Roll No....

Membership No

The Institute of Chartered Accountants of India

Forex & Treasury Management Certificate Course
Evaluation Test Booklet

Paper 1

12th January, 2014

Duration- 3 Hours

Total Marks- 100

INSTRUCTIONS:
1.

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6.

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Date
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: 12th January, 2014

: New Delhi/ Mumbai /Chennai/Kolkata/Bangalore/Ahmedabad

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Page 1 of 24

CERTIFICATION COURSE ON FOREX AND TREASURY MANAGEMENT

S. No.

Total
Number of
Questions

Questions
to be
answered

Total
Marks

Multiple Choice Section A

100

100

50

Multiple Choice
Section B

50

50

50

150

150

100

Total

Marks
Obtained

Page 2 of 24

Section A
Number of questions: 100
Marks: 50
Multiple choices: There may be more than one correct answer, but there is at least one.

Q1.

Which of the following functions not pertains to Treasury

(a) Treasury Front Office
(b) Treasury Middle Office
(c) Treasury Back Office
(d) Loan department

Q2.

What do you mean by Swap Annualized Premium

(a) It is a Repo rate charged by RBI from banks
(b) It is a Reverse repo rate charged by banks from RBI
(c) Excess rate charged by one bank over other on overnight basis
(d) It is % equivalent of premium received or paid by exporter or importer over
spot rate

Q3.

Which one of the following is odd man out in respect to Treasury Front Office
(a) Buy and Sell of FX in Interbank market
(b) Buy and Sell of Securities in Interbank market
(c) Taking new and reversing of old positions as per Corporate mandate
(d) Taking care of documentation of Treasury function

Q4:

Which one is the exact role of Treasury Middle Office

(a) Buy and Sell of FX in Interbank market
(b) Buy and Sell of Securities in Interbank market
(c) Taking new and reversing of old positions as per Corporate mandate
(d) Managing existing and necessary amendments to create
management

new risk
policies

Q5.

Which one is the exact role of the Treasury Back Office

(a) Buy and Sell of FX in Interbank market
(b) Buy and Sell of Securities in Interbank market
(c) Managing existing and necessary amendments to create new risk management
policies
(d) Taking care of respective Treasury documentation as per approved corporate
risk management policies

Q6.

Which of the following is odd man out in spot sales

(a) Cash Spot
(b) Cash Tom
(c) Overnight
(d) Spot Week

Page 3 of 24

Q 7.

As an importer what would be the net outright rate for you while buying $ 1 Mn
USD/INR which is trading at 62.00 having Cash Spot at 2.75 / 3 P
(a) 62.0000
(b) 61.9800
(c) 61.9725
(d) 61.9700

Q8.

If USD/INR Spot is trading at 62.00 with one year forward premium is trading at
5.10/5.12 then what would be lock rate for exporter of $ 1 Mn
(a) 67.1000
(b) 67.0975
(c) 67.1200
(d) 67.1175

Q9.

If JPY/USD is trading at 104.25 and AUD/USD is trading at 1.03 then what would be the
cross rate for JPY/AUD
(a) 104.00
(b) 101.2130
(c) 101.2136
(d) 102.3136

Q10.

If JPY/USD is trading at 104.25 and one year forward rates are trading at -97/-98 Basis
Points then what would be the net outright rate for an exporter
(a) 103.2800
(b) 103.2795
(c) 103.2700
(d) 103.2695

Q11.

Which among the following is not amongst the volatility gauges in FX markets
(a) USD/INR
(b) AUD/USD
(c) EUR/USD
(d) GBP/USD

Q12.

Which amongst the following is a direct FX pair

(a) USD/INR
(b) AUD/USD
(c) USD/PHP
(d) None of these

Q13.

Which amongst the following is not a commodity currency pair

(a) Australian Dollar ( AUD)
(b) Canadian Dollar ( NZD )
(c) New Zealand Dollar ( NZD)
(d) Chinese Yuan ( RMB)

Q14.

Which amongst the following is not a discounted money market instrument

(a) Commercial Paper
Page 4 of 24

(b) Certificate of Deposits

(c) Treasury Bills
(d) Treasury Notes
Q15.

Which amongst the following is odd man out when it comes to Treasury Discounted
Instruments
(a) Bond Equivalent Yields
(b) Bond Discounted Yields
(c) Zero Coupon Instruments
(d) None of these

Q16.

If USD/INR spot is trading at 63.00 and Treasurer would like to create a Buy Put
Contract at 58.00 then he would be termed as
(a) In the Money (ITM)
(b) Deep Out of the Money (OTM)
(c) At the Money
(d) None of the above

Q17.

What exactly is the difference between Buy Put and Sell Call Contracts
(a) Former is having right to Buy while later is right to Sell
(b) Former is having right to Sell while later is right to Buy
(c) Former is having right to Sell while later obligation to Sell
(d) Both are at sell position however with obligations

Q18.

If USD/INR is trading at 63.00 and Treasurer booked Buy Put at 58 and now would like
to reverse the deal. What is odd man out??
(a) Treasurer would pay the difference of Rs 5 to Bank
(b) Treasurer would get the difference of Rs 5 from Bank
(c) Treasurer would square off the net premiums first paid and now received from
bank as in Options you are having right but not the obligation to honor your
trade
(d) None of these

Q19.

Which of the following is acting as Asian Financial Centre in the world

(a) Australia
(b) Singapore
(c) London
(d) India

Q20.

If USD Interest rates are at .25 % and INR at 9%. Currently UD/INR trading at 63 then
what would be the outright rate for 1 Year
(a) 68.4900
(b) 68.4975
(c) 68.49875
(d) 68.5000

Q21.

Which one is odd man out when it comes to booking of USD/INR NDF Trade
(a) Australia
Page 5 of 24

(b) Singapore
(c) New York
(d) India
Q22.

What is the exact combination of exporting Collars using Options Contracts

(a) Buy Put and Sell Call
(b) But Call and Sell Put
(c) Buy Call + Buy Put and Sell Call
(d) All of the above

Q23.

USD/INR Non Deliverable Forwards (NDF) contracts are settled at

(a) USD/INR end of day spot rate
(b) USD/INR end of day closing rate
(c) USD/INR RBI Fixing Rate
(d) USD/INR rate quoted by WSJ at end of day

Q24.

Which of the following is not an Asian Non Deliverable Forward Contracts currency Pair
(a) Australian Dollar / USD
(b) USD/ Indian Rupee
(c) USD/ Philippines Peso
(d) USD/ Singapore Dollar

Q25.

As an exporter you sold $ 1 Mn USD/INR NDF at 63.20 for one month and fixing rate
done at 63.00 then how much would be your local currency Gain/ (Loss)
(a) Gain of Rs 200,000
(b) Loss of Rs 200,000
(c) Gain of Present value of Rs 200,000
(d) Loss of Present Value of Rs 200,000

Q26.

Buy Call Option would be a suitable for which of the following Options
(a) You are an exporter and would like to Buy $
(b) You are an Importer and would like to Sell $
(c) You are an Importer and would like to Buy $
(d) You are an importer and want to do both sell and buy $

Q27.

Buy Put contracts are also known as

(a) Insurance Contracts
(b) Bullish Contracts
(c) Getting a right to sell foreign currency in local currency
(d) Both 1 & 3
Currency

Euro
Japanese
Yen
CanadCanadian

2007 Exchange Rate ( Per

USD)
.9954
102.20

2008 Exchange Rate ( Per

USD )
1.0747
114.90

1.44

1.50
Page 6 of 24

Dollar
Q28.

The table above shows the exchange rates between various currencies and the U.S.
dollar. Between2007 and 2008, the U.S. dollar ________ against the euro and ________
against the Japanese Yen
(a) Depreciated; appreciated
(b) Appreciated; depreciated
(c) Depreciated; depreciated
(d) Appreciated; appreciated

Q29.

The table above shows the exchange rates between various currencies and the U.S.
dollar. Between2007 and 2008, the Japanese yen ________ against the U.S dollar and the
euro ________ against theU.S. dollar
(a) Depreciated; appreciated
(b) Depreciated; depreciated
(c) Appreciated; appreciated
(d) Appreciated; depreciated

Q30.

If the price level in the U.S. is 120, the price level in South Africa is 140, and the nominal
exchange rate is 7 South African Rand (ZAR) per dollar, then the real exchange rate is
(a) 1.4 South African goods per U.S. good
(b) 9.8 South African goods per U.S. good
(c) 6 South African goods per U.S. good
(d) 8.4 South African goods per U.S. good
With everything else the same, in the foreign exchange market the
(a) The higher the exchange rate, the cheaper are U.S.-produced goods and services
(b) The lower the exchange rate, the smaller is the expected profit from buying dollars
(c) Larger the value of U.S. exports, the greater is the quantity of dollars
demanded
(d) Lower the exchange rate, the smaller the amount of U.S. exports

Q31.

Q32.

If the exchange rate falls, then the expected profit from holding the currency
(a) Increases
(b) Decreases
(c) Does not change
(d) Can either increase or decrease
Investor
Investor A
Investor B
Investor C

Q33.

Expected future value of a (francs per

dollar)
120
100
85

Using the table above, if the current market value of the dollar is 125 francs per dollar
(a) Investor A expects dollar depreciation, but B and C expect appreciation
(b) All three investors expect the dollar to appreciate
(c) Investor A expects dollar appreciation, but B and C expect depreciation
(d) All three investors expect the dollar to depreciate
Page 7 of 24

Q34.

Using the table above, if the current market value of the dollar is 125 francs
(a) All three investors hold francs
(b) Investor A holds francs, but B and C hold dollars
(c) Investor A holds dollars, but B and C hold francs
(d) All three investors hold dollars

Q35.

Using the table above, if the current market value of the dollar is 70 francs
(a) All three investors expect the dollar to appreciate
(b) All three investors expect the dollar to depreciate
(c) Investor A expects dollar appreciation, but B and C expect depreciation
(d) Investor A expects dollar depreciation, but B and C expect appreciation

Q36.

As a Treasurer selling your $ in INR on one week ahead of spot is known as

(a) Cash Spot
(b) Cash Tom
(c) Spot Next
(d) Spot Week

Q37.

In Options Pricing Collars are also known as except

(a) Range Forward
(b) Zero Cost Collars
(c) Cylindrical Options
(d) Seagull

Q38.

Treasury Management Systems (TMS) refers to except

(a) Automated Software that takes care of all Treasury Functions
(b) Software that computes revaluation of all Foreign Currency hedges in books
(c) Translation of all local currency balances in books into foreign currency
(d) Booking of Accounts receivables entry and linking the same with payment site

Q39.

Treasury Risk Management Policy covers the following

(a) Risk Management objectives of the company
(b) Foreign Exchange Hedging Program
(c) Hedging in onshore and Offshore Treasury Markets
(d) All of the above

Q40.

Suppose a Treasurer booked sell position of $ 1 Mn at 63.20 for 1 Year. On maturity he

is having shortage in EEFC A/cs and what all are the available options to honor the
trade
(a) Cancellation of existing contract
(b) Prematurity of existing contracts
(c) Rollover of existing contracts
(d) Options 1 & 3

Q41.

With reference to above question what would be cancellation cost if USD/INR trading
at 65.00
(a) Gain of USD 27,692
Page 8 of 24

(b) Loss of USD 27,692

(c) No Gain /(Loss) on cancellation as delivery would happen at 63.20
(d) As per RBI Policy there is no cancellation allowed
Q42.

With reference to Question No 40 what would be Rollover Cost and new contract rate if
USD/INR 1 months premium is trading at Rs 5/$
(a) Loss of USD 27,692 at new outright rate of Rs 70 / $
(b) Loss of USD 27,692 at new outright rate of Rs 65 / $
(c) Gain of USD 27,692 at new outright rate of Rs 70 / $
(d) Loss of USD 27,692 at new outright rate of Rs 65 / $

Q43.

With reference to Question No 40. Would that be possible for Treasurer to cancel
capital a/c transaction of $ 1 Mn
(a) Yes and take cancellation Gain/(Loss) in the books
(b) No and take cancellation Gain/(Loss) in the books
(c) Capital A/c cancellation is permitted provided no drawdown of Capital A/c
remittances
(d) Options 1 & 3

Q44.

Treasurer booked one Buy Put Contract of USD/INR of $ 1 Mn at 65 for 1 year maturity.
There is a premium of $ 100,000 for that Buy Put deal. What would be effective
accounting of that Premium?
(a) Treasurer is allowed to capitalize the Premium over 1 Year in the books and
Treasurer is also allowed to deferred the payment with banks
(b) Treasurer have to have pay entire premium at one go and no capitalization is
allowed
(c) There is no provision of deferred payments to banks and Treasurer have to pay
entire $ 100,000 in one go and take in books
(d) Treasurer can pay on deferred and do deferred capitalization in books

Q45.

With reference to Question no 44 what would be max loss in the books to be taken by
Treasurer in case of cancellation of Buy Put Contract
(a) Premium of $ 100,000 paid to bank provided no deferred payment and
Capitalization
(b) Deferred Premium taken in books and no Capitalization
(c) Deferred Premium taken in books provided Capitalization
(d) Premium Capitalize in books and ignore deferred payment to be done till now

Q46.

When large credit proposals are considered by banks for sanction,

(a) They need to be prior cleared by the treasury department
(b) They need subsequent approval by the treasury department
(c) The ALM committee has to approve
(d) Treasury department does not have any role in it

Q47.

CLS, earlier known as Continuous Linked System

(a) Is owned by the world's leading financial institutions
Page 9 of 24

(b) Settles payment instructions relating to underlying FX transactions in 17 major

currencies
(c) Operates the largest multicurrency cash settlement system to mitigate settlement
risk for the FX transactions of its Members and their customers.
(d) Has all the features a to c above
Q48.

The Clearing Corporation of India Ltd was set up for providing

(a) exclusive clearing and settlement for transactions in Money, G Secs and
Foreign Exchange
(b) settlement services in imports and exports
(c) guarantee of payments in interbank transactions
(d) services to banks in clearing the cheques

Q49.

The Clearing Corporation of India Ltd

(a) Is a wholly owned subsidiary of RBI
(b) Is majority owned by banks
(c) Is wholly owned by select banks
(d) Is a publicly held company

Q50.

The types of trades that are currently settled through The Clearing Corporation of India
Ltd are
(a) All forex interbank transactions
(b) All Forex inter-bank Cash, Tom, Spot and Forward USD/INR transactions
(c) All Forex inter-bank Cash, Tom, Spot transactions
(d) All Forex inter-bank Cash, Tom, Spot and Forward transactions

Q51.

Banks which are authorized to handle international business

(a) Are ipso facto permitted to import gold
(b) Can trade in foreign exchange through their treasury department
(c) Handle gold trading through their commodity desk
(d) are considered as international banks

Q52.

The Capital Adequacy Ratio of a bank is roughly the equivalent of

(a) Debt equity ratio of a company
(b) Current ratio of a company
(c) Quick current ratio of a company
(d) DSCR of a company

Q53.

Asian Clearing Union with AMU as the accounting unit is an example of

(a) Unified currency
(b) Regional trade block
(c) Arrangement for payments for intra-regional transactions
(d) All the above

Q54.

Mark the odd one out in the following in the context of balance sheet exposure
(a) Forward contracts
(b) Swaps
(c) Term loans
Page 10 of 24

(d) Options
Q55.

Trading books of a bank refer to

(a) The records maintained supporting the trading activities of a bank
(b) Commodities traded by a bank
(c) Audit functions of a bank
(d) The treasury of a bank

Q56.

One common link between credit management and treasury in a bank is

(a) The Board of Directors
(b) The Chairman of the bank
(c) The ALCO committee
(d) The common General Manager heading the departments

Q57.

A large corporate needs to maintain good relationship with its bankers

(a) Only if the corporate is a large borrower
(b) Only if the corporate desires to avail any type of service from the bank
(c) Since banks offer financial services to all categories of corporates
(d) As a corporate social responsibility

Q58.

Which of the following statement is true with reference to treasury functions?

(a) All corporates have to necessarily have a treasury department
(b) RBI guidelines on treasury functions apply only to treasuries of banks
(c) Bank treasuries have to adhere to guidelines issued by RBI and SEBI
(d) Treasury in a bank is a separate profit center.

Q59.

Between drawings against unavailable balance and an unsecured overdraft, banks

(a) Feel more comfortable in taking a credit risk in the former case
(b) Do not distinguish between the two
(c) Have greater interest income in the latter case
(d) Have different provisioning norms

Q60.

For a treasurer, sweep facility offered by banks helps in

(a) Reducing interest burden
(b) Enhancing interest income
(c) Managing liquidity
(d) All the above

Q61.

Bank decides the value of an account exclusively based on

(a) Interest earned out of that account
(b) RBI guidelines uniformly across all banks
(c) Scientific calculations after accounting for cost of funds
(d) Non-fund based income earned from that account

Q62.

Volume of transactions handled at Clearing Houses will decline due to

(a) Electronic remittance schemes
(b) Mobile payment systems
(c) ATM enabled transfers
(d) Due to all these developments
Page 11 of 24

Q63.

As per RBI guidelines on reconciliation of Nostro accounts

(a) The bank statements should be received atleast once in fifteen days
(b) The bank statements should be received atleast once a week
(c) The base documents for reconciliation are the mirror account and record of
transactions during that period
(d) Banks have to place before the Managing Director the summary of reconciliation
every month

Q64.

The mirror account of a Nostro account is maintained

(a) In Indian rupees
(b) In corresponding foreign currency
(c) In US Dollar
(d) In corresponding foreign currency with its rupee equivalent for each
transaction

Q65.

In case of reconciliation of Nostro accounts,

(a) Any error could have impact on the profit figure of the bank
(b) Errors will result in accounting inaccuracy
(c) Valuation is based on the outstanding rupee equivalent in the mirror account &
hence reconciliation is important
(d) All the above are true

Q66.

The net float for a company is

(a) The difference between the cash balance shown in the company's Ledger and
the available balance in its bank account
(b) The cash balance shown in the company's Ledger plus cheques deposited
(c) The cash balance shown in the company's Ledger less cheques issued
(d) The unveiled overdraft balance in the bank

Q67.

The total amount of Cheques issued but not presented for payment at the bank is known as
(a) Collection float
(b) Disbursement float
(c) Net float
(d) Gross float

Q68.

In a lock box system covering collection of cheques, there is a saving on account of the
following activities and the reasons. Match the activities and the reasons.
Activities
A.
Cuts down the mailing time
B.
shortens the availability delay
C.
reduces the processing time
Reasons
i.
The company does not have to open the envelopes and deposit the Cheques for
collection
ii.
Because the Cheques are typically drawn on local banks.
iii.
Cheques are received at a nearby post office instead of at corporate headquarters
Which of the following pairing is correct
Page 12 of 24

(a) A andi
(b) A and iii
(c) B andi
(d) B & C and iii
Q69.

Following is not an alternative for lock box facility for cheques collection
(a) Door step banking
(b) Electronic payment
(c) Pan India clearing system
(d) Payment through DDs

Q70.

The corporates should have a risk management policy for their forex treasury functions
because
(a) RBI has advised so
(b) to minimize the effects of adverse exchange rate fluctuations
(c) Senior management should feel happy
(d) It helps in avoiding risk

Q71.

Balance sheet exposure that results from the consolidation of financial statements of
foreign entities into the home currency is called as
(a) Translation exposure
(b) Transaction exposure
(c) Operating exposure
(d) Economic exposure

Q72.

Essentially, four different strategies are available to a company for managing foreign
currency risk and following is not one of them
(a) Take no action
(b) Always hedge everything
(c) Selectively hedge risk
(d) Trading position hesitatingly

Q73.

The global trend in risk management structure is

(a) Centralizing risk management with integrated treasury management
(b) Decentralized set up to take care of local features
(c) Decentralized set up with separate treasuries for different activities
(d) To separate treasury activity from risk management issues

Q74.

The software to be used by treasury of a bank

(a) Is advised by RBI
(b) Should conform to the guidelines prescribed by RBI
(c) Is a pure commercial decision taken by the bank
(d) Is always developed in house, in view of sensitivity

Q75.

Flexcube core banking application including treasury functions

(a) Is a product of Infosys
(b) Is a product of Oracle
(c) Is a product originally by a company called I Flex Solutions Ltd taken over by Infosys
(d) Is not used by banks in India
Page 13 of 24

Q76.

The treasury software used by banks need to have the following features [mark the odd
one]
(a) Should ensure functional separation
(b) Dealers can capture data through proper login credentials
(c) The trading date, time & serial number are to be necessarily entered by the
dealer
(d) Provision to enter late deals data with remarks accordingly

Q77.

Exchange rate system where the Central Bank intervenes to smoothen the exchange
rate fluctuation is called
(a) Floating rate system
(b) Dirty float
(c) Clean float
(d) Free float

Q78.

As per FEDAI rules, a spot contract shall be deliverable on

(a) Next business day following the day when the transaction is closed.
(b) The same business day when the transaction is closed.
(c) Second day following the day when the transaction is closed.
(d) Second succeeding business day following the day when the transaction is
closed provided there is no holidays in between

Q79.

In India, the exchange rate is quoted in direct terms.

(a) This is at the discretion of the banks
(b) This is the market practice
(c) This is as per FEDAI rule
(d) This is as per RBI circular

Q80.

In case of cancellation of a forward contract at the request of the customer the

difference between the contracted rate and the rate at which the cancellation is
effected
(a) Is absorbed by the bank
(b) Is passed on to the customer
(c) Is passed on to the customer if it results in loss
(d) Is passed on to the customer if it results in gain

Q81.

A forward purchase contract is cancelled at the banks

(a) Spot T.T. selling rate on the date of cancellation
(b) Spot T.T. purchase rate on the date of cancellation
(c) Spot T.T. selling rate on the date of contract
(d) Spot T.T. purchase rate on the date of contract

Q82.

A bank dealer has a long position in US Dollar when his quote was 65.60/65.90. He
wants to square or near square position. What his quote will be?
(a) 65.30/65.60
(b) 65.45/65.75
(c) 65.45/66.05
Page 14 of 24

(d) 65.75/66.05
Q83.

An Indian exporter is expecting to receive US dollar after three months. Indian interest
rates are higher than that of US Dollar. A possible strategy of hedging in money market
is
(a) Borrowing and investing in USD
(b) Borrowing and investing in INR
(c) Borrowing in USD and investing in INR
(d) Borrowing in INR and investing in USD

Q84.

The J-curve relating to exchange rate impact is linked to the concept of

(a) Elasticity
(b) Interest rate parity
(c) Purchasing power parity
(d) Capital asset pricing model

Q85.

A non-deliverable forward [NDF] market exists for a currency if

(a) It is a highly traded currency
(b) It is subject to capital controls
(c) It is not an approved currency in the market
(d) Delivery of that currency is not possible

Q86.

Which is a true descriptionof a non-deliverable forward [NDF]:

(a) An illegal market
(b) A foreign currency financial derivative contract
(c) Results in physical delivery of the currencies at maturity
(d) It develops in the onshore market

Q87.

The value of a fixed-income investment is

(a) The sum of all of its cash flows
(b) The sum of all of its cash flows discounted at an interest rate that reflects the
inherent investment risk
(c) The sum of all of its cash flows discounted at the market rate
(d) The sum of all of its cash flows discounted at the current interest rate

Q88.

In general, changes in the value of a bond

(a) Are directly related to changes in the rate of return
(b) Have no relation to changes in the rate of return
(c) Are exactly equal to changes in the rate of return
(d) Are inversely related to changes in the rate of return

Q89.

Macaulay Duration
(a) Measures the number of years required to recover the true cost of a bond,
considering the present value of all coupon and principal payments received in the
future
(b) It is the only type of duration which is measured in years
(c) It assumes that interest rates are continuously compounded
(d) All the above are true
Page 15 of 24

Q90.

The convexity of a bond is

(a) A measure of the curvature of its price/yield relationship
(b) A confirmation that the price change on account of change in interest rate is not
linear
(c) It overcomes the limitation of duration as a measure of interest rate/price
sensitivity
(d) All the above are true

Q91.

If the Value at Risk [VAR] on an asset is $ 100 million at a one-week, 95% confidence
level, it means
(a) There is only a 5% chance that the value of the asset will drop more than $
100 million over any given week.
(b) There is only a 5% chance that the value of the asset will drop by $ 100 million over
any given week.
(c) The maximum loss on the portfolio will be $ 100 million over any given week.
(d) There will surely be a loss of $ 100 million over any given week in this portfolio.

Q92.

The Value at Risk [VAR] can be specified for

(a) An individual asset only
(b) A portfolio of assets only
(c) An entire firm only
(d) An individual asset, a portfolio of assets or for an entire firm

Q93.

In Value at Risk [VAR] calculation, the focus is on

(a) Credit risk
(b) Market risk
(c) Interest rate risk
(d) Liquidity risk

Q94.

The term structure of interest rates

(a) Is the inverse of yield curve
(b) Is a graph that plots interest rates on different dates
(c) Is a graph that plots the yields of similar-quality bonds against their
maturities, from shortest to longest
(d) Is the interest rate chart displayed by banks on their deposit spread

Q95.

An increase in NPA level of a bank can be contained

(a) By increasing the total advances portfolio of the bank
(b) If the bank takes effective recovery steps
(c) By changing the way in which accounts are classified as NPAs
(d) By taking all the steps a, b & c above

Q96.

Chart showing coupon rates against different maturities is called

(a) Yield curve
(b) Spot curve
(c) Forward curve
(d) Term structure curve

Q97.

A 2 X 7 forward loan in a fixed interest rate market

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(a)
(b)
(c)
(d)

Commences two months from the spot date and lasts for five months
Commences two months from the spot date and lasts for seven months
Commences from the spot date and lasts for five months
Commences from the spot date and lasts for seven months

Q98.

A zero coupon bond is known by that name because

(a) There is no yield in such bonds
(b) There is no payout before maturity
(c) The coupon attached carries zero interest rate
(d) There is no payment received on such bonds

Q99.

Which of the following statement is not true?

(a) A zero coupon bond can never trade at premium prior to maturity
(b) An investor who trades in zero coupon bond prior to maturity may experience a
capital gain or a capital loss
(c) An investor who buys a zero coupon bond and holds it till maturity is always
assured of capital gain
(d) Zero coupon bond is different from deep discount bond

Q100. Reinvestment risk in case of bonds

(a) Arises due to intermediate cash flows getting reinvested at rates lower than earlier
anticipated
(b) Does not arise in case of zero coupon bonds
(c) Is not taken into account in case of YTM calculation of plain vanilla bonds
(d) All the above statements are true
Section B
Number of questions: 50
Marks: 50
Multiple choices: There may be more than one correct answer, but there is at least one.

Q101. Which is not true of A normal yield curve? It

(a) Is also called inverted yield curve
(b) Slopes upwards
(c) Indicates long term yield are higher than short term yield
(d) Is also called positive yield curve
Q102. If a bond has a duration of 5 years and interest rates increase by 1%, the bond's price
will
(a) Grow by approximately 5%
(b) Grow by approximately 1%
(c) Decline by approximately 5%
(d) Decline by approximately 1%
Q103. What is a Government security?
(a) It is a debt instrument issued by Government

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(b) It is a tradable instrument issued by the Central Government or the State

Governments
(c) It is a bond issued by Government
(d) A security which is guaranteed to be repaid on due date by the Government
Q104. Dated Government securities are
(a) Government securities which carry a date of issue
(b) Government securities which have a fixed maturity date
(c) Government securities which are long term securities carrying a fixed or floating
coupon rate
(d) Government securities which are already matured
Q105. In case of Government securities, the following rule applies if the payment date falls on
Sunday or holiday
(a) If it is the coupon payment date, then it is made on the next working day
(b) If it is the coupon payment date, then it is made on the previous working day
(c) If it is the redemption date, then it is made on the next working day
(d) Both for redemption & coupon, the payment will be on the next working day
Q106. What is a shut period in government securities market?
(a) Period during which government securities cannot be bought
(b) Period during which government securities cannot be delivered
(c) Period during which government securities are not auctioned
(d) Period during which government securities are not available for trading
Q107. Which is not true of the following?
(a) In Delivery Versus Payment settlement, transfer of securities and funds happen
simultaneously
(b) Delivery Versus Payment settlement eliminates risk
(c) In Delivery Versus Payment settlement buying and selling takes place
simultaneously
(d) There are three types of Delivery Versus Payment settlements
Q108. Which of the below is not commonly used by investors to measure the potential return
from investing in a bond
(a) Coupon yield
(b) Current yield
(c) Yield to maturity
(d) Coupon rate
Q109. Which of the following is not a money market instrument?
(a) Call money
(b) Repos& Reverse Repo
(c) Treasury bills& CMB
(d) Treasury Bonds
Q110. In securities market, face value of an instrument is not the following:
(a) The amount that is paid to the investor at the time of maturity
(b) The amount that is paid by the investor for acquiring that security
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(c) The redemption value

(d) The repayment amount
Q111. Commercial Paper is
(a) An unsecured money market instrument issued in the form of a promissory
note
(b) A secured money market instrument issued in the form of a promissory note
(c) An unsecured money market instrument issued in the form of a Bill of exchange
(d) A secured money market instrument issued in the form of a Bill of exchange
Q112. Which of the following is not true
(a) Treasury bills are issued only by Central Government
(b) Treasury bill offers short term investment opportunities
(c) Generally the maturity of treasury bills is ten years
(d) The minimum amount of treasury bill is Rs 25,000
Q113. The following is not a post-sale finance option
(a) Factoring
(b) Forfeiting
(c) Packing credit advance
(d) Bills discounting by banks
Q114. When a bill is forfeited, the risk is borne by
(a) Seller
(b) Avail bank
(c) Buyer
(d) The discounting bank
Q115. While factoring an export bill, the factoring agency
(a) Carries the credit risk invariably
(b) Can factor with or without recourse
(c) Can approach a bank to offload the risk
(d) Does not have any risk at all
Q116. The interest rate on export bill discounted by banks is
(a) Exactly as advised by RBI
(b) A concessional interest rate
(c) Purely at the discretion of the bank concerned
(d) Advised by FEDAI

Q117. Full range of services like collection, sales ledger maintenance etc are offered by the
agency which offers
(a) Factoring
(b) Forfeiting
(c) Bill discounting
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(d) All the above types of services

Q118. When an export bill is discounted by a bank without backed by an LC
(a) The bank recovers the money from ECGC if there is default
(b) The bank reserves the right to recover the advance from the exporter
(c) The bank has no right to recourse against the exporter
(d) The banks right of recovery is against the importer
Q119. In India, banks offer to their exporter clients the facility of
(a) Bill discounting
(b) Factoring and bill discounting
(c) Bill discounting and forfeiting
(d) Factoring and forfeiting
Q120. As a market practice, the following service is offered for the full portfolio of the
exporter and not case wise
(a) Bill discounting
(b) Factoring
(c) Forfeiting
(d) Bill refinancing
Q121. An Indian registered company engaged in commodity trading and promoted by
foreign insurance companies desires to make a public issue to Indian public. Who is the
regulator for the public issue?
(a) RBI
(b) IRDA
(c) FMC
(d) SEBI
Q122. The following entity cannot register as Qualified Foreign Investor [QFI]
(a) Resident in a country which is not a member of FATF
(b) Resident in India
(c) Registered with SEBI as FII
(d) All the above
Q123. As per the Prevention of Money Laundering Act 2002 and the rules thereunder, all cash
transactions more than the following amount are to be reported by the intermediaries
in capital market
(a) Rs One lac
(b) Rs Five lac
(c) Rs Ten lac
(d) Rs Twenty five lac
Q124. Example of an intermediary which does not belong to the primary market is
(a) Lead manager
(b) Stock broker
(c) Transfer agent
(d) Underwriter
Q125. Which is not correct in respect of Foreign Currency Convertible Bonds
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(a)
(b)
(c)
(d)

Can be issued by foreign companies in Indian markets

Are not debt instruments
Can be issued by Indian companies in overseas markets
Are not subject to ECB guidelines

Q126. Depository Receipts in a GDR issue

(a) Are not negotiable securities
(b) Are issued in India
(c) Represent the rupee denominated equity shares of the company
(d) Are issued by a custodian bank
Q127. In case of ADR/GDR issues,
(a) The custodian bank is outside India
(b) They are listed on European or US Stock exchanges
(c) The depository is in India
(d) The custodian deposits the underlying shares with the company
Q128. Foreign investment in partnership firm in India
(e) Is allowed on non-repatriation basis
(f) Is not allowed at all
(g) Is allowed by NRIs, PIOs & other foreigners
(h) Always needs RBI permission
Q129. Foreign currency exchangeable bond
(a) Is same as foreign currency convertible bond
(b) Is denominated in foreign currency and issued by Offered company
(c) Is denominated in foreign currency and issued by Issuing company
(d) Can be issued in US Dollar only
Q130. Refinancing of existing FCCBs
(a) Is not allowed
(b) Can be allowed by the designated AD banks
(c) Is allowed subject to RBI permission
(d) Is allowed under approval route only
Q131. After availing ECB loan and obtaining LRN from RBI, if following changes are required,
it invariably needs RBI permission
(a) Change in currency of borrowing
(b) Change in repayment schedule whether the average maturity period changes or
not
(c) Change of Designated AD Bank
(d) Increase in the amount of ECB beyond the automatic route ceiling
Q132. Which of the following pairing is correct?
(a) Domestic banking : IBA = forex banking : FEDAI
(b) Domestic banking : RBI = forex banking : FEDAI
(c) Forex banking : RBI = domestic banking : IBA
(d) Domestic banking : SEBI = forex banking : RBI
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Q133. A credit rating agency rates

(a) At the cost of the enquirer
(b) The company which issues the instrument
(c) By denoting the ratings with alphanumerical symbol
(d) By evaluating the financial condition of issuers of debt instruments
Q134. The ratings of Credit Rating Agencies [CRA] may be used by banks for assigning risk
weights for credit risk
(a) If the CRA is approved by SEBI
(b) Subject to consistently using it for each type of claim, for both risk weighting
and risk management purposes
(c) Only unsolicited rating can be used
(d) Both solicited and unsolicited rating can be used subject to different weightage
Q135. Venture capital investments
(a) Are generally considered illiquid
(b) Are risky
(c) Are generally in startup companies
(d) Have all the above features
Q136. A Sovereign Wealth Fund
(a) Is not necessarily a State owned investment fund
(b) Is a State owned investment fund that invest in Strategic assets across the
world
(c) Created out of borrowings by any Government
(d) Includes foreign currency reserve assets held for BOP or monetary policy purpose
Q137. Portfolio Management Service [PMS]
(a) Results in exposure to variety of products for the investor
(b) Results in exposure to variety of products for the service provider like the MF
(c) Does not result in individual investor owning the securities
(d) Does not enable the manager to buy or sell securities on behalf of the investor
Q138. Certificate of Deposit [CD] in India is
(a) Not a negotiable instrument
(b) Issued only as usance promissory note
(c) Issued by corporates to raise funds
(d) Issued by Scheduled Commercial Banks & FIs.
Q139. Primary Dealer [PD]
(a) Is an individual like a broker
(b) Is involved in selling government securities to investing public like an agent
(c) Acts like a market maker for Government securities
(d) Is another name for an Authorised Dealer
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Q140. PDs can

(a) Maintain Current account with RBI
(b) Maintain SGL account with RBI
(c) Access LAF of RBI
(d) Have all the above facilities

Q141. Between Over the Counter [OTC] market & Exchange traded market
(a) OTC is more liquid
(b) OTC is more formal
(c) Exchange traded market is considered as bilateral
(d) OTC is less transparent and operate with fewer rules
Q142. A traveler sells his unused currency notes on his return from travel abroad to the same
bank from where he had bought it earlier. The bank will apply
(a) Its currency note buying rate
(b) Its currency note selling rate
(c) The rate at which the bank had earlier sold the notes to the traveller
(d) The rate at which the bank had earlier sold the notes to the traveler or the days
rate whichever is lower
Q143. The rates quoted by a bank for spot and 3 month forward transaction in US Dollar are:
61.35/36 & 5000/5500. What is the rate applicable for a 3rd month delivery export bill,
ignoring transit period?
(a) 61.91
(b) 61.86
(c) 60.85
(d) 61.85
Q144. If USD/INR spot is trading at 63.20 and one year fwd premium is trading at 63.40 then
which of the following statements are true
(a) Forward curve is almost At the Money (ATM)
(b) Forward curve is Deep In the Money (ITM)
(c) Forward curve is Out of the Money (OTM)
(d) None of these
Q145. If USD/INR spot is trading at 63.20 and one year Swap annualized premium is trading at
6.8% then what would be the net outright rate
(a) 66.4500
(b) 67.4500
(c) 68.4500
(d) 67.4976
Q146. If USD/INR is trading at 63.20 and Cash Spot is trading at 2.75/3.00 P then what would
be outright rate for exporter to sell $ 1 Mn
(a) 63.1700
(b) 63.1725
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(c) 63.1675
(d) 63.1000
Q147. If USD/INR is trading at 63.20 and Value Tom is trading at 1.75/2P then what would be
outright rate for exporters to see $ 1 Mn
(a) 63.1800
(b) 63.1775
(c) 62.3000
(d) 62.2000

Q148. US dollar is quoted today as: spot $ 1 = Rs 60 and six months forward $1 = Rs 63.
(a) This means $ is at discount
(b) This means future of rupee is uncertain
(c) This means future of rupee is unclear
(d) This means $ is at premium
Q149. US dollar is quoted today as: spot $ 1 = Rs 60 and six months forward $1 = Rs 63. The
annualized forward margin is
(a) 10%
(b) 5%
(c) 3%
(d) 6%
Q150. The forward premium is a function of
(a) Exchange rate differential
(b) Interest rate differential or Interest Rate Parity
(c) Demand and supply
(d) Intervention by Central Banks

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