We will know the Model Question Answer of the Foundation of Financial Markets.

Code No: FIN 252

Full Marks: 100

Pass Marks: 35

Time: 3 Hours

## Model Question of Foundation of Financial Markets

Candidates are required to give their answers in their own words as far as possible.

**Group ‘A’ – Brief Answer Questions**

Attempt All questions

1. Define financial assets and tangible assets, and give examples.

2. Name three widely accepted goals of monetary policy. Explain one in Brief.

3. How do you differentiate the participating policies from non-participating policies?

4. What do you mean by load? Explain with an example.

5. Interpret Fisher’s equation.

6. Describe briefly the features of municipal bonds.

7. What is efficient capital market? Explain the operationally efficient market briefly.

8. What is Eurobond?

9. When do investors engage in short selling?

10. If the value of equity is Rs. 10 million, the value of assets is Rs. 100 million, what is the value of the liabilities.

**Group ‘B’ – Descriptive Answer Question**

Attempt any FIVE questions

11. What are the roles of financial intermediaries? Explain.

12. Suppose Nepal Rastra Bank was to inject Rs. 100 million of reserves into the banking system by an open market purchase of Treasury bills. If the required reserve ratio were 10%, what is the maximum increase in M1 that the new reserves would generate? Assume that banks make all the loans their reserves allow, that firms and individuals keep all their liquid assets in depository accounts, and no money is in the form of currency.

13. Define the pension funds and explain the different types of pension funds.

14. The market price of the stock of Annapurna Company is Rs. 50 per share and there are one million shares outstanding. Suppose that the management of this company is considering a right offering in connection with the issuance of 500,000 new shares. Each current shareholder would receive one right for every two shares owned. The terms of the rights offering are as follows: For

a. What would the share price be after the right offering?

b. What is the value of one right?

15. Suppose that the price of a Treasury bill with 90 days to maturity and a Rs. 1 million face value is Rs. 980,000.

a. What is the bank discount?

b. WHat is the yield on a bank discount basis?

16. Calculate the risk-weighted assets from the information given below:

Assets | Book Value in Million | Risk Weight (in %) |
---|---|---|

Treasury Securities | 150.00 | 0 |

Local Government bonds | 100.00 | 20 |

Mortgage | 250.00 | 50 |

Commercial loan | 500.00 | 100 |

Total | 1000.00 |

**Group ‘C’ – Analytical Answer Questions**

17. What is insurance? Explain the nature of business of different types of insurance.

18.

a. An investment company has Rs. 1.05 million of assets, Rs. 50,000 of liabilities, and 10,000 shares of outstanding.

i. What is its net asset value (NAV)?

ii. Suppose the fund pays off its liabilities while at the same time the value of its assets doubles. How many shares will a deposit of Rs.5,000 receive?

iii. Differentiate closed-end funds from open-end funds?

b. Suppose you own a bond that pays Rs. 75 yearly in coupon interest and that is likely to be called in two years ( because the firm has already announced that it will redeem the issue early). The call price will be Rs. 1,050. What is the price of your bond now in the market if the appropriate discount rate for this asset is 9 percent?

19. Consider the following fixed-rate, level payment mortgage:

Maturity: 360 months

The amount borrowed: Rs. 100,000.

The annual Mortage rate is 10%.

a. Construct an amortization schedule for the first 10 months.

b. What will the mortgage balance be at the end of the 360th month, assuming no prepayments?

c. Without constructing an amortization schedule, what is the mortgage balance at the end of month 270, assuming no prepayments?

d. Without constructing an amortization schedule, what is the scheduled principal payment at the end of month 270, assuming no prepayments?

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