Exam practice paper 2 - Financial Markets & Risk Management - July 2024 - Selected for circulation.docx

**CCCU -- Accounting/Finance 2024/25** **Saegis Campus** **Financial Markets and Risk Management** **Practice Paper 2 for the Assessment 1** 1. You invested in a commercial paper issued by a leading corporate. An investor, you are, A. Exposed only to interest rate risk. B. Exposed only...

**CCCU -- Accounting/Finance 2024/25** **Saegis Campus** **Financial Markets and Risk Management** **Practice Paper 2 for the Assessment 1** 1. You invested in a commercial paper issued by a leading corporate. An investor, you are, A. Exposed only to interest rate risk. B. Exposed only to default risk. C. Exposed to both interest rate risk and default risk. D. Exposed none of interest rate risk or default risk. 2. You purchased a commercial paper with an original maturity period of 364 days from the primary market for an issue price of GBP 96.50. Your total return from this investment after one year's time is. A. GBP 96.50 B. GBP 100.00 C. GBP 3.50 D. Cannot be accessed due to lack of data given. 3. You purchased a commercial paper with an original maturity period of 364 days from the primary market for an issue price of GBP 96.50. Your rate of return from this investment for the one year period is close to. A. 3.5% B. 3.6% C. 5% D. Cannot be accessed due to lack of data given. 4. Yield of a bond includes A. Coupon interest, Capital gains and Reinvestment income. B. Coupon interest and reinvestment income. C. Coupon interest and capital gains. D. Capital gains only. 5. Cash flows from a bill includes A. Coupon interest and maturity value. B. Maturity value only. C. Coupon interest only. D. Capital gains and maturity value. 6. A corporate bond was issued at GBP 93.25 and had a coupon rate of 5% paid annually. The value of a single coupon from the bond is, A. GBP 4.66 B. GBP 5 C. GBP 2.33 D. GBP 2.5 7. You purchased a corporate bond from the secondary market for a price of GBP 93.25. It carries a coupon rate of 5% paid semi-annually. Your motive is to hold bond until the maturity. Maximum capital gains possible from this bond will be, A. GBP 5. B. GBP 4.66 C. GBP 6.75 D. GBP 11.75 8. Which of the following could not be an original maturity period for a UK Treasury bill. A. 91 days. B. 182 days C. 364 days D. 2 years. 9. During the lecture, a student questioned that is it correct to say any government is the highest creditworthy borrower within the economy. Your comment can be A. Not at all. B. Yes. For any borrowing. C. Yes, for foreign currency borrowings. D. Yes. For local currency borrowing. 10. The credit quality of a corporate debt instrument is presented by A. Its yield. B. Its coupon rate. C. Its market price. D. Its credit rating. 11. The implied credit rating for a government security is A. AAA B. BBB C. CCC D. No implied credit rating 12. Credit rating grades of AAA to A are recognized as. A. High quality credit ratings. B. Average quality credit grades. C. Low quality credit grades. D. Non-investment grate credit grades. 13. Non-investment grade credit ratings are the ratings A. From BB+ to D. B. From CCC+ to D. C. From BBB- to D. D. From BBB+ to BBB- 14. Credit rating for a corporate debt instrument is defined as............. 15. Which of the following debt instrument will not be subject for default risk. A. Foreign currency sovereign bond issued by the government. B. Local currency bond issued by the largest bank in the economy. C. Treasury bond. D. AAA rated bond issued by a blue-chip company. 16. On which basis, the government is considered as the highest creditworthy borrower for local currency borrowing in the economy?\...\...\...\...\...\... 17. Which of the following debt instruments will be subject for least exposure to interest rate risk. A. Floating rate bonds. B. Zero coupon bond. C. Annual fixed coupon bond. D. Semiannual fixed coupon bond. 18. A corporate bond carries a fixed coupon rate of 6% paid on a semiannual frequency. Its purchase price was GBP 98.56. On the maturity day, the total cash inflow received by the investor from one bond is. A. Maturity proceeds of GBP 98.56 and the coupon income of GBP 6. B. Maturity proceeds of GBP 98.56 and the coupon interest of GBP 3. C. Maturity proceeds of GBP 100.00 and the coupon income of GBP 6. D. Maturity proceeds of GBP 100.00 and the coupon interest of GBP 3. 19. Which of the following is a par bond. A. A bond with a market value of GBP 94.34 B. A bond with a market value of GBP 100.00 C. A bond with a market value of GBP 102.64 D. A bond with a market value of GBP 99.15 20. Which of the following is a premium bond. A. A bond with a market value of GBP 94.34 B. A bond with a market value of GBP 100.00 C. A bond with a market value of GBP 102.64 D. A bond with a market value of GBP 99.15 21. A bond will be termed as a "Bullet Maturity Bond" if its maturity proceeds are A. Fully paid on the maturity date. B. Fully paid in several installments. C. Paid in monthly installments. D. Paid on annual installments. 22. Why some bonds are termed as serial maturity bonds. 23. A bond carries a coupon rate defined as 3 months LIBOR + 1.25%. This bond is termed as a A. Fixed coupon bond. B. Floating rate bond C. LIBOR bond. D. Foreign currency bond. 24. A bond carries a coupon rate defined as 3 months LIBOR + 1.25%. This bond most probably pays the coupon interest on A. Annual basis. B. Monthly basis. C. Quarterly basis. D. Semiannual basis. 25. A bond carries a coupon rate defined as 3 months LIBOR + 1.25%. value of 3 months LIBOR for the current coupon period comes to 6.5%. Annual coupon rate applicable for this coupon period comes to, A. 6.5% B. 2.875%. C. 7.75% D. 1.9375% 26. Monetary authority signals a contractionary monetary policy. What will be the impact to a floating rate bond. A. No impact to a floating rate bond. B. Coupon interest will increase. C. Coupon interest will decline. 27. Which of the following is not a special feature of a bank. A. They are funded mainly by owners' capital. B. Their liabilities are in shorter tenure while assets are in longer tenure. C. Their financial leverage is very high. D. They carry systemic risk. 28. The main source of funding for a bank is, A. Equity funds. B. Long term debt capital from bonds. C. Customer deposits. D. Short term money market borrowings. 29. Asset-liability mismatch of a bank arises as A. Assets having a short tenure compared to liabilities. B. Assets having a longer tenure compared to liabilities. C. Assets being larger in value compared to liabilities. D. Assets being smaller in value compared to liabilities. 30. Systemic risk of a bank can be defined as............. 31. Which of the following is incorrect regarding a systemically important bank, A. Its failure can influence other banks also to fail. B. It is large in assets C. Its large in liabilities. D. It can bring no adverse impact to the confidence of the general public. 32. The main two objectives of BOE are, 33. Fractional reserve banking is defined as..... 34. You deposited GBP 10,000 with a commercial bank, most probably what amount of your deposit will be kept in cash by the bank. A. GBP 10,000 B. GBP 5,000 C. GBP 2,500 D. GBP 100 35. You deposited GBP 10,000 with a commercial bank, most probably what amount of your deposit money will be given to borrowers as loans. A. GBP 10,000 B. GBP 5,000 C. GBP 7,500 D. GBP 9,900 36. Which entity or set of entities print money in the economy as recognized by the economists and the finance experts. A. Banking sector B. Printing press. C. Central bank. D. Treasury department of the government. 37. Which entity or set of entities print money in the economy as recognized by the economists and the finance experts. A. Banking sector B. Printing press. C. Central bank. D. Treasury department of the government. 38. You purchased a bond at a price of USD 623.25. Its maturity period is 10 years and the maturity value is USD 1,000. Most probably, this bond can be recognized as A. A fixed coupon bond. B. A floating rate bond. C. A zero-coupon bond. D. A superior credit quality bond. 39. Which of the following bond can most probably be a zero coupon bond. A. A 5-year bond with an original issue price of USD 100. B. A 5-year bond with an original issue price of USD 98.56 C. A 5-year bond with an original issue price of USD 101.25 D. A 5-year bond with an original issue price of USD 75.50