RISK MANAGEMENT
1. Net Interest income is
A. Interest earned on advances
B. Interest earned on investments
C. Total interest earned on advances and investment
D. Difference between interest earned and interest paidifference between interest earned and interest paid
2. European opinion can be exercised on any day at the option of the buyer on or before the expiry of the option.
A. True
B. False
3. What is the beta factor for corporate finance under Standardized approach ?
A. 15%
B. 18%
C. 12%
D. None of the above
4. 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 ?
A. Market Risk
B. Operational Risk
C. Market Liquidation Risk
D. Credit Risk
5. The 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
A. I, III and VI
B. II, IV and V
C. I, IV and V
D. II, III and VI
1 | d | 2 | b | 3 | b | 4 | a | 5 | d |
6. Which of the following is not a type of credit risk ?
A. Default risk
B. Credit spread risk
C. Intrinsic risk
D. Basis risk credit spread risk
7. 8% Government of India security is quoted at RS 120/- The current yield on the security, will be----
A. 12%
B. 9.6%
C. 6.7%
D. 8%
8. Risk of a portfolio with over exposure in steel sector will be
A. More than systematic risk
B. Equal to intrinsic risk
C. Less than intrinsic risk
D. None of these
9. 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----
A. 20%
B. 4%
C. 40%
D. 2.5%
10. The risk that arises due to worsening of credit quality is
A. Intrinsic Risk
B. Credit spread Risk
C. Portfolio risk
D. Counterparty risk
6 | b | 7 | c | 8 | a | 9 | d | 10 | b |
11. 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 ?
A. ₹100
B. ₹120
C. ₹150
D. ₹125
12. An increase in cash reserve ratio will cause yield curve to
A. Shift downward
B. Remain unchanged
C. Become steeper
D. Become flatter
13. The model that combines five financial ratios using reported accounting information and equity values to produce on objective measure of borrower's financial health is
A. Altman's 2 score
B. Credit Metrics
C. Credit Risk +
D. None of the above
14. 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 ?
A. Market risk
B. Operational risk
C. Market liquidation risk
D. Credit risk
15. When interest rates go up, prices of fixed interest bonds ?
A. Go up
B. Go down
C. Remain unchanged
11 | b | 12 | d | 13 | a | 14 | d | 15 | b |
16. Var is not enough to assess market risk of a portfolio. Stress testing is desirable because
A. It helps in calibrating var module
B. It helps as an additional risk measure
C. It helps in assessing risk due to abnormal movement of market parameters
D. It is used as var measure is not accurate enough
17. Bond with BBB rating will carry lower interest rate than one with AA rating
A. False
B. True
C. Difficult to say
18. Fall in interest rate cause the rate causes the bond prices also to fall.
A. False
B. True
C. Difficult to say
19. A normal yield curve is sloping upward.
A. False
B. True
C. Difficult to say
20. Stamp duty on transfer of dematted shares is lower.
A. False
B. True
C. Difficult to say
16 | c | 17 | a | 18 | a | 19 | b | 20 | a |
21. Large Government borrowing can cause yield curve to shift upward.
A. False
B. True
C. Difficult to say
22. Growth Funds assure growth in return.
A. False
B. True
C. Difficult to say
23. If short term interest rates remain higher than the long term interest rates, the yield curve will be inverted.
A. False
B. True
C. Difficult to say
24. Credit rating agencies determine interest rates on debt securities.
A. False
B. True
C. Difficult to say
25. The shares of software companies carry high P/E ratio.
A. False
B. True
C. Difficult to say
21 | b | 22 | a | 23 | b | 24 | a | 25 | b |
26. Closed end mutual funds are trading at discount to NAV.
A. False
B. True
C. Difficult to say
27. In a rising interest rate phase Zero coupon bond will be traded at a premium
A. False
B. True
C. Difficult to say
28. A sharp decline in short term interest rates will cause yield curve to be steeper
A. False
B. True
C. Difficult to say
29. A fall in interest rates reduces the demand for bonds in the secondary market
A. False
B. True
C. Difficult to say
30. Increase in the cash reserve ratio can cause the yield curve going temporarily inverted.
A. False
B. True
C. Difficult to say
26 | b | 27 | a | 28 | b | 29 | b | 30 | b |
31. Dematerialization of stocks has increased turnover on the stock market.
A. False
B. True
C. Difficult to say
32. Tight money and credit policy will cause bond prices to fall.
A. False
B. True
C. Difficult to say
33. Increasing Government borrowing will raise interest rates.
A. False
B. True
C. Difficult to say
34. Bond carrying AA rating will carry highest interest rate than one carrying BBB rating.
A. False
B. True
C. Difficult to say
35. Mutual fund redemption bring bearish influence on the stock market.
A. False
B. True
C. Difficult to say
31 | b | 32 | b | 33 | b | 34 | a | 35 | b |
36. Decline in the interest rates on long dated Govt. Bonds will cause yield curve to be steeper.
A. False
B. True
C. Difficult to say
37. Demat shares carry lower stamp duty on transfer than physical shares.
A. False
B. True
C. Difficult to say
38. Increase in interest rates will cause bond prices to fall.
A. False
B. True
C. Difficult to say
39. Growth fund is a mutual fund that invests primarily in equity shares.
A. False
B. True
C. Difficult to say
40. Stamp duty on transfer of demated shares is lowest.
A. False
B. True
C. Difficult to say
36 | a | 37 | a | 38 | b | 39 | b | 40 | a |
41. Large Government borrowing in the market can make the yield curve shift upward.
A. False
B. True
C. Difficult to say
42. Bond with A rating will carry higher interest rate than one carrying BBB rating.
A. False
B. True
C. Difficult to say
43. When the interest rates fall, the market price of a fixed rate bond
A. Falls
B. Rises
C. Does not change
44. A transaction where financial securities are issued against the cash flow generated from a pool of assets is called
A. Securitization
B. Credit Default Swaps
C. Credit Linked Notes
D. Total Return Swaps
45. Growth Fund is a mutual fund that
A. Assures growth in income
B. Invests in fixed income securities
C. Gives fixed return
D. Invests primarily in equities
41 | b | 42 | a | 43 | b | 44 | a | 45 | d |
46. Operational Risk arises from
A. Inadequate or failed internal processes
B. People and systems
C. External Events
D. Defaults
47. Which of the following is true?
A. RBI Uses MSS as money contraction tool.
B. RBI Uses Repo for Money Supply Tool.
C. Reverse Repo is a Money contraction Tool
D. All the statements are truell the statements are true
48. A decline in cash reserve ratio will cause the yield curve to
A. Shift upward
B. Shift downward
C. Become flatter
D. Remain unchanged
49. For operational risk. Which of the following is true
A. (a)
B. None of them
C. (c)
D. (b)
50. 12% Government of India security is quoted at ₹120. If interest rates go down by 1%, the market price of the security will be.....
A. ₹ 120
B. ₹133.3
C. ₹ 109
D. ₹ 140
46 | a | 47 | d | 48 | b | 49 | c | 50 | b |
51. Which of the following is true ?
A. RBI discounts the eligible bills of Banks at Bank Rate
B. Rise in CRR leads to money contraction from the market
C. Reverse Repo Rate is for Banks to park money with RBI
D. Bank raise money through cblos
E. All statements are true
52. Which of the following is not true ?
A. Call Money Market Rates are fixed.
B. LIBOR Rates in a particular currency are as per demand and supply of the Currency
C. As LIBOR is in London, MIBOR is in Mumbai
D. IRDA is a regulatory authority in Insurance sector
53. A fall in long term interest rates on Government securities will make the yield curve become
A. Flatter
B. Steeper
C. Shift downward
54. 1 day VAR of a portfolio is ₹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 ₹500,000 ?
A. 4 days
B. 5 days
C. 6 days
D. 7 days
55. A fall in interest rates will make prices of Government Securities -
A. Go down
B. Go up
C. Remain unchanged
D. None of these
51 | e | 52 | a | 53 | a | 54 | c | 55 | b |
56. Systemic risk the risk of
A. Failure of a bank, which is not adhering to regulations
B. Failure of two banks simultaneously due to bankruptcy of one bank
C. Where a group of banks fail due to contagion effect
D. Failure of entire banking system
57. If the yield on long dated Govt. Securities falls, then the yield curve will became:-
A. Steeper
B. Flatter
C. Shift downward
58. 11% Govt. Of India security is quoted at ₹110. If the interest rates go down by 1% the market price of the security will be
A. ₹110
B. ₹109
C. ₹122.2
D. ₹130
59. Balanced fund is a mutual fund that
A. Assures income
B. Invests in debt and equity
C. Assure growth
D. Gives fixed return
60. Back testing is done to
A. Test a model
B. Compare model results and actual performance
C. Record performance
D. None of the above
56 | d | 57 | b | 58 | c | 59 | c | 60 | b |
61. Under Basel II, Capital requirement under the accord is
A. The maximum Capital that is required to be maintained
B. The minimum Capital that is required to be maintained
C. The capital as specified by the regulatory authority is required to be maintained
D. None of the above
62. Fall in interest rates cause the prices of Govt. Securities to go up.
A. False
B. True
C. Difficult to say
63. Steeper yield curve means long term interest rates are much lower than short term interest rates.
A. False
B. True
C. Difficult to say
64. Mutual fund mobilization has bearish influence on the stock market.
A. False
B. True
C. Difficult to say
65. Convertible debentures carry an element of equity shares.
A. False
B. True
C. Difficult to say
61 | c | 62 | b | 63 | a | 64 | a | 65 | b |
66. Credit Rating agencies fix interest rates on bonds or debentures issued by companies.
A. False
B. True
C. Difficult to say
67. Mutual Funds invest only in equity shares.
A. False
B. True
C. Difficult to say
68. Favorable monsoon brightens the prospects for stock market.
A. False
B. True
C. Difficult to say
69. Large Government borrowings cause debt securities prices to rise.
A. False
B. True
C. Difficult to say
70. Falling interest rates have benefited investors in debt securities mutual funds.
A. False
B. True
C. Difficult to say
66 | a | 67 | a | 68 | b | 69 | a | 70 | b |
71. Large government borrowing would cause interest rates to go down.
A. False
B. True
C. Difficult to say
72. Falling interest rates cause navs of debt mutual fund to go down.
A. False
B. True
C. Difficult to say
73. Bond with BBB rating will carry lower interest rates than one with A rating.
A. False
B. True
C. Difficult to say
74. Money market mutual funds do not invest in equity shares.
A. False
B. True
C. Difficult to say
75. SEBI gives credit rating to securities issued in the capital market.
A. False
B. True
C. Difficult to say
71 | a | 72 | a | 73 | a | 74 | b | 75 | a |
76. Mutual funds can offer guaranteed returns.
A. False
B. True
C. Difficult to say
77. Large government borrowings will cause interest rates to go up.
A. False
B. True
C. Difficult to say
78. A mutual fund scheme; with a entry load will have its sale price higher than its NAV.
A. False
B. True
C. Difficult to say
79. Security with A rating will carry higher interest rate than one with BB rating.
A. False
B. True
C. Difficult to say
80. A fall in the interest rates causes Govt. Securities to
A. Remain stable
B. Fall
C. Rise
76 | a | 77 | b | 78 | b | 79 | a | 80 | c |
81. Capital charge for credit risk requires input for PD, LGD, EAD and M. Under advanced IRB approach, who provide the input for LGD.
A. Bank
B. Supervisor
C. Function provided by BCBS
D. None of the above
82. A debenture of ₹100 carrying 15% coupon rate is quoted in the market at ₹135/-. The current yield on this debenture will be
A. 13.5%
B. 15%
C. 11.11%
D. 10%
83. Investment in Post Office time deposit is
A. Zero risk investment
B. Low risk investment
C. Medium risk investment
D. High risk investment
84. If the short term interest rates are temporarily higher than the long term interest rates, the yield curve will be
A. Sloping upward
B. Inverted
C. Zigzag
D. Horizontal
85. Premature payment of a term loan will result in interest rate risk of type
A. Basis risk
B. Yield curve risk
C. Embedded option risk
D. Mismatch riskmbedded option risk
81 | a | 82 | c | 83 | a | 84 | b | 85 | c |
86. A company with equity capital of ₹50 crores (Face Value of ₹10/- per share) makes gross profit of ₹70 crores and net profit after tax of ₹25 crores. If the market price of its equity share is ₹50, the PE ratio will be
A. 50
B. 5
C. 10
D. 20
87. Daily volatility of a stock is 1%. What is its 10 days volatility approximately ?
A. 3%
B. 10%
C. 1%
D. 4%
88. If call money rates are temporarily higher than the long term interest rates, the yield curve will be
A. Slopping upwards
B. Zigzag
C. Inverted
D. Horizontal
89. Which of the following is true.?
A. All the statements are correct
B. Statements 1 and 2 are correct
C. Statements 2 and 3 are correct
D. Statements 3 and 1 are correct
90. Equity oriented mutual funds
A. Assure income
B. Assure growth
C. Invest in debentures
D. Invest in shares
86 | c | 87 | a | 88 | c | 89 | b | 90 | d |
91. A bank funds its assets from a pool of composite liabilities. Apart from credit and operational risks, it faces
A. Basis risk
B. Mismatch risk
C. Market risk
D. Liquidity risk
92. A rise in Government securities prices will make yield curve ?
A. Slope upward
B. Shift downward
C. Remain stable
D. Shift upward
93. Risk mitigation measures result in 1) Reducing downside variability 2) Reducing upside potential which of the following is true
A. Both the statements are correct
B. Both the statements are not correct
C. Statement 1 is correct
D. Statement 2 is correct
94. 9% Government of India security is quoted at ₹120. The current yield on the security will be ?
A. 12%
B. 9%
C. 7.5%
D. 13.3%
95. Financial Risk is defined as
A. Uncertainties resu1ting in adverse variation of profitability or outright losses
B. Uncertainties that result in outright losses
C. Uncertainties in cash flow
D. Variations in net cash flows
91 | a | 92 | b | 93 | a | 94 | c | 95 | a |
96. Strategic Risk is a type of
A. Interest Rate Risk
B. Operation Risk
C. Liquidity Risk
D. None of the above
97. Objective of liquidity management is to:
A. Ensure profitability
B. Ensure liquidity
C. Either of two
D. Both
98. A mutual fund charges 1% entry load and no exit load. Its NAV is ₹16; its sale and repurchase price will -----
A. ₹16 and ₹15.80
B. ₹16.16 and ₹15.84
C. ₹15.84 and ₹16
D. ₹16.16 and ₹16
99. Banks need liquidity to:
A. Meet deposit withdrawal
B. Fund loan demands
C. Both of them
D. None of them
100. A fall in interest rate of long dated government securities with the short term interest rates remaining unchanged will make the yield curve.
A. Steeper
B. Slop downward
C. Shift downward
D. Flatter
96 | d | 97 | d | 98 | d | 99 | c | 100 | d |