1. Mutual funds are collective investment funds that invest in portfolio of securities a. Yes 2.

Which of the following financial needs of the customers is not met by a financial institution?

3. 4. 5. 6.

a. Borrow money b. Arranging Inheritance c. Financial advice d. Insure Financial losses Answer: b why are banks the most regulated corporate entities? a. They are important for meeting Govt. budget targets hedge funds a target customer category for prime brokerage services? a. Yes liabilities are items on the balance sheet, which the bank owes to others a. true mark participants who buy and sell securities on their own account are known as a. dealers
Note : I. When executing trade orders on behalf of a customer, the institution is said to be acting as a broker. II. When executing trades for its own account, the institution is said to be acting as a dealer.

7. Forwards are standardized contracts and traded on exchanges whereas futures are customized contracts a. False Note: I. In finance, a futures contract (more colloquially, futures) is a
standardized contract between two parties to buy or sell a specified asset of standardized quantity and quality for a price agreed upon today (the futures price or strike price) with delivery and payment occurring at a specified future date, the delivery date.

II.

A forward is like a futures in that it specifies the exchange of goods for a specified price at a specified future date. However, a forward is not traded on an exchange and thus does not have the interim partial payments due to marking to market. Nor is the contract standardized, as on the exchange

8. An option to buy a security at strike price is called a. Put option b. Call option Answer: b
Note: In finance, an option is a contract which gives the owner the right, but not the obligation, to buy or sell an underlying asset or instrument at a specified strike priceon or before a specified date. The seller incurs a corresponding obligation to fulfill the transaction, that is to sell or buy, if the

long holder elects to "exercise" the option prior to expiration. The buyer pays a premium to the seller for this right I. An option which conveys the right to buy something at a specific price is called a call; II. an option which conveys the right to sell something at a specific price is called a put III. The strike price is defined as the price at which the holderof an options can buy (in the case of
a call option) or sell (in the case of a put option) the underlying security when the option is exercised. Hence, strike price is also known as exercise price.

9. Currency risk falls under which risk category a. Operational b. Credit c. Market d. Liquidity Answer: c Market Risk Note:
Market risk is the risk of losses in positions arising from movements in market prices. risks include:
[1]

Some market

Equity risk, the risk that stock or stock indexes (e.g. Euro Stoxx 50, etc. ) prices and/or their implied volatility will change. Interest rate risk, the risk that interest rates (e.g. Libor, Euribor, etc.) and/or their implied volatility will change. Currency risk, the risk that foreign exchange rates (e.g. EUR/USD, EUR/GBP, etc.) and/or their implied volatility will change. Commodity risk, the risk that commodity prices (e.g. corn, copper, crude oil, etc.) and/or their implied volatility will change.

An operational risk is defined as a risk incurred by an organisation's internal activities. Operational risk is the broad discipline focusing on the risks arising from the people, systems and processes through which a company operates. It can also include other classes of risk, such as fraud, legal risks, physical or environmental risks. A widely used definition of operational risk is the one contained in the Basel II [1] regulations. This definition states that operational risk is the risk of loss resulting from inadequate or failed internal processes, people and systems, or from external events. Operational risk management differs from other types of risk, because it is not used to generate profit (e.g. credit risk is exploited by lending institutions to create profit, market risk is exploited by traders and fund managers, and insurance risk is exploited by insurers).

Credit risk refers to the risk that a borrower will default on any type of debt by failing to make payments [1] which it is obligated to do. The risk is primarily that of the lender and include lost principal and interest, disruption to cash flows, and increased collection costs. The loss may be complete or partial and can [2] arise in a number of circumstances. For example:

A consumer may fail to make a payment due on a mortgage loan, credit card, line of credit, or other loan A company is unable to repay amounts secured by a fixed or floating charge over the assets of the company A business or consumer does not pay a trade invoice when due A business does not pay an employee's earned wages when due A business or government bond issuer does not make a payment on a coupon or principal payment when due An insolvent insurance company does not pay a policy obligation An insolvent bank won't return funds to a depositor A government grants bankruptcy protection to an insolvent consumer or business

To reduce the lender's credit risk, the lender may perform a credit check on the prospective borrower, may require the borrower to take out appropriate insurance, such as mortgage insurance or seek security or guarantees of third parties, besides other possible strategies. In general, the higher the risk, the higher will be the interest rate that the debtor will be asked to pay on the debt. In finance, liquidity risk is the risk that a given security or asset cannot be traded quickly enough in the market to prevent a loss (or make the required profit).

Types of liquidity risk [edit]

Market liquidity An asset cannot be sold due to lack of liquidity in the market essentially a sub-set of [1] market risk. This can be accounted for by: Widening bid/offer spread Making explicit liquidity reserves Lengthening holding period for VaR calculations

Funding liquidity Risk that liabilities: Cannot be met when they fall due Can only be met at an uneconomic price Can be name-specific or systemic
[1]

10. Under Syndicated loans, a single borrower negotiates with a group of banks(lenders).The entire transaction happens under a syndicated agreement. Answer : true 11. The risk of non availability of funds to meet the obligation is Answer : Liquidity Risk 12. ALCO can eliminate interest rate risk -- true