Part A
OBJECTIVE TYPE QUESTIONS
FOR PRACTICE (COVERS ALL MODULES)
[Link] Interest income is
(i) Interest earned on advances
(ii) Interest earned on investments
(iii) Total interest earned on advances and investment
(iv) Difference between interest earned and interest paid
[Link] rate risk is a type of
(i) Credit risk
(ii) Market risk
(iii) Operational risk
(iv) All the above
[Link] opinion can be exercised on any day at the option of the buyer on or
before the expiry of the option.
(i) True
(ii) False
[Link] is the beta factor for corporate finance under Standardized approach ?
(i) 15%
(ii) 18%
(iii) 12%
(iv) None of the above
05.A bank suffers loss due to adverse market movement of a security. The
security was however held beyond the defeasance period. What is the
type of the risk that the bank has suffered ?
(i) Market Risk
(ii) Operational Risk
(iii) Market Liquidation Risk
(iv) Credit Risk
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[Link] June 1999 Basle Committee on Banking Supervision issued proposals for
reform of its 1988 Capital Accord (the Basle II Proposals). These
proposals contained MAINLY.
(I) Settlement risk management
(II) Capital requirements
(III) Supervisory review
(IV) The handling of hedge funds
(V) Contingency plans
(VI) Market discipline
(i) I, III and VI
(ii) II, IV and V
(iii) I, IV and V
(iv) II, III and VI
[Link] of the following is not a type of credit risk ?
(i) Default risk
(ii) Credit spread risk
(iii) Intrinsic risk
(iv) Basis risk
08.8% Government of India security is quoted at RS 120/- The current yield on
the security, will be----
(i) 12%
(ii) 9.6%
(iii) 6.7%
(iv) 8%
[Link] of a portfolio with over exposure in steel sector will be
(i) More than systematic risk
(ii) Equal to intrinsic risk
(iii) Less than intrinsic risk
(iv) None of these
10.A company declares RS 2/- dividend on the equity share of face value of RS
5/-. The share is quoted in the market at RS 80/- the dividend yield will
be----
(i) 20%
(ii) 4%
(iii) 40%
(iv) 2.5%
2
[Link] many accounts have suffered rating migration in the following table
Rating Migration of 100 A Rated Accounts
Migration between 31.03.06 and 31.03.07
Last No. of Present Rating
Rating Accounts A++ A+ A B+ B C Default
A 100 1 1 79 10 4 3 2
(i) 2
(ii) 19
(iii) 21
(iv) 25
[Link] risk that arises due to worsening of credit quality is
(i) Intrinsic Risk
(ii) Credit spread Risk
(iii) Portfolio risk
(iv) Counterparty risk
13.A debenture of face value of As. 100 carries a coupon of 15%. If the current
yield is 12.5%. What is the current market price ?
(i) Rs.100
(ii) Rs.120
(iii) Rs.150
(iv) Rs.125
[Link] order to develop an capability to actively manage an credit portfolio one
must have in place the following:
(a) Credit Rating Model (or models for different categories of loans and
advances)
(b) Develop and maintain necessary data on defaults of borrowers rating
category wise, i.e., ‘Rating Migration’.
(i) Both 1 and 2 are required
(ii) Only 1 is required
(iii) Only 2 is required
(iv) None of the above
3
[Link] increase in cash reserve ratio will cause yield curve to
(i) Shift downward
(ii) Remain unchanged
(iii) Become steeper
(iv) Become flatter
[Link] model that combines five financial ratios using reported accounting
information and equity values to produce on objective measure of
borrower’s financial health is
(i) Altman’s 2 score
(ii) ‘Credit Metrics’
(iii) Credit Risk +
(iv) None of the above
17.A bank holds a security that is rated A+. The rating of the security migrates to
A. What is the risk that the bank has faced ?
(i) Market risk
(ii) Operational risk
(iii) Market liquidation risk
(iv) Credit risk
[Link] interest rates go up, prices of fixed interest bonds –
(i) Go up
(ii) Go down
(iii) Remain unchanged
[Link] is not enough to assess market risk of a portfolio. Stress testing is
desirable because
(i) It helps in calibrating VaR module
(ii) It helps as an additional risk measure
(iii) It helps in assessing risk due to abnormal movement of market
parameters
(iv) It is used as VaR measure is not accurate enough
4
Part B
STUDY THE FOLLOWING STATEMENTS AND ANSWER
(COVERS ALL MODULES)
(a) Bond with ‘BBB’ rating will carry lower interest rate than one with ‘AA’
rating
i. False ii True iii Difficult to say
(b) Fall in interest rate cause the rate causes the bond prices also to fall.
i. False
ii. True
iii. Difficult to say
(c) A normal yield curve is sloping upward.
i. False
ii. True
iii. Difficult to say
(d) Stamp duty on transfer of dematted shares is lower.
i. False
ii. True
iii. Difficult to say
(e) Large Government borrowing can cause yield curve to shift upward.
i. False
ii. True
iii. Difficult to say
(f) Growth Funds assure growth in return.
i. False
ii. True
iii. Difficult to say
(g) If short term interest rates remain higher than the long term interest rates,
the yield curve will be inverted.
i. False
ii. True
iii. Difficult to say
5
(h) Credit rating agencies determine interest rates on debt securities.
i. False
ii. True
iii. Difficult to say
(i) The shares of software companies carry high P/E ratio.
i. False b) True c) Difficult to say
(j) Closed end mutual funds are trading at discount to NAV.
i. False
ii. True
iii. Difficult to say
(k) In a rising interest rate phase Zero coupon bond will be traded at a
premium
i. False
ii. True
iii. Difficult to say
(l) A sharp decline in short term interest rates will cause yield curve to be
steeper
i. False
ii. True
iii. Difficult to say
(m) A fall in interest rates reduces the demand for bonds in the secondary
market
i. False
ii. True
iii. Difficult to say
(n) Increase in the cash reserve ratio can cause the yield curve going
temporarily inverted.
i. False
ii. True
iii. Difficult to say
(o) Dematerialization of stocks has increased turnover on the stock market.
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i. False
ii. True
iii. Difficult to say
(p) Tight money and credit policy will cause bond prices to fall.
i. False
ii. True
iii. Difficult to say
(q) Increasing Government borrowing will raise interest rates.
i. False
ii. True
iii. Difficult to say
(r) Bond carrying ‘AA’ rating will carry highest interest rate than one
carrying ‘BBB’ rating.
i. False
ii. True
iii. Difficult to say
(s) Mutual fund redemption bring bearish influence on the stock market.
i. False
ii. True
iii. Difficult to say
(t) Decline in the interest rates on long dated Govt. bonds will cause yield
curve to be steeper.
i. False
ii. True
iii. Difficult to say
(u) Demat shares carry lower stamp duty on transfer than physical shares.
i. False
ii. True
iii. Difficult to say
(v) Increase in interest rates will cause bond prices to fall.
i. False
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ii. True
iii. Difficult to say
(w) Growth fund is a mutual fund that invests primarily in equity shares.
i. False
ii. True
iii. Difficult to say
(x) Stamp duty on transfer of demated shares is lowest.
i. False
ii. True
iii. Difficult to say
(y) Large Government borrowing in the market can make the yield curve
shift upward.
i. False
ii. True
iii. Difficult to say
(z) Bond with ‘A’ rating will carry higher interest rate than one carrying
‘BBB’ rating.
i. False
ii. True
iii. Difficult to say
8
Part C
OBJECTIVE TYPE QUESTIONS
FOR PRACTICE (COVERS ALL MODULES)
[Link] the interest rates fall, the market price of a fixed rate bond
(i) falls
(ii) rises
(iii) does not change
02.A transaction where financial securities are issued against the cash flow
generated from a pool of assets is called
(i) Securitization
(ii) Credit Default Swaps
(iii) Credit Linked Notes
(iv) Total Return Swaps
[Link] Fund is a mutual fund that
(i) assures growth in income
(ii) invests in fixed income securities
(iii) gives fixed return
(iv) invests primarily in equities
[Link] Risk arises from
1) Inadequate or failed internal processes
2) People and systems
3) External Events
4) Defaults
Which of the following is true ?
(i) All of them
(ii) None of them
(iii) (a) , (b) and (c)
(iv) (a) , (b) and (e)
05.A decline in cash reserve ratio will cause the yield curve to
(i) shift upward
(ii) shift downward
(iii) become flatter
9
(iv) remain unchanged
[Link] third consultative paper recommended for
(a) Cause based classification
(b) Effect based classification
(c) Event based classification
07. For operational risk. Which of the following is true
(i) (a)
(ii) None of them
(iii) (c)
(iv) (b)
08.12% Government of India security is quoted at Rs.120. If interest rates go
down by 1%, the market price of the security will be.....
(i) Rs. 120
(ii) Rs.133.3
(iii) Rs. 109
(iv) Rs. 140
[Link] of integrated risk frame work are:
(a) To relate capital and reserves more effectively to their
actual level of risk exposure.
(b) To evaluate pricing decisions and product profitability.
(c) In making risk transfer decisions.
Which of the following is true ?
(i) All of them
(ii) None of them
(iii) (a) and (b)
(iv) (b) and (c)
[Link] of proper management of operational risks are
(a) Lesser risk capital
(b) Cost reductions in operations
(c) Competitive edge
Which of the following is true ?
(i) All of them
(ii) None of them
10
(iii) (a) , (b) and (c)
(iv) (a) and (b)
11.A fall in long term interest rates on Government securities will make the yield
curve become
(i) flatter
(ii) steeper
(iii) shift downward
12.A bank expects fall in price of a security if it sells it in the market. What is the
risk that the bank is facing ?
(i) Market risk
(ii) Operational risk
(iii) Asset Liquidation risk
(iv) Market liquidity risk
[Link] 8-year 8% semi-annual bond has a BPV of Rs.125. The yield on the
bond has 11% Government of India security is quoted at Rs. 110, the yield will be –
(i) 11%
(ii) 10%
(iii) 9%
(iv) None of these
14.1 day VaR of a portfolio is Rs.500,000 with 95% confidence level. In a period
of six months (125 working days) how many times the loss on the
portfolio may exceed Rs. 500,000 ?
(i) 4 days
(ii) 5 days
(iii) 6 days
(iv) 7 days
16.A fall in interest rates will make prices of Government Securities -
(ii) Go down
(iii) Go up
(iv) Remain unchanged
(v) None of these
[Link] risk the risk of
(i) Failure of a bank, which is not adhering to regulations
(ii) Failure of two banks simultaneously due to bankruptcy of one bank
11
(iii) Where a group of banks fail due to contagion effect
(iv) Failure of entire banking system
[Link] the yield on long dated Govt. securities falls, then the yield curve will
become: -
(i) Steeper
(ii) Flatter
(iii) Shift downward
19.11% Govt. of India security is quoted at Rs.110. If the interest rates go down
by 1% the market price of the security will be
(i) Rs.110
(ii) Rs.109
(iii) Rs.122.2
(iv) Rs.130
[Link] fund is a mutual fund that
(i) Assures income
(ii) Invests in debt and equity
(iii) Assure growth
(iv) Gives fixed returns
[Link] testing is done to
(i) Test a model
(ii) Compare model results and actual performance
(iii) Record performance
(iv) None of the above
[Link] Basel II, Capital requirement under the accord is
(i) The maximum Capital that is required to be maintained
(ii) The minimum Capital that is required to be maintained
(iii) The capital as specified by the regulatory authority is required
to be maintained
(iv) None of the above
12
Part D
STUDY THE FOLLOWING STATEMENTS AND ANSWER
(COVERS ALL MODULES)
(aa) Fall in interest rates cause the prices of Govt. securities to go up.
i. False
ii. True
iii. Difficult to say
(bb) Steeper yield curve means long term interest rates are much lower than
short term interest rates.
i. False
ii. True
iii. Difficult to say
(cc) Mutual fund mobilization has bearish influence on the stock market.
i. False
ii. True
iii. Difficult to say
(dd) Convertible debentures carry an element of equity shares.
i. False
ii. True
iii. Difficult to say
(ee) Credit Rating agencies fix interest rates on bonds or debentures issued by
companies.
i. False
ii. True
iii. Difficult to say
(ff) Mutual Funds invest only in equity shares.
i. False
ii. True
iii. Difficult to say
(gg) Favorable monsoon brightens the prospects for stock market.
13
i. False
ii. True
iii. Difficult to say
(hh) Large Government borrowings cause debt securities prices to rise.
i. False
ii. True
iii. Difficult to say
(ii) Falling interest rates have benefited investors in debt securities mutual
funds.
i. False
ii. True
iii. Difficult to say
(jj) Large government borrowing would cause interest rates to go down.
i. False
ii. True
iii. Difficult to say
(kk) Falling interest rates cause NAVs of debt mutual fund to go down.
i. False
ii. True
iii. Difficult to say
(ll) Bond with ‘BBB’ rating will carry lower interest rates than one with ‘A’
rating.
i. False
ii. True
iii. Difficult to say
(mm) Money market mutual funds do not invest in equity shares.
i. False
ii. True
iii. Difficult to say
(nn) SEBI gives credit rating to securities issued in the capital market.
i. False
ii. True
14
iii. Difficult to say
(oo) Mutual funds can offer guaranteed returns.
i. False
ii. True
iii. Difficult to say
(pp) Large government borrowings will cause interest rates to go up.
i. False
ii. True
iii. Difficult to say
(qq) A mutual fund scheme; with a entry load will have its sale price higher
than its NAV.
i. False
ii. True
iii. Difficult to say
(rr) Security with A rating will carry higher interest rate than one with BB
rating.
i. False
ii. True
iii. Difficult to say
Part E
OBJECTIVE TYPE QUESTIONS
FOR PRACTICE (COVERS ALL MODULES)
01.A fall in the interest rates causes Govt. Securities to
(i) Remain stable
(ii) Fall
(iii) Rise
[Link] charge for credit risk requires input for PD, LGD, EAD and M. Under
advanced IRB approach, who provide the input for LGD.
(i) Bank
(ii) Supervisor
(iii) Function provided by BCBS
15
(iv) None of the above
03.A debenture of Rs.100 carrying 15% coupon rate is quoted in the market at
Rs.135/-. The current yield on this debenture will be
(i) 13.5%
(ii) 15%
(iii) 11.11%
(iv) 10%
[Link] in Post Office time deposit is
(i) Zero risk investment
(ii) Low risk investment
(iii) Medium risk investment
(iv) High risk investment
[Link] the short term interest rates are temporarily higher than the long term interest
rates, the yield curve will be
(i) Sloping upward
(ii) Inverted
(iii) Zigzag
(iv) Horizontal
[Link] payment of a term loan will result in interest rate risk of type
(i) Basis risk
(ii) Yield curve risk
(iii) Embedded option risk
(iv) Mismatch risk
07.A company with equity capital of Rs.50 crores (Face Value of Rs.10/- per
share) makes gross profit of Rs.70 crores and net profit after tax of Rs.25
crores. If the market price of its equity share is Rs.50, the PE ratio will be
(i) 50
(ii) 5
(iii) 10
(iv) 20
[Link] volatility of a stock is 1%. What is its 10 days volatility approximately ?
(i) 3%
(ii) 10%
(iii) 1%
16
(iv) 4%
[Link] call money rates are temporarily higher than the long term interest rates, the
yield curve will be
(i) Slopping upwards
(ii) Zigzag
(iii) Inverted
(iv) Horizontal
[Link] charge component of pricing accounts for
1) Cost of capital
2) Internal generation of capital
3) Loss provision
Which of the following is true.?
(i) All the statements are correct
(ii) Statements 1 and 2 are correct
(iii) Statements 2 and 3 are correct
(iv) Statements 3 and 1 are correct
[Link] oriented mutual funds
(i) Assure income
(ii) Assure growth
(iii) Invest in debentures
(iv) Invest in shares
12.A bank funds its assets from a pool of composite liabilities. Apart from credit
and operational risks, it faces
(i) Basis risk
(ii) Mismatch risk
(iii) Market risk
(iv) Liquidity risk
13.A branch sanctions Rs.1 core loan to a borrower, which of the following risks
the branch is taking
1) Liquidity risk
2) Interest rate risk
3) Market risk
4) Credit risk
5) Operational risk
17
(i) All of them
(ii) 1,2 and 3 only
(iii) 1,4 and 5 only
(iv) 1,2,4 and 5 only
14.A rise in Government securities prices will make yield curve –
(i) Slope upward
(ii) Shift downward
(iii) Remain stable
(iv) Shift upward
[Link] mitigation measures result in
1) Reducing downside variability
2) Reducing upside potential which of the following is true
(i) Both the statements are correct
(ii) Both the statements are not correct
(iii) Statement 1 is correct
(iv) Statement 2 is correct
16.9% Government of India security is quoted at Rs.120. The current yield on the
security will be –
(i) 12%
(ii) 9%
(iii) 7.5%
(iv) 13.3%
[Link] Risk is defined as
(i) Uncertainties resu1ting in adverse variation of profitability or
outright losses
(ii) Uncertainties that result in outright losses
(iii) Uncertainties in cash flow
(iv) Variations in net cash flows
[Link] Risk is a type of
(i) Interest Rate Risk
(ii) Operation Risk
(iii) Liquidity Risk
(iv) None of the above
18
[Link] of liquidity management is to:
(i) Ensure profitability
(ii) Ensure liquidity
(iii) Either of two
(iv) Both
20.A mutual fund charges 1% entry load and no exit load. Its NAV is Rs.16; its
sale and repurchase price will -----
(i) Rs.16 and Rs.15.80
(ii) Rs.16.16 and Rs.15.84
(iii) Rs.15.84 and Rs.16
(iv) Rs.16.16 and Rs.16
[Link] need liquidity to:
(i) Meet deposit withdrawal
(ii) Fund loan demands
(iii) Both of them
(iv) None of them
Part F
OBJECTIVE TYPE QUESTIONS
FOR PRACTICE (COVERS ALL MODULES)
01.A fall in interest rate of long dated government securities with the short term
interest rates remaining unchanged will make the yield curve.
(i) Steeper
(ii) Slop downward
(iii) Shift downward
(iv) Flatter
[Link] of bank’s liquidity position depends upon:
(i) Sources of funds
(ii) Anticipated future funding needs
(iii) Present and future earnings capacity
(iv) All of the above
[Link] yield on a government security is 5%. If the market price of the bond
is Rs.160, the coupon rate on the bond will ----
19
(i) 6%
(ii) 5%
(iii) 8%
(iv) 10%
[Link] represent source of funds where as liabilities denote the use of funds in
a balance sheet.
(i) True
(ii) False
(iii) Difficult to say
[Link] environment has narrowed spreads of the banks.
(i) True
(ii) False
(iii) Difficult to say
[Link] Liability management is only management of maturity mismatch and has
no bearing on profit augmentation.
(i) True
(ii) False
(iii) Difficult to say
07.A rise in the short term interest rates with the long term interest rates
remaining unchanged will make the yield curve -----.
(i) Steeper
(ii) Shift upward
(iii) Flatter
(iv) Slope upward
[Link] Interest Margin is also known as ‘Spread’.
(i) True
(ii) False
(iii) Difficult to say
09.A scheme of mutual fund has units with face value of Rs.10 and NAV of
Rs.37. The Fund declares a dividend of 35% in the scheme. The ex-
dividend NAV will be ------- per unit.
(i) Rs.37
(ii) Rs.2
(iii) Rs.33.50
20
(iv) Rs.35.5
10.7.5% coupon interest Government Security is quoted at Rs.120. Its current
yield will be ----------.
(i) 8.55%
(ii) 6.25%
(iii) 7.75%
(iv) 7%
11.A company with equity capital of Rs.15 crores makes PBIDT of Rs.15 crores
and PAT of Rs.10 crores. The face value of its share is Rs.5 and PE is 10,
the market price will be ---------.
(i) Rs.50
(ii) Rs.66
(iii) Rs.33
(iv) Rs.100
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