Country A adopts a fixed

exchange rate regime. Which of

the following best describes the
effect of short run macro-
economic policies?
Choose the correct option

Under conditions of perfect capital mobility, an

expansionary fiscal policy is completely ineffective as the
economy tends to move to higher interest rates crowding out
private capital

Under conditions of perfect capital mobility, monetary

policy is very effective in moving the economy to a higher
output

Assuming capital is perfectly immobile, monetary policy is

very effective in moving the economy to a higher output

Assuming capital is perfectly immobile, an expansionary

fiscal policy is completely ineffective as the economy tends to
move to higher interest rates crowding out private capital
Assume that for a country, the
marginal propensity to consume is
0.7 and the marginal propensity to
import is 0.2. Suppose the country
increases government spending by
$1000. What is the increase in
national income as a result of the
fiscal expansion?
Choose the correct option

$1000

$500

$1500

$2000
Suppose the spot rate is .7102
CHF:USD. Swiss and US interest rates
are 7.6% and 5.2% respectively. If the
1-year forward rate is 0.7200
CHF:USD, an investor could:
Choose the correct option

not earn arbitrage profits

earn arbitrage profits by investing in USD

earn arbitrage profits by investing in CHF

only earn arbitrage profits by investing in third

currency
X bank issues a 6-month, USD 1 million
CD at 4% and funds a loan in Argentine
Pesos(ARS) at 6.5%. The spot rate for
the ARS was ARS 2.27 per USD at the
time of transaction. In 6 months, the
ARS will have depreciated to ARS 2.3
per USD. What is the realized nominal
annual spread on the loan?
Choose the correct option

-
0.12%

-
1.12%

-
0.19%

-
1.19%
Calculate the profit that can be made in 6
months by a trader who owns $1 million,
from Covered Interest Arbitrage
Assume he deals in only two currrencies,
Dollar and Yen
Spot exchange rate: 106Yen/$
180 day forward rate: 103.5Yen/$
Euroyen rate: 4% per annum
Eurodollar rate: 8% per annum

Choose the correct answer

 $3,638

$4,438

$4,638

$5,438
An investor wants a three year duration
and maturity exposure to an issuer that
has only 1.5 year and 10 year securities
outstanding, the appropriate exposure can
be created by:
Choose the correct answer

Buying a three year default swap

Purchasing a credit linked note with an

embedded written default swap

Buying a 10 year default swap

None of the above

Which of the following relations hold true for
American call and put options?
K=strike price
P= Put option price
C= Call option price
So=Stock price
r= Risk free rate
T= Time to maturity
1 C + K*exp(-rt) = P + So
2 P<=K
3 C<=So
4 P<=So -K +C

Choose the correct answer

1 Only
 1,2,3 only

1,2,3 &4

2,3&4
only
You are long on a 6 month stock index forward contract.
The index has a value of $1000 and continuous dividend
yield of 1%. Assume risk free rate is 4%. What is the value
of forward contract if the index increases to $1050
immediately after contract is purchased?
Choose the correct answer

$49

$49.25

$49.75

$50.25

Which of the following is false?

Choose the correct answer

The time value of a European put option on a non-dividend

paying stock can be negative

The value of a European put option is inversely related to

the amount of future dividends expected

Assuming all the other variables are fixed, the value of an

American put option decreases as stock price increases

It is sometimes optimal to exercise an American put prior to

expiration

Which of the following is false

regarding Delta, Gamma and
Vega?
(Assume that the options are
on non-dividend paying stocks)
Choose the correct answer

Greater the moneyness of a call option greater is its delta

For a delta neutral call option portfolio, theta can sometimes

be used as a proxy for gamma

Theta of a European call option is always negative

Theta of a European put option is always negative

Consider a stock A and a call option on the same stock

(with a strike price of 100) expiring tomorrow. The
stock is currently priced at Rs 100 and it is known that
it can either rise to Rs 101 or fall to $99 tomorrow. The
probability of a rise is expected to be 0.6 and that of a
fall is 0.4. Assume interest rates are zero. What is the
value of the call option?
Choose the correct answer

0.6

0.5

Data in the Question is

inconsistent

0.4
1 Vega of in the money as well as out of the
money call options increases with increase in
volatility
2 Vega of an at the money option falls
dramatically close to expiry as compared to ITM
or OTM options
3 Time decay in theoretical value of a call option
is least for ATM call options and highest for OTM
call options

Choose the correct answer

Only 1 is true
 Only 2 is true

Both 1 and 2 are

true

1,2,3 are true

Which of the following is true?

Choose the correct answer

One of the differences between a bull spread and a bear

spread is that a bull spread is always constructed using two call
options whereas bear spreads are always constructed using two
put options

Bear spreads always require an initial investment

Bull spreads always require an initial investment

None of the above

Consider 3 bull spreads, one of them constructed
using two OTM call options (bull spread A),
another constructed using two ATM call
options( bull spread B) and the third using two ITM
call options(bull spread C). The correct order of
riskiness of the strategies is ( > denotes a more
aggressive strategy).
Choose the correct answer

A>B>C

B>A and B>C but nothing can be said

with regard to A and B

A>B andC>B but nothing can be said

with regard to A and B

C>A>B
Assume that in a particular market, stock returns follow a binomial rather than log
normal distribution. Assuming the implied volatility is derived from the Black Scholes
formula, which of the following curves best describe implied volatility as a function of
strike price?
 Graph B
Graph A

Graph C
Graph D

Choose
correct
answer
from
following.

Graph
A

Graph
B

Graph
C

Graph
D
Which of the following Is true
about ratios?
Choose the correct answer

Higher current ratios are associated with higher risk

 Cyclical industries typically have lower current ratios as
compared to non-cyclical firms

Payables conversion period is calculated as accounts

payables*365/ net sales

Inventory conversion period is calculated as

inventory*365/cost of goods sold

Submit Clear

Identify the statement

which is false
Choose the correct answer

Small high-growth companies are less likely to pay dividends

than large mature firms

Hamada’s equation implies that levered beta of a firm is

numerically more than its unlevered beta

The degree of operating leverage is the % change in EPS for a

1% change in EBIT

The bird in hand theory supports paying high dividends in order

to maximize shareholder wealth.
The Present Value of the revenues of a particular
production facility is $1000 and the present value of
variable costs is 300$.
If the PV of assets is $400 and Beta(revenue) is 0.8,
what is Beta(assets)?
Choose the correct answer

0.3

0.4

1.4

1.7
The cost of capital of XYZ firm is 10%. The capital
invested in the firm is $2000 million and the economic
profit is 120 million. What is the firm's ROI?
Choose the correct answer

4%

6%

16
%

18
%
From the takeover defence strategies given
below, identify the odd one out
Choose the correct answer

GreenMail

Standstill
Agreements

Poison Pills

Pacman Defence
Which of the following is
false regarding private
company valuation?
Choose the correct answer

There is usually a illiquidity discount that is applied when valuing

a private firm

The cost of equity used while valuing a private firm is usually

higher than that estimated using the market beta in the CAPM
 A finite life terminal value or liquidation value is usually used
when valuing a private company

None of the above

Which of the following is
false?
Choose the correct answer

While comparing banks, P/BV multiple is typically used

While comparing heavy infrastructure firms, P/E multiple is

typically used

P/S multiple is typically used for retail firms while comparing firms
with similar leverage

None of the above

A firm has growth characteristics as given below:
High Growth Stable Growth
Phase Phase
Expected Growth
25% 8%
Rate
Payout Ratio 20% 50%
Beta 1 1
Forever after 5
No:of years 5
years

Assume the risk free rate is 6% and the expected

rate of return on the equity of the firm is 11.5%
Its P/E ratio is estimated to be closest to:
Choose the correct answer

11.5

28.7
5

22.2
5

16.7
5
Which of the firms below is most
likely to be overvalued?
Choose the correct answer

A firm with low ROE

and low P/B

A firm with low P/B

and high ROE

A firm with high ROE

and high P/BV

A firm with high ROE

and low P/BV
Find the best match between the multiples in
col A to the sectors in col B
Col A Col B
i PEG 1 Infrastructure
ii EV/EBITDA 2 Real Estate
iii P/CF 3 Retail
iv P/Sales 4 High Technology
Choose the correct answer

i-1 ii-2 iii-3 iv-

4

i-2 ii-1 iii-4 iv-

3

i-1 ii-2 iii-4 iv-

3

i-4 ii-1 iii-2 iv-

3
The prices and cash flows of two bonds are
as follows:
Cash Flows
Bond Price T=1 T=2
A $100 106
B $96.56 6 106

Calculate the two period spot rate(each

period is of 6 month duration)
Choose the correct
answer

9.57%

12.33
%

14.50
%

16.00
%
Suppose there is a semiannual par bond with a $100 par
value. Asssume that the coupons are paid on March 1 and
September 1 of each year.
The annual coupon rate is 6% and it is currently July 13th. If
the bond is currently quoted at 102-11, what is the cash
price?
Assume the day count convention is 30/360.
Choose the correct answer

100.14
4

102.34
4

104.54
4

105.54
4
Assume an investor with a short
position is about to deliver a bond
and has four bonds to choose from
which are listed in the following
table. The last settlement price is
$94.76. Determine the cheapest to
 deliver bond

Bond Quoted Price

1 98
2 127
3 101
4 114
Choose the correct answer

Bond1

Bond
2

Bond
3

Bond
4
duration of a bond between
coupon payments:
Choose the correct answer

Declines with saw tooth fluctuations with passage of time

Declines on a one-for-one basis with passage of time

Declines exponentially with passage of time

None of these
Consider the following two statements about bond duration:
Statement 1: Duration of a bond increases immediately after
coupon payment
Statement 2: If the duration of a bond is shorter than the buyer's
horizon, bond will add market risk or reduce reinvestment risk
Choose the correct answer

1 is true but 2 is
false
 1 is false but 2 is
true

Both 1& 2 are true

Both 1& 2 are

false
Consider that you are financing a 2-year/30-year bond spread
The position consists of:
$1 million principal amount of the 10.625% bond of 8/15/2015 held long at a quoted price of
100
$5.05 million principal amount of the 9% note of 9/30/1987 held short at a quoted price of
100.09375
Assume the 30 year bond can be financed in the market for repurchase agreements(the RP
market) at 7.5% and the 2-year note can be borrowed in the market for repurchase
agreements on special collateral by accepting a rate of 7.5% on funds lent agains the notes
borrowed).Calculate how much the value of spread position changes over 1 day, net of
financing income and costs, if the bond yields do not change. Assume a day count
convention of 30/365 for accrued interest and 30/360 for financing the bonds.
Cho
ose
the
corr
ect
ans
wer

-
11
0.7
3

29
1.1

-
20
8.3
3

55
4.7
4
The duration of a par bond just before the payment of first coupon is 5.68. If the
coupon rate of the bond is 6% and the principal is 100, what is the duration
immediately after the coupon payment?
Choose the
correct answer

5.68

5.82

5.92

6.02
Which of the following is true regarding duration and convexity of a
bond?
1 The duration of a coupon-paying bond immediately after coupon
payment is less than it’s duration just prior to coupon payment
2 The duration of a coupon-paying bond immediately after coupon
payment is more than it’s duration just prior to coupon payment
3 Garbade’s convexity is maximum for a zero coupon bond
4 The Garbade convexity of a zero coupon bond maturing in 5 years
is zero

Choose the correct answer

Only stmt 1

Stmts 2 and 3

Stmts 1 and 4

Stmts 2 and 4
34
For the combination of any
two assets in the expected
return standard deviation
space:
Stmt 1 The combinations of
the two assets can never
have more risk than straight
line connecting the two
assets
Stmt 2 The portion of the
 portfolio possibility curve
that lies above the minimum
variance is concave while
that which lies below is
convex

Choose the correct answer

Stmt 1 is true but 2 is

not

Stmt 2 is true but 1 is

not

Both stmts 1 and 2 are

true

Neither stmt 1 nor stmt

2 is true
Choose the best option below
1. As per the CAPM, all correctly priced securities plot on the
securities market line
2. As per the CAPM, all correctly priced securities plot on the
capital market line
3. Securities which lie below the SML are under-priced by
the market
4. Securities which lie above the SML are under-priced by
the market
Choose the correct answer

Statement 4 alone is
true

Statement 3 alone is
true

Statements 2 and 3 are

true

Statements 1 and 4 are

true
Scenarios below depict all the possible scenarios( a total of 6) for values of
portfolios X and Y . Which of the following can be the expected shorfall values of X
and Y for the 1% tail?
Scenario X Y
1 47.27 45
2 35.65 33.9
3 55.44 50.26
4 78.91 76.22
5 74.23 72.21
6 66.67 64.23

Which of the following can be values of expected shortfall of X and Y respectively?

Choose the
correct
answer

15.46,
15.45

15.47,
15.44

15.44,
15.47

15.65,
15.55
A Multi-Year Restructuring Agreement for a $100 million loan with a sovereign
has the following features:
Maturity extended to 3 years
Principal amortization for 2 years at 50% per year
Grace period of one year
Up-front fee = 1%
Loan rate = 5%
Bank discount rate = 5.7%
If the original loan had a value equal to its par, the concessionality attached to
its Multi-Year Restructuring Agreement is:
Choose the
correct answer

$585,167

$556,013

$575,223
 $545,223
Balance sheet of xyz Bank looks like this:

Assets Amt Liabilities & Equity Amt

Short term securities and adjustable rate loans 200 Short term and floating rate funds 550
Duration: 5 months Duration: 6 months
Fixed rate loans 600 Fixed rate funds 260
Duration: 7 years Duration: 30 months
Non-earning assets 100 Equity 190
Total Assets 900 Total 900

What is the Duration Gap of the balance sheet?

Choose
the
correct
answer

47
.5
month
s

49
month
s

50
.6
month
s

51
.9
month
s
XYZ bank has a short term deposit(90 days) funded at a cost of 7%. The
deposit is invested in 9% 182 day Treasury Bill and intends to hold it till
maturity. On increase of interest rate by 1%, the deposit should be renewed
at 8%. In this case the bank is:
Choose the correct
answer
 Asset sensitive

Liability
sensitive

Both asset and

liability sensitive

Neither asset
sensitive nor
liability sensitive

The tables below show the estimated change in equity capital as a percentage of equity
capital(Table 1) and the estimated change in equity capital as a percentage of total
assets(table2) for a 00 bps and 320 bps increase for 4 banks A,B,C and D. Based on the
data given, which bank would you consider most risky

Table 1: Estimated change in equity capital as a percentage of equity capital

200 bps 320 bps
A 3.5 6.3
B -0.5 0.5
C -0.8 -1.1
D -38.6 -57.1

Table 2: Estimated change in equity capital as a percentage of total assets

200 bps 320 bps
A 0.1 0.3
B 0 0
C -0.3 -0.5
D -1.9 -2.9
Choose
the
correct
answer

Bank
A

Bank
B

Bank
C
 Bank
D
Bank of Manfest estimates the sensitivity of its NIM to interest rate
changes using the Dollar gap approach and wishes to reduce its asset
sensitivity. Among the actions given below, which one would you
recommend?
Choose the correct
answer

Shorten the
maturity of its loans

Make more
floating rate loans

Buy longer term

securities

Issue long-term
subordinated debt
Bank X is considering a loan to corporation C. C has requested a credit
facility of $10 million of which $2 million will be used immedately. The
bank has assessed an internal credit rating of BBB+ equivalent to 2%
default probability over the next year. Draw down upon default is
assumed to be 60%. The bank has additionally estimated a 40%
recovery rate based on pledged collateral. The standard deviation of
EDF and LGD is 5% and 30% respectively. The closest estimate of X's
adjusted exposure and unexpected loss is:
Choose the correct
answer

Unexpected loss of
$270000 and adjusted
exposure of $5200000

Unexpected loss of
$350000 and adjusted
exposure of $5200000

Unexpected loss of
$270000 and adjusted
exposure of $6800000

Unexpected loss of
 $350000 and adjusted
exposure of $6800000
Consider the following balance sheet of bank X

Balanc Risk Liabilities and Shareholders Balanc

Assets
e Weights Equity: e
Cash 200 0.0% Liabilities:
Interbank Loans (AAA): 100 25.0% Deposits 950
Residential Mortgages 700 56.0% Senior Debt 250
Credit Card Loans 300 76.0% Mezzanine Debt 50
Corporate Loans (AAA) 400 30.0% Borrowings 125
Corporate Loans (BB) 150 100.0% Convertibles 50
Allowance for Loan
(50) Total Liabilities: 1425
Losses
Net Loans 1500
Goodwill 50 0% Preferred Stock 25
Other assets 50 100% Common Shareholders Equity 150
Total Assets: 1600 Total 1600

Assume there are no off balance sheet assets

The leverage ratio of the bank is
Choos
e the
correc
t
answe
r

8
%

1
0%

1
2%

1
3%
The average net loans and leases to average
deposits ratio is used to:
Choose the correct answer

indicate liquid assets held for reserve

requirements
 show the sources of funds used by a
bank

measure liquidity risk

all the above

Which of the following is the most accurate regarding the credit risk of a
currency swap. As the value of the:
I domestic currency leg increases, so does the credit risk of a foreign
currency payer
II domestic currency leg increases, so does the credit risk of a domestic
currency payer
III foreign currency leg increases, so does the credit risk of the foreign
currency payer
IV foreign currency leg increases, so does the credit risk of the domestic
currency payer

Choose the correct

answer

I and IV

I and III

II and
III

II and
IV