MIDTERM EXAMINATION MGT411- Money & Banking
Time: 60 min
Marks: 49
Question No: 1 ( Marks: 1 ) - Please choose one
We need __________ to carry out day to day transactions.
► Money
► Bonds
► Stocks
► Loans
Question No: 2 ( Marks: 1 ) - Please choose one
The reason for the government to get involved in the financial system is to:
► Protect investors
► Ensure the stability of the financial system
► Protect bank customers from monopolistic exploitation
► All of the given options
Question No: 3 ( Marks: 1 ) - Please choose one
_____________ are organized to eliminate the need of costly information
gathering.
► Central banks
► Commercial banks
► Stock exchanges
► Insurance companies
http://www.allvupastpapers.blogspot.com/ Question No: 4 ( Marks: 1 ) - Please choose one
All of the following are the components of M
► M
2 EXCEPT?1► Saving deposits
► Travelers cheques
► Mutual funds shares
Question No: 5 ( Marks: 1 ) - Please choose one
A Financial Intermediary:
► Is an agency that guarantees a loan
► Is involved in direct finance
► Would be used in indirect finance
► None of the given options
Question No: 6 ( Marks: 1 ) - Please choose one
Commissions paid to an insurance broker are an example of which of the
following?
► Risk transfer
► Information asymmetry
► Transaction costs
► All of the given options
http://www.allvupastpapers.blogspot.com/ Question No: 7 ( Marks: 1 ) - Please choose one
The financial intermediary that obtains funds largely through premium payments
and uses those funds to purchase corporate bonds and mortgages is:
► Credit unions
► Mutual funds
► Life insurance companies
► Pension funds
Question No: 8 ( Marks: 1 ) - Please choose one
Risk sharing is the characteristic of which one of the following?
► Checks
► Checking accounts
► Money
► Bonds
Question No: 9 ( Marks: 1 ) - Please choose one
Bonds that are issued by Government are called _________.
► Government bonds
► Treasury bonds
► Corporate bonds
► Callable bonds
Question No: 10 ( Marks: 1 ) - Please choose one
Which of the following is the difference that lies between the options and
futures?
► Options is not binding whereas future is binding
► Futures carry risks but Options didn’t carry risk
► Centralized clearinghouses guarantee futures but not options contracts
► There is no difference between options and futures
http://www.allvupastpapers.blogspot.com/ Question No: 11 ( Marks: 1 ) - Please choose one
Which of the following describes the general formula for the calculation of the
compound interest?
► FV
= PV/(1+i) n► FV
= PV/(1-i) n► FV
= PV*(1+i) n► FV
= PV*(1-i) nQuestion No: 12 ( Marks: 1 ) - Please choose one
If you put $1,000 per year into bank at 4% interest, how much would you have
saved after 40 years?
► $90,000
► $98,826
► $82,286
► $85,880
right option could
($95,025.52)Question No: 13 ( Marks: 1 ) - Please choose one
Which one of the following is the procedure of finding out the Present Value
(PV)?
► Discounting
► Compounding
► Time value of money
► Bond pricing
Question No: 14 ( Marks: 1 ) - Please choose one
What is true about the relationship between standard deviation and risk?
► Greater the standard deviation greater will be the risk
► Greater the standard deviation lower will be the risk
► Greater the standard deviation risk will be remained the same
► No relation between them
http://www.allvupastpapers.blogspot.com/ Question No: 15 ( Marks: 1 ) - Please choose one
Most of the people among us are ___________.
► Risk lovers
► Risk enhancers
► Risk averse
► Risk tolerating
Question No: 16 ( Marks: 1 ) - Please choose one
___________ is the strategy of reducing overall risk by making two investments
with opposing risks.
► Spreading the risk
► Standard deviation
► Hedging the risk
► Variance
Question No: 17 ( Marks: 1 ) - Please choose one
If ABC Inc. and XYZ Inc. have returns that are perfectly negatively correlated:
► Adding XYZ Inc. to a portfolio that consists of only ABC Inc. will reduce
risk
► Adding ABC Inc. to a portfolio that includes only XYZ Inc. will increase
risk
► Adding XYZ Inc. to a portfolio that consists of only ABC Inc. will neither
increase nor decrease the risk of the portfolio
► Adding XYZ Inc. to a portfolio that consists of only ABC Inc. will lower
systematic risk
Question No: 18 ( Marks: 1 ) - Please choose one
Mr. A has a Treasury bill with a maturity period of 6 months where as Mr. B has
a bond with a maturity period of 1 year. Which of the following statement is
NOTtrue for this situation?
► Mr. A has paid less price for his bond than Mr. B
► Mr. A and Mr. B is a holder of zero coupon bond
► Mr. A will receive payment at the end of the maturity period
► Mr. B will receive the payment at the end of the maturity period
http://www.allvupastpapers.blogspot.com/ Question No: 19 ( Marks: 1 ) - Please choose one
Which of the following statement is true for amortized loan?
► Payment includes interest and full amount of principal
► Payment includes only the interest
► Payment includes both interest and some portion of the principal
► Principal amount is paid fully in the periodic payments
Question No: 20 ( Marks: 1 ) - Please choose one
Which of the following best describes the relationship between Bond prices and
yields?
► Move together directly
► Independent of each other
► Move together inversely
► Bond yields do not change since the coupon is fixed
Question No: 21 ( Marks: 1 ) - Please choose one
The relationship between the price and the interest rate for a zero coupon bond
is best described as _________.
► Volatile
► Stable
► Inverse
► No relationship
Question No: 22 ( Marks: 1 ) - Please choose one
The price of a 6-month Treasury Bill is_________ the price of a 1-year Treasury
Bill.
► Lower than
► Higher than
► Equal to
► None of the given options
Question No: 23 ( Marks: 1 ) - Please choose one
If YTM is greater than the coupon rate the price of the bond is __________.
► Greater than its face value
► Lower than its face value
► Equals to its face value
► Insufficient information is given
http://www.allvupastpapers.blogspot.com/ Question No: 24 ( Marks: 1 ) - Please choose one
Current yield is equal to which of the following?
► Price paid / yearly coupon payment
► Price paid *yearly coupon payment
► Yearly coupon payment / face value of bond
► Yearly coupon payment / price paid
Question No: 25 ( Marks: 1 ) - Please choose one
The____________ are an assessment of the creditworthiness of the corporate
issuer.
► Bond yield
► Bond ratings
► Bond risk
► Bond price
Question No: 26 ( Marks: 1 ) - Please choose one
Which of the following statement is true for the given sentence, "that tax affects
the bond return"?
► Because only interest income they receive from bond is taxable
► Because principal amount and interest income they receive from bond is
taxable
► Because bond holders are taxpayers
► Because all bond is sold with a condition that tax will be deducted from its
return
Question No: 27 ( Marks: 1 ) - Please choose one
Which one of the following is true for the relationship between the yield of
taxable and tax exempt bond?
► Higher the tax rate wider the gap between the yield of taxable and tax
exempt bond
► Taxable bond yield is always greater than tax exempt bond
► Higher the tax rate shorter the gap between yield of taxable and tax
exempt bond
► Lower the tax rate wider the gap between yield of taxable and tax exempt
bond
http://www.allvupastpapers.blogspot.com/ Question No: 28 ( Marks: 1 ) - Please choose one
If the tax rate is higher than gap between yield on taxable and tax exempt bond?
► Shorter
► Wider
► No gap
► Any thing can be possible
Question No: 29 ( Marks: 1 ) - Please choose one
Which of the following statement is correct about the yield curve?
► Yield on short term bonds are not more volatile than yield on long term
bond
► Long term yields tend to be higher than short term yield
► Interest rate of different maturities don’t tend to move together
► None of the given options
Question No: 30 ( Marks: 1 ) - Please choose one
Which one of the following is
► Risk free interest rate can be computed
► There is uncertainty in the future
► Identifying yield of bond today that will be available next year
► It focuses on risk free interest rate and the risk premium
NOT true for the expectation hypothesis?Question No: 31 ( Marks: 1 ) - Please choose one
The slope of the yield curve seems to predict the performance of the economy
with:
► Usually 3 months lag
► Usually two years lag
► Usually within few weeks
► Usually one year lag
Question No: 32 ( Marks: 1 ) - Please choose one
The liquidity premium theory suggests that yield curves should usually be:
► Up-sloping
► Inverted
► Flat
► Up-sloping through year 1, then flat thereafter
Question No: 33 ( Marks: 1 ) - Please choose one
If we ignore risk, the dividend discount model says the fundamental price of a
stock is simply:
► The current dividend divided by the interest rate less the dividend growth
rate
► The annual growth rate of the dividend minus the interest rate divided by
the current dividend
► The current dividend divided by the interest rate plus the dividend growth
rate
► The current dividend divided by the dividend growth rate less the interest
rate
http://www.allvupastpapers.blogspot.com/ Question No: 34 ( Marks: 1 ) - Please choose one
The theory of efficient market states that prices of financial instruments reflect:
► All available information
► Some of the information
► No information
► Imperfect information
Question No: 35 ( Marks: 1 ) - Please choose one
Without the ability of financial intermediaries to pool the resources of small
savers:
► Borrowers needing large amounts of money would find it less costly to
obtain the funds
► The economy would likely grow faster
► People would likely save more
► The risk associated with lending would increase
Question No: 36 ( Marks: 1 ) - Please choose one
If information in a financial market is asymmetric, this means:
► Borrowers and lenders have the same information
► Lenders lack any information
► Borrowers and lenders have perfect information
► Borrowers would have more information than lenders
http://www.allvupastpapers.blogspot.com/ Question No: 37 ( Marks: 1 ) - Please choose one
Previously financial markets were located in which one of the following?
► Coffee houses or Taverns
► Stock exchanges
► Bazaar
► Both Coffee houses and Stock exchanges
Question No: 38 ( Marks: 1 ) - Please choose one
Zero-Coupon Bonds are pure discount bonds since they sell at a price
__________.
► Equal their face value
► Below their face value
► Above their face value
► None of the given options
Zero coupon bonds are bonds that do not pay interest during the life of
the bonds. Instead, investors buy zero coupon bonds at a deep
discount from their face value, which is the amount a bond will be
worth when it "matures" or comes due. When a zero coupon bond
matures, the investor will receive one lump sum equal to the initial
investment plus the imputed interest, which is discussed below.
Question No: 39 ( Marks: 3 )
How Financial System promotes economic efficiency? List down points.ple.
1.
borrowers
2. provide risk sharing like insurance
They provide the channel for transfer of funds between saver and3.
provide payments like bank accounts4.
profitable opportunity.
Help those people which do not have enough capital to usehttp://www.allvupastpapers.blogspot.com/ Question No: 40 ( Marks: 3 )
Briefly discuss different types of speculative grades of Long term ratings be
PACRA.
Sepulative grade means there are possibility of credit risk.
Pacra has B class rating for them
BB
shows that there is a possibility of credit risk in making.B
but a limited
margin of safety remains.
Highly speculative in nature. ‘B’ it shows that that significant credit risk is there,CCC, C,CC
High default risk. Chances of deault is a real possibility.Question No: 41 ( Marks: 5 )
Suppose that over the past 20 years, the average annual return on investments
has been 12%. For each dollar invested at the beginning of the period,How
much money would investors have at the end of 20 years?
N= 20
I = 12% or .12
AMT = 1 $
FV = ?
FV = amt * FVIF= [ (1+i)^n-1 ]/i
FVIF = [(1.12)^20 – 1]/.12 = 72.05
FV = 1*72.05 = 72.05http://www.allvupastpapers.blogspot.com/
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