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Institute of Chartered Accountants of India

Certificate Course of Forex and Treasury Management

Paper: 1

Answer all the questions

Each question carries one credit. Mark the correct answer from the alternatives provided

1. The term “pooling” as used in Treasury Management is indicative of

a. Pooling of incoming cash from recurring and non-recurring sources

b. Pooling of all divisional assets and liabilities to determine the true value of the company

c. Consolidation of funds from a number of different accounts of the same corporate to improve value or yield

d. All of the above.

2. D & B Services Ltd. Offers credit to C&A Manufacturing Ltd. On terms “8/15, net 90”. For a particular transaction, C & A Manufacturing Ltd. Makes the payment within a period of 15 days. Which of the following is true?

a. C & A Manufacturing Ltd. has to pay only 90% of the total billed amount.

b. C & A Manufacturing Ltd. Will get a cash discount of 15% on the transaction immediately.


C&A Manufacturing Ltd. Will get a cash discount of 15% on the transaction, payable after 90 days.

d. C&A Manufacturing Ltd. Will get a cash discount of 8% on the transaction.

3. Which statement is true about terms of trade credit of 4/10, net 30?

a. A 10% cash discount is offered for payment before 30 days.

b. A 4% cash discount can be taken for payment before the 10 th of the following month.

c. A 10% cash discount can be taken if paid by the fourth day after invoicing.

d. No cash discount is offered after the eleventh day.

4. Apex Corporation purchase raw materials on the terms on 5/10, net 60, but can pay in 90 days if it does not want to take discounts. The effective cost of the non-free trade credit is

a. 20%

b. 21%

c. 22%

d. 23%

5. Which of the following is the difference between subjective and objective methods?

a. Subjective methods are statistical methods; objective methods are used based on the judgments / opinions of individuals within the company.

b. Subjective methods are based on the judgments/opinions of individuals within / outside the company; objective methods use judgments / opinions within the company.

c. Subjective methods use judgments / opinions of individuals within the company; objective methods use judgments / opinions of individuals outside the company.

d. Subjective methods are based on the judgments / opinions of individuals within the company, objective methods are statistical methods.

6. Centralization of treasury function in a multi-division corporation

a. Increases the effectiveness of cash management through Netting

b. Increases the total amount of cash to be maintained

c. Allows the corporation to benefit from Leading and / or Lagging

d. Both (a) and (c) above

7. Forecasting inconsistencies can be minimized by:

a. Allowing managers to establish their own forecasts

b. Establishing a standardized economic forecast to be used by the firm, year in, year out

c. Generating current economic forecasts that are used throughout the firm

d. Requiring managers to establish their own forecasts

8. Which of the following is a source of funds?

a. Decrease in current liabilities

b. Increase in current assets

c. Increase in cash

d. All of the above

9. A letter of credit which allows the Issuing bank to make payment to the beneficiary in installments is known as

a. Red clause L/c

b. Green clause L/c

c. Revolving L/c

d. Deferred L/c.

10. Which of the following conditions is/are to be satisfied, in order to ensure that there is no triangular arbitrage?

d. Both (a) and (c) above

11. Which of the following is not an assumption of the Theory of Comparative Advantage?

a. In both the markets perfect competition exists

b. Technological innovation is a continuous process in both the markets

c. The marginal product of labor is constant

d. Labor is perfectly mobile within the country

12. Which of the following is/are a subjective measure(s)?

a. Regression analysis

b. Trend analysis

c. Sales force estimates

d. Mean

13. If the current ratio is 2.00 and the quick ratio is 0.5 the proportion of quick assets to total current assets is

a. 10%

b. 25%

c. 40%

d. 50%

14. Which of the following is/are true in respect of Modigliani & Miller position regarding dividend payout?

a. The model assumes that there are no flotation costs on securities issued by the firm.

b. The model assumes that there are no taxes

c. The model concludes that the dividend payout significantly influences the current value of the firm.

d. Both (a) and (b) above

15. Which of the following is not a benefit of storing inventories?

a. Avoidance of lost sales.

b. Availing of quantity discounts

c. Reduction of order costs.

d. Reduction of carrying costs.

16. Cash management techniques are used

a. To step up the cash inflows and outflows

b. To decelerate accounts payables

c. To hasten the disbursements of accounts

d. To make audits

17. The term ‘net float’ represents

a. The total sum of cheques deposited but not yet collected

b. The total sum of cheques issued but not yet presented

c. The total sum of (a) and (b) above

d. The difference of (a) and (b) above

18. Functions of Chief Financial Officer are broadly categorized as

a. Controller and auditor

b. Controller and internal auditor

c. Controller and treasurer

d. Auditor and treasurer

19. Which of the following is not necessary while determining the capital gains?

a. Acquisition cost determination.

b. Determination of indexed cost of improvement

c. Calculation of full value of consideration.

d. Virtual losses

20. Which of the following is an example of Secondary Reserves?

a. Cash on hand and Balances with other banks in current account

b. Balances with RBI for CRR


Investment in Government Securities for SLR

d. Investment in Commercial Paper

21. The Lock box system

a. Is a system where customer payments are transferred electronically to companies

b. Is a system where a post box is placed outside the residence of creditors so that receivables are collected on a regular basis.

c. Is also known as the Home Banking system

d. Is a system by which customer payments are received, processed, deposited and transferred to the bank account in the headquarters of a company.

22. Legally, the right of managing a company belongs to

a. The Managing Director

b. The Chairman

c. The Shareholders

d. The Controller

23. The factor(s) which affects(s) P/E ratio is/are

a. Growth rate

b. Retention ratio

c. Quality of management

d. All of the above.

24. Which of the following is/are spontaneous liabilities?

a. Sundry creditors

b. Salary accrued but not due.

c. Provision for payment of bonus

d. All of (a), (b) and (c) above.

25. Current liabilities are Rs.20,000 and current assets are Rs.30,000. If debtors realized amount to Rs.6,000, raw materials purchased on credit amount to

Rs.3,000 and Rs.6,000 worth of preference shares are converted into equity, the impact on the net working capital (NWC) would be:

a. Decrease of Rs.3,000 in NWC

b. Increase of Rs.3,000 in NWC

c. No change in NWC

d. Increase of Rs.9,000 in NWC

26. Which of the following is related to the control function of the financial manager?

a. Interaction with the bankers for arranging a short-term loan

b. Comparing the costs and benefits of different sources of finance

c. Analysis of variance between the targeted costs and actual costs incurred and reporting on the same

d. Assessing the costs and benefits of a project under consideration

27. Which of the following is a source of cash in a funds flow statement drawn on cash basis?

a. Increase in inventory

b. Decrease in accrued taxes

c. Increase in receivables

d. Increase in accounts payable.

28. If the degree of operating leverage is 3 and the degree of financial leverage is 2, it means that

a. 1% change in EPS will be caused by 5% change in sales

b. 1% change in EBIT will result in 3% change in EPS

c. 1% change in sales will result in 3 percent change in EBIT and 6% change in EPS

d. 1% change in EPS will be caused by 6% change in EBIT

29. Carewell Products Ltd. provides the following information for the next year:

Expected increase in assets

Rs. 9 lakhs





Rs. 4 lakhs


Expected increase in retained earnings

Rs. 2 lakhs

The external funds required for the firm is

a. Rs. 2 lakhs

b. Rs. 3 lakhs

c. Rs. 8 lakhs

d. Insufficient data

30. Which of the following is considered while preparing funds flow statement on working capital basis?

a. Increase in pre-paid expenses

b. Payment of dividend

c. Decrease in sundry creditors

d. Decrease in provision for tax

31. Which of the following statements is/are true regarding the degree of financial leverage (DFL)?

i. It measures the financial risk of the firm

ii. It is undefined at financial breakeven point

iii. It increases as the EBIT increases above the financial breakeven point.

a. Only (I) above

b. Only (II) above

c. Only (III) above

d. All (I), (II) and (III) above

32. Growth with internal equity will decrease with the

a. Increase in debt-equity ratio

b. Increase in dividend pay-out ratio

c. Increase in net profit margin

d. Decrease in assets to sales ratio


The accurate doubling period in given a rate of return R can be calculated by

a. (I + R) n = 2

b. 72 / R

c. 0.35 + 69/R

d. Anyone of the formulas in (a), (b) and (c)

34. While evaluating a capital expenditure decision, usage of NPV as criterion poses a Problem of non-comparability of differing project sizes / outlays. One of the ways to overcome this problem is to make use of

a. Internal Rate of Return (IRR)

b. Payback Period

c. Accounting Rate of Return

d. Profitability Index (PI)

35. Which of the following statements is/are true?

a. The cost of retained earnings is nil.

b. Cost of equity capital is generally higher than cost of debt.

c. Cost of equity capital is generally lower than cost of debt.

d. Cost of corporate debt does not include any risk premium.

36. The following information is provided to you:

Variable costs/sales price 0.80

The earlier sales level Rs. 7,20,000

Earlier credit period 30 days

Changed credit period 60 days

Additional sales because of liberalized credit terms Rs. 3,60,000. The investment by the firm in additional receivables is:

a. Rs. 48,000

b. Rs. 96,000


Rs. 24,000

d. None of the above

37. The price of the share will increase if

a. The dividend decreases

b. The required rate of return increases

c. The growth increases

d. Both (b) and (c) above

38. Which of the following would affect the Dividend yield directly?

a. Retention ratio

b. Book value per share

c. Face value of a share

d. Debt-equity ratio.

39. A project with higher than average risk offers an expected return of 16%. Which statement is correct if the company’s opportunity cost of capital is 12% and the project’s opportunity cost of capital is 18%?

a. Project NPV is positive; it should be accepted.

b. Project NPV is negative; it should be rejected.

c. Project NPV is positive but it should be rejected.

d. Project NPV is negative but it should be accepted.

40. According to the system of pre-authorized debts

a. The vendor submits a list of debit items to the bank who debits customer accounts b. The vendor can receive his own payments by drawing funds from the buyers bank account


The bank is authorized to receive payments from creditors of its customers

d. The payer authorizes its bank to debit its account and credit the account of its payee

41. The demand for call money tends to widen during

a. January, February

b. July, September, November

c. December, March, June

d. February

42. While doing the time series analysis you found that the ROE is decreasing. Which of the following may be a probable reason?

a. The net profit margin is increasing

b. Assets turnover is decreasing

c. The debt assets ratio is decreasing

d. Both (a) and (b) above

43. If a country were to experience deflation while foreign countries experience inflation, which of the following would be true if the country allows its currency to float?

a. Demand for domestic currency would fall

b. The country’s “reserve account” would decrease

c. The value of domestic currency would rise

d. The supply of domestic currency would rise

44. Which of the following is not a part of the current account of a country’s balance of payments?

a. Export of goods

b. Import of services

c. Portfolio investment


Investment income

45. Inflation in UK is 5% and that in US is 2%. What should be the three months forward premium on the dollar?

a. 0.700%

b. 0.735%

c. 1.96%

d. 1.98%

46. Which of the following is false under a currency board system?

a. The interest rates are automatically set by the market mechanism

b. The Central Bank of a country cannot act as the lender of the last resort

c. Exchange rates under the currency board system are stable

d. When there is a higher demand for the anchor currency, the reserves

with the currency board gets enhanced.

47. The Eurodollar interest rates in London are as under

1 month

3.00% p.a.

2 months

3.60% p.a.

3 months

4.00% p.a.

The one month interest rate after 2 months is expected to be

a. 4.44% p.a.

b. 4.55% p.a.

c. 4.66% p.a.

d. 4.77% p.a.

48. If the cash turnover ratio is 4.00 and if the credit availed and extended is for the same period, the sum of procurement, processing and storage time is

a. 60

b. 80

c. 90

d. Cannot be determined

49. A company is expecting a monthly outflows Rs. 6.00 lakhs. The yield on investments is 10% while the cost per transaction is Rs. 500. The optimal size of the transaction is (nearest thousand)

a. Rs. 12,000

b. Rs. 60,000

c. Rs. 1,20,000

d. Rs. 2,68,000

50. Which of the following real life factors go against the initial dividend theory propounded by Modigliani-Miller?

a. Different tax rates applicable to income and capital gains.

b. The presence of flotation costs.

c. The presence of transaction costs.

d. All of the above.

51. Which of the following investments has / have no default risk?

a. Inter-Corporate Deposits.

b. Treasury Bills.

c. Commercial Papers.

d. Money Market Mutual Funds.

52. Which of the following relationships is true?

a. NBCR = BCR + 1


c. NBCR = BCR 1

d. NBCR = BCR + I

53. Bill finance is either repayable on demand or

a. Within 46 days

b. Can be payable on a fired date, generally 90 days


Before a period not exceeding 182 days

d. Within 30 days.

54. Which of the following countries makes use of a banking system which enables funds to be cleared on the date of issue



ii. USA

iii. U.K

iv. Switzerland

a. (i)

b. (i) and (ii)

c. (ii)

d. (ii) and (iii)

55. The firm is now operating at the BEP. Then

a. The DTL will increase if the quantity produced increases.

b. The DTL will be negative if the quantity increases

c. The DTL will start decreasing as the quantity increases

d. The DTL will not be affected by quantity unless the fixed costs also change.

56. Netting helps in

a. Reducing cash requirements

b. Reducing interest costs

c. Better control of subsidiaries

d. Reducing transaction costs

57. Devaluation of a currency means

a. Government lowering the value of the local currency under fixed exchange rate system

b. Market forces lowering the value of the local currency under fixed exchange rate system


Market forces lowering the value of a local currency under flexible exchange rate system

d. Government lowering the value of the local currency

58. Under a Transferable Letter of Credit, the LC can be transferred by

a. The importer to another importer

b. The Banker who has opened the LC to another person

c. First beneficiary of LC to another person

d. The Banker who is authorised to transfer the LC

59. When there is heavy forex inflow into the country, the RBI’s immediate concern is

a. Repayment of foreign debt

b. Depreciation of the rupee

c. Appreciation of the rupee

d. Threat of recession

60. If interest rate parity holds and the transaction costs are zero, covered foreign financing will result in an effective borrowing rate that is

a. Less than the domestic interest rate

b. Greater than the domestic interest rate

c. Equal to the domestic interest rate

d. Greater than the domestic interest rate if the forward rate exhibits a premium and less than the domestic interest rate if the forward rate exhibits a discount.

61. The method of translating financial statements in which items are classified based on whether they are valued at historical basis or on market price basis is known as

a. Current/non-current method

b. Monetary/non-monetary method

c. Temporal method

d. Current rate method

62. If a borrower promises to pay Rs.40,000 nine years from now in return for a loan of Rs.23,680 today, what effective annual interest rate is being offered? (Round off your answer to the nearest integer).

a. 2.00%

b. 5.00%

c. 6.00%

d. 7.00%

63. If the yield to maturity (YTM) of bond X is greater than the yield to maturity of bond Y, with the same coupon rate and maturity, then which of the following is/are true?

i. The price of bond X will change more than the price of Bond Y for a given change in YTM

ii. The market price of bond Y is more than that of X

iii. The current yield of both the bonds would be same

a. Only (I) above

b. Both (I) and (II) above

c. Both (I) and (III) above

d. Both (II) and (III) above

64. If 91-day T-bills of face value Rs.100 are issued at a yield of 12%, then the issue price is

a. Rs.96.10

b. Rs.96.70

c. Rs.97.10

d. Rs.98.02

65. As per the Rule of 69, if the amount deposited today doubles in four years and seven months, the effective interest rate per annum is

a. 15.1 percent

b. 15.5 percent

c. 15.8 percent


16.3 percent.

66. Which of the following statements is/are true?

i. Current yield is equal to the coupon rate if the market price is equal to the face value of the bond

ii. Current yield is equal to the coupon rate if the bond is trading at its face value

iii. Current yield is equal to the interest paid divided by the face value of the bond

a. Only (I) above

b. Both (I) and (II) above

c. Both (I) and (III) above

d. Both (II) and (III) above

67. If the stock turnover is 6, cost of goods sold is Rs.54,000 and opening stock is Rs.8,000 then, the closing stock is

a. Rs. 8,000

b. Rs. 9,000

c. Rs.10,000

d. Rs.12,000

68. The present value interest factor of annuity is equal to

a. (1 + k) n 1 / k(1 + k) n

b. FVIFA(k,n) / FVIF(k,n)

c. FVIFA (k,n) / (1 + k) n

d. All of the above.

69. Consider the following data:

Face value and maturity value of a deep discount bond = Rs.1,00,000 Time period of redemption = 20 years Yield to maturity = 12% p.a. Issue price of the bond is

a. Rs.10,367

b. Rs.12,000

c. Rs.15,033

d. Rs.22,460

70. The functions of the Chief Financial Officer are categorized as that of

a. Controller & Treasurer

b. Finance Manager & Treasurer

c. Treasurer & Accountant

d. Accountant & Finance Manager

71. Which of the following is not an underlying assumption of Purchasing Power Parity?

a. Goods can move freely across the globe

b. Capital can move freely across the globe

c. There are no tariffs on goods

d. There are no transaction costs in buying and selling goods

72. Which of the following is not an appropriate hedging strategy for a likely devaluation of a currency?

a. Reduce the level of cash

b. Reduce the local borrowing

c. Delay account payable

d. Sell the weak currency forward

73. The following rupee interest rates are prevailing in the money market:







The expected 3 month interest rate after 6 month is

a. 5.00%

b. 7.50%

c. 9.25%

d. 11.65%

74. Consider the following statements

i. A money market instrument is one which has a short maturity

ii. A money market instrument is one which is maturing shortly

iii. A money market instrument may be a long-term instrument with very high liquidity. Which of the above statement(s) is/are true?

a. (i) only

b. (ii) only

c. (iii) only

d. (i) and (iii) only

75. Cross-elasticity of demand for a product refers to the responsiveness of the

a. Quantity demanded to a given change in its price

b. Quantity demanded to a given change in the price of a related product

c. Price change to a given change in the supply of a product

d. Price change to a given change in the supply of a related product

76. Which of the following is not a principle underlying measurement of cash flows from the long-term funds point of view?

a. All non-cash charges should be added back to PAT.

b. Cash flows should be defined in pre-tax terms.

c. Only incremental cash flows should be considered.

d. Interest on long-term loans should not be deducted from profit.

77. The nominal rate of interest

a. Is lesser than the effective rate of interest under inflationary conditions

b. Is equal to the effective rate of interest minus inflation

c. Does not consider risk premium

d. Is the real rate of interest plus inflation

78. The Chief Finance Officer is a member of

a. Middle management

b. Top management

c. Liasion between middle and top management

d. General management

79. A bill in which no time for payment is specified is

a. Time bill

b. Usance bill

c. Demand bill

d. Documentary bill

80. Given two suppliers A & B with the terms of sale 2/10 net 60; 2/15 net 30 respectively, which of the following is/are true?

a. The company would be better off if it chooses supplier A, because it has a longer credit periods.

b. The cost of trade credit is higher for Supplier B than that of Supplier A.

c. If the opportunity cost of cash is equal to cost of trade credit of supplier B, it is better to choose supplier A and avail cash discount.

d. If the credit period of supplier A is reduced to 30 then the company is indifferent in choosing the supplier with respect to cost of trade credit.

81. The difference between the time of introduction of a product in one country and the time when the producers in the other country start producing it is termed as

a. Production lag

b. Substitution lag

c. Imitation lag

d. Replacement lag

82. The PAT of an unlevered company is Rs. 16 lakhs and the required return on equity is 16%. If the value of the firm is to become Rs. 120 lakhs by becoming a levered company, then the value of the tax shield is

a. Rs. 16.65 lakhs

b. Rs. 19.20 lakhs

c. Rs. 20.00 lakhs

d. Rs. 21.76 lakhs

83. The present value of cash inflows in respect of payment in advance is higher than payment in arrears. If a 5 year lease warrants an annual payment of Rs. 1,00,000 and the discount rate is 16%, then the difference will be

a. Rs. 20,000

b. Rs. 47,611

c. Rs. 52,384

d. Rs. 86,207

84. The company cost of capital for a firm with a 40/60 debt/equity split, 8% cost of debt, 15% cost of equity, and a 40% tax rate would be:

a. 8.88%

b. 10.80%

c. 10.92%

d. 12.20%

85. Which of the following may not be a reason of low working capital?

a. Reasonable payables.

b. Excessive stock piling.

c. Abnormal bad debts.

d. Bad collection mechanism

86. ‘Funded debt’ is a

a. Form of ordinary treasury bill

b. Debt funded by the government

c. Undated government security

d. Surplus funds provided by banks

87. Which of the following do not fall into the definition of institutional investors?

a. Mutual Funds

b. Analysts

c. Insurance Companies

d. Professional Fund Managers

88. Which of the following services does a factor provide under nonrecourse basis?

a. Purchasing of the accounts receivables

b. Collecting the accounts receivables

c. Assuming the losses arising from bad debts.

d. All of the above.

89. The product of PVIF, FVIF, FVIFA and Capital Recovery Factor is





90. If the current yield on a bond is 9% and its face value is Rs. 1,000 with a coupon rate of 7% its current market price is

a. Rs. 700

b. Rs. 778

c. Rs. 845

d. Rs. 1175

91. Which of the following is not a current account item in India’s balance of payment?

a. Receipts in foreign exchange from foreign travelers

b. Deposits of NRIs with banks

c. Profit remitted by the foreign branch of an Indian company to the parent company

d. Premium on all kinds of insurance services provided by Indian insurance companies to non-resident clients

92. If the slope of the Security Market Line is zero then, which of the following is true?

a. Beta is equal to zero

b. Risk free return = Market return = Expected return of the given security

c. The returns on the given security are not correlated with the returns on the market

Risk free rate of return Market return

93. If the beta of a stock is 1.63 and the standard deviation of the return on the market is 16.25%, then the covariance of returns of the stock and market is

a. 99.39%2

b. 162.00%2

c. 250.02%2

d. 430.42%2

94. If the dividend for the year is Rs.2.00, growth rate of dividends is 12% and the present market price of the stock is Rs.52.50, the required return on the stock will be

a. 16.27%

b. 15.81%

c. 15.00%

d. 8.19%

95. Which of the following is not a diversifiable risk?

a. Lock-out in a company due to workers demanding a wage hike

b. Recession in the economy

c. Lack of strategy for the management of a company

d. A change in the product portfolio of a company

96. Which of the following is/are true in describing the benefits due to integration of financial markets?

a. Efficient transfer of resources from surplus units to deficient units

b. Smoother consumption pattern enjoyed by all the countries over a period of time

c. Possibility of enjoying the benefits of diversification

d. All of the above.

97. Which of the following statements is not true in respect of SDRs?

a. SDRs are reserves created by IMF and allocated to member countries

b. SDRs are only used to cover current account deficit

c. Interest is paid to those who hold SDRs and by those who draw down their SDRs

d. The interest rate of SDRs is based on an average money market rates in major countries.

98. Exchange rate system where the central bank intervenes to smoothen out exchange rate fluctuations is known as

a. Currency board system

b. Dirty float

c. Clean float

d. Fixed rate system

99. The applicant of a foreign letter of credit (L/c) is the

a. Importer

b. Exporter

c. L/c Issuing Bank

d. L/c Advising Bank

100. When the seller places the goods at his premises at the disposal of the buyer or any other named place, say works, factory, warehouse etc., then it is a contract of

a. Free carrier (FCA)

b. Exworks (EXW)

c. Cost and Freight (CFR)


Free on Board (FOB)

101. The IDBI deep discount bond offers investors Rs. 2,00,000 after 25 years, for an initial investment of Rs. 5,500. The interest rate implied in the offer is

a. 14.80%

b. 15%

c. 15.5%

d. Not possible to determine from the above data.

102. The prime lending rate is/are

a. The minimum lending rate of a commercial bank

b. The rate at which a commercial bank lends working capital to the best rated borrowers

c. The rate at which a commercial bank discounts first class commercial bills

d. Both (b) and (c) above

103. Statutory Liquidity Ratio is unique in Indian banking system. The objective(s) of this is/are

a. To restrict expansion of bank credit

b. To ensure solvency of the banks

c. To augment banks investments in Government securities

d. All of the above

104. Which of the following money market instrument(s) require(s) statutory credit rating?

a. TBs

b. Ad hoc TBs

c. CPs

d. CDs

105. Government securities are issued by

a. Auctions

b. Inviting tenders from general public

c. Public debt office of the RBI

d. Ministry of Finance

106. Prabhasa Constructions Ltd. Is showing a low dividend yield and high price earnings ratio. Then,

a. Price of its share is high

b. There is growth in the company

c. The investors in this share can expect capital gains

d. All of the above

107. How would unanticipated tight monetary policy and loose fiscal policy affect value of a nation’s currency and current account in the short run? Assume a highly mobile international financial markets.

a. Currency value will increase, current account will decrease

b. Currency value will increase, current account will increase

c. Currency value will decrease, current account will decrease

d. Currency value will decrease, current account will increase

108. Sterling denominated foreign bonds issued in the U.K. are called?

a. Geisha bonds

b. Yankee bonds

c. Bulldog bonds

d. Samurai bonds

109. The exchange rate between two currencies was determined on the basis of the rates at which the respective currencies could be converted in to gold. This is called the

a. Purchasing power parity

b. Mint parity

c. Currency parity

d. Interest rate parity

110. Which of the following will not cause a change in the bid-ask spread?

a. High market volatility

b. Trading volume

c. Decrease in forward maturity

d. Market downturn

111. Which of the following statements is true, in case of a direct quote?

a. Exchange margin is to be added to the bid rate and ask rate

b. Exchange margin is to be added to the bid rate and deducted from the ask rate

c. Exchange margin is to be deducted from the bid rate and the ask rate

d. Exchange margin is to be deducted from the bid rate and added to the ask rate

112. Forward spread means

a. The spread between two forward rates of different maturities

b. The spread between two option forward rates

c. The spread between outright forward rate and option forward rate

d. The spread between forward rate and spot rate.

113. A letter of credit which cannot be cancelled by the issuing bank without the consent of the beneficiary is called

a. Revocable credit

b. Irrevocable credit

c. Revolving credit

d. Red clause credit

114. The supply of domestic currency (assume full convertibility) in the foreign exchange market falls when:


Foreign inflation is greater than domestic inflation


Foreign income rises


Foreign real interest rate is greater than domestic real interest rate

a. Only (I) above

b. Only (II) above

c. Both (II) and (III) above

d. Both (I) and (III) above

115. A company’s monthly sales are Rs. 60 lakhs of which 60% are on credit basis. 60% of the credit sales of first month are realized during the second month while the rest will be realized in the third month. The monthly cash flow from the third month onwards is

a. Rs. 21.60 lakhs

b. Rs. 36.00 lakhs

c. Rs. 45.60 lakhs

d. Rs. 60.00 lakhs

116. Which of the following is the assumption of the MM model on dividend policy?

a. The firm is an all equity firm.

b. The investments of the firm are financed solely by retained earnings.

c. The investors are rational

d. The firm has an infinite life.

117. Which of the following is not a part of the money market?

a. Call money market

b. Treasury bills market

c. Commercial paper market

d. Stock market

118. Following is the probability distribution of rates of return of a stock:











The expected rate of return from the stock is

a. 12.0%

b. 14.2%

c. 15.0%

d. 16.8%

119. Which of the following forms of trading block permits no barriers to trade among the member countries and the member countries individually decide upon their trade policies for non-member countries?

a. Free trade area

b. Customs union

c. Common market

d. Economic union

120. Which of the following categories are protected by an agreement on Trade Related Aspects of Intellectual Property Rights (TRIPS)?

a. Copy rights, Trade marks, Geographical indications, industrial designs and patents

b. Copy rights, Trade marks, and Geographical indications

c. Copy rights, Trade marks, Geographical indications and industrial designs.

d. Copy rights, Trade marks, Geographical indication, industrial designs, patents, integrated circuits and Trade secrets

121. One of the services given by banks of dealing in money market instruments to meet the treasury needs of the company is categorized under the function of:

a. Collections

b. Disbursement

c. Cash control

d. Investment / Financing

122. The book value approach is criticized because

a. It can be established easily

b. It values the firm’s share without any future projections

c. It is based on accounting figures which can be manipulated

d. Both (b) and (c) above

123. Which of the following represents cash from operations?

a. Net profit + non-cash expenses

b. Net profit + decrease in current liabilities

c. Net profit + increase in current assets

d. Earnings before interest, depreciation and tax + decrease in current assets.

124. When do preference shares carry voting rights?

a. When the dividend on cumulative preference shares has been in arrears for two or more years.

b. When the dividend has been due for one or more consecutive preceding years.

c. When the dividend has not been paid in three out of the preceding four years.

d. Preference shares never carry voting rights.

125. The two call rates in India are

i. Interbank call rate

ii. Lending rates of DFHI

iii. Lending rates of RBI

iv. Borrowing rates of DFHI

v. Borrowing rates of RBI

a. (i) and (ii)

b. (i) and (iv)

c. (ii) and (iv)

d. (iii) and (v)

126. The major issuers of CDs in India are:

a. The scheduled commercial banks

b. Reserve Bank of India

c. The central and state government

d. The municipalities

127. While planning the inventory the finance manager has to consider both the ordering cost and the carrying cost. Which of the following statements is true with respect to these costs?

a. Ordering cost and carrying cost vary inversely with the order size.

b. Ordering cost and carrying cost vary directly with the order size.

c. There is an inverse relationship between ordering cost and carrying cost.

d. There is a direct relationship between ordering cost and carrying cost.

128. A selling dealer sells $20 million (face value) six-month bills to an investor for $19.19 million with a promise to repurchase the bills three days later at a price of $19.21 million. For the selling dealer, this transaction.

(i)Is a Repo transaction

(ii) Is a reverse Repo transaction

(iii) Enables to pass on the interest rate risk associated with the securities to the investor Which of the above statement(s) is/are true?

a. (i) only

b. (ii) only

c. (i) and (iii) only

d. (ii) and (iii) only

129. An ageing schedule illustrates the relationship between:

a. Corporate personnel and job seniority.

b. Profit and present value


The ratio of accounts receivable to sales.

d. Accounts receivable and their average time outstanding.

130. A Yankee bond is:

a. A dollar denominated bond issued for global markets by a non US entity

b. A dollar denominated bond issued in the US by a non US entity

c. A dollar denominated bond issued by a US resident in UK market

d. A dollar denominated bond issued in US by a US resident

131. Which of the following is not a feature of a commercial paper (CP)?

a. It is an unsecured instrument

b. It is issued in multiples of Rs.5 lakhs

c. Buy-back facilities are not available for CPs

d. It is negotiable by endorsement and delivery

132. The risk arising out of the use of debt financing is called

a. Price risk

b. Credit risk

c. Trading risk

d. Financial risk.

133. A short-term cash budget does not exhibit

a. Investing activities

b. Cash payments

c. Financing activities

d. Issuing of bonus shares

134. The capitalization rate of a company whose market price per share is Rs. 28, net income is Rs. 20 lakhs and the number of outstanding shares is 5.6 lakhs is:

a. 0.039

b. 0.078



d. 0.156

135. Finacle, a banking treasury framework software was devised by:

a. Cobit

b. Infosys

c. Tcs

d. KPMG and PWC

136. XYZ Ltd. advertised on television inviting the public to subscribe to the share capital of the company. The advertisement is considered as

a. Prospectus

b. Deemed prospectus

c. Statement in lieu of prospectus

d. Not a prospectus

137. Shanmugam in Chennai has a farm on which onions are grown. He entered into a contract without force majeure clause to supply 100 tons of onions to Shinde in Mumbai. The crop largely failed due to a pest.

Which of the following statements is/are true?

a. The contract is discharged due to difficulty of performance

b. The contract is discharged due to commercial impossibility

c. The contract is discharged due to destruction of subject matter

d. The contract is not discharged and Shanmugam has to perform the contract

138. When a bank obtains payment on a crossed cheque on behalf of its customer, the fact that the customer’s title to the cheque is defective will not render the collecting bank liable for conversion to the true owner, if

a. The collecting bank advances money to the customer against the cheque even before the cheque is realized

b. The uncrossed cheque given to the collecting bank for collection is crossed by the banker

c. The payment is received by the collecting bank on behalf of a person who is not a customer of the bank

d. The collecting bank is acting as an agent for receiving the payment.

139. Which of the following instruments is not considered a promissory note?

a. Anupam signs a note reading - “Mr. Arvind, I owe you Rs.20000.”

b. Vasundhara signs a note reading – “Received from Uday Kiran Rs.20000, which I promised to pay on demand with interest.”

c. Rajat signs a note reading – “I am liable to Anand in a sum of Rs.20000, which is to be paid by installments for rent.”

d. Kiran signs a note reading – “Deposited with me Rs.20000 to be returned on demand.”

140. A firm earning profits can increase its return on investment by

a. Increasing sales revenue and operating expenses by the same percentage

b. Decreasing sales revenue and operating expenses by the same percentage

c. Increasing sales revenue and operating expenses by the same rupee amount

d. Increasing investment and operating expenses by the same rupee amount

141. If an investment project has a profitability index of 1.20, the

a. Cost of capital of the project is greater than its internal rate of return

b. Cost of capital used in the index calculation has to be less than 20%

c. Project’s internal rate of return is 20%

d. Net present value of the project is positive

142. An efficiency variance is known as

a. Actual unit price minus budgeted unit price, times the actual units produced

b. A flexible budget amount minus a static budget amount

c. Budgeted unit price times the difference between actual inputs and budgeted inputs for the actual activity level achieved

d. Actual operating income minus flexible budget operating income

143. The continuous process of comparing products and operations against the best practices in the industry is known as:

a. Strategic planning

b. Benchmarking


Continuous process improvement

d. Process quality teaming

144. Which of the following is true?

a. Effective rate of interest is always lower than the nominal interest rate

b. The effective rate of interest increases with increase in the frequency of compounding

c. The nominal interest rate increases with increase in the frequency of compounding

d. The effective and nominal interest rates are equal if the frequency of compounding is less than 4

145. Who among the following players in the international capital markets collect the rupee dividends on the underlying shares and repatriate the same to the depository in US dollars/foreign equity?

a. Lead Managers

b. Underwriters

c. Custodian

d. Corporate borrowers

146. Which of the following euro instruments is a medium-term legally binding commitment under which a borrower can issue short-term paper, of up to one year?

a. Note Issuance Facilities (NIFs)

b. Commercial paper

c. Straight debt bonds

d. Floating Rate Notes (FRNs)

147. To which of the following categories of ratios does Debt-Asset ratio belong?

a. Earnings ratios

b. Coverage ratios

c. Capital structure ratios

d. Liquidity ratios

148. If the Degree of Financial Leverage of M/s Twiky's Ltd. is zero, which of the following statements is/are true?

a. The company is not paying any preference dividend

b. The interest expense for the firm is zero

c. The company has only fixed costs and no variable costs

d. The EBIT of the company is zero

149. Which of the following represents the amount that can be realized by a company if it terminates its business and sells all its assets?

a. Book value

b. Liquidation value

c. Replacement value

d. Going concern value

150. Which of the following is not true with respect to valuation of bonds?

a. An increase in the redemption value of the bond, other things remaining the same, will increase the bond value.

b. For a given difference between YTM and coupon rate, the longer the term to maturity of the bonds, the greater will be the change in price with a change in YTM

c. For a given maturity, the change in the bond’s price will be lesser with a decrease in the bond’s YTM than the change in bond price with an equal increase in the bond’s YTM

d. For a given change in YTM, the percentage price change in case of bonds with high coupon rate will be smaller than in case of bonds with low coupon rate, other things remaining the same