers e. Intends to sell

105. Which of the following best describes how banks make loans?
a. None of the listed Options b. Reasonably, not depending upon risk
c. Without limitation d. Blindly with equal offers to all customers
e. Reasonably, depending upon risk

106. Which of the following is not an example of an option?


a. Oil Futures b. Call Option c. Put Option d. Swaption e. LEAPS (Long Term Options)

107. If the price of shares of Cognizant change from $ 65 to $ 60, this can be attributed to
a. Credit Risk b. Interest Rate Risk c. Operational Risk d. Liquidity Risk e. Market Risk

108. A company would pay the interest on what portion of the loan?
a. Disbursed amount b. Unused amount of the loan c. None of the listed Options
d. Either disbursed or committed amount e. Committed amount

109. A bank is required to hold reserves at least equal to a prescribed fraction of its total
deposit liabilities. State True or False
True False

110. Securities with an original maturity of greater than 1-year are traded on money markets.
State True or False.
True False

111. Interest rates are ____________.


a. the prices paid for the use of a real asset b. the prices paid for the use of a real liability
c. the prices paid for the use of a financial liability
d. the prices paid for the use of a financial asset
e. the prices paid for the use of a financial liability and the prices paid for the use of a
financial asset

112. Basel capital accord was instituted to coordinate global regulatory efforts to institute
_______________ capital requirements to eliminate the threat posed by _____________
a. Minimum; undercapitalized banks
b. Maximum; undercapitalized financial institutions c. Minimum; overcapitalized banks
d. Maximum; overcapitalized financial institutions e. None of the listed Options

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113. Which of the following trading services reduces the trading costs for institutional
investors?
a. Transition management b. None of the listed Options
c. Transition management and commission recapture
d. Commission recapture e. Stock repurchase program

114. Money Market accounts never require a minimum balance to operate. State True or
False.
True False

114. which of the following is not a feature of private banking?


a. Specialist Advice b. Commercial Lending c. Lot of research
d. High Investment in technology e. Understanding the capital and investment needs

115. What happens when the interest rates fall?


a. Interest rates never fall, they always go up b. Economy goes into a deflation
c. Bond prices decrease d. Bond prices do not change e. Bond prices increase

116. What are the two types of portfolio management services?


a. Penny wise and Pound wise b. X and Y c. Directed and Straight
d. Discretionary and Non Discretionary e. Universal and Local

117. Who backs the dollar?


a. None of the listed Options b. The treasury
c. Private companies d. The government e. The Fed

118. Warrants are the combination of which of these instruments?


a. Cash and Call Options b. Equities and Futures c. Call and Put Options
d. Equities and Call Options e. Put Options and Swaps

119. Which of the following is computationally the fastest method for calculating VaR
a. Monte Carlo Simulation b. Historical Simulation
c. All would take equal time if done using a software
d. Variance-Covariance Matrix
e. A combination of Monte Carlo and Historical Simulation

120.Factoring is______________
a. Purchase of account receivables at a discount
b. works mostly with capital goods c. sharing risk with third party
d. works with medium and long term receivables
e. a discounting method without recourse

121.A life insurance company has guaranteed a payment of $ 8 Million to a pension fund,
4 years from now. If the Insurance company has received a total premium of $ 6.5
million, and can invest this entire amount for 3 years at 6.75 %, will it have sufficient
funds to meet the $ 8 million obligation?
a) No
b) Yes
c) Insufficient data to draw any conclusions

You have invested $5000, for 5 years and 3 months @ an annual interest rate of 6%.
122.
What is the future value of this amount?

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a) $ 6890.42
b) $ 6789.31
c) $ 6780.24
d) $ 7346.51

123. An investor is considering the purchase of a financial instrument, that promises to


make the following payments:
Year 1 $ 100
Year 2 $ 100
Year 3 $ 100
Year 4 $ 1,200
What is the price she should pay for this instrument, assuming she wants a 7% annual
interest rate?*
* PV Values of $ 1: PV(1,0.7) (i.e. discounted over 1 period by 7%) = 0.9346
PV(2,0.7)=0.8734; PV(3,0.7) = 0.8163; PV(4,0.7)= 0.7629600

a. $1500
b. $ 1231.31
c. $ 1177.91
d. $ 1096.28

Data for questions 4-7: The following data is gathered from Cognizants annual report
2002 (it is not an exact copy).Use this to answer the next 3 questions. (all $ values in
millions)
Total Revenue : $ 229.08
Direct Cost $ 122.7
Tax 23.35%
Interest Income $ 1.8
Depreciation & Amortization $ 7.84
# shares outstanding 59.2 Mn
Selling, General & $ 53.34
Administrative Expense
Other expenses $ 1.9

124.What is the Gross Profit?


a. $ 106.38 Mn
b. $ 227.18 Mn
c. $ 104.48 Mn
d. $ 51.14 Mn

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125. What is the EBIT?
a. $ 106.38 Mn
b. $ 53.04 Mn
c. $ 52.94 Mn
d. $ 45.10 Mn

126. What is the PAT?


a) $ 45.1 Mn
b) $ 35.5 Mn
c) $ 34.56 Mn
d) $ 52.94 Mn

127. What is the EPS?


a. 0.76
b. 0.599
c. 0.58
d. 0.63

128. .A firms undistributed profit falls under which category in the balance sheet?
a) Working Capital
b) Asset
c) Owners Equity
d) Borrowings

Leary Corporation's snapshot as of December 31, 2002 is presented below in random


order.
Accounts receivable $60,000
Shareholders' equity $377,000
Short term debt $130,000
Accounts payable $37,000
Inventory $165,000
Equipment $500,000
Long-term debt payable $ 350,000
Land $194,000
Cash $25,000
Prepare the balance sheet for December 31, 2003, and answer questions 9-13.
Assume depreciation @ 10%, using straight-line method

129. With the above data, what is the total of the assets /or liabilities+shareholders equity
?
a) $ 944,000
b) $ 894,000
c) $ 900,000

14
d) $ 874,600

130. What is the total of the Current Assets?


a. $ 250,000
b. $ 85,000
c. $ 225,000
d. $ 190,000

131. What is the total of the Current Liabilities?


a) $ 165,000
b) $ 377,000
c) $ 350,000
d) $ 167,000

132.What is the amount of depreciation?


a. $ 0
b. $ 19,400
c. $ 50,000
d. $ 69,400

133. What is the total of short term liabilities?


a) $ 727,000
b) $ 377,000
c) $ 350,000
d) $ 167,000

134. ABC Corporation Ltd.s capital structure is given below. How much minimum cash
will the company need to meet its necessary payment obligations to investors this year?
Pref. equity $ 1,000,000 dividend rate 9%
Debentures $ 500,000 8% interest rate
Secured Loans$1,200,000 5% interest rate
Common shares $1,000,000 -
Assume that principal need not be repaid this year on any debt, and that ABC Corp is
making no profits this year.
a. $0
b. $190,000
c. $100,000
d. $60,000

135. The following are the cash flows for a trader over the next 7 days. He has Rs. 10,000
in his current account with the bank. The bank also offers an overdraft facility. Does the
trader need to use overdraft on his account? If yes, how much should be the minimum

15
overdraft allowed by the bank? Assume that all payments are made using checks on the
account and similarly all incoming payments are deposited directly in the same account.
Assume that he gets a 1-day float on the payments made using checks, and checks he
receives get credited immediately. Also assume that debits and credits for a day take
place at the same time.
Day 1: Pay supplier Rs. 5,400
Day 2: Pay telephone bill Rs. 4,000
Receive payment Rs. 1,800
Day 3: Pay instalment on Loan Rs. 5,200
Day 4: Receive payments Rs. 3,900
Day 5: Pay salaries Rs. 2,500
Receive payments Rs. 1,700
Pay to Supplier Rs. 5,500
Day 6: Reimburse expenses Rs. 1,400
Day 7: Receive payment Rs. 1,950

a. No, he doesnt need an overdraft


b. Yes, and the min. limit should be Rs. 4,650
c. Yes, and the min. limit should be Rs. 6,600
d. Yes, and the min. limit should be Rs. 5,200

136. Using the data of the question above: The following are the cash flows for a trader
over the next 7 days. He has Rs. 10,000 in his current account with the bank. The bank
also offers an overdraft facility. Does the trader need to use overdraft on his account? If
yes, how much should be the minimum overdraft allowed by the bank? Assume that all
payments are made using checks on the account and similarly all incoming payments are
deposited directly in the same account. Assume that he does not get a 1-day float on the
payments he makes using checks. Checks he receives get credited immediately. Also
assume that debits and credits for a day take place at the same time.
Day 1: Pay supplier Rs. 5,400
Day 2: Pay telephone bill Rs. 4,000
Receive payment Rs. 1,800
Day 3: Pay instalment on Loan Rs. 5,200
Day 4: Receive payments Rs. 3,900
Day 5: Pay salaries Rs. 2,500
Receive payments Rs. 1,700
Pay to Supplier Rs. 5,500
Day 6: Reimburse expenses Rs. 1,400
Day 7: Receive payment Rs. 1,950

a. No, he doesnt need an overdraft


b. Yes, and the min. limit should be Rs. 4,650
c. Yes, and the min. limit should be Rs. 6,600
d. Yes, and the min. limit should be Rs. 5,200

16
1. You invest Rs.5000 at 8% p.a. compound interest in a bank. After 5 years, what is the
amount you have received from the bank?
Rs.12346 Rs. 7000 Rs. 2346 Rs. 7346 Rs. 7546

2. Your friend invests Rs.8000 in the some bank at 10% p.a. His interest is getting compounded
each year. At the end of 5 years, how much interest will he have earned on his investment?
Rs. 4845.6 Rs. 4000 Rs. 12000 Rs. 4884.08 None of the listed
Options

3. Your brother calls you, saying that he has found a great plot of land, which requires a payment
of Rs.50, 000 immediately, which he has made. He asks you to pay the Rs.2, 50,000 which is due
after one year. You have Rs.2, 25,000 right now, and want to invest it right away, to yield the
desired amount after one year. However, it is also your hard-earned money, and rather than
simple go for the highest return, you want to find the right risk-return balance. Here the options
open to you, which one would you chose?

a. Investment Option: Bank Fixed Deposit 1, Rate of return offered: 11% p.a.
b. Investment Option: Bank Fixed Deposit 2, Rate of return offered: 11 % semi annually
compounded every 6 mths
c. Investment Option: Co-operative Bank FD, Rate of return offered: 14% p.a
d. Investment Option: Friends business, Rate of return offered: 18% p.a.
e. Investment Option: Share market

4. Present Value of Rs.600 received one year from now (using 15% time value rate) is
510 521.7 690 517.2 None of the listed Options

5. An investor is considering the purchase of a financial instrument that promises to make the
following payments:
Yrs from now Promised Payments
1 Rs. 2000
2 Rs. 2000
3 Rs. 22500
Investor wants exactly 6% return on the investment. At what price should the investor buy the
instrument?
22512 22558 23021 21000 21500

6. A person borrows $12,000 from a private money lender at a rate of 9.50% for a period of 1
year, when the average inflation rate for the period is 4%. The real rate of interest is ____ while
the nominal rate of interest is _____.
9.50%, 13.50% 9.50%, 5.50% 9.50%, 9.50%
9.50%, information not sufficient for finding real rate of interest
None of the listed Options

7. The real rate of interest is 7.60% while the nominal rate of interest is 9.70%. The applicable
inflation rate is:
2.10% -2.10% 13.10% 0% None of the listed Options

8. As nominal interest rates increase in the economy, the inflation should ideally:
Decrease Remain same Increase
Depends on rate of increase in real interest rates
None of the listed Options

9. A person wants to borrow money from the banking system for the purpose of an overseas
holiday. Bank A offers him an interest rate of 5.15% p.a. payable monthly, bank B offers him

17
5.20% p.a. payable semi-annually while Bank C offers him 5.25% p.a. payable annually. Which is
the cheapest option for the borrower?
Bank A Bank B Bank C All of them are the same Both Bank B & Bank C

10. Find the future value of $1200 invested at 5.25% p.a. payable quarterly, after 5 years?
1465.2 1280.95 1557.55 1987.4 None of the listed Options

11. Find the future value of $1200 invested at 5.25% p.a. payable annually, after 6 months?
1231.1 1243.1 1235 1345.1 None of the listed Options

12. Find the present value of $1200 payable after 2 years, assuming the applicable interest rate is
5.10%?
1131.1 1078 1065 1086.36 None of the listed Options

13. Person A wins a lottery and the lottery organizers give the man the following options: Receive
$120,000 no or receive $135,000 after 18 months? Assuming bank rates are at 8% p.a. payable
quarterly, which is the better option?
Receive $120,000 now Receive $135,000 after 18 months
Both options are equally good Depends on bank rates at the end of 18 months
None of the listed Options

14. An investment of 12,000 at the beginning of Year 1 yields $1000 at the end of Year 1, $1200
at the end of Year 2 and $1300 at the end of Year 3, apart from recovery of principal. What is the
NPV of the investment assuming re-investment and a cut-off yield of 9.00%?
$201.20 $3,500.00 $1,012.20 $181.20 None of the listed Options

15. An investment of 10,000 at the beginning of Year 1 yields $1200 at the end of Year 1, $1500
at the end of Year 2. What should be the return at the end of Year 3, apart from principal recovery,
to justify the investment with a cut-off yield of 15.00%?
$14,000.00 $13,423.67 $11,896.75 $12,345.90 None of the listed Options

16. A consumer goods company has a market share of 23% in the Flat screen television industry.
The company is weighing the option of investing an additional $1.2 million in modernization and
expansion, which is expected to yield additional revenues of $0.4 million over the first 3 years
while it would yield $0.3 million and $0.1 million each in years 4 and 5. Assuming that the time
window for the investment is 5 years and the hurdle rate for investments is 15%, should the
company go for the investment from a purely financial perspective?
No Yes Maybe Insufficient information None of the listed Options

17. An investor has multiple investment options yielding various dollar returns at various points of
time, while he is comfortable with a return of X% p.a. Which method should he use to compare
the various investments?
IRR NPV Either of these Insufficient information None of the listed Options

18. An investor estimates an investment of $15,000 to yield returns of $1200 each at the end of
the first 3 years apart from return of principal at the end of 3 years. Assuming that the inflation
rate is 5%, should the investor opt for the investment?
No Yes Maybe Insufficient information None of the listed Options

19. What is the IRR for an investment of $ 10,000 that yields a return of $1000 at the end of each
of the first 3 years, $600 at the end of the 4th and 5th years and principal recovery at the end of 5
years?
5.55% 7.65% 8.47% Insufficient information None of the listed Options

20. The following concepts are derived from the basic concept of time value of money except:
Present value Future value IRR Net Present Value None of the listed Options

18
21. A young student looking for monthly income should invest most of his savings in
Bank deposits & Fixed Interest instruments Regular dividend paying companies
Blue-chip shares Zero coupon bonds Real estate

22. Savings bonds are:


Issued by department of Treasury Unregistered
Transferable without registration
Issued by department of Treasury and Transferable without registration
Unregistered and Transferable without registration

23. The interest rate on a bond doesnt depends on


Years to Maturity Credit Rating of the Issuer Currency of Issue
Bond Face Value All of the listed options

24. What is the Yield to Maturity for a 6% - 5 years bond with face value $ 1000 trading at $ 800
after one year?
7.50% 6% 11% 7% 10%

25. Unsecured bonds are:


Issued only by large and financially sound companies
Secured by assets of the issuing company.
Have lower priority for repayment than secured debt
Issued only by large and financially sound companies and Secured by assets of the issuing
company.
Secured by assets of the issuing company and Have lower priority for repayment than secured
debt

26. In what form are bonds typically issued in US?


Physical, Registered
Electronic, Registered
Physical, Registered and Electronic, Registered
Physical, Unregistered
Electronic, Unregistered

27. What is the backing for a Mortgaged Bond?


No backing Bank Guarantee The credit worthiness of the issuing company
Real estate owned by the Issuer None of the listed Options

28. What secured debt securities are generally backed by a portfolio of non-issuer securities,
usually U.S. Government Securities?
Debentures Bearer Bonds Collateral Trust Bonds Junk bonds Equipment
Trust Debenture

29. What bondholders would have a general creditor status?


Debentures Bearer bonds Unsecured bonds Junk bonds Equipment Trust
debenture

30. What is the S & P ratings below which bonds are considered to be speculative?
Less than AAA Less than BBB Less than CCC D Junk grade

31. What securities experience Reinvestment Risk?


Cumulative Interest Bonds Callable bonds Zero coupon bonds Junk bonds
None of the listed Options

32. What are the current maturities for T-Bills?

19
1, 2 and 3 months 3, 6 and 12 months 1, 2 and 3 years1 month only None of the
listed Options

33. What is the maximum maturity for Commercial Paper?


90 days 180 days 270 days 360 days None of the listed Options

34. Who sets the Fed Funds Rate?


Federal Reserve Banks SEC Stock Exchanges Investors 1

35. Negotiable securities are:


Sale price can be negotiated Freely transferable
Can only be sold to the issuer Cant be sold except on maturity
Have a lock in period

36. Mutual funds


Are often riskier than investing in individual stocks.
Require investors to invest very large sums of money, which eliminates small investors.
Are less riskier than individual stocks as the fund managers invest in a diversified
portfolio
Give much greater returns than the stock index Carry no risk

37. Hybrid securities are


Combination of Preference and Common stock
Combination of put and call Combination of debt and equity
Combination of growth and income None of the listed Options

38. Why would an investor choose to invest in Money Market Securities?


Investor looking for capital gains Investor looking for liquidity
Arbitrageur Investor looking for regular income None of the listed Options

39. Which of the following bonds involves highest risk?


Subordinated debenture bonds. Debenture bonds.
Collateral bonds. Mortgage bonds None of the listed Options

40.Which of the following statements is true about futures?


Future prices are paid for current transactions
Risk is often increased when dealing in futures because buyers and sellers may be required to
accept a price other than the one to which they agreed.
Financial futures are traded primarily at the New York Stock Exchange.
Investors may hedge their risk by entering into futures
Futures are same as Options

41.The responsibility of enforcing futures contracts is taken on by


A clearing house. The brokers who struck the deal.
Banks The buyer and seller. Arbitrageurs

42.What provides the incentive for someone to sell an option when that individual has no rights,
just obligations?
The seller stands to gain from changes in interest rates.
The seller stands to gain from changes in prices.
Selling options is relatively risk free
The seller earns commission
The buyer must pay an option premium to the seller.

43. Which of the following is used primarily by financial intermediaries to hedge interest rate risk
for long periods of time (up to 15 years)?

20
Swaps. Put options. Futures Call options LEAPS

44. Which of the following is not an example of a derivative?


Financial futures Options Preferred stock of a company Swaps
Swaptions

45. Company ABC Inc. Declares bankruptcy. Now, $180 million has been accumulated through
liquidation of its assets. The main stake holders in the firm are debt holders (Bank of New York -
$140 million, Union Bank of California - $30 Million) and equity holders (Templeton Investments -
$100 million).
What is the amount that the three stake holders end up with (in $ million)? (In the order, BNY,
UBC and TI)
30, 140 and 10 60, 60 and 60 93, 20 and 67 140, 30 and 10
140, 30 and 0

46. If General Electric would borrow $300 million from Bank of America, how would its balance
sheet be affected in terms on leverage ratio?
Leverage ratio would remain the same Leverage ratio would increase
Leverage ratio would decrease Leverage ratio has no relation with borrowing
None of the listed options

47. People who buy stock in a corporation such as Coca Cola become
Part owners of Coca Cola, so the benefits of holding the stock depend on Coca Colas profits
Part owners of Coca Cola, but the benefits of holding the stock do not depend on Coca
Colas profits
Receive interest
Creditors of Coca Cola, so the benefits of holding the stock depend on Coca Colas profits
Creditors of Coca Cola, but the benefits of holding the stock do not depend on Coca Colas profits

48. Assuming that IBM has paid handsome dividends to its shareholders this year, what would be
a right assumption to make?
No relationship between interest and dividend payouts
IBM has only paid dividends and no interest on its issued bonds
IBM has paid the dividends after paying interest to its bondholders
IBM will pay interest if it has enough cash after its dividend payout
IBM will pay interest only if it is still in profit zone after the dividend payout

49. Municipal bonds


Are exempt from federal taxes.
Usually have yields that are higher than U.S. government securities with similar maturities.
Are guaranteed by the federal government.
Usually support real estate spending and student loans.
Are junk grade bonds

50.Bonds with relatively low risk of default are called


Zero coupon bonds Junk bonds Investment grade bonds Price-premium
bonds High Yield bonds

51. A young investor comes to an Investment Consultant and asks him for advice for his
investments. He declares that he doesnt mind the risk but he would definitely like his money to
grow as fast as possible. He would like to invest in a Mutual Fund which would satisfy these
criteria. What would the consultants choice for his profile?

Income Fund Liquid Fund Growth Fund Balanced Fund Bank Deposit

21
52. Reliance Industries Limited, India would like to raise money in NYSE for expanding its
operations in the domestic market (India).The securities issued would be
American Depository Receipt Indian Share Public offering in India
Global Depository Receipt None of the listed options

53. If I expect the price CTS share price to rise by $5 from its current levels within 1 month, then
which would be the best option?
Buy a put option on CTS stock Sell a put option on CTS stock
Buy a call option on CTS stock Sell a put option on CTS stock
Buy a put as well as a call at different strike prices

54. Casablanca Inc. Issues $100 million worth of securities which will continue to pay a fixed
coupon of 2% annually for next five years.The investors also have an option of converting the
security into equity after the first year. Such a security would be termed as
Convertible Bond Preferred Stock Stock Option Forward Contract Futures

55. State and local government or municipal bonds have one unique feature that makes them
attractive to wealthy investors.Which of the following is that unique feature of "muni" bonds?

They are exempt from state taxation for all investors


They are exempt from federal and state (resident investors) income taxation
State and municipal bonds usually have coupon rates
State and local municipal bonds are all revenue bonds
They have high credit rating

56. If IBM finds it much cheaper to raise money in US and Vodafone in UK. However, both IBM
would like to raise money in UK and Vodafone in US, both of which are costlier propositions for
the firms. What would be best possible solution to this problem?
Future contract LEAPS Vanilla Call Option Forward Contract Currency Swap

57.Forward contracts are promises to buy or sell foreign exchange:


On a futures exchange at some time in the future.
On a specific future date at a price established on that specific future date.
At a specific forex rate at some time during the contract period.
At a specific price on a specified future date.
None of the listed Options

58. If the forward rate (Forex/U.S. dollar) is selling at a premium over the spot rate, which of the
following statements best reflects the expectations of the foreign exchange market?
No forecast can be made with forward contracts
The U.S. dollar is expected to appreciate
The foreign currency is expected to appreciate
The spot rate is expected to remain constant
None of the listed Options

59. A U.S. importer who owes 1 million Canadian $ in 90 days and wishes to hedge his/her
foreign exchange risk would:
Take no action
Wait and buy Canadian in the spot market in 90 days
Sell Canadian dollars forward for delivery in 90 days
Buy Canadian dollars forward for delivery in 60 days
Buy Canadian dollars forward for delivery in 90 days

60. A U.S. importer of Canadian nickel ore with an invoice to pay $1 million U.S. dollars in thirty
days would

22
Pay the invoice in thirty days.
Buy a forward contract in U.S. dollars for delivery in thirty days.
Sell Canadian dollars in the futures market.
Sell US dollars in futures market
Purchase Canadian dollars for delivery in thirty days.

61. A U.S. importer who has agreed to pay 1 million Euros to a French exporter in 60 days
decides to wait the full 60 days before paying. The importer is
A foreign exchange speculator
Expecting the dollar to depreciate against the Euro
A hedger in the foreign exchange market
Planning to pay a set amount of dollars for the items purchase
None of the listed Options

62. A hedger in the financial futures market


Usually buys financial futures to hedge
Usually sells financial futures to hedge
Either buys or sells financial futures contracts so that the underlying asset spot gains/losses are
directly related to futures contract gains/losses
Either buys or sells financial futures contracts so that the underlying asset spot
gains/losses are inversely related to financial futures contract gains/losses
None of the listed Options

63. Who will lose money if the price of any underlying instrument falls?
The seller of a futures contract The buyer of a put.
The writer of a call. The buyer of a futures contact.
None of the listed Options

64. The value of options


Varies inversely with the price variance of the underlying asset.
Varies directly with the length of time to expiration.
Varies inversely with the level of interest rates
Increases with the decreased volatility of the underlying asset.
None of the listed Options

65. A Standard and Poor's bond rating of AAA refers to


High quality investment grade bonds.
Bonds of high quality, but with an elevated risk of long-term default.
Non-investment grade bonds, with uncertain long-term prospects.
Government bonds only
None of the listed Options

66. The first time a company issues stock to the public the issue is called
An initial public offering (IPO).
A secondary offering.
A stock option.
Internal financing.
An initial public offering (IPO) and Internal financing

67. Common stockholders usually trade ________ to preferred stockholders in return for
__________.
Interest income; voting rights
A prior claim on dividends; higher dividend income
A prior claim on dividends; voting rights
Their residual claim on assets in liquidation; preferred claim on dividends
Both 2 and 3

23
68. Leverage financing refers to
Using Promoters credibility to raise money
Leveraging brand value to issue equity
Using debt finance
Selling assets to raise money
Use of retained profits for expansion

69. Preferred stock dividends are paid


Each year on a contractual basis, but before common dividends.
After common dividends are paid.
Before interest is paid on debt.
If declared by the board of directors.
After both interest and common dividends are paid

70. The purchase of U.S. Treasury bonds for immediate delivery is a ______ market transaction
Stock Option Spot Futures Forward

71. Suppose Ruthie has the option of receiving a $10,800 payment today or a $15,868.7 payment
in six years. Which of the following statements is true if the interest rate is 8 percent?
She should take the $10,800 today because the present value of the $15,868 paid in six years is
only $9,752.54.
The present value of the $10,800 is $15,868.74.
She should take the $15,000 in six years because $15,000 is more than $10,000.
She should take the $15,000 in six years because the future value of $10,800 is only $15,000.
Both are equal

72. The buying or selling of securities with the hope of profiting from privileged information is
known as
Speculation. The spot market. Arbitraging The futures market. The term to maturity.

73. If the issue price of a 5 year zero-coupon bond is $940 and its redemption price is $1000,
market price $955,then the difference amount of $45 stands for
The interest for the 5-year period
The return on the investment of $960
Both The interest for the 5-year period and The return on the investment of $960
Only 1
Premium on the bond

74. The effective interest rate on a bond, (when the price of the bond is greater than its par value)
Is lower than the coupon rate.
Is always equal to the coupon rate.
Increases as the bond price decreases.
Is greater than the coupon rate.
None of the listed Options

75. John holds 2007 maturity government security which pays a semi-annual coupon of 8%. What
should John do with this security?
Sell it, if interest rate is increasing
Sell it, if interest rate is decreasing
Sell it with the next coupon date, irrespective of interest rates movement
Sell it now or hold it till maturity
Can never sell

76. If bond portfolio managers expect interest rates to increase

24
They will anticipate a decrease in bond prices.
They will probably buy bonds now to avoid capital losses.
They will wait for the rates to actually change before taking any action.
They will probably sell more bonds now before the bond prices decreases.
They will buy short-term bonds.

77. Which of the following is not a characteristic of money markets?


They trade in a central location.
They have an active secondary market.
They are wholesale markets.
They are beyond the reach of small investors.
They trade in short term instruments

78. Investors use the money market


To reduce the liquidity of their funds.
To reduce the opportunity cost of idle funds.
To gain from expected declines in future interest rates.
To earn high returns on their investments.
To manage long-term cash requirements

79. Which of the following is true for The Fed funds rate
It can be raised if the Govt. buys securities from the public.
It can be raised if the Treasury will sell more bills.
It can be raised if the Govt. announces an increase in the rate at its regular meeting.
It is cost of borrowing immediately available funds for one day.
The Fed cant do anything because it is market determined.

80. If John, a foreign exchange trader sees that EUR/USD, EUR/JPY and USD/JPY show that he
could make money by buying two of them and selling the other, then what is he trying to do?
Arbitrage trading Hedging Taking high risks to get high returns
Both arbitrage trading and hedging Cant say

81.One potential problem that could be caused by the tremendous growth of the international
financial system in recent years is
Lower standards of living around the world.
That a disturbance in one financial market can spread more quickly to other countries.
That the additional transactions will make the international financial markets less efficient.
That economic growth will be likely to slow down in many countries
Higher Income inequality

82. Primary markets


Are markets in which primary goods and service, i.e. raw materials are traded.
Are markets in which short-term debt is traded.
Are markets in which claims that have already been issued are sold by one investor to another.
Are markets in which newly issued claims are sold to initial buyers.
Are markets in which shares are actively traded.

83. The current market interest rate is 10%. A coupon bond with a coupon payment of $70, a face
value of $1000, and with still ten years to maturity, will trade at what discount?
$1000. $0. $300. $200. $70

84. "Liquidity" is a term that is used to refer to


The ease with which assets can be converted into goods and services.
Financial assets in general.
The practice of converting financial assets into money.
Money.

25
The devaluation of assets in general.

85. Discount bonds are


Bonds that are currently trading below their face value.
Bonds that are currently trading above their face value.
Bonds that are sold below their face value, which yield interest payments in one lump sum
at the day of maturity.
Bonds that are sold at face value, but which yield interest payments in one lump sum at the day
of maturity.
Bonds that can be redeemed anytime at a discount 3

86. The money market trades debt


of a short-term maturity.
of a medium-term maturity.
of a medium-to-long-term maturity.
of a long-term maturity.
of all types of maturities.

87. Say you buy a bond with a face value of $1000 at a discount for $750. The bond still has 10
years to maturity, and the coupon rate on the bond is 10%. The yield to maturity of this bond is
approximately
70%. 14%. 10% 7% 12.5%

88. Which of the following classifies financial markets by term to maturity?


Debt vs. equity market
Money vs. capital market
Spot vs. futures market
Primary vs. secondary market
None of the listed Options

89. The initial sale of a security is in the ______ market, while subsequent trading in the security
is in the ________ market
Primary; secondary
Secondary; primary
Money; capital
Spot; futures
Debt; equity

90. Which of the following functions of financial markets best describes the primary functions of
the financial futures market where trading is done for delivery some time in the future?
Speculation; raise funds
Payments system; risk management
Risk management; speculation
Funds intermediation; risk management
Raise funds; payment system

91. The financial system


Provides risk sharing, liquidity and information services.
Provides liquidity services only.
Provides information services only.
Refers to the banking system only.
Where only financial assets are bought & sold

92. While the primary market provides ________ for spenders, the secondary market
provides ________ for investors

26
Funds; liquidity
A place for investing; liquidity
Funds; low risk
Securities; funds
Low risk; high returns

93. Which of the following is associated with increased liquidity of a security?


Increased transactions costs
Increased time it takes to sell a security
Increase in taxes for every transaction
Increased number of dealers trading the security
All of the listed options

94. Which of the following is not associated with money market securities?
Short-term Marketable High quality Equity securities Repo

95. The second largest amount of capital market securities outstanding, after common stock,
is
Corporate and foreign bonds Mortgages U.S. Treasury securities
U.S. Agency securities Municipal Bonds

96. Regulations limiting risk taking of financial institutions are imposed for which of the
following reasons?
The social costs to shareholders of a general bank failure are more than the private cost of
the bank failure.
The costs of regulation exceed the benefits.
The private costs of a bank failure exceed the social costs of general bank panic.
The social costs of a general bank failure exceed the private costs to the shareholders
of the bank that failed.
Private costs to the shareholders of the bank exceeds the social costs of the a general bank
failure.

97. Which of the following is associated with the purpose of regulating financial institutions?
To provide stability of the money supply
To serve certain social objectives
To prevent failure of any financial institution
To offset the moral hazard incentives provided by deposit insurance and other guarantees.
All of the listed options

98. Regulatory balance sheet restrictions are designed to


Limit the size of depository institutions.
Limit risk-taking and to encourage diversification.
Limit excessive diversification.
Encourage high risk-taking by proper diversification.
Limit diversification and encourage risk taking

99. Regulators' attempting to limit competition by restricted entry, exclusive services, etc.
was an attempt to serve which of the following purposes of regulation?
To promote competition in the financial services markets.
To promote limited quantities of financial services at maximum prices.
To promote safety and soundness of depository institutions.
To protect the soundness of the deposit insurance fund.
None of the listed Options

100. Which of the following are involved in the regulation of Capital Markets in the US?
Ginnie Mae Fed SEC The US government None of the listed Options

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101. Who among the following would not be a participant in the money-markets
Banks Central Bank Small Investor Companies Financial Institutions

102. Repos are considered the safest financial instruments as


They are backed by the government
They are of very short-term maturity
They come in very small denominations
They are backed by all big banks and companies
They offer lowest interest rates.

103. Individual investors are most likely to trade securities in


The primary market a brokered market an auction market
a block transaction a direct search market

104. Financial intermediaries differ from other businesses in that both their assets and their
liabilities are mostly
illiquid. owned by government real. financial regulated. 3

105. Insurance or a guarantee to cover losses of a financial institution may create a moral
hazard
Which is an increase in the chance that a random negative economic event will occur.
Which is an incentive to decrease risk-taking by the insured.
Which is an incentive to increase risk-taking by the insurance authority.
Which is an incentive to increase risk-taking by the insured.
Which is an incentive to decrease risk-taking by the insured

106. In what roles do investment bankers perform?


design securities with desirable properties
market new stock and bond issues for firms
provide advice to the firms as to market conditions, price, etc.
None of the listed options
All of the listed options

107. Financial intermediaries exist because small investors cannot efficiently


gather information
advertise for needed investments
monitor their portfolios
diversify their portfolios
All of the listed options

108. Exchange rate risk


results from changes in the exchange rates in the currencies of the investor and the country
in which the investment is made.
can be hedged by using a forward or futures contract in foreign exchange.
cannot be eliminated.
Both results from changes in the exchange rates in the currencies of the investor and
the country in which the investment is made and can be hedged by using a forward or
futures contract in foreign exchange.
results from changes in the exchange rates in the currencies of the investor and the country
in which the investment is made, can be hedged by using a forward or futures contract in
foreign exchange and cannot be eliminated.

109. A coupon bond is a bond that


does not pay interest on a regular basis but pays a lump sum at maturity
pays interest on a regular basis (typically every six months)

28
can always be converted into a specific number of shares of common stock in the issuing
company
always sells at par
None of the listed options

110. Under the present international monetary system,


Exchange rates fluctuate freely without government intervention.
Central banks determine the exchange rates in all countries
Supply and demand are the only factors for price determination. Central banks dont
intervene
Supply and demand are the primary forces that determine exchange rates, but central
banks may intervene if they believe currency values are over- or undervalued.
It is illegal for central banks of major countries to coordinate their intervention activities.

111. The presence of risk means that


Few outcomes possible Investors will lose money
Investors will gain money
The standard deviation of the return is large
Final wealth will be lower than the initial wealth

112. Which asset class would provide highest returns for the lowest risk?
Property Shares Bonds Cash Cant be answered

113. Which asset class would provide lowest returns for the highest risk?
Property Gold Bank deposits Cash Cant be answered

114. If REAL rate of return was 10% last year and inflation was 3%, what was your
investment returned?
3.30% 7% 13% 30% 10%

115. Which of the following statements regarding risk-averse investors is true?


They will only accept lower returns and low risk
They accept investments that provide high returns.
They only care about rate of return.
They will only accept higher returns and low risk
None of the listed options

116. Alex is a more risk-averse investor than Olivia. Therefore


For the same risk, Alex requires a higher rate of return than Olivia.
For the same return, Alex tolerates higher risk than Olivia.
For the same risk, Alex requires a lower rate of return than Olivia.
For the same return, Olivia tolerates lesser risk than Alex.
Both 2 and 3

117. If a T-bill pays 5 percent, which of the following investments would not be chosen by a
risk-averse investor?
An asset that pays 10 percent with a probability of 0.60 or 2 percent with a probability of
0.40.
An asset that pays 10 percent with a probability of 0.40 or 2 percent with a probability of
0.60.
An asset that pays 10 percent with a probability of 0.30 or 3.75 percent with a probability of
0.70.

29
An asset that pays 10 percent with a probability of 0.20 or 3.75 percent with a
probability of 0.80
An asset that pays 10 percent with a probability of 0.50 or 2.75 percent with a probability of
0.50

118. You purchased a share of stock for $20. One year later you received $1 as dividend
and sold the share for $29. What was your holding period return
45% 5% 50% 40% None of the listed options

119. Bank of America charges a lower rate of interest to Lockheed Martin than to General
Electric. This can be attributed to lower ________ risk from Lockheed as compared to GE
for Bank of America
Market Risk Credit Risk Liquidity Risk Legal Risk None of Above

120. If Bank of New York has found errors in settlement of transactions with some of its
customers, as there is some mistake in some of its systems. This would be classified as
Liquidity Risk Market Risk Credit Risk Country Risk Operational Risk

121. VaR is used for which of the following


Risk Measurement Risk Mitigation Risk Taking
Risk Assumption None of the listed options

122. A trader lost more than $50 million as the market moved against his positions.
However, when measured the previous day by hisrisk manager, his VaR for a single day was
defined at $20 million. Is this possible that the VaR is right
Yes because VaR does not cover 100% of the outcomes
No, it is impossible
Yes but only if the trader must have broken the VaR limit purposely
Both a and c
None of the listed options

123. Risk is best measured when looked at


At a Macro level
At the lowest possible level
At a sub-macro level
At organizational level
At country level

124. Which percentage of confidence for VaR is the most conservative?


99% 95% 96% 90% 68%

125. Which of the following is not a risk management measure?


Diversification Hedging Insurance Budgeting All are risk management techniques

126. Risk is best measured when looked at


At a Macro level At the lowest possible level At a sub-macro level
At a super-macro or organizational level
At a macro level and at the lowest possible level

127. Value-at-Risk can be estimated using


Monte Carlo Simulation Historical Simulation
Variance-Covariance Matrix Parametric methods
All of the listed options

128. Is time horizon of importance when calculating VaR?


Only for certain instruments Yes, for all financial instruments

30
No. It is not a factor used for calculations.
Yes but only time horizons lesser than a week
Yes but only high value financial instruments 2

129. What would be the most accurate VaR estimation method?


Monte Carlo Simulation Historical Simulation
Variance-Covariance Matrix Cannot Say Analytical Methods

130. VaR helps in describing which of the following?


How big the loss would be on a bad day.
How to minimize the loss on bad days
Approximately predict movements of asset to help minimize losses
Explains the loss on a bad day as compared to other days
None of the listed options 1

131. A 2.33 sigma limit for calculating risk would refer to what level of confidence?
95% 99% 99.99% 50% 100%

132. Risk-based capital requirements, under the Basel Accord, focused on what area of
commercial bank risk?
Default risk Interest rate risk Liquidity risk
Political risk None of the listed options

133. An investor's strategy of holding many risky assets in an attempt to reduce overall risk
is called ------------
Spread management Specialization Coincidentialization
Securitization. Diversification

134. If a financial instrument has a 35 percent chance of paying 29 percent and a 65 percent
chance of paying - 13 percent,it expected return would be
0.008 0.036 0.053 0.017 -0.029 4

135. Risk is usually measured as the


Potential loss. Variability of outcomes around some expected value.
Probability of expected values. Potential expected loss.
None of the listed options

136. The term "risk averse" means that


An individual refuses to take risks.
Most investors and businessmen seek risk.
An individual will seek to avoid risk or be compensated with a higher return.
Only investment proposals with no risk should be accepted.
Both An individual refuses to take risks and Only investment proposals with no risk should
be accepted

137. If one project has a higher standard deviation than another


It has a greater risk. It has a higher expected value.
It has more possible outcomes.
It may be riskier, but this can only be determined by the coefficient of variation.
Both It has a greater risk and It has a higher expected value 1

138. Which of the following is a false statement?


Risky investments may produce large losses.
Risky investments may produce large gains.
The standard deviation of returns is a risk measure.
Risk-averse investors cannot be induced to invest in risky assets.

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Both Risky investments may produce large losses and Risky investments may produce large
gains 4

139. Risk, as used in financial markets, means


The probability of a loss. The probability of a gain.
The probability of a gain and the probability of a loss.
The overall rate of return. The present value of a financial instrument. 3

140. Legal risk is the


Possibility that you will face legal action
Loss you could incur when legal action is taken against you
Possibility of loss when a contract cannot be enforced
Possibility of loss from errors in instructing payments or settling transactions
None of the listed options

141. The monetary value at risk is expressed as


A number between 0 and 1 Possible impact in Dollars
(1) * (2) cant be assigned None of the listed options

142. A Portfolio Manager is examining the stock performance of Company Dee. She sees
that, in the past, the maximum the stock has ever fallen is 5%. She buys 1 million worth of
Company Dee stock. Which of the following statements is true?
Her VaR is $50,000 with a confidence level of 100%
Her VaR is $ 5,000 with a confidence level of 100%
Her VaR is $ 50,000 with a confidence level of 0%
Her VaR is $1 Million with a confidence level of 100%
Her VaR is $ 1 Million with a confidence level of 0%

143. State which of the following statement(s) is (are) true


There is no risk without reward
There is no reward without risk
Increasing business in Europe also reduces a certain risk to Cognizants business
Both There is no reward without risk and Increasing business in Europe also reduces
a certain risk to Cognizants business
Risk doesnt change with time

144. State which of the following statement(s) is (are) true


Microsoft stock is the safest investment
It is better not to spend time and effort to identify and measure a risk if in the end we may
not undertake any risk mitigation measure
Risk management initiatives should reduce the risk to zero to obtain maximum benefit
All of above
None of the listed options

145. It is estimated that the probability of a particular risk in a project is 0.3 and the impact,
should the risk materialize, is $ 5,000, while the project is worth $ 3 million. The Project
Manager should
Compare the cost of risk management with the value at risk and decide on optimum
strategy
Take immediate action to reduce the probability to as low as possible
Ignore the risk the monetary value is negligible
Cannot say
Shouldnt take up the project

32
146. In 2002, interest earned on bank deposits was higher than profit from stock market
investments, even though deposits were supposed to have less risk associated with them. It
means
Bank deposits are actually riskier form of investment than share prices, since reward has to
be proportional to risk
The scenario described above is impossible; there must be an error in measurement
The risk-reward principle holds true over a long period, while in the short term it is
less certain
Cannot say
The risk-reward principle holds true over a short period, while in the long term it is less
certain

147. Following are the list of risks that Cognizant faces at an organization level EXCEPT
exchange rate fluctuation protective legislation by U.S/U.K
attrition payment default None of the listed Options

148. Following are the list of risks that your project or a typical project in Cognizant is
exposed to EXCEPT
attrition cost & time over-run incorrect requirements
requirement evolution None of the listed Options

149. The extent of diversification affects the following EXCEPT


risk return liquidity total investment None of the listed Options

150. Indian software firms lost a lot of money due to the Dollar appreciating against the
Indian Rupee. This risk could be term
Liquidity Risk Market Risk Credit Risk Legal Risk Price Risk

151. Fill in the blanks: The liability of a bank include ____________, while the assets of a
bank include _____________
Deposits, loans.
Savings accounts and large time deposits, checking accounts.
Long term deposits and short term loans Loans, deposits.
None of the listed Options

152. What is the best basis for the comparison of dividend paying stocks with other
investments such as bonds, certificates of deposits etc
interest spread exchange rate interest rate equity yield dividend yield

153. Banks are financial intermediaries that


a) Link lenders (depositors) to borrowers
b) Evaluate the likelihood of borrower repayment, reducing risk by developing a
diversified portfolio rather than lending to a single borrower.
c) Create monopolies, monetary & fiscal policies.
d) Both Link lenders (depositors) to borrowers and Create monopolies, monetary &
fiscal policies.
e) Both Link lenders (depositors) to borrowers and Evaluate the likelihood of
borrower repayment, reducing risk by developing a diversified portfolio rather
than lending to a single borrower

154. A bank failure is more likely to occur when


bank increases its equity capital bank holds more short-term riskless securities
bank large loans outflows bank increases its holdings of excess reserves

capital adequacy ratio is reduced

33
155. When you deposit $200 in currency into your bank
its assets decline by $200 its reserves decline by $200
its liabilities increase by $200 each of the above occur
its assets decline by $200 and its reserves decline by $200

156. Which of the following is NOT under the purview of the Central Bank
Monitoring foreign currency inflow and outflow
Stability of the financial system
Conducting the nations fiscal policy
Regulating the Banking institutions
Conducting the nations monetary policy

157. Which of the following represent tools available to the Fed to control the money supply?
a) The capacity to make direct commercial loans to the public.
b) The ability to inject or remove money held by the public by buying or selling
U.S. Treasury Bonds.
c) The ability to write legislation to generate increased government spending on public
works projects such as building trails, parks, and bridges.
d) The ability, through its Internal Revenue Service division, to change federal income
tax rates, and thus vary cash holdings by the public.
e) all of the listed options.

158. CRR stands for which of the following


Cash Reserve Ratio Common Reserve Ratio Cash Refund Ratio
Cash Re-service Ratio Cash Reserve Risk

159. Increasing the Cash Reserve Ratio for banks would have an impact on which of the
following
Increased Money Supply in the economy Reduced interest rates
Reduced Money Supply in the economy Profitability of firms
Both Increased Money Supply in the economy and Reduced interest rates 3

160. Which two risks of a financial institution may bring gains as well as losses?
Credit risk and interest rate risk
Interest rate risk and foreign exchange risk
Credit risk and foreign exchange risk
Liquidity risk and credit risk
None of the listed options

161. How does the central bank increase money supply in the economy?
By reducing the Cash Reserve Ratio (CRR)
By buying foreign currency
By increasing the wages of the salaried class
By selling Government Securities in the open market
By maintaining a high interest rate

162. When the interest rate rises, people are


Less likely to borrow, that is, sell a financial asset.
More likely to borrow, that is, sell a financial asset.
Less likely to borrow, that is, purchase a financial asset.
More likely to borrow, that is, purchase a financial asset.
Would be neutral to borrowing

163.Banks must keep a percentage of their deposits on hand as


Required reserves. Excess reserves. Savings accounts.
Home loans Safe deposit reserves. 1

34
164. When a large majority of a bank's depositors lose faith in it and attempt to withdraw
their deposits, the bank
a) Will not experience difficulties because its required reserves will be adequate to
meet withdrawals
b) Will not experience difficulties because it will hold sufficient excess reserves to meet
withdrawals
c) Will experience difficulties but will not fail
d) Will fail unless it can obtain additional reserves or government assistance

e) Both Will not experience difficulties because its required reserves will be adequate
to meet withdrawals and Will not experience difficulties because it will hold sufficient
excess reserves to meet withdrawals

165. A financial asset is liquid


a) If it can be carried easily from one place to another.
b) If it can be readily exchanged for another asset or good.
c) Only if it takes the form of cash.
d) If it is held by the public and earning interest.
e) Both If it can be carried easily from one place to another and If it can be readily
exchanged for another asset or good.

166. In Harvey, N.D. three local banks have issued no-interest loans in the form of Harvey
Bucks. They can be spent in local stores. Retailers get 95 U.S. cents for each Harvey Buck.
From this information you can conclude that Harvey Bucks
a) Although less liquid than Fed Notes, are money because they are accepted as
money.
b) Although less liquid than Fed Notes, are money because they are assets of
everyone who holds them.
c) Are not money because they are liabilities for consumers who have been
issued Harvey Bucks.
d) Are not money because they are not backed by the Federal government.
e) None of the listed options

167. If Bank of Japan was buying Dollars fervently, it would most likely be for which of the
following reasons
a) To protect Japanese exporters from loss due to movement in Yen
b) To protect Japanese importers from loss due to movement in Yen
c) For speculative purposes
d) Both To protect Japanese exporters from loss due to movement in Yen and For
speculative purposes
e) None of the listed options

168. A Commercial bank would be able to make money in which of the following ways
a) Make the lending rate below the deposit rate
b) Make the lending rate equal to the deposit rate
c) Keep the lending rate above the deposit rate but play the volume game
d) Either Make the lending rate below the deposit rate or Make the lending rate equal
to the deposit rate
e) Either Make the lending rate equal to the deposit rate or Keep the lending rate
above the deposit rate but play the volume game

169. Retail Banking division in a bank would not include which if the following departments

35
Personal Loans Home Mortgages Derivatives Trading Consumer Loans
Vehicle Loans

170. Glass-Steagall act (1933) was created to ensure which of the following
a) Create a Chinese wall between Commercial Banking and Securities Business

b) Create a Chinese wall between Corporate Banking and Retail Banking Business

c) To make the banks more efficient


d) To promote the concept of Universal Banking
e) Both To make the banks more efficient and To promote the concept of Universal
Banking

171. Money Multiplier effect would imply


a) An increase in the total money lent out into the system
b) An increase in the total money in the bank reserves in the system
c) A decrease in the total money in the bank reserves in the system
d) Both An increase in the total money lent out into the system and An increase
in the total money in the bank reserves in the system
e) Both An increase in the total money lent out into the system and a decrease in the
total money in the bank reserves in the system

172. Cash Reserve Ratio is maintained for which of the following reasons?
a) To ensure that the Bank doesnt face a cash crunch due to heavy withdrawals

b) To ensure that the Central Bank can take this cash in case of its need
c) To contribute towards government needs in times of crisis
d) Both To ensure that the Central Bank can take this cash in case of its need and To
contribute towards government needs in times of crisis
e) None of the listed Options

173. The Fed has been reducing the interest rates with aim of achieving which of the
following
a) Increasing the growth rate of the economy
b) Decreasing the growth rate of the economy
c) Help interest-rate traders book profit
d) Both Increasing the growth rate of the economy and Help interest-rate traders book
profit
e) To help the government raise funds
174. Which of the following is NOT a function of the bank?
Ensure super-normal returns to its small depositors
Channelize Savings
Provide credit facilities to borrower
Provide investment avenues to investors
Facilitate the trade and commerce dealings 1

175. Regulations limiting risk taking of financial institutions are imposed for which of the
following reasons?
a) The social costs to shareholders of a general bank failure are more than the private
cost of the bank failure.
b) The costs of regulation exceed the benefits.
c) The private costs of a bank failure exceed the social costs of general bank panic.
d) The social costs of a general bank failure exceed the private costs to the
shareholders of the bank that failed.

36
e) None of the listed Options
176. Which of the following is associated with the purpose of regulating financial
institutions?
To provide stability of the money supply
To serve certain social objectives
To prevent failure of any financial institution
To offset the moral hazard incentives provided by deposit insurance and other guarantees.
Both To serve certain social objectives and To offset the moral hazard incentives provided by
deposit insurance and other guarantees.

177. Regulators' attempting to limit competition by restricted entry, exclusive services, etc.
was an attempt to serve which of the following purposes of regulation?
a) To promote competition in the financial services markets.
b) To promote limited quantities of financial services at maximum prices.
c) To promote safety and soundness of depository institutions.
d) To protect the soundness of the deposit insurance fund.
e) Both To promote limited quantities of financial services at maximum prices and To
promote safety and soundness of depository institutions

178. Regulatory balance sheet restrictions are designed to


Limit the size of depository institutions.
Limit risk-taking and to encourage diversification.
limit excessive diversification
to promote Universal Banking
encourage high risk-taking by proper diversification 2

179. A bank that is earning 7% on its earning assets and is paying 4% on its interest-earning
liabilities is said to
Have a negative spread.
Have a positive GAP position.
Have a positive spread.
Will always have positive net earnings.
Both Have a negative spread and Will always have positive net earnings

180. Which of the following is not a commonly used term in the context of Banking?
Corporate banking Investment banking Public banking
Retail banking Private banking

181. The term Spread refers to


a) The amount of profit a bank makes after clearing all its costs including payment of
interest to deposit holders.
b) The difference in the purchase and sale prices of any financial instrument quoted by
any financial intermediary such as a bank, a broker, etc.
c) The difference between the lending rates and deposit rates of a bank.
d) Both The difference in the purchase and sale prices of any financial instrument
quoted by any financial intermediary such as a bank, a broker, etc. and The
difference between the lending rates and deposit rates of a bank.
e) None of the listed Options

182. Why do we need banks?


a) Banks are in the best position to lend out money at competitive rates to businesses
and individuals
b) Deposits are participants in primary and secondary markets

37
c) Banks are in the best position to lend out money at competitive rates to businesses
and individuals and Deposits are participants in primary and secondary markets

d) All of above of small investors are protected, hence it is a low risk investment
avenue
e) Banks

183. CRR stands for


Cash Requirement Ratio Cash Reserve Requirement Cash Reserve Ratio
Cash Requirement Reserve Capital Reserve Requirement

184. The central bank in the US is called


Federal Reserve Federal Reserve Board Reserve Bank of United States
Central Bank of United States Reserve Bank of America

185. Investment Banking division of a bank offers all of the following except
Underwriting and distribution of equity issues Leasing services
Mergers and acquisitions Valuation of firms None of the listed Options

186. Which division provides services to High Net Worth individuals?


Corporate banking Investment banking Retail banking
Private banking None of the listed Options

187. Which of the following statements is true


a) Banks may loan out all the money they receive through deposits
b) When the central bank reduces CRR, amount of money in circulation in the
economy goes up
c) When the central bank issues securities in the market, amount of liquidity in the
economy goes up
d) All of the listed options
e) None of the listed Options

188. Which of the following US banks is the biggest based on the asset size as on July 2003
Bank of America J.P. Morgan Chase & Co Citigroup, Inc
ABN AMRO Bank One Corporation

189. If a bank gets a deposit of $100, assuming a reserve requirement (CRR) of 10%, and
that it circulates through 2 more banks, leading to the following money multiplier effect
create a reserve of $10 loan of $244 create reserve of $19
loan of $171 None of the listed Options

190. Today, the most important monetary policy tool is


bank examination and supervise capital requirements
discount rate policy open market policy required reserves policy

191. Which of the following is not covered under retail operations of a Bank?
Loan for Consumer durables Hire Purchase Bill Discounting
Lease Auto Loans

192. Which of the following is not correct for a personal loan?


The financer is not interested in the intention of the loan
Loan amount is linked to borrowers repayment capacity
They are short term loans
No security required
None of the listed Options

38
193. "Thumb rules for calculation of Maximum loan amount in case of auto loan are?
a) Not greater than 3 times the yearly income of the borrower
b) Not greater than 2 times the yearly income of the borrower
c) The EMI should be less than 70 pct of the gross monthly income
d) The EMI should be less than 60 pct of the gross monthly income"
(b) and (c) (a) and (d) (a) and (c) (b) and (d) None of the listed Options

194. Interest rate charged on asset based loans is


Greater than the personal loans Always equal to the personal loans
Lesser than the personal loans all of the listed options
None of the listed Options

196. Which is true for a closed ended loan?


There is no end to such loans Overdraft is not allowed in such loans
Interest is calculated on daily outstanding balance
The borrower gets a credit card along with the loan
None of the listed Options

197. If the Limit = $1500, margin = 20% and Asset Value = $2000 then Drawing Power for an
Open ended loan is equal to
$1,500 $1,200 $1,600 $900 None of the listed Options

198. If the Limit = $1200, margin = 20% and Asset Value = $1200 then Drawing Power for an
Open ended loan is equal to?
$1,500 $1,200 $960 $900 None of the listed Options

199. Which of the following is true?


a) The financier owns the asset in case of Lease but not in case of Hire Purchase

b) Depreciation is claimed by the financier both in Lease and Hire Purchase


c) Callable bonds
d) Tax deduction can be claimed for the full value of the payment in lease but only to
the extent of interest paid in Hire Purchase
e) None of the listed Options
200. Which of the following is the most profitable for Credit Card Company?
Customers who always pay in time
Customers who never pay
Customers who default but finally pay
all of the listed options
None of the listed Options

201. Which of the following is not a repayment method?


Post dated checks Salary deductions Direct receipts
Direct debits None of the listed Options

202. Which of the following is not a kind of repayment?


Slice payment Step up Step down Bullet payment None of the listed Options

203. Interest rate spread is equal to?


Current rate Base rate Current rate Floor Base rate Floor
Cap Current rate None of the listed Options

204. Collateral is?


A form of loan Asset put up as security

39
Obligations to be fulfilled by the borrower
A bad loan None of the listed Options

205. While comparing mortgages, one should use?


Internal rate of return Annual Percentage Return
Net present Value Rate of Interest applicable for the loan
None of the listed Options

206. While taking a Mortgage, one needs a large sum to furnish the home, then which
interest rate deal should be chosen?
Discounted interest rate Capped rate Standard variable rate
Standard variable rate with cash back None of the listed Options

207. In
case of discounted interest rate deal for a mortgage the following is true?
a) One receives a substantial cash sum when one takes the loan.
b) Interest rate is guaranteed to be set amount below the base rate
c) The payments are set at less than that lenders going rate for a fixed period of
time.
d) The payments go up and down as the mortgage rate changes but are guaranteed
not to go above a set level
e) None of the listed Options

208. Capped rate of interest in case of Mortgage implies


a) The rate of interest cant move above a set level
b) The rate of interest cant move below a set level
c) The collar of the interest rate cant move above a set level
d) The spread of the interest rate cant move above a set level
e) None of the listed Options

209. Which is not true in case of Repayment Mortgage?


a) Monthly payments goes partly towards the interest and partly towards the principal
b) If all the monthly payments are made, the loan will be repaid by the end of the term

c) Monthly payments would increase if interest rates rise


d) Monthly payments would decrease in interest rates fall
e) None of the listed Options
210. Endowment mortgage refers to the following?
a) An interest only mortgage, along with a endowment policy to mature at the
same time as the term of the loan
b) An interest only mortgage that comes with life insurance policy
c) Another name of interest only mortgage
d) An interest only mortgage combined with tax saving investment policies
e) None of the listed options

211. Annual Percentage Rate for a loan takes into account the following?
a) The interest rate charged
b) When and how often the interest must be paid
c) Other charges such as arrangement fee
d) When and how often these other charges must be paid
e) All of the listed options

212. Freddie Mac, Ginnie Maes & Fannie Mae are?


a) Marketing institutions selling home loans
b) Lenders to the banks for home loan bought by retail customers
c) Regulatory bodies governing home loan market in US

40
d) Primarily asset management companies
e) None of the listed Options

213. Which is not true for an Acquiring bank


a) They approve a merchant for accepting credit cards
b) They collect the merchant's online payments
c) They are members of Visa and Master Card Associations
d) They are members of Dinners club
e) None of the listed Options
214. Which of the following is not true Independent sales organization?
a) They provide merchant accounts
b) They process the funds of merchants
c) They keep reports of all the activity of merchant accounts
d) They work on behalf of Acquiring banks
e) None of the listed Options
215. Which of the following is not involved in a credit card transaction?
Independent sales organization Merchant Payment gateway
Associations None of the listed Options

216. After a credit card transaction is initiated by a customer in a shop, the transactions
information is sent to?
Payment Processor Merchants payment gateway
Issuing banks payment gateway Acquiring banks payment gateway
None of the listed Options

217. Who checks for the credit limit of the card before approving the transaction?
Payment processor Acquiring banks Payment gateway
Issuing bank None of the listed Options

218. When the merchant clicks the Bill Orders button in the store to "capture" the funds, the
store sends the capture information to?
Payment Processor Merchants payment gateway
Issuing banks payment gateway Acquiring banks payment gateway
None of the listed Options

219. Which information is not provided by a Credit Bureau?


Credit History Report inquiries Personal Identifying Information
Public Records None of the listed Options

220. Which of the following data appear on a credit report?


Bank account balances Race & Religion Health
Income & Driving records None of the listed Options

221. Which of the following is not true for the credit score?
a) Its based on ones consolidated financial information from the Credit Report
b) Its a number calculated based on ones credit history
c) Its used by lenders for a simpler "lend/don't lend" answer
d) Its a three digit number varying between 300 900
e) None of the listed Options
222. Which one of the following contributes to ones credit report?
Bank account balance Personal Assets Ones qualification
Types of existing credit None of the listed Options

41
223. Which of the following does not contributes to the cost of using credit card?
Expenses incurred through credit cards Annual Percentage rate
Utility Bills paid through credit card Late payment charges
None of the listed Options

224. Which is not a banking account?


Checking Accounts Money Market Deposit Accounts
Demat Account Time Deposits None of the listed Options

225. One should have the checking account if one is looking for?
Quick, convenient and, frequent-access to the money
A high rate of interest Guaranteed rate of interest
Low fee None of the listed Options

226. One should have the MMDA if one is looking for?


Quick, convenient and, frequent-access to the money
A high rate of interest Guaranteed rate of interest
Low fee None of the listed Options

227. One should have the Time Deposits if one is looking for?
Quick, convenient and, frequent-access to the money
A high rate of interest Guaranteed rate of interest
Low fee None of the listed Options

228. One should have the Basic Account if one is looking for?
Quick, convenient and, frequent-access to the money
A high rate of interest Guaranteed rate of interest
Low fee None of the listed Options 4

229. One should have the Savings account if one is looking for?
Quick, convenient and, frequent-access to the money
A high rate of interest Guaranteed rate of interest
Low fee None of the listed Options 5

230. Which one is true for a capitalized loan?


a) Monthly payments go towards the interest, while a lump sum payment at the end of
the term goes towards the principal
b) Monthly payments goes partly towards the interest and partly towards the principal
c) The interest due and not paid is added to the principal balance of the loan.
interest becomes part of the principle of the loans
d) Such loans come at a very low processing fee
e) None of the listed Options

231. The term Capture in context of credit cards refers to?


a) Capture of credit card number by the issuing bank during a transaction for
authentication
b) Capture of the person using a card not owned by him
c) Conversion of the authorization amount into a billable transaction record.

d) Recording of a persons credit details in the credit report.


e) None of the listed Options

232. Considering the amount of competition in the retail market, which of the following are
the upcoming challenge/s for the banks
a) Single customer interface across multiple departments
b) Increasing their cross-sell opportunities to customers

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c) Improving internal processing efficiency and quality
d) all of the listed options
e) None of the listed Options

233. "A bank has provided the following options to the borrower for $50,000 of lending for
duration of 5 years.
a. Pay $80,525.5 at the end of 5 years
b. Pay $25,500 now and $50,000 at the end of 5 years
c. Pay $16,105.1 end of every year for 5 years
d. Pay $16,105.1 beginning of every year for 5 years
Considering 10% as IRR for the borrower"
Option (a) is the cheapest for the borrower
Option (b) is the cheapest for the borrower
Option (c) and (d) are equally costly to the borrower
all of the listed options
None of the listed Options

234. Electronic banking doesnt covers the following service/s


Pay-by Phone system ATM System Point of Sale system
all of the listed options None of the listed Options

235. EFT act covers


Prepaid Telephone cards Gift cards Mass transit passes
Both Prepaid Telephone cards & Gift cards None of the listed Options

236. What is Checking Account?


a) An account at a bank where funds have been deposited against which checks
may be written
b) An account, folder, or file where checks are stored
c) A type of bank account that allows withdrawals by phone or Internet
d) A form of documentation for transactions between you and the bank
e) None of the listed Options

237. Net Settlement stands for


Settlement of funds over the Internet Posting net debit or net credit
Real time settlement all of the listed options None of the listed Options

238. Direct debits


Authorizes specific deposits to your account on regular basis
Authorizes all deposits directly to your account Pre-Authorized direct withdrawal

Pre-authorization to withdraw from others account None of the listed Options

239. EFTA stands for


Electronic Funds Trading Act Electronic Financial Transfer Act
Electronic Funds Transfer Act Electronic Fee Transfer Act
Electronic Funds Telecommunication Act

240. ______________ preauthorizes banks to pay recurring bills like insurance premium,
utility bills automatically
Pay-by-Phone System EFT Direct Debit Direct Credit Direct Deposit

241. ATM stands for


a) Automatic Transaction Machine; Almost anytime banking
b) Automated Teller Machine; Remote location transactions

43
c) Automatic Transaction Machine; Fund transfer between accounts
d) Automated Teller Machine; Direct Deposit
e) Automatic Transaction Machine; Personal Banking

242. Debit Card


is a stored value card provide credit line transfer money at Point of Sale

Only provide credit line and transfer money at Point of Sale


None of the listed Options 5

243. EFT systems are a major form of electronic payment systems in banking and
retailing industries. EFT is an acronym for
Electronic Financial Transactions Encrypt Fund Transfer
Electronic Fund Transactions Electronic Fund Transfer
External Fund Transfer

244. EFT services require institution to tell the following to the customers
a) Summary of Customers assets for unauthorized transfers
b) Summary of institution's liability if it fails stop certain transactions.
c) List of institute holidays
d) Circumstances under which institute will not disclose information to third party.
e) None of the listed Options

245. A transaction error has occurred in customers account. Which of the following
holds as per EFT act?
a) Customer has 30 days to notify the error from the date a statement is received

b) Financial Institution has 15 days to investigate the errors


c) Financial Institution has to communicate within 7 working days the result after
completion of the investigation
d) Financial Institution has to correct the error within one working day after
detecting the same.
e) Both Financial Institution has to communicate within 7 working days the result
after completion of the investigation and Financial Institution has to correct the
error within one working day after detecting the same.

246. Customer can lose much more on ________________ loss than on _____________
loss
Credit Card; Debit Card Credit Card; ATM Card Credit Card; Stored Card
Debit Card; ATM Card Debit Card; Credit Card 5

247. In the case of Debit or ATM card


a) Customer liability is limited if the loss is reported before it is used without his/her
permission.
b) Customer liability varies depending on the delay in the reporting of the loss,
if unauthorized use occur before reporting

44
c) Customer liability is limited if the unauthorized use occurs before reporting the
loss.
d) Notification period cant be extended even in the case of extenuating
circumstances.
e) There cant be unlimited liability

248. Stop-Payment privilege provides


a) right to customer to stop payment on any EFT transaction
b) customer can stop payment if the purchase is defective or not delivered
c) customer can stop payment only for preauthorized regular payments
d) customers dont have privileges for any transaction
e) None of the listed Options

249. Terminal Receipts


a) issued for regularly occurring electronic payments that are pre-authorized
b) entitled to customer only when the electronic transaction is terminated
c) provides statement of all the transactions terminated for a given period
d) must show the amount and date of the transfer, and its type, such as "from savings
to checking
e) None of the listed Options

250. The Federal Reserve offers financial services to banks and the U.S. government for
all of the following reasons except to
make a profit promote competition foster innovation

promote efficiency in the payments system


None of the listed Options

251. Which of the following statements about the Fed's involvement in electronic
banking is true?
a) each year the Fed conducts billions of transactions valued in the trillions of
dollars
b) funds transfers are originated and received through a sophisticated
telecommunications network called FedWire
c) financial institutions can move their balances at the Fed or send funds to another
institution through electronic banking
d) all of the listed options
e) None of the listed Options

252. The Federal Reserve System processes about ___ of all checks written in the country
1/5 2/3 1/3 4/5 All

253. Just after you write a check at a store to make a purchase


a) your checking account at a financial institution is instantly reduced by the value
of the check

45
b) the store manager sends the check to a Federal Reserve Bank to be processed

c) the store manager deposits the check in the stores account at a local financial
institution
d) your checking account at a financial institution is increased by the value of the
check after it has been processed by a Federal Reserve Bank or a correspondent
bank
e) All of the listed options

254. A one-time written order that instructs a financial institution to transfer funds from
your account to the account of an individual or business is called
check Automatic Clearinghouse (ACH) transaction. currency debit credit 1

255. CHIPS stand for


Clearing House for International Payments Settlement
Clearing House for Interbank Payment System
Clearing Head of Interbank Payment Settlement
Clearing Head of international Payment Settlement
Clearing House for Interbank Payment Settlement

256. FEDWIRE involves the following intermediaries for the fund transfer EXCEPT
Inter District Settlement Fund
Federal Reserve bank Treasury & Government agencies
Depository institutions None of the listed Options

257. CHIPS uses ______________ to & from special settlement account on the booking
of the _____________
ACH; Federal Reserve Bank EFT; Federal Reserve Bank
FEDWIRE; New York Fed
Inter District Settlement Fund; Federal Reserve Bank
FEDWIRE; Federal Reserve bank

258. Following are all Private-sector payment systems EXCEPT


Check Clearing System Inter District Settlement Fund
Automated Clearing Houses CHIPS FEDWIRE

259. "Two Financial Institutions conducted the following transactions over CHIPS on
30th Jan 2004.
A transferred $5m to B at 9:45 AM
B transferred $10m to A at 11:30 AM
A transferred $12m to B at 2PM
B transferred % 15m to A at 3:30PM
Which of the following holds true?"
a) At the of the day, $17m will be transferred to B
b) At the end of the day, $25m will be transferred to A
c) At the end of the day, $8m will be transferred to A

46
d) All the transactions would settle individually real-time
e) Both At the of the day, $17m will be transferred to B and At the end of the day,
$25m will be transferred to A

260. EFT offers the following services EXCEPT


Electronic check Conversion Pay by Phone Direct Debit
Direct Deposit All Stored value cards

261. What is the electronic payment delivery system most often used to process low-
dollar repetitive retail payments?
Check Funds transfer Treasury payments
Automated Clearinghouse (ACH) FEDWIRE

262. Which of the following results in a direct, immediate, electronic payment from the
cardholder's checking account to a merchant?
Credit Card Money Order Checks Debit card ATM card

263. If you use your debit card to make a purchase, the amount will be transferred out of
your account
Typically within one day In whole-dollar amounts
The next business day
The amount is not transferred, but added to your credit card bill
Depends on the billing cycle

264. The Federal Reserve System is responsible for


regulating banks and financial institutions
creating a stable economic environment
managing regional and national check clearing
monetary policy All of the listed options 5

265. Which of the following is probably the most familiar form of electronic banking?
ATM Debit card Credit card POS system
ACH

266. Which of the following transactions would cost the most?


ATM deposit Deposit at Teller window
Direct deposit Electronic fund transfer None of the listed Options

267. FEDWIRE transfer


involves relatively large no. of book keeping entries
are free of cost
handle high volume of small transactions
are settled on net settlement basis
handle high value transactions

268. Which of the following transactions costs the least?

47
Payment by personal check Payment via ACH
Debit card for point of sale purchase ATM withdrawal
Withdrawal at teller window

269. FEDWIRE differs from CHIPS in that


a) FEDWIRE is gross settlement system
b) FEDWIRE is a private sector fund transfer system
c) CHIPS provide international fund settlement
d) FEDWIRE offers free services
e) FEDWIRE provides domestic fund settlement

270. Which of the following transfers are covered by the Electronic Funds Transfer Act?
a) Bobs purchase of an electronic toilet seat with a wire transfer
b) Joes transfer, made in person, from his checking to his savings account, to post
bail from prison
c) Larrys check written at the Three Strikes and Your Out Bowling Alley
d) Tims point of sale purchase from his business account to buy that new hardware
store he has always wanted
e) None of the listed Options

271. Inter District Settlement Fund is a


a) Fund Transfer System
b) Electronic Bill Presentment System
c) Settlement Account
d) Booking System
e) Transaction System

272. John loses his ATM card, which has his PIN written on the back of the card. He doesnt
discover this until two weeks later and immediately notifies the bank. During the two weeks that
his card was lost, $9,000 worth of withdrawals have been made from his account. Tim is liable for
which of the following
a) $500
b) 40 hours of community service teaching classes on why to not write your PIN on the
back of your card
c) Half of the $9,000
d) $50
e) None of the listed Options

273. Stored value cards


a) are like prepaid mobile cards, mass transit passes etc.,
b) are all covered by EFT act
c) stores encrypted code for accessibility
d) are used for accessing personal bank account
e) are like debit cards, credit cards etc.,

274. What does the Federal Reserve Supervisory Letter define private banking as?
a) personalized services such as money management, financial advice, and
investment services for high net worth clients

48
b) personalized services such as cheque collection and other retail banking services for
high net worth clients
c) service provided by private banks to all clients
d) personalized services provided by private and public banks to all clients
e) None of the listed Options

275. Structured Lending


a) Investment Management and Advice
b) Issuer Capital Formation
c) Trade Finance Management and Advice
d) Access to investment banking and institutional services
e) Structured Lending

276. Private Banking clients can be based on


a) Volume of business
b) Traditional banking business
c) Net Worth
d) Retail Banking business
e) All of the listed options

277. Which of the following is true for the Personal Investment Companies (PICs) setup
a) Tax benefit
b) Huge startup fee
c) Annual Administration Fee
d) Foreign Check Writing Services
e) None of the listed Options
278. Typical Fee charged for private banking services
a) Less than 1%
b) Between 1 to 4%
c) Between 6 to 10%
d) More than 10%
e) None of the listed Options

279. Client relationship manager doesnt have to understand which of the following need/s for
investment management and advice
a) Liquidity requirement
b) Capital Base
c) Tax planning
d) Arbitrage trading
e) None of the listed Options

280. High-Net worth individuals generally have


a) Household income atleast $50,000
b) Networth greater than $500,000
c) Market capitalization more than $200,000
d) all of the listed options
e) None of the listed Options

281. The process flow in a Private banking firm goes as


a) Servicing Specialist => Client Representative => Middle Office => Back Office

49
b) Client Representative => Servicing Specialist => Middle Office => Back Office
c) Client Representative => Servicing Specialist => Back Office => Middle Office
d) Middle Office => Back Office => Servicing Specialist => Client Representative
e) Client Representative => Middle Office => Servicing Specialist => Back Office

282. In the case of self directed investment management in Private banking


a) Banks portfolio managers make investment decisions only after customer
approval
b) Banks portfolio managers make self-directed investment decisions
c) Banks portfolio managers make investment decisions on behalf of the customer
d) Banks portfolio managers make investment decisions behalf of all the customer
e) None of the listed Options

283. Which of the following roles and responsibilities are correctly stated?
a) Services Provider; Tax Services
b) Middle Office; Statements & Advices
c) Front Office; Client Reporting
d) Back Office: Risk Management
e) Middle Office; Custodial Services

284. High net worth individuals are normally defined based on the
a) Household income
b) Net Worth
c) Value of shares held by the household + household income
d) Both Net Worth and Value of shares held by the household + household income
e) Both Household income and Net Worth

285. Which of the following is/are not a responsibility of the Middle office?
a) Account Aggregation
b) Domestic Global Settlement
c) Cash Processing
d) Sales & Brokerage
e) Both Account Aggregation and Sales & Brokerage

286. Private Banking doesnt deal with the following services EXCEPT
a) Tax & estate planning
b) Insurance
c) Foreign exchange
d) Automated credit entitlement
e) all of the listed options

287. A Private Banking division would entail the need for which of the following
a) Efficient Portfolio Analysis
b) Asset Allocation techniques
c) High Technology Investment
d) all of the listed options
e) Only Efficient Portfolio Analysis and Asset Allocation techniques

288. Private clients trade in ____________ volumes and ___________ fees and commissions
a) larger; larger
b) small; larger
c) small; small
d) larger; small
e) Either small; larger or larger; small

289. Sweep facility provides

50
a) automatic transfer of funds from one account to another account, whose balances
have fallen below the pre-determined limit
b) automatic transfer of funds from one account to another account, whose balances
have exceeded pre-determined limit
c) automatic transfer of funds from one account, whose balances have exceeded pre-
determined limit, to another account
d) Both automatic transfer of funds from one account to another account, whose
balances have fallen below the pre-determined limit and automatic transfer of funds from
one account, whose balances have exceeded pre-determined limit, to another account
e) Both automatic transfer of funds from one account to another account, whose
balances have fallen below the pre-determined limit and automatic transfer of funds from one
account to another account, whose balances have exceeded pre-determined limit

290. Managing clients liquidity assumes paramount importance in private banking, it involves
a) Short term credit facilities
b) Flexible cash management
c) Optimizing returns on short term cash
d) all of the listed options
e) None of the listed Options

291. The two most distinguishing features of Private banking are _____________ and
_____________.
a) Liquidity management; risk management
b) Specialist advice; risk management
c) Wealth management; financial advice
d) Extensive research; specialist advice
e) Liquidity management; structured lending

292. Private Banking providing Risk management services thereby strives to


a) Eliminate risk and maximize returns
b) Reduce risk and optimize returns
c) Avoids risk and optimize returns
d) Transfers risk and maximize returns
e) all of the listed options

293. Private Banking provides plethora of specialized services to it clients. Which of the following
statements holds true?
a) It is less dependent on accepting deposits than retail banking.
b) Client portfolios are reflected on the liability side of the banks balance sheet
c) Client portfolios are reflected on the asset side of the banks balance sheet
d) Both It is less dependent on accepting deposits than retail banking and Client
portfolios are reflected on the asset side of the banks balance sheet
e) Both Client portfolios are reflected on the liability side of the banks balance sheet and
Client portfolios are reflected on the asset side of the banks balance sheet

294. Which of the following companies offer Private banking services?


a) Credit Suisse
b) Fidelity
c) Merrill Lynch
d) all of the listed options
e) None of the listed Options

295. _____________ provides Private banking in the Trust or Investment management division
whereas _______________ provides Private Client Services (PCS)
a) Credit Suisse; Salomon Smith Barney
b) Fidelity; UBS

51
c) Mellon and Bank One; Salomon Smith Barney
d) All of above
e) None of the listed Options

296. The below stated responsibilities are carried out by which of the following players. Cash
Services/Client Reporting/Statements & Advices/Domestic & Global Settlements
a) Services Provider
b) Client Representative
c) Back office
d) Front Office
e) Middle Office

297. Private banking offers structured lending that provides


a) Customized asset-based credit solutions
b) Long-term liquidity to clients
c) Advice-led credit solutions
d) Credit solutions to High Net worth individuals
e) All of the listed options

298. Private Banking customers can be categorized based on the following parameters
a) Risk taking capability
b) Investible assets
c) Networth
d) Both Investible assets and Networth
e) All of the listed options

299. In the case of discretionary investment management in Private banking


a) Banks portfolio managers make investment decisions only after customer approval
b) Banks portfolio managers make self-directed investment decisions
c) Banks portfolio managers make investment decisions on behalf of the customer
d) Banks portfolio managers make investment decisions behalf of all the customer
e) None of the listed Options

300. Jim Morrison, 52 years old, founder, chairman and largest shareholder of a small Australian
listed company, seeking to borrow A$8 million secured against his 45 percent shareholding
(valued at A$30 million) to diversify his asset base and invest in a separate business venture. He
has existing relationship with the bank. Given the fact that loan represented quasi-equity as it
would be almost impossible to offload the shares into the market, what kind of solution can be
provided by the bank to the client?
a) Issuer Capital formation
b) Investment Management Services
c) Structured Lending
d) Hedge Funds
e) Payable Through Account

301. Increasing numbers of hedge funds are locating to Cayman Islands because al EXCEPT
a) Tax haven
b) Flexible legislation
c) Highly sophisticated venue
d) Numerous capable professionals
e) None of the listed Options

52
302. Hedge funds have attracted investors' attention due to some spectacular & successes &
failures, but in fact they aim to provide a low risk investment solution. Which of the following does
hold true for hedge funds?
a) Highly speculative
b) Private investment partnership
c) Highly leveraged
d) Consistent performance
e) Investor needs to be fully accredited

303. Financial planning involves all EXCEPT


a) Cash flow management
b) Retirement planning
c) Risk management
d) Tax planning
e) Portfolio management

304. Which of the following is not a secured loan?


a) Overdraft on checking.
b) Personal lines of credit.
c) Study loan
d) Credit cards
e) All of the listed options
305. Which of the following statements is true?
a) Requires "collateral" or something, which the lender can easily sell and use to
pay off the loan if the borrower defaults.
b) Rates are generally lesser for unsecured loans.
c) If a person with a less than perfect credit history gets a loan it will be at a lower interest
rate.
d) Having a good credit record of lender is a critical factor because higher interest rate
can be charged to that individual.
e) Rates are generally greater for secured loans

306. Which of the following statements is false about loan?


a) The amount of the loan that is disbursed is an asset for the bank
b) The interest rate on a loan depends on the disbursed amount and Schedule.
c) Loans can be disbursed in multiple currencies with different schedules.
d) Loan is considered as a liability for the customer.
e) Loan can be prepaid with or without penalty

307. Which of the following statement is faulty about credit enhancement?


a) Enhancing the duration of the credit given to the corporate
b) Evaluating the feasibility of extending the credit facility to the borrower.
c) Mechanism to improve the original rating of the credit for the borrower.
d) Increasing the credit limit for the corporate
e) None of the listed Options

308. Which of the following is true about Working Capital?


a) Working capital requirements depends on the current assets and current liabilities of
the corporate.
b) 25% of the Working capital gap has to be fulfilled by long term funding and 75% by
short term loans and overdrafts.

53
c) Overdraft limit is extended to corporate to manage their day to day cash flow needs
d) Part of the current liabilities need to be funded through the current assets.
e) None of the listed Options

309. Supplier or Dealer loans provide


a) Assurance from the Corporate in case of default by suppliers and dealers
b) Immediate loans to the suppliers and dealers of the corporate at higher rate of interest.
c) Long term loans to the suppliers and dealers by the banks
d) all of the listed options
e) None of the listed Options

310. Which of the following is NOT a Settlement Method for Bank Loans?
a) Assignment
b) Participation.
c) Securities Repository.
d) Sub-Participation
e) Preclosure

311. Once the Syndicate has closed, all other trades, Participations, Sub-participations and
Assignments are considered trades in what market?
a) Primary market
b) Index market
c) Secondary market
d) Participation market
e) Over the counter market

312. Consider a loan of USD 10,000 which is agreed to be lent for a period of six months on Jan
1, 2004 at an interest rate of LIBOR + 2%. Here, the base rate is LIBOR and the spread is 2%.
Further, consider that the LIBOR was 7% p.a. on Jan 1, 4% p.a. on May 1. What would be the
interest paid at the end of six months?
a) 600 USD
b) 400 USD
c) 1400 USD
d) 1350 USD
e) 350 USD

313. Consider a one-year loan of USD 10,000 given by bank to a borrower on Jan 1, 2004. The
loan carries an interest rate of 10% p.a. As per the terms and conditions of the loan, the borrower
has to pay the interest amount together with principal amount on Dec 31, 2004. The Bank follows
straight-line accrual with monthly frequency. What would be banks income as on June 31, 2004?
a) 11,000 USD
b) 600 USD
c) 1,000 USD
d) 5,500 USD
e) 10,000 USD

314. Which of the following type of loan requires the amount of interest that would be earned on
the amount of interest paid upfront by the borrower?
a) Demand loan
b) True discounted Loan
c) Discounted Loan
d) Capitalized Loan
e) Amortized Loan

315. Interest rates are


a) The prices paid for the use of a real liability.

54
b) The prices paid for the use of a real asset.
c) The prices paid for the use of a financial liability.
d) The prices paid for the use of a financial asset.
e) The price paid for the use of a contingent asset

316. A loan that can be paid in periodic equated installments with capitalized interest is called
a) Amortized Loan
b) Capitalized Loan
c) Annuities
d) Discounted loan
e) True discounted Loan

317. Loan can take many of the following basic forms EXCEPT
a) Overdrafts
b) Bills and promissory notes
c) Corporate bonds
d) Advances
e) Credit line

318. If a fund purchases a loan in the Primary, they also use another word for that. Which term is
used to indicate the initial group of lenders (Primary Lenders)?
a) Allocation
b) Syndicate
c) Secondary
d) Assignment
e) None of the listed Options

319. In the case of floating rate loan, which of the following is false?
a) Base rate can be reset at mutually agreed time period or it can be periodic.
b) Spread is applied over and above the base rate.
c) The spread varies over the life of the loan.
d) Spread can be negative.
e) None of the listed Options

320. What does loan provisioning stand for?


a) To create the provisions for doing business in different lines of businesses.
b) Loan provisioning is done to classify and grade the loans.
c) All of above
d) To create buffer against the loss of the non-performing loans.
e) None of the listed Options

321. Credit risk in the swap market is


a) Extensive.
b) Equal to the total value of the payments that the floating rate payer was obligated to
make
c) Limited to the difference between the values of the fixed rate and floating rate
obligations.
d) Both Extensive and Limited to the difference between the values of the fixed rate and
floating rate obligations.
e) None of the listed Options

322. When a firm needs short-term funds for a specific purpose, the bank loan will likely be a
a) Compensating balance arrangement
b) Revolving credit agreement
c) Transaction loan.
d) Line of credit

55
e) Term Loan

323. Which of the following are the benefits of using credit derivatives?
a) Credit derivatives can be used either to take on more risk or to avoid (hedge) it.
b) Credit derivatives can be used to create positions that can otherwise not easily be
established in the cash market.
c) Credit derivatives can be used both to diversify their credit risk exposures and free up
capital from regulatory constraints.
d) All of above
e) None of the listed Options

324. A formal, legal commitment to extend credit up to some maximum amount over a stated
period of time
a) Letter of credit
b) Revolving credit agreement
c) Line of credit
d) Trade credit
e) Irrevocable Credit

325. Utility companies and medical service organizations commonly offer (fill in the blank) credit
a) Revolving
b) Single payment
c) Installment
d) Retail
e) Corporate

326. A common advantage of using credit is


a) less impulse buying
b) lower cost for items purchased
c) ability to obtain needed items now
d) lower chance of overspending
e) None of the listed Options

327. A Company has negotiated a $500,000 revolving credit agreement with a National Bank.
The agreement calls for an interest rate of 10% on fund used and a commitment fee of 1% on the
unused amount of the credit line. The effective annual interest cost if the firm borrows $200,000
for one year is closest to
a) 11.50%
b) 15%
c) 26.50%
d) 13.25%
e) 11.50%

328. Which of the following is not a credit derivative?


a) Credit linked Notes.
b) Total return swaps.
c) Credit default swap.
d) Currency swap.
e) All of the listed options

329. Secondary loan trading refers to ______________ of _____________ on the secondary


market.
a) Approving; new debts

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b) Buying/Selling; only bad debts
c) Selling; new debts
d) Buying/Selling; existing debts
e) Reassignment; debts

330. Asset securitization refers to


a) financing vehicle consisting of pooling of existing debts as collateralized asset for the
issuance of the debt
b) financing vehicle consisting of pooling of government securities as collateralized asset
for the issuance of debt
c) financing vehicle consisting of the pooling financial assets, and the issuance of
debt collateralized by these assets
d) financing vehicle consisting of pooling of corporate bonds and equities as
collateralized asset for the issuance of debt
e) None of the listed Options

331. Credit derivatives can be used to ___________ the risk and ___________ the regulatory
capital requirements
a) Transfer; increase
b) Diversify; reduce
c) Eliminate; improve
d) Manage; avoid
e) Assess; estimate

332. Credit derivative is all BUT


a) Financial Instrument
b) Transfers risk
c) Traded over the counter
d) Facilitate greater efficiency
e) None of the listed Options
333. Which of the following is not a secured loan?
a) Equity Loans
b) Secured Loans with Savings
c) Equity Lines of Credit
d) Personal Loans
e) Car Loan

334. In the inflationary economy, which of the following is the best option for the bank while
lending, $10,000 to a corporate borrow (Assume IRR at 10%)
A. Discounted loan @ 10% interest rate
B. Bullet payment loan @10% interest rate
C. True discounted loan @10% rate of interest
D. Equated installed loan @10% interest rate
a) Option A
b) Option B
c) Option C
d) Option D
e) All of the listed options

335. The key feature of letter of credit

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a) Basis for devising proper currency hedging strategy
b) Distributes risk between buyer and seller
c) Opportunity to receive payment in advance of the due date
d) Basis for devising proper currency hedging strategy and Opportunity to receive
payment in advance of the due date
e) All of the listed options

336. USExport and EURImport agree to carry out the transaction, goods worth $1,000,000 under
a confirmed term Letter of Credit with a maturity date of 60 days from the time of shipment. The
Acceptance commission @ 1.5% pa equals
a) 3000
b) 250
c) 2500
d) 300
e) None of the listed Options

337. A company called FixImport Co. awards USExport a contract that requires not only making a
large quantity of widgets, but also installing and integrating them into an existing manufacturing
process at FixImport's plant. So, USExport asks for 25% down payment to finance the pre-
shipment production. FixImport agrees provided that an Advance Payment Guarantee is issued
on its behalf. To what risk has CanExport exposed itself as a result of issuing the Advance
Payment Guarantee?
a) Wrongful demand against the Advance Payment Guarantee.
b) Country risk
c) The remainder of the payment might not be made on time
d) Risk of default.
e) Interest Risk

338. Which if the following is true in the case of sight draft?


a) Buyer can refuse to take the delivery
b) Quality of the Good is guaranteed
c) Buyer is expected to make the payment after specified credit days
d) Payments made based on only bill of lading
e) None of the listed Options

339. UKImport, a financially sound G-7 company, convinces to buy widgets from USExport on
open account basis, with 60 days credit. The goods were dispatched by USExport on 15th Oct,
value being 10,000$. Therefore, the payment was due on 14th of Dec. However the payment was
made by UKImport on 21st Feb. The delay in payment cost USExporter$. because of
overdrawn account (consider 9% pa interest rate)
a) 1700
b) 1900
c) 190
d) 170
e) 2100

340. USExport and CanImport agree to carry out transaction under a confirmed letter of credit
with maturity date of 180 days from the time of shipment. But after shipping the goods, USExport
realizes that it doesnt have the cash flow to wait 180 days to receive the payment? Which of the
following options can USExport use to collect the payment before the maturity date?
a) Requesting a Sight Letter of Credit
b) Applying for Bank Loan
c) Discounting the term letter of credit
d) Taking Advance from the Issuing Bank
e) Not Possible before date of maturity

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341. The trade terms "15/2, net 30" indicate that
a) 2% discount is offered if payment is made within 15 days
b) 15% discount is offered if payment is made within 2 days
c) 2% discount is offered if payment is made within 30 days
d) 15% discount is offered if payment is made between 2 and 30 days
e) 30% discount is offered if payment is made before 15 of the month

342. The basic four parties involved in any transaction using LC (Letter of Credit) are the
following EXCEPT
a) Issuing Bank
b) Reimbursement Bank
c) Seller
d) Beneficiarys Bank
e) Buyer

343. The Advising bank is used as a trusted bridge between the __________ and
_______________ when they do not have an active relationship

a) Issuing bank; Confirming bank


b) Beneficiary bank; Reimbursing bank
c) Importer; Exporter
d) Issuing bank; Beneficiary bank
e) Reimbursing bank; Beneficiary bank

344. Which of the following is the safest type of letter of credit from seller point of view?
a) Confirmed Letter of Credit
b) Irrevocable Letter of Credit
c) Red Clause
d) Standby Letter of Credit
e) Revolving Letter of Credit.

345. Credit cards


a) Create financial liabilities for those who use them.
b) Create financial liabilities for the issuer once they are used by the holder
c) Create money for those who use them
d) Create money for those who issue them
e) Create financial asset for those who use them

346. Which of the following operations cant be done on a LC (Letter of Credit)?


a) Discount
b) Purchase
c) Acceptance
d) Collection
e) None of the listed Options

347. A Revocable LC (Letter of Credit)


a) can be revoked without the consent of the Exporter
b) can be revoked without the consent of the Exporters bank
c) can be revoked without the consent of the Importers bank
d) cant be revoked with the consent of the Advising bank
e) cant be revoked without the consent of Exporter.

348. Standby LC (letter of Credit)


a) Is used as primary payment method.
b) Promises payment only if the buyer fails to make an arranged payment
c) Promises payment only if the seller fails to meet pre-determined terms and conditions

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d) Can remain valid for short duration only.
e) Involves complex process and complicated documentation

349. Back to Back LC (letter of Credit) allows


a) buyer to open new LC against an already issued LC
b) seller to use the LC received from his buyer to open his own LC
c) buyer to use the LC received from his seller to open his own LC
d) seller to receive one more LC against an already issues LC from his buyer
e) Buyer to open one more LC based on an already issued LC

350. ________________ evidences delivery of goods and services whereas _______________


relates to the apparent performance / non-performance of an obligation of the applicant
a) Transferable LC; Confirmed LC
b) Confirmed LC; Red Clause
c) Green Clause; Back to Back LC
d) Confirmed LC; Standby LC
e) None of the listed Options

351. What term is used to describe an LC that remains valid for years thereby eliminating the cost
of separate LCs for each transaction with a regular client?
a) Evergreen Clause
b) Red Clause
c) Irrevocable LC
d) Revolving LC
e) None of the listed Options

352. Which of the following holds true for an LC (Letter of Credit)


a) Shifts credit risk from the Importer to the Importer's Bank (Issuing Bank).
b) Deals with products and not with documents
c) Are typically revocable unless specified otherwise.
d) One of the relatively cheaper forms of payment guarantee.
e) Advising bank has the liability for the payment of the LC.

353. Draft can


a) be called bill of exchange
b) be a written order by one party directing a second party to pay a third party
c) be a negotiable instruments that facilitate international payments through respected
intermediaries
d) offer more flexibility than LCs
e) not be transferred from one party to another party

354. Bankers acceptance defers from sight draft in that


a) Sight drafts are negotiable instruments
b) Bankers acceptance demands immediate payment.
c) Bankers acceptance reduces banks lending capacity
d) Bank can raise funds by selling the acceptance
e) None of the listed Options

355. Counter-trade or barter is most likely used when buyer


a) has access to convertible currency
b) finds that rates are favorable
c) will compensate the seller in a manner other than transfer or money or products
d) cant exchange for products or services desirable to the seller
e) None of the listed Options

356. Factoring is

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a) a discounting method with recourse
b) works with short term receivables
c) works mostly with capital goods
d) works with medium and long term receivables
e) sharing risk with third party

357. Fundamental difference between factoring and forfeiting lies in


a) transferring the credit risk to the third party (Factor)
b) removal of contingent liabilities from balance sheet
c) term of the contract viz., short, medium or long term
d) difference in the risk profiles of the receivables
e) the structuring of the contract with the third party

358. An Asian Importer wants to purchase machinery that he is unwilling or unable to pay for in
cash until that machinery begins to generate income. At the same time, the exporter wants
immediate payment in full in order to meet his on-going business commitments. Which of the
following solutions best suit the situation?
a) Bill Discounting
b) Factoring
c) Forfaiting
d) Letter of Credit
e) Consignment

359. Which of the following methods of payment is most risky to the Seller?
a) Documentary Collection
b) Open Account
c) Letter of Credit
d) Counter trade
e) Cash in Advance

360. Which of the following are disadvantages of using LC (Letter of Credit)?


a) Time consuming
b) Costly
c) Specific and Binding
d) Deals with documents and not with products
e) Credit Line tied up.

361. BOL stands for


a) Bill of Letter
b) Bankers Overdraft Limit
c) Bank of London
d) Bill of Leasing
e) Bill of Lading

362. BAFT stands for


a) Bankers Acceptance for Factoring Transactions
b) Bankers Association for Foreign Trade
c) Bankers Acceptance for Foreign transactions
d) Bankers Association for Forfaiting & Factoring transaction
e) Bankers association for Factoring Trade.

363. Bill of Lading is


a) a contract between Importer and Exporter for transportation of goods
b) a receipt issued by importer to exporter for goods received for transportation
c) a contract between a carrier and a shipper for the transportation of goods
d) A receipt issued by exporter to importer for goods delivered.

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e) None of the listed options

364. Foreign Credit Insurance Underwriters and Brokers is


a) A collection of banking institutions, dedicated to promoting American exports,
international trade, and finance and investment between U.S. firms and their trading partners
b) A forum for analysis, discussion and action among international financial professionals
on a wide range of topics affecting international trade and finance, including legislative/regulatory
issues.
c) A forum to insure repayment of export credit against nonpayment due to
political and/or commercial causes
d) A forum to set up a trade finance database with a grant from the U.S. Department of
Commerce
e) None of the listed Options

365. An Asian Buyer entered into deal with Swedish Exporting company on open account terms.
The Asian Buyer obtained 60 days credit, calculated from the date of the invoice. The value of the
order was USD 100, 000 and the goods were dispatched and invoiced by the Swedish Exporter
on the 15th July 2003. The payment from Asia was due on the 15th Sept 2003. The payment
eventually arrived on the 15th Nov 2003, over two months late leading to interest loss for two
months @ 9%. However if confirmed Letter of credit had been required, what would have been
the exporter benefit? Given that the Confirmation Fee & Acceptance Commission is 1.5% each,
Negotiation Fee of $150, and other administration expenses of about $60.
a) $1,200
b) $1,700
c) $710
d) $990
e) $250

366. Which of the following combinations holds true?


a) Wire transfer; more costly than other payment alternatives
b) Foreign Checks; Useful when information/documentation must accompany
payment
c) Commercial letter of credit; Improves applicants credit facilities
d) Standby letter of credit; less costly than documentary collection
e) Documentary collection; strict compliance rules apply

367. Standby letter of credit is __________ secure than documentary collection and cheaper
than __________________
a) Less; open account
b) More; documentary collection
c) More; commercial letter of credit
d) Less; commercial letter of credit
e) None of the listed Options

368. Banker acceptances are ________________ credit investment created by ___________


and used for financing imports, exports and domestic shipping
a) Long term; financial firms
b) Long term; non-financial firms
c) Short term; non-financial firms

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d) Short term; financial firms
e) Medium terms; banks

369. Discounting method for long term account receivables on non-recourse basis is termed as
a) Factoring
b) Leasing
c) Forfaiting
d) Bill discounting
e) None of the listed Options

370. Due Diligence is performed to


a) Assess the risk
b) Performed by the buyer
c) Performed on the seller
d) Executed after contract is signed
e) All of the listed options

371. Which of the following methods eliminate country risk and commercial risk upon
confirmation?
a) Back to back Letter of Credit
b) Standby Letter of Credit
c) Documentary Collection
d) Letter of Credit
e) Both Standby Letter of Credit & Letter of Credit

372. Documentary Letter of credit provides all BUT


a) Cheaper than letter of credit
b) More rigid than letter of credit
c) No strict compliance rules
d) No credit facilities required
e) No guarantee of payment by bank

373. Which of the following factors affect the choice of payment methods?
a) Time frame
b) Exporters Fund
c) Government Guarantee Program
d) Cost of financing
e) All of the listed options

374. The treasury services department performs all of the following functions except
a) Research market factors e.g., Interest rate monitoring
b) Managing corporate collections and payments
c) Managing liquidity and cash position
d) Risk Management services
e) None of the listed Options

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375. A bank treasury manages investment of surplus cash in which of the following instruments
EXCEPT
a) Money market instruments
b) Treasury securities
c) Debt
d) Deposits with other banks
e) None of the listed Options

376. Assume that Bank A treasury borrows $2.0 million for 2-years from another bank at US
Treasury Bill rate and lends it to a corporate borrower in US for 2 years at LIBOR + 1.5%. Which
of the following risks is the bank exposed to?
a) Forex risk
b) Repricing risk
c) Optionality
d) Basis risk
e) All of the listed options

377. The following are interest rate risk management instruments EXCEPT?
a) Interest rate swap
b) Forward rate agreement
c) Swaption
d) Interest rate guarantee
e) None of the listed Options

378. The following forex risk management instruments used for foreign exchange risk EXCEPT?
a) Cross currency swap
b) Spot Forex contract
c) Options
d) Forward Forex contract
e) Both Cross currency swap and Options

379. On October 15, ABC Limited enters in to a 3-month forward contract with Bank A for
delivering USD 20.0 million at INR 46.50 /USD, while the spot rate is INR 46.20/USD.
Subsequently, USD depreciates to INR 47.05/USD by the end of 3 months. Assuming this as a
stand-alone deal, which of the following is true
a) Bank A loses money in the deal
b) ABC Limited loses money in the deal
c) There is insufficient information to answer the question
d) Loss/Gain depends on forward rate at the end of 3 months
e) Neither party loses money in the deal

380. Bank A has significant investments in 10-year treasury bonds at a coupon rate of 4.9% and
Bank B has significant investments in 10-year treasury bonds at a coupon rate of 5.2%. When
market yield for 10-year treasury bonds start moving upwards from the current level of 5.0%,
a) Both banks see an increase in portfolio value
b) Bank A portfolio value increases while Bank Bs decrease
c) Bank B portfolio value decreases while Bank As increase
d) Both banks see a decrease in portfolio value

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e) Insufficient information for answering the question

381. A corporate has on books a 5-year floating rate loan at LIBOR+2%. Suppose interest rates
are anticipated to rise in the near term. The corporate should ideally
a) Retain the floating rate loan
b) Convert to fixed rate loan immediately
c) Wait for the interest rates to rise and then go for a fresh fixed rate loan to repay the old
loan
d) Wait for the interest rates to rise and then go for a fresh floating rate loan to repay the
old loan
e) None of the listed Options

382. Assume hypothetically that Bank A has hedged a long position in 5 year government bonds
with a short position in 3 year government notes. When the yield curve steepens
a) Bank A stands to lose money
b) Bank A stands to gain money
c) Depends on interest rates of the instruments
d) Insufficient information
e) None of the listed Options

383. A financial entity XYZ Ltd borrows 5-year money from Bank A at LIBOR+2.25% and lends
the money to a corporate borrower ABC Ltd at 5-year T-bill rate + 2.00%. XYZ Ltd is exposed to
the following risk
a) Repricing risk
b) Basis risk
c) Yield curve risk
d) Political risk
e) None of the listed Options

384. ABC Ltd in US has to make an import payment of Euro 2.3 million after 3 months. Market
feels that Euro will appreciate against the US dollar in the near term however the final rate would
depend on the results of the US presidential elections which would be happening after 1 month.
Prima facie, ABC Ltd should go for
a) 3-month forward purchase of Euro
b) Purchase of a 3-month Euro future
c) Purchase a 3-month Call option on the Euro
d) Sell a 3-month put option on the Euro
e) 3-month forward sale of Euro

385. Assume that Euro/USD is quoting at 1.2476/0.2481 and GBP/USD is at 1.8195/0.8200.


What would be the cross currency rate for Euro/GBP?
a) 1.2476/0.8200
b) 0.6793/0.6802
c) 0.6854/0.6860..
d) 1.2481/0.8195
e) None of the listed Options

65
386. Assume that INR/USD is quoting at 45.35/0.36 and Euro/USD is at 1.2476/0.2481. What
would be the cross currency rate for Euro/INR?
a) 55.2344/0.4565
b) 36.3300/0.4016
c) 56.3849/0.5231
d) 56.5787/0.6138..
e) None of the listed Options

387. Which of the following is a valid forex risk management strategy?


a) Purchase a put option on a currency which is anticipated to appreciate
b) Purchase a call option on a currency which is anticipated to appreciate
c) Sell a call option on a currency which is anticipated to appreciate
d) Both Purchase a put option on a currency which is anticipated to appreciate and
Purchase a call option on a currency which is anticipated to appreciate
e) Both Purchase a put option on a currency which is anticipated to appreciate and Sell a
call option on a currency which is anticipated to appreciate

388. The USD/INR spot rate is 45.35/0.36 and the 3-month forward premium quote is 0.02/0.04.
What is the forward rate applicable?
a) 45.37/45.32
b) 45.37/45/46
c) 45.37/45.40
d) 45.39/45.38
e) None of the listed Options

389. Which of the following is true theoretically?


a) As interest rates in India rise, forward premium for USD/INR rise
b) As interest rates in India rise, forward premium for USD/INR fall
c) As interest rates in India fall, forward premium for USD/INR fall
d) Both As interest rates in India rise, forward premium for USD/INR rise and As
interest rates in India fall, forward premium for USD/INR fall
e) None of the listed Options

390. Which of the following is correct?


a) Swaps are not derivative instruments
b) Swaption is a combination of a swap and an option
c) Swaps can be used for covering interest rate risk and forex risk
d) Both Swaption is a combination of a swap and an option and Swaps can be
used for covering interest rate risk and forex risk
e) None of the listed Options

391. ICICI Bank has an account with Chase Manhattan for settling forex transactions. Such an
account is called
a) Nostro account of ICICI Bank
b) Vostro account of ICICI Bank
c) Correspondent Vostro account
d) Both Vostro account of ICICI Bank and Correspondent Vostro account
e) None of the listed Options

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392. Cash management techniques include
a) Pooling
b) Netting
c) Swapping
d) Both Pooling and Netting
e) Pooling, Netting and Swapping

393. Cheque Lock box refers to


a) The main method of collections management
b) The main method of payments management
c) Electronic Finds transfer
d) Both The main method of collections management and Electronic Finds transfer
e) None of the listed Options
394. The following happens in zero-balance structure
a) Cash balances are pooled to a central account
b) Cash balances of surplus accounts are use to top up deficit accounts
c) Cash balances are made zero in surplus accounts
d) All of the listed options
e) None of the listed Options

395. All of the following are payment modes except


a) EFT
b) Cheque
c) Debit to account through Debit card
d) Lockbox
e) None of the listed Options

396. A traditional cash management system takes care of the following except
a) Pooling collections to one central account
b) Electronic bill presentment and payment
c) Cash funding for purchase of capital equipment
d) Netting receipts and payments globally
e) Providing customized MIS for cash flow monitoring

397. ACH payments are usually used for


a) Large value, single transfers
b) Small value, periodic transfers
c) Transfers to distant parties
d) All of the listed options
e) None of the listed Options

398. The following parties can act as clearing members


a) National Banks
b) Regional banks
c) Corporates

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d) National Banks and Regional Banks
e) National Banks, Regional Banks and Corporates

399. In RTGS, the following is true


a) All members need to maintain a central account with the nodal agency
b) Settlements are done at a transaction level
c) Settlements are done on a batch mode
d) Both All members need to maintain a central account with the nodal agency
and Settlements are done at a transaction level
e) All members need to maintain a central account with the nodal agency, Settlements
are done at a transaction level and Settlements are done on a batch mode

400. A traditional end-of-day settlement process results in the following risks except
a) Credit risk
b) Interest rate risk
c) Operational risk
d) Systemic risk
e) None of the listed Options

401. Continuous Linked Settlement is applicable to


a) Domestic cash payment
b) Domestic collections
c) Electronic Funds Transfer
d) International forex transfers
e) All of the listed options

402. Continuous Linked Settlement removes which of the following risks primarily
a) Exchange risk
b) Temporal risk
c) Country risk
d) All of these
e) None of the listed Options

403. Treasury & cash Management takes care of all of the following except
a) Liquidity risk
b) Interest rate risk
c) Forex risk
d) Credit risk of corporate borrowers
e) None of the listed Options

404. Asset Managers uses which of the following principles/approaches


a) Screens and Filters
b) Capital Preservations
c) Alternatives investments
d) All of the listed options
e) None of the listed Options

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405. The difference between private banking and asset management lies in
a) Investment management techniques
b) Type of returns promised
c) Type of investors
d) Extensive Research techniques
e) Both Investment management techniques and Extensive Research techniques

406. The following major players provide asset management services


a) UBS
b) Aberdeen Asset Management
c) JP Morgan Chase
d) All of the listed options
e) None of the listed Options

407. Active Approach to Asset Management refers to


a) Diversification to minimize risk and maximize return
b) Successful market timing
c) Invest in a single line of assets
d) Both Diversification to minimize risk and maximize return and Successful market
timing
e) Both Diversification to minimize risk and maximize return and Invest in a single line of
assets

408. The philosophy that if prices go up, they tend to keep going up, is known as
a) Contrarians Investing
b) Market Timing
c) Momentum Investing
d) Passive Value Investing
e) None of the listed Options

409. The philosophy that markets systematically undervalue certain companies, is known as
a) Contrarians Investing
b) Market Timing
c) Momentum Investing
d) Passive value Investing
e) None of the listed Options

410. For portfolio objectives of growth of income and capital appreciation, which of the following
securities will most likely have to be in the portfolio?
a) Common stocks
b) Corporate bonds
c) Preferred stock
d) U.S. Treasury bonds
e) Municipal Bonds

411. Which of the following is best associated with asset allocation in portfolio management?
a) The choice of assets to use for consumption for the year.

69
b) The selection of asset classes within which to invest portfolio funds.
c) The selection of the proportion of funds for each asset class.
d) The selection of asset classes for investment and the proportion of each asset
class for portfolio funds.
e) The selection of assets in a particular asset class.

412. A portfolio strategy associated with little trading or change once established is called
a) resistance management.
b) active management.
c) passive management.
d) resilient management.
e) Top-down management

413. Which of the following are principles used by an asset manager?


a) Diversification
b) Screens and Filters
c) Capital preservation
d) All of the listed options
e) Only Diversification and Screens and Filters

414. A buy-and-hold strategy is representative of a(n) ___ portfolio management style


a) active.
b) passive.
c) indecisive.
d) rebalanced.
e) resilient

415. The components involved in the cost of portfolio execution are


a) Bid-ask Spread
b) Illiquidity
c) Tax impact
d) All of the listed options
e) Only Bid-ask Spread and Tax impact

416. The dimensions to portfolio execution could be


a) Cost of execution
b) Trading speed
c) Portfolio Risk Management
d) All of the listed options
e) Both Cost of execution and trading speed

417. Momentum investing would refer to


a) Follow fundamental financial ratios to make decisions
b) Invest in high dividend yield stocks
c) Following charts and indicators to trade
d) Create portfolio similar to index
e) Try best to market

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418. The performance of an internationally diversified portfolio may be affected by
a) currency selection
b) country selection
c) stock selection
d) All of the listed options
e) None of the listed Options

419. In the long run, diversifying into international markets is most likely to benefit U.S. investors
a) Under all U. S. market conditions.
b) When U.S. markets are performing well.
c) When U.S. markets are performing poorly.
d) Under no circumstances.
e) Only when currency risk is hedged.

420. When an investor adds international stocks to her portfolio


a) it will raise her risk relative to the risk she would face just holding U.S. stocks.
b) she needs to seek professional management because she doesn't have access to
international stocks on her own.
c) she will increase her expected return, but must also take on more risk.
d) it will have no significant impact on either the risk or the return of her portfolio.
e) she can reduce its risk relative to the risk she would face just holding U.S.
stocks.

421. Contrarian Investing refers to investing on the basis of


a) Market correction due to accelerated movement
b) Single direction market movement Bull or Bear run
c) Market timing for greater gains
d) Momentum Investing
e) None of the listed Options

422. "Don't put all your eggs in one basket" is a phrase used to describe which of the following?
a) risk averse
b) diversification
c) risk/return tradeoff
d) time value of money
e) budgeting

423. By alternative investments (other than debt and equity), what are the investment avenues
for a asset manager?
a) Hedge funds
b) Futures
c) Savings bank accounts
d) All of the listed options
e) Both Hedge funds and Futures

424. Bid-Ask spread refers to

71
a) Difference in price between buying one asset and another similar one
b) Difference in opinion between the seller and buyer on the price of an asset
c) Difference between the buying and selling price of the same asset
d) Both Difference in price between buying one asset and another similar one and
Difference in opinion between the seller and buyer on the price of an asset
e) None of the listed Options

425. Which of the following statements concerning correlation coefficients is (are) correct?
I. A correlation coefficient of -1 for the returns of two securities would indicate that both of them
should be carefully considered for inclusion in a portfolio since maximum risk reduction could be
achieved by including both.
II. The returns of security B would increase 8% if the returns of security A increased 8% if the
correlation coefficient for the returns of the two securities was +1.
a) I only
b) II only
c) Both I and II
d) Neither I or II
e) None of the listed Options

426. Beverly Drake has two stocks with a correlation coefficient of zero. Which of the following is
true?
a) These stocks are well diversified because as one stock appreciates in value, the other
decreases.
b) These stocks are well diversified because they will move in unison.
c) These stocks are not well diversified because they move in unison.
d) These stocks will move independently of each other.
e) None of the listed options.

427. Which of the following are major categories of investments?


a) Cash (or cash equivalents such as money market funds)
b) Stocks
c) Bonds
d) Real Estate (including Real Estate Investment Trusts)
e) All of the listed options

428. A very effective way to employ a passive strategy is to


a) Invest in an indexed portfolio
b) Buy all Stocks on the index
c) Invest money in a bank
d) Buy few securities which reflect the index
e) Both Invest money in a bank and Buy few securities which reflect the index

429. Risk reduction (Diversification) in a stock portfolio can be achieved by


a) Investing in a few less risky stocks
b) Investing is as many stocks on the index as possible
c) Buying an option to hedge risk on all stocks in portfolio
d) Investing in an index option
e) None of the listed Options

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430. A buy-and-hold strategy would be with the aim of
a) Reducing Transaction costs
b) Reduce costs involved in constant researching of stocks
c) Wait till the investors objective is met
d) All of the listed options
e) Both Reduce costs involved in constant researching of stocks and Wait till the
investors objective is met

431. The derivatives market provide the asset manager a tool to


a) Increase trading speed
b) Reduce cost of execution
c) Hedge portfolio risks
d) Both Increase trading speed and Reduce cost of execution
e) Both Reduce cost of execution and Hedge portfolio risks

432. Which of the following statements concerning diversification is (are) correct?


I. Studies suggest a portfolio of 100 or more different common stocks is needed to substantially
reduce unsystematic risk.
II. The key to effective risk reduction through diversification is combining assets whose returns
show negative, low, or no correlation over time.
III. Security analysis will permit investors to consistently earn returns superior to the market.
a) I only
b) I and II only
c) I and III only
d) II and III only
e) I, II, and II

433. Bottom-Up approach would involve


a) Building country-by-country forecasting models
b) Validating the forecasting models and investing in portfolio of high yield countries
c) Selecting few scripts, forecasting their performance and investing based on the
forecasts
d) Both Building country-by-country forecasting models and Validating the forecasting
models and investing in portfolio of high yield countries
e) Both Validating the forecasting models and investing in portfolio of high yield countries
and Selecting few scripts, forecasting their performance and investing based on the forecasts

434. Underwriting in Investment banking stands for


a) Process of understanding the risks and return profile for investment portfolio
b) Guarantees the capital issue and making good for any shortfall
c) Processed of getting the shortfall insured from an insurance company
d) All of the listed options
e) None of the listed Options

435. The process of Hiring of the Lead Managers in the case of IPO is referred to as
a) Red Herring
b) Road-show

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c) Investment Manager Contest
d) Advisor Contest
e) Beauty Contest

436. The top tier investment banks are EXCEPT


a) Salomon Smith Barney
b) Sallie Mae
c) Credit Suisse First Boston
d) UBS
e) None of the listed Options

437. The Chinese Wall in an investment bank refers to


a) The separation of Legal and Marketing
b) The separation of Sales and Trading
c) The separation of Corporate Finance and Research
d) The separation of Senior Management and Brokers
e) The separation of Underwriting and Sales

438. Syndicate in Investment banking refers to all Except


a) Hub of the investment banking wheel
b) Determination of allocation of bonds
c) Merger and Acquisition advisory
d) Facilitating placing of securities in public offering
e) None of the listed Options

439. Sales function in Investment banking takes the form of


a) Retail Broker
b) Institutional Sales Person
c) Private client service representative
d) All of the listed options
e) None of the listed Options

440. The ECNs (like Instinet) offer after the market trading facilities. They
a) Involve Stock Exchange Brokers
b) Dont Involve Stock Exchange Brokers
c) Also called as Fourth Market
d) Both Involve Stock Exchange Brokers and Also called as Fourth Market
e) Both Dont Involve Stock Exchange Brokers and Also called as Fourth Market

441. Specialist in broking parlance refers to one


a) Specializes in one or few stocks and offer buy as well as sell quotes
b) Employee of stock exchange
c) Specializes in all equities
d) Only person authorized to buy or sell a particular stock
e) Charges commission for trades

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442. Dealer in broking parlance refers to one
a) Employee of stock exchange
b) Matches customer orders with other brokers
c) Acts as a Principal and executes trades for his/her personal account
d) Only person authorized to buy or sell a particular stock
e) Charges commission for trades

443. The latest quote for IBM is $ 90. A Stop Order to sell IBM at $ 85 means
a) The order will get released only when the Market Price hits $ 85
b) The stock will get sold immediately at Current Market Price but not less than $ 85
c) The stock will get sold immediately at Current Market Price but not less than $ 90
d) The order will get released immediately and the stock will get sold between $ 85 - $ 90
e) The order will get released at $ 85 as a limit order at $ 90

444. The latest quote for IBM is $ 90. A Stop Limit Order to sell IBM at $ 85 stop & $ 87 limit
means
a) The stock will get sold immediately at Current Market Price but not less than $ 85
b) The stock will get sold immediately at Current Market Price but not less than $ 87
c) The order will get released immediately and the stock will get sold between $ 85 - $ 87
d) The order will get released only when the Market Price hits $ 85 as a Market Order
e) The order will get released at $ 85 as a limit order at $ 87
445. The difference between Fill or Kill and All or None order is
a) Fill or Kill allows multiple trades
b) All or None can be a Good Till Cancelled order
c) They are synonyms
d) Fill or Kill can be valid till end of day
e) Fill or Kill allows partial execution

446. The quote for CTSH in NASDAQ was $ 43. The best buyer was at $ 42.5 and the best seller
at $ 43.5. How much is the bid-ask spread
a) $0.50
b) ($0.50)
c) $1.00
d) ($1.00)
e) $86

447. Figuration in brokerage industry means


a) Monetary value of a transaction
b) Number of shares bought/sold
c) Settlement details
d) Payment instrument details
e) Dividend payable/receivable

448. Movement of securities and funds within a brokerage firm is done by


a) Margin Department
b) Cashiering department
c) Corporate Actions team

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d) Purchase and Sales
e) Accounting Department

449. CTSH has announced a stock split of 3 shares for 1 share. The record date for the same is
Dec 19, 2003. The holder will be eligible for the bonus only if he holds the shares as of close of
business on
a) Jan 01, 2003
b) Dec 19, 2003
c) Dec 18, 2003
d) Dec 20, 2003
e) Dec 31, 2003

450. A brokerage or analyst report will contain all of the following except?
a) Detailed description of the company, and its industry.
b) Opinion on why the analyst believes the company will succeed or fail.
c) Recommendations to buy, sell, or hold the company.
d) Target price or performance prediction for the stock in a year.
e) Track record of the analyst writing the report.

451. Dow Jones Industrial Average (DJIA) and Bombay Stock Exchange Index (Sensex) are
a) Both are Price Weighted
b) Both are Value Weighted
c) DJIA is Value Weighted & Sensex is Price Weighted
d) DJIA is Price Weighted & Sensex is Value Weighted
e) None of the listed options

452. A Value Weighted Index has stocks in


a) Equal proportion
b) Each stock in proportion to its intrinsic value
c) Each stock in proportion to its free float
d) Each stock in proportion to its equity capital
e) Each stock in proportion to its market value
453. Consider an index with only 3 stocks
Stock A 2 million shares Market Price $ 50
Stock B 4 million shares Market Price $ 40
Stock C 8 million shares Market Price $ 30
The Weightage for Stock A in Value Weighted Index is
a) 14.14%
b) 20%
c) 33.33%
d) 50%
e) 41.66%

454. The FTSE (Footsie) Index reflects share prices in


a) London
b) Europe
c) Asia
d) Americas

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e) Australia

455. Which equity securities provide for the domestic trading of foreign stock?
a) Eurodollars
b) American Depository Receipts
c) Foreign stocks
d) Sterling shares
e) International equities

456. In general, how frequently do companies declare Cash Dividends?


a) Annual
b) Half Yearly
c) Quarterly
d) Monthly
e) Irregular

457. What would happen to Convertible Preferred Stock if the underlying common stock
experienced a 2 for 1 stock split?
a) Conversion price would be reduced, and the number of convertible shares would
increase.
b) Conversion price would be reduced, and the number of convertible shares remain the
same
c) Conversion price remains the same, and the number of convertible shares
would increase
d) No impact
e) Conversion price would be increased, and the number of convertible shares would
increase

458. What date represents the announcement by the board of directors that a dividend will be
paid?
a) Book Closure date
b) Record Date
c) Declaration Date
d) Dividend date
e) Payment Date

459. If the payable date is Friday, December 6, and the record date is Monday Jan 12, when is
the Ex-Dividend Date?
a) December 4
b) December 6
c) January 12
d) January 10
e) January 8

460. Which term refers to securities that are sold by the issuer to investors?
a) Secondary Offering
b) Outright Sale
c) Primary Offering

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d) Select Sale
e) None of the listed Options

461. When are shareholders of record determined for dividend purposes?


a) Primary Offering
b) Secondary Offering
c) Outright Sale
d) Select Sale
e) None of the listed Options

462. If a stock trades on Wednesday, May 2, when will Regular Settlement occur in US markets?
a) May 3
b) May 4
c) May 5
d) May 7
e) May 8

463. Consider an index with only 3 stocks


Stock A 2 million shares Market Price $ 50
Stock B 4 million shares Market Price $ 40
Stock C 8 million shares Market Price $ 30
The Weightage for Stock A in Price Weighted Index is
a) 14.14%
b) 20%
c) 33.33%
d) 50%
e) 41.66%

464. All of these are different types of brokerage accounts except?


a) Margin Account
b) Nostro Account
c) Cash Account
d) IRA Account
e) Power of Attorney Account

465. The NYSE is an example of


a) Primary Market
b) Secondary Market
c) OTC Market
d) Fourth Market
e) None of the listed Options

466. What is the key regulatory authority over the American securities industry?
a) Federal Reserve
b) FDIC
c) DTCC
d) ASA

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e) Securities Exchange Commission

467. If a company announces a 2 for 1 Stock Dividend, what will happen to the price and number
of shares outstanding on the ex-date?
a) Price will go down by 50% while shares outstanding would double
b) Price will go down by 50% while shares outstanding would remain the same
c) Price will remain the same while shares outstanding would double
d) Price and shares outstanding would double
e) Price and shares outstanding would remain the same

468. What is the term for previously issued stock that has been re- purchased by the issuer in the
secondary market?
a) Treasury Stock
b) Preference Stock
c) Promoter Stock
d) Trade able Stock
e) Non voting Stock

469. If a corporate bond which pays its coupon on April 1 and October 1 is traded on Wed, June
10, how many days of accrued interest does the buyer owe the seller?
a) 0
b) 70 days
c) 71 days
d) 74 days
e) 75 days

470. What is the Effective Yield for a bond trading at a discount?


a) Less than interest indicated in the bond
b) Same as interest indicated in the bond
c) More than interest indicated in the bond
d) No relationship between the interest and effective yield
e) None of the listed Options

471. What securities do not require proof of ownership to receive interest or principal payments?
a) Bearer bonds
b) Registered Securities
c) Unregistered Securities
d) Warrants
e) Debentures

472. Who is at risk during a best efforts underwriting?


a) Investor
b) Underwriter
c) Issuer
d) Stock Exchanges
e) Securities Exchange Commission

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473. When must GTC orders be reconfirmed?
a) End of every day
b) End of every week
c) End of every month
d) End of every quarter
e) End of April and October

474. What is the term for the difference between bid and ask?
a) Difference
b) Spread
c) Profit
d) Quote
e) None of the listed Options

475. What is the Third Market?


a) NASDAQ
b) OTC
c) NYSE
d) Instinet
e) None of the listed Options

476. What is the term for a broker/dealer that maintains an inventory of stock and disseminates
quotes on that stock to other broker/dealers?
a) Issuer
b) Investor
c) Underwriter
d) Stock Exchanges
e) Market Maker

477. Corporate Action refers to


a) All company announcements
b) All stock exchange announcements
c) Dividends/Stock Splits
d) New investments
e) None of the listed options

478. Dow Jones Industrial Average (DJIA) has


a) All companies listed at NYSE
b) 30 large companies listed at NYSE
c) Top 10% of NYSE
d) Top 10% of NASDAQ
e) 30 large companies listed at NASDAQ

479. Insiders of the company cannot sell any shares for a specified period of time, this is known
as
a) Holding Period
b) Blackout Period

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c) Buy & Hold Period
d) Book Closure Period
e) None of the listed Options
480. In a Rights offering of shares, which of the following is used?
a) Firm commitment
b) Stand by underwriting
c) Best Efforts underwriting
d) Outright Sales
e) None of the listed Options

481. The Fourth Market refers to


a) NASDAQ
b) OTC
c) NYSE
d) Instinet
e) None of the listed Options

482. The coming together of Daimler AG of Germany and Chrysler of US to form Daimler
Chrysler can be termed as
a) Chrysler acquiring Daimler
b) Merger of Daimler & Chrysler to form a new company
c) An informal arrangement between the two companies to manufacture and sell each
others products
d) Daimler acquiring Chrysler
e) A technical collaboration

483. What is a meant by a buy limit at 46?


a) Buy at exactly 46 + brokerage
b) Buy Price + Brokerage exactly equal to 46
c) Buy at 46 or lower + brokerage
d) Buy Price + Brokerage equal to or lower than 46
e) None of the listed Options

484. Which of the following risks need to be managed while lending securities
a) Foreign exchange risk
b) Liquidity risk
c) Credit risk
d) Equity risk
e) All of the listed options

485. Development of investment objectives and investment policy falls under the purview
a) Fund Administration
b) Asset Allocation
c) Compliance reporting
d) Investment Manager Universe
e) Asset Liability Analysis

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486. Schroeders PLC presently has State Street as its custodian. They would like to move the
assets to JP Morgan Chase as the new custodian because of better pricing and services. Which
of the following teams in JPMC will handle this change?
a) Account Management
b) Transition Management
c) Brokerage Services
d) Administration
e) Treasury

487. Core Custody Services performs the following functions except


a) Price securities positions
b) Record Keeping
c) Fiduciary and compliance monitoring
d) Reporting services
e) Processes corporate actions

488. Transition Management under the purview of trading services help


a) Multi-currency collateral management and reporting
b) Brokerage to minimize costs and maximize efficiency
c) Institutional investors reduce their trading costs
d) Setting brokerage rates
e) None of the listed options

489. Which of the following trading services provide institutional investors reduce their trading
costs
a) Stock repurchase program
b) Transition management
c) Commission recapture
d) Both 2 and 3
e) None of the listed Options

490. Alternate Investments refer to


a) Diversification from equity into debt
b) Investment into non-regular asset categories
c) Forex trading
d) Arbitraging
e) None of the listed Options

491. Corporate Actions are communicated to the clients by custodians using


a) MT 15022
b) MT 5022
c) MT 2001
d) MT 199
e) None of the listed Options

492. Which one of the following is NOT an Alternate Asset


a) Distressed debt

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b) Private Equity
c) Venture Funds
d) IBM stock
e) LBOs

493. Income Processing team of a custodian takes care of:


a) Stock splits
b) Trade Processing
c) Global income and payments on due dates
d) Settlements
e) Clearing

494. Asset-Liability analysis results in


a) Determining excess of assets over liabilities
b) Estimating Future economic wealth
c) Effect of return volatility
d) Both 2 and 3
e) Term mismatch of assets and liabilities

495. Which of the following services doesnt fall under the purview of Trading?
a) Foreign exchange
b) Transition management
c) Commission recapture
d) Local fund servicing
e) Cash & short term investment

496. Which of the following services doesnt fall under the purview of Trading?
a) Performance management
b) Investor management universe
c) Cash projection
d) Cash & short term management
e) Fund administration

497. Fund administration covers the administrative and legal services to meet the needs of the
fund. Which of the following items are not covered?
a) Fund Development
b) Portfolio evaluation
c) Transfer agency
d) Corporate Stock Repurchase
e) Fiduciary and compliance monitoring

498. Transition management is a systematic, controlled process that utilizes all available sources
of liquidity to simultaneously _____________ and _____________
a) Minimize risk; maximize profits
b) Maximize liquidity; minimize risk
c) Minimize cost ; maximize efficiency
d) Minimize liquidity; maximize efficiency

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e) None of the listed Options

499. Securities lending experts specializes in market information and negotiation skills to provide
profitability to the lender while managing
a) Credit risk
b) Liquidity risk
c) Interest rate risk
d) Both Credit risk and Liquidity Risk
e) Both Credit risk and Interest Rate Risk

500. In the case of securities lending services, the Third party intermediaries
a) Conduct transactions directly with the lender and borrower
b) specialize in particular types of securities loaned
c) target clients that are dissatisfied with the performance of their custody banks
d) become a principal to the transaction
e) Both Conduct transactions directly with the lender and borrower and

501. In the case of securities lending services, the Wholesale intermediaries


a) conduct transactions directly with the lender and borrower
b) specialize in particular types of securities loaned
c) target clients that are dissatisfied with the performance of their custody banks
d) becoming a principal to the transaction
e) Both conduct transactions directly with the lender and borrower & becoming a
principal to the transaction

502. ______________ for securities lending, which bring lenders and borrowers together, may
eliminate _______________
a) Wholesale intermediaries; Niche intermediaries
b) Internet auction systems; custodian and third party intermediaries
c) Custodian and third party intermediaries: Niche intermediaries
d) Niche intermediaries; custodian and third party intermediaries
e) Internet auction systems; Niche intermediaries

503. Offshore securities lending markets required


a) the settlement of securities lending transactions on the books of Global custodians
b) the settlement of securities lending transactions on the books of domestic custodians
c) the settlement of securities lending transactions on the books of foreign sub
custodians
d) the settlement of securities lending transactions on the books of foreign sub domestic
custodians
e) None of the listed Options

504. The reason for the development of offshore securities lending is


a) Unfavorable tax treatment
b) Assorted securities restrictions
c) Legalities of transaction
d) All of the listed options

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e) None of the listed Options

505. Distressed debt refer to


a) distressed state of market for debts/loans
b) loan/debt that has become watchlist or impaired
c) corporate bonds of companies that have filed for bankruptcy
d) All of the listed options
e) None of the listed Options

506. Besides providing core custody services, the global custodian typically provides which of the
following services?
a) Foreign exchange transactions
b) Futures & Options Clearing and Execution
c) Tax reclaims processing
d) Both Foreign exchange transactions and Futures & Options Clearing and Execution
e) Both Foreign exchange transactions & Tax reclaims processing

507. When an entity is able to control a majority of shares by using borrowed money, it is called
a) Corporate stock repurchase
b) Leveraged buyout
c) Corporate lending
d) Busted takeover
e) Management buyout

508. Managers' returns are analyzed using a market factor-based performance analysis model
that allows us to create accurate manager peer groups based on market exposures, what is it
called as
a) Financial reporting
b) Income processing
c) Investment manager universe
d) Investment manager portfolio
e) None of the listed Options

509. What is one of the best investment strategies to protect an investor from volatility?
a) Hedging
b) Market timing
c) Insurance
d) Diversification
e) None of the listed Options

510. Standard & Poor's and Moody's are companies that would be examples of
a) Stockbrokers
b) securities exchanges
c) stock regulations
d) investor's services
e) stock underwriter

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511. The most readily available source of information for an investor
a) the daily newspaper
b) government publications
c) corporate reports
d) investor newsletters
e) business periodicals

512. In the case of Single Premium Deferred Annuities (SPDA),


a) Premium is an asset for the bank
b) Premium is a liability for the customer
c) Deferred annuities are an asset for the bank
d) Deferred annuities are liability for the customer
e) None of the listed Options

513. Asset allocation process generate


a) Lowest possible risk
b) Highest possible returns
c) Meet planned objectives
d) All of above
e) None of above

514. SWIFT is a
a) Proprietary network interface
b) Open standard network interface
c) Message based network interface
d) Both Open standard network interface & Message based network interface
e) Both Proprietary network interface & Message based network interface

515. Compliance reporting


a) Provides exception-based information
b) Provides standard template based information
c) Highlights potential violations for internal regulations
d) All of the listed options
e) None of the listed Options

516. Compliance reporting covers all of the following services EXCEPT


a) Hedging and gearing reports
b) Weighted average analytics
c) Prohibited investments
d) Suspicious activity reports
e) Sharing holding restrictions

517. Custody clients' trade instructions are typically communicated using


a) SWIFT network
b) FEDWIRE
c) CHIPS
d) Clearing
e) None of the listed Options

518. Tax processing investor services include

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a) make reclamations for client accounts
b) pursue tax relief at the source
c) manage clients' investment-related tax issues
d) All of the listed options
e) None of the listed Options

519. _____________, the largest discount brokerage house, uses the Internet to deliver both
high-tech and high-touch services to its clients
a) Charles Schwab
b) Brown & company, J P Morgan Chase
c) Ameritrade
d) All of the listed options
e) None of the listed Options

520. Private Equity


a) Requires very large investment
b) Quoted on the stock market
c) Listed on stock exchange
d) All of the listed options
e) None of the listed Options

521. Asset Allocation involves


a) Immunization techniques
b) Use of options
c) Use of emerging market equities
d) Use of venture funds
e) All of the listed options

522. Does Asset Allocation help reduce the investment risk?


a) No - It only maximizes return
b) It increases risk
c) Yes
d) It increases choice No impact on risk
e) None of the listed Options

523. Services like the settlement, safekeeping, and reporting of customers marketable securities
and cash are provided by _________________
a) Custodian
b) Broker
c) Investment bank
d) Fund Administrator
e) Dealer

524. Asset Allocation in an investment policy is designed to meet the required rate of return. If the
investment objective is Generate as much income as possible. Which of the following asset
allocation strategy would be suitable for the above objective?
a) Invest in high quality bonds

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b) Invest in shares of rapidly growing companies
c) Investment in both shares and bonds
d) Invest in lower quality bonds
e) None of the listed Options

525. Custody as an industry is going through a period of massive change. What do you think are
the major driver/s changing the way the business is done?
a) Increasing regulation and transparency
b) Infrastructure rapidly changing towards tight cost base and automated trade workflows
c) Disintegration of the Global custody market
d) Increasing regulation and transparency and Infrastructure rapidly changing
towards tight cost base and automated trade workflows
e) All of the listed options

526. Sarbanes-Oxley Act comprises of


a) Section 401 seek to improve objectivity of research by recommending rules
b) Section 201 specifies enhanced financial disclosures
c) Section 501 prohibits non audit services
d) all of the listed options
e) None of the listed Options

527. Federal communication privacy law features


a) Three tiered system
b) prohibits electronic eavesdropping on telephone conversations, face-to-face
conversations, or computer and other forms of electronic communications
c) privacy protection covers telephone records, e-mail held in third party storage
d) All of the listed options
e) None of the listed Options

528. Which of the following financial institutions are covered under the Anti-money laundering,
US Patriot Act
a) Securities brokers and dealers
b) Mutual Funds
c) Banks and Trust companies
d) All of the listed options
e) None of the listed Options

529. The US Patriot act deals with the following money laundering crime
a) Proceeds from foreign crimes of violence and political corruption
b) Proceeds from cyber crime
c) Counterfeiting
d) All of the listed options
e) None of the listed Options

530. Check21 provides


a) Fully automated Day 1 processing
b) Decreased collection float due to faster clearing process

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c) Compressed processing windows to enable later branch cutoff times
d) Only privately-held companies that are headquartered in the U.S.
e) None of the listed Options

531. The US Patriot Act doesnt allows for


a) US enforcement of foreign forfeiture orders
b) Seizure of correspondent accounts held in U.S. financial institutions for foreign banks
c) Confiscation of property located in US for crimes committed in violation of foreign laws
d) All of the listed options
e) None of the listed Options

532. Under the new rules, an accounting firm that does an audit is prohibited from providing
many other accounting services. Which of the following is specifically permitted under Sarbanes-
Oxley?
a) Broker or dealer, investment adviser, or investment banking services
b) Financial Information Systems Design and Implementation
c) Appraisal or Valuation Services
d) Tax services
e) All of the listed options

533. Not all possible services that might be provided by the auditing firm are expressly prohibited
by Sarbanes-Oxley. If a non-audit service is not expressly prohibited, the auditing firm may
provide that service
a) If no one on the board objects
b) If the audit committee gives its prior approval If the audit committee gives its
prior approval
c) Only in an emergency and only if the company being audited has not been able to find
another accounting firm to provide this service after making a good-faith effort
d) Without any prohibitions or pre-conditions whatsoever
e) None of the listed Options

534. Sarbanes-Oxley Act, section 501, specifies


a) Book Keeping and Actuarial Services
b) Balance sheet transactions
c) Commission rules on pro forma figures
d) Rules for greater public confidence in securities research
e) None of the listed Options

535. The stated objectives of the stringent rules under Sarbanes-Oxley Act are
a) To protect the interest of investors
b) To improve the accuracy and reliability of corporate disclosures
c) To deter and punish corporate and accounting frauds
d) To ensure justice for wrongdoers
e) All of the listed options

536. USA PATRIOT Act enforces which of the following


a) Criminal Investigations

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b) Foreign Intelligence Investigations
c) Money Laundering
d) All of the listed options
e) None of the listed Options

537. Money laundering refers to


a) Money facilitating criminal offences
b) Extending loans to corporate
c) Short term borrowing & placements
d) All of the listed options
e) None of the listed Options

538. Money laundering can best be described as the process by which


a) money gained from criminal activity is processed so it appears to be gained
from legitimate sources
b) criminals attempt to defraud the government
c) money gained from legitimate sources is hidden to avoid taxes
d) the police attempt to investigate organized crime
e) None of the listed Options

539. Which of the following is not an example of money laundering during the placement stage?
a) Exchanging many small denomination bills (i.e. tens, twenties and fifties) for larger bills
and bank drafts
b) Repeated deposits of cash into a financial institution just below mandatory reporting
threshold
c) Setting up an offshore "shell" corporation to "lend" yourself money for a new
house
d) All of the listed options
e) None of the listed Options

540. Federal authorities attack money laundering through


a) Regulations
b) Criminal sanctions
c) Forfeiture
d) All of the listed options
e) None of the listed Options

541. The US Patriot Act expands the authority of the ________________ to regulate the activities
of U.S. financial institutions, particularly their relations with ______________and entities
a) Secretary of the Treasury; domestic individuals
b) Secretary of the Treasury; foreign individuals
c) Securities Exchange Corporation; domestic individuals
d) Securities Exchange Corporation; foreign individuals
e) None of the listed Options

542. SARs in the context of anti money laundering


a) stands for Suspicious activity reports

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b) Needs to be filed by Securities brokers and dealers as well as commodity merchants
c) Requiring businesses, which were only to report cash transactions involving more than
$1,000,000 to the IRS to file
d) Both stands for suspicious activity reports & Needs to be filed by Securities
brokers and dealers as well as commodity merchants
e) All of the listed options

543. Which of the following regulations are not covered under the US Patriot act?
a) Encouraging financial institutions and law enforcement agencies to keep
confidential information concerning suspected money laundering and terrorist activities
b) Prohibiting U.S. financial institutions from maintaining correspondent accounts for
foreign shell banks
c) Establishing minimum new customer identification standards and record-keeping
d) Requiring financial institutions to maintain anti-money laundering programs which
must include at least a compliance officer
e) None of the listed Options

544. Forfeiture regulation under the US patriot act allows


a) permits confiscation of any property derived from or used to facilitate domestic
or international terrorism
b) Calls for the seizure of correspondent accounts held in foreign financial institutions for
domestic banks who are in turn holding forfeitable assets
c) Permits foreign enforcement of domestic forfeiture orders
d) All of the listed options
e) None of the listed Options

545. US Patriot act incorporates the following new crimes


a) terrorist attacks on mass transportation facilities
b) for biological weapons offences
c) for fraudulent charitable solicitation
d) All of the listed options
e) None of the listed Options

546. Federal communications privacy law features a three tiered system under US Patriot act
First level: prohibits electronic eavesdropping on telephone conversations, face-to-face
conversations, or computer and other forms of electronic communications
Second level: telephone records, e-mail held in third party storage, and the like
Third level: in the case of serious criminal cases, law enforcement officers may seek a court order
authorizing them to secretly capture conversations

Which of the above levels are correctly described?


a) All the levels
b) First & Second
c) Only Second level
d) Second & third
e) None of the listed Options

547. Which of the following institutions are not covered under the AMR guidelines?
a) Credit unions

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b) Securities brokers and dealers
c) Mutual funds
d) Futures commission
e) None of the listed Options

548. The Customer Identification program includes all of the following EXCEPT
a) Collecting information
b) Verifying identity
c) Checking terrorist list
d) Reliance on other financial institution
e) None of the listed Options
549. For the customer identification program, the AMR guidelines
a) dictates which forms of identification documents financial institutions can accept
b) financial institutions responsible for assessing and minimizing the risk associated with
the documents
c) risk based approach to determine the form of identification
d) Both financial institutions responsible for assessing and minimizing the risk
associated with the documents and risk based approach to determine the form of
identification
e) All of the listed options

550. Which of the following risk categories are covered under Basel II
A. Interest risk
B. Market risk
C. Foreign exchange risk
D. Liquidity risk
E. Credit risk
F. Operational risk
G. Qualitative risk
a) A, C, F
b) E,B,F
c) A, B, G
d) B,D,G
e) E,C,A

551. The deadline for the implementation of BASEL II for all the foreign and financial institutions
is
a) December 2005
b) December 2007
c) December 2006
d) December 2004
e) None of the listed Options

552. The aim of Basel II is


a) To promote safety and soundness in the financial system by allocating capital in
organizations to reflect risk more accurately
b) To promote efficiency in the financial system by allocating capital in organizations
efficiently to minimize risk and maximize returns
c) To promote standardization in the financial system by allocating capital in
organizations to obtain optimal risk return profile

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d) To establishing a more sophisticated framework for banks to measure risk and ensure
sufficient capital to cover losses from market and credit risk
e) None of the listed Options

553. How many countries so far have signed the new capital accord Basel II
a) 10
b) 92
c) 110
d) 176
e) 21

554. Basel capital accord was established in


a) 1998
b) 1978
c) 1988
d) 1992
e) None of the listed Options

556. Three pillars of the new capital accord, Basel II, are
a) Quantitative; Supervisory; General
b) Qualitative; Market Forces; Geographic
c) Quantitative; Operational; Supervisory
d) Quantitative; Qualitative; Market Forces
e) Qualitative; Mandatory; Quantitative

557. Basel capital accord was instituted to coordinate global regulatory efforts to institute
_______________ capital requirements to eliminate the threat posed by _____________
a) Maximum; overcapitalized financial institutions
b) Minimum; overcapitalized banks
c) Maximum; undercapitalized financial institutions
d) Minimum; undercapitalized banks
e) None of the listed Options

558. The Qualitative pillar of the Basel II encompasses


a) Capital management processes
b) Trading book changes
c) Disclosure requirements
d) Operational risk
e) Capital structure

559. Which of the following risks has been incorporated in the new framework for the first time?
a) Operational risk
b) Market risk
c) Interest risk
d) Exchange risk
e) Credit risk

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560. Which of the following method can be utilized for the evaluation of operational risk?
a) Basic indicator approach
b) Internal ratings based approach
c) Advanced internal rating based approach
d) all of the listed options
e) None of the listed Options

561. Under the standardized approach for credit risk assessment, bank
a) Allocates risk weights to each of the assets and off-balance sheet positions
b) Calculates sum of risk-weighted asset values
c) Risk weights depend on the broad category of borrower
d) Risk weights can be refined by reference to external ratings
e) All of the listed options

562. Capital adequacy ratio refers to


a) Amount of banks capital expressed as percentage of the risk weighted credit exposure
b) Amount of banks capital expressed as percentage of the risk weighted credit exposure
& operational risk
c) Amount of banks capital expressed as percentage of the risk weighted credit
exposure, & market risk
d) Amount of banks capital expressed as percentage of the risk weighted credit
exposure, operational risk & market risk
e) None of the listed Options

563. Operational risk results from inadequate


a) Internal processes
b) People
c) System or from External events
d) All of above
e) None of the listed Options

564. Under standardized approach for operational risk


a) Capital charge is calculated by multiplying a banks broad financial indicator by
a beta factor
b) Capital charge is calculated by multiplying a banks broad financial indicator by a
alpha factor
c) Capital charge is calculated by multiplying a banks broad financial indicator by a
gamma factor
d) Factor can applied for any bank regardless of its complexity or sophistication
e) None of the listed Options

565. The internal rating based approach differs from standardized approach for credit risk
assessment, in that
a) IRB results in lesser risk sensitivity
b) IRB uses diverse range of risk weights
c) IRB is simpler approach
d) IRB leads to lower capital charges
e) All of the listed options

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567. USA PATRIOT Act has been enacted in response to
a) Very high profile corporate scandals such as Enron
b) The terrorists attacks of September 11, 2001
c) Growing complexity, volatility, and interdependence among international financial
markets
d) High tax payers defaults
e) None of the listed Options

568. In order to implement new capital adequacy framework by 2006, banks are planning to go
for different approaches for credit and operational risks, as specified in the framework, based on
its readiness in terms of systems and processes. What could be the challenges that would be
faced by these financial institutions?
a) Availability of historic data
b) System Integration
c) Re-engineer business process
d) Only Availability of historic data and System Integration
e) All of the listed options
569. Which of the following benefits can accrue to the banks implementing the new capital
adequacy norms besides reduced capital adequacy requirements?
a) Better risk based pricing
b) Improved capital allocation
c) Increased corporate and emerging markets lending
d) Only Better risk based pricing and improved capital allocation
e) All of the listed options

570. The migration to Check21 environment requires substantial investment in imaging, storage
and image exchange technology. Some of these investments can be avoided by outsourcing
some of these processes to third party ASP Solutions. Which of the following factors are likely to
influence the decisions of the banks to outsource or not?
a) Capacity planning
b) Security Analysis
c) AS IS process analysis
d) All of the listed options
e) None of the listed options

571. Which of the following activities can invite the application of Anti Money Laundering
guidelines?
a) Purchase or sale of same good
b) Multiple transfer of money
c) Depositing cash in big amounts
d) Only Purchase or sale of same good and Multiple transfer of money
e) Only Multiple transfers of money and Depositing cash in big amounts

572. Which of the following methods, parameters used, for measuring credit risk is more reliable
while processing credit application, assume that the calculation engine allocate equal weightage
to different factors:
a) Method A
b) Method B

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c) Method C
d) Method D
e) Both Method A and Method D

573. Assume that you have a holding in IBM Stock worth $10 million. You have calculated the
standard deviation (SD) of change over one day in IBM is $ 0.20.
Therefore for the entire position, SD of change over 1 day = $200,000
The SD of change over 10 days = $200,000 * (10) = $632,456
The 99% VaR over 10 days = 2.33 * 632,456 = $1,473,621

1. vaR is a measure of _________ (164)


2. Expand vaR Value at Risk
3. Best method for vaR _______________variance co-variance model
4. Rate of Inflation R=N-I
5. Check21
6. Liquidity
7. DC and DB differences
8. hedge,syndicate
9. Back to Back LC
10. Electronic

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