ngiblej

(3) True or False:

(a) Stocks are securities that are a claim on the earnings and assets of a
corporation.
(b) Financial system is a set of complex and closely interlinked financial
institutions, markets, financial instruments and services
financial
which facilitate the transferof funds.

(c) The settlement cycle is now T+1.

(d) RBI, the leader of the financial system, was established as a private
institution in 1945.
(e) Financial Innovation is a broad term that is used to describe the
generation of new and creative approaches to different financial

circumstances.
16 Vipul'sM Financial Institutions and Markets (e
(0 Bill Discounting Is the purchase of exporter's recelvables at

discounted price by paying cash.

of financial services.
(e) Fund based and fee based are types
(h) Secondary market deals with listed securities.
issued by government
() Financial Instruments are those instruments

U) Mutual fund
hardship.

[Ans.:(a) True, (b)

(h) True), ()False,
is a way of reducing your potential

True), (c) False, (d) False, (e) True),

) Falsel
)
financial lossn

False, (g) Tru

(4) Match the columns:

Group 'B'
Group 'A'
Market (0) Risky Capital
(a) Financial

(b) Primary Market () 1935

RBI (i) Lease Financing

(c)
(iv) Fee-Based Services
(d) Fund Based
(v) Capital and Money Market
(e) Merchant Banking
(vi) New issue market
() Venture Capital

(s) Equity Shares (vii) Money Market

(viii) Capital Market
(h) T-Bill

Securitization (ix) Financial Intermediaries

(0
Banks (x) Financial Innovation

[Ans.:(a-v), (b-vi), (c- i), (d-i), (e -iv), (f-i), (g-vil), (h -vi), (i -x

i-ix)]
True or False:

(a) The primary market deals in new financial claim; therefore it is called
new issue market.

(b) Money market includes the Treasury Bill Market,Call Money Market
and Commercial Bill Market and Government Bond Market.
(e) Call Money is a promissory note issued by the RBIto meet the short
term requirement of funds. (April 18)
(d) Commercial paper (CP)is a popular instrument for financing working
capital requirements of companies.
(e) SEBIcame into existence on 1st April, 1935 as per the Reserve Bank
of India act 1935.
() Department ofEconomic Affairs (DEA) is responsible for the
economic management of the country and is the arm of the
government that isconcerned with the orderly functioning
of the
financial markets as a whole.
(g) Cash Credit is mainly used by the banks to meet their
temporary
requirement of cash. (April 18)
Structure of
43
Ih) Ministry of Corporate
Affairs (MCA) which is at
the apex of a three
tier structure that has
responsibility for the registration
oversight of Incorporated entities. and
() Banking regulation Act to
prevent undesirable
transactions in
securities by regulating the
business of dealing therein, by
for certain other matters providing
connected therewith.
(i) Commercial Paper are highly liquid
instruments, that means, at any
time the holder can transfer
of or get it discounted from
RBI.
Ans.: (o) True, (b) True, (c) False,
(h) True, ()False, (i) False]
(d)True, (e) False, ()True, (g) False,

(3) Match the columns:

Group 'A'
Group 'B'
(a) Unorganized Markets (0) Central Bank
Market
(b) Capital
() Short term borrowings
(c) Money Market (ii) Long term borrowings
(d) Call Money (iv) 1949
(e) T-bills
(v) Investor Protection
() Commercial Paper (vi) Issued by Commercial Banks
(B) Certificate of deposits (vii) Promissory note
(h) RBI
(viil) Indigenous Bankers
(0) SEBI (ix) Liquid Instruments
G) Banking Regulation act (x) Daily basis
[Ans.: (a - vii), (b -i), (c - i), (d -x), (e -ix), f -vii), (g -vi), (h -
i),
(i-v),(G- iv)]
(e)SHG-Bank Linkage Programme (ShHG-BLP), )ROSCAS, (g) Gr
True or False: (7

(a) Microfinance refers to small scale financial services for both credits (81
and deposits.
(9)

(b) In 1972,a small group of poor self-employed women residing in

Ahmedabad, who were members of Self Employed Women's
Association (SEWA) a trade union of unorganized sector women
workers, realized a need for "PROMOTING" THEIR OWN Financial
Institution.
 57
Microfinance

I The system of microfinance was introduced about 28 years back

with an organization of Grameen Bank in Bangladesh by a famous
economlst Prof. Mohammed Yunus.
Id) Microfinance is expected to play a plvotal role in poverty abolition
and employment generation.
(e) Under SHG model Loans are provided for slx months to one year
duration but repayments are made weekly.

(0 Grameen model are small, informal and homogeneous groups of

10 to 20 members each. (April 18)
(g) Cooperatives run on social motives and have lower cost structures
and lower profit aspiration and managed by local professionals
provide immediate and easy access to the rural poor for their
financial need.

(h) According to RBI "Microfinanceis provision of thrift, credit and other

financial services and productsof very small amounts to the poor in
rural, semi-urban and urban area.

[Ans.: (a) True, (b) True), (c) True, (d) True, (e) False (f) Folse, (g) True,
(h) False]

(4) Match the columns:

Group 'A' Group 'B'

(a) 1972 (1) 10-20 members Association (SEWA)

(b) 1976 (ii) Grameen Bank
(c) SHG (iii) Self Employed Women's
(d) Grameen bank model (iv) Social welfare

(e) ROSCAS model (v) Chit fund

() Co-opertaive Model (vi) Loan provided for 6 months to one year

(Ans.: (a -i),(6-i), (c-i),(d -vi), (e-v).(f-iv)]

 2013]

3) True or False:
la) Reserve Bank of India came into existence on 1st April 1935.
(b) RBI became the public sector bank from 1st January, 1949.
(April18)
(c) SEBIdoes not helps in prohibiting insider trading in securities.
 (d) Ministry of Company
affairs Is a quasi judicial body that
some of the quasi judicial
and judicial powers Cxer
previously exercised by the High Court under
and the Central the
k
(e) Companies in certain industries
may be exempt from Governmern
provisions of the Companies Act to address the
that industry. (April business
18) needs
() Companies act 2013 replaced Companies act
1956.
(Ans.: (a) True, (b) True, (c)False,
(d)True, (e) True, f) True]
(4) Match the
columns:
Group 'A'
Group 'B'
(a) SEBI
(0) 2000
(b) DEA
(1) 1935
(c) RBI
(i) 2003
(d) MOF
(iv) 1999
(e) PFRDA
(v) Economíc issues
() Department of disinvestment(vi) 5 departments
(g) IRDA (vii) 1992
[Ans.: (a-vii), (b - v), (c-i), (d-vi), (e - il), (f-iv),(g -i)]
(5) Elaborate role of RBI in
 poration of India)]
(3) True or False:
la) The has promoted ICRA
IFCI
Ltd, a credit rating
investorsundertake agency to help
investment decisions. (April 18)
(b) 1FCL an apex institution to
is
co-ordinate,supplement and
the activities of integrate
al
existing specialized financial
institutions.
(c) On April 2, 1990 the Small Industries
Development Bank of India
(SIDBI) was set up as a wholly owned
subsidiary of RBI.
(d) Export-Import Bank of India the premier export finance institution
is
of the country commenced
operations in 1982 under the Export
Import Bank of India Act 1981.
(e) NHB is wholly owned by Reserve Bank of ndia, to promote
expansion with stability in housing finance
market.
[Ans.:(a)True, (b)False, (c)False, (d)
True, (e) True]
120
Vipul'sM Financial Institutions and
Markets (e
(4) Match the
columns:
Group 'A' Group 'B'
(a) LIC 1988
(0)
(b) GIC 1972
(ii)

(c) NHB (i)) 1956

(d) NABARD (iv) 2006
(e) IFCL (v) 1982
[Ans.:(a-i), (b-i), (c-i), (d-v), (e-iv)]
the
 -li), (e- ),6- i1), (9-i),(h -),(1-i)]
(2) True or False:
(a) Money market is a place where the demand for and supply of short
term funds are met.
(b) The rate at which money is made available in call money market is

called as a call rate.

(c) Treasury bills are used to finance the movement and storage of
agriculture and industrial goods in domestic and foreign markets.
(d) There are specialized institutions known as discount houses for
commercial bills accepted by reputed acceptance
discounting
houses.
promissory notes or financial bills issued by
(e) Treasury Bills which are
RBI on behalf of the Government of India.
the
used by the Govt. to raise short term funds for
() Treasury bill is

Government revenues.
meeting temporary
transactions or short term loans in which two parties
Call money
are
e)
and repurchase the same security.
to
agree
sell

papers are short term deposits which are transferable

(h) Commercial
party to another.
from one
 Vipul'sM Financial lostitutions
and
Marets t
(0) All scheduled banks except Reglonal Rural Banks a
and
operative banks are eligible to Issue CDs to the scheduled
extent
deposits. of T

0) Certificate of deposits Is an investment Instrument

which
Issued by a listed company having working capital an
more

(3)
(h) False, ))
equal to Rs.

True,
Match the Columns:
5cr.
[Ans.: (a) True, (b) True, (c)
False]
False, (d) True, (e) True, U)
False,
tan

(9)Fola

Column 'A Column B'

(a) Money Market (0) 90 to 180 days
(b) Commercial paper (i) Short term fund
() Certificate of Deposits (ii) International Trade

(d) Call money market (iv) RBI

(e) Commercial bill market (v) Uncollateralized basis

(E) Inter Corporate Deposits (vi) 91,182 & 364-day
(e) REPO (vii) Negotiable money market

(h) T-Bill instrument

)
() Interbank Participation
Certificates

Banker's Acceptance
(viil)

(ix)

(x)
Short term deposit
instruments
Interbank loan market
Unsecured short term
promissory notes

[Ans.:(a- i), (b - x), (c-vili), (d- ix), (e- vi), f-v), (g-iv), (h- 0" vi),

G- lii)]
True or False:

a) Stocks are securities that are a claim on the earnings andassets of a

corporation.

(b) Financial system is a set of complex and closely interlinked financial

institutions, financial markets, financial instruments and services
which facilitate the transfer of funds.
(c) The settlement cycle is now T+1.
(d) Issuing Shares in Primary market is mandatory before Listing on
stock Exchange.
(e) Primary market deals in new financial claim; therefore it is called
New issue Market.

() Stock Exchanges are not visible in nature.

(g) Fund based and fee based are types of financial services.
(h) Secondary market deals with listed securities.
(1) Financial instruments are those instruments issued by
government.
 179
Market
Capital
ndan

(4)
m

JAns.:
Mutual fund
hardship.
is a way of reducing your potential financial

(o) True, (b) True, (c) False, (d) True, (e) True),
(h) True, (i) False,

Match the columns:

)
False]
) loss or

False, (g) True,

Group 'A' Group 'B'

(a) Financial Market (0) Risky Capítal
(b) Primary Market (ii) 1935
(c) RBI (ii) Lease Financing
(d) Fund Based (iv) Fee-Based Services
(e) Merchant Banking (v) Capital and Money Market
() Venture Capital (vi) New issue market
(e) Equity Shares
(vii) Money Market
(h) T-Bill
(vii) Capital Market
(0) Securitization
(ix) Financial Intermediaries
G) Banks
(x) Financial Innovation
-
[Ans.:(a v), (b - – i), (d- -
(i-x),(G-ix]
vi), (c ii), (e iv), (f - i), (g -viil), (h -
vii),
(5) What are the various characteristics
of
e)NMCE, ) price discovery,price risk mandg

False:
True or
Futures traders are required to deposit high margins.
(a) Commodity
individual investor,
funds provide a viable alternative for the
(b) Mutual
relatively
offering broad based commodity exposure with
usually
low investment minimum.
(MCX) is India's first
India Limited
(c) Multi Commodity Exchange of
listed exchange.
of high net
Exchange to enroll participation
(d) NMCE was also the first market.
brokers in commodity derivatives
worth corporate securities
be settled physically.
(e) Commodities futurescould
True]
(a)False, (b)False, (c) True, (d) True, (e)
[Ans.:
in financial markets.
the role of commodities market
 ) expected]
d (2) True or false:
(a) Livestock Risk Protection (LRP)works like a call option.(April 18)
(b) Basis =Cash price -Futures price.

(e) Option premiums are set at predetermined levels by the exchange.

(d) If a person is a "bull", then they expect prices to rise.

(e) Options contractsare on the underlying futures contract and not the
commodity itself.
[Ans.: (a)False), (b) True, (c)False, (d)True, (e) True]
3) What are the characteristics of Derivatives?
(4) Why there was Need of Derivatives?
5) Who are the Participants in Derivatives Market?
f
)
(6) What are the types of Derivatives Contracts?
What are the advantages and disadvantages of Derivative? (April 18)
(3) True or False:
(a) The trust in mutual fund is created through a document called the
Trust Deed.

(b) The custodian is appointed by the board of trustees for safeguarding

of physical securities.
(c) are responsible for Issuing and redeeming units of
Registrars
the
mutual fund and provide other related services
such as preparation
of transfer documents and updating investor
records.
(d) AMC of the mutual fund must have a net
worth of at least Rs. 100
crores at all times.
(e) Sponsor defined under SEBIregulationsas any person
is
who, actíng
alone or in combination with another
body corporate, establishes a
mutual fund.
(0 AMC of the mutual fund must have a net worth of at least Rs. 10
crores at all times.
(g) Sponsors are responsible for issuing and redeeming
units of the
mutual fund and provide other related
services such as preparation
of transfer documents and updating
investor records.
(h) An open-ended mutual fund is the one whose
units can be freely
soldand repurchased by the investors.
(0) Closed-ended mutual funds does not have a fixed number of units,
and a fixed tenure. (April 18)
The aim of growth funds is to provide capital
appreciation over the
mediumn to long-term.
(Ans.: (o) True, (b) True, (c) False, (d) False, (e)
True), () True, (g) False,
(h)False, ()False, )
True]
 233
Funds
utual

Match the Columns:

Group 'A' Group 'B'
(a) Mutual fund () Lock in period
(b) AMC () Free sale and repurchase of units
(c) Trustee (ii) Capital Appreciation
(d) Sponsor (iv) Appointed by board of trustees
(e) AMFI (v) 1963
() Custodian
O (v) Promoter of Company
(e) UTI (vii) 1995
(h) Open end (vili) Asset Management Company
()) Close end (ix) Pool of funds
ü) Growth Funds («) Body of individuals
[Ans.: (a -i), (b -
vii), (c - xi), (d-vi), (e -vi), (f - iv), (g -
v), (h -i),
(i-),G- ii)]
S) What do you mean by mutual fund?
 Development Authority (IRDA)I
3) True or False:
and
A fortuitous loss is one that is unforeseen and unexpected
(a)
Occurs as a result of chance.
cause of a loss
(b) Principle of Causa Proxima determines the proximate
is its effective or dominant cause.

means an exact financial compensation for an

(c) Principle of Indemnity
insured loss,no more no less.
(d) Excluded peril is a policy that will cover all possible perils
(e) Principle of contribution applies between insurers in the event of a
double insurance, a situation where two or more policies have been
affected

() Principle of Insurable interest applies also to the duty of disclosure

regarding its duration to life and material facts which
insurance
must be disclosed and those which need not be disclosed.
(g) Double Insurance is insurance for insurance companies
 to Insurance
andI
woduction Insurance Sector 257

(h) There are

seven principles of utmost
good faith, insurance- insurable interest,
subrogation, causa and
loss
minimization. proxima, indemnity, contribution

The insurance
sector acts as a mobilizer
of savings and a financial
intermediary and

)
is also a promoter of investment activities.
6) Bank assurance is Insurance
for insurance companies.
[Ans.: (a)True, (b) True, (c)
True, (d) False, (e) True),
False, (g)False,
(h)True, ()True, (i) False]

) Match the Columns:

Group 'A'
Group 'B'
(a) IRDA (1) Transparency
(b) Insurable interest (i) Extension of indemnity
(c) Causa Proxima (i) Immediate Cause
(d) Loss Minimization (iv) Exact Financial Compensation
(e) Utmost good faith (v) 2000
() Indemnity (vi) Measures to Minimize loss

(e) Subrogation (vii) Subject Matter

[Ans.:(a-v), (b- vii), (c-i), (d-vi), (e -i),(6-iv),(g -i)

of insurance.
 þolicy Matters to central banks because the goals of monetary
[Ans.:(o) and
fiñancial
(e) stability are interconnected.

3) Managers,(b)bank-based,
Financial (c) Banks (NHB), (d) Market based,
True or stability]
False:
(a) A
financial
system is a
chain of vertical arrangement of a well-integrated
financial markets and institutions that provide financial
(b) intermediation.
Increases in
debt are directly related to
bankruptcy risk. increases in risk, especially
(c)
Managers receive a large
salaries as portion of their compensation in annual
salaries are constant, and stock option values rise in
response to increased
volatility.
(d) Management and shareholders also conflicts over the
capital structure. company S

(e) Market-based system hinders innovation and growth as banks have

an intrinsic preference for low-risk, low-return
projects.
() In Bank- based financial systems, securities markets share center
stage with banks terms of getting society's savings to
in firms,
exerting corporate control, and easing risk management.

[Ans.:(a) True, (b) True, (c) True, (d) True, (e)False, (5) False]

4) Match the Columns:

Group "B'
Group 'A'
(0) Shareholder-creditor
(a) Financial stability
(ü) Central bank
(b) Financial system financial
(iii) Interlinked
system
(c) Bank-based financial institutions and markets
 (BMe
272 Vipul'sM Financial Institutions and Markets

|(d) Market-oriented financial (iv) Investment efficiency and

system economic growth.

(e) Stockholder-lender conflict (v) Capital and Money Market

[Ans.:(a -i), (b–i), (c-Iv), (d-v),(e-II

Explain in detail the role and importance of Financial
System design.
(5)
in Financial System?
(6) What are the various agency problems
(7) Elaborate the various types of financial System.

(8) What are the Dimensions of well-functioning financial systems?(April18)

(9) What are strategies for dealing with conflict? (April 18)
(3) True or False:
(a) UK system is unique for its underdeveloped capital
financlal

markets,the large share of public finance, & corporate governance.

(b) The Japanese banking system cornprises various bank types such as
City, Trust, Regional, Tier 2 Regional, Shinkin and Credit Cooperative
banks.
(c) Trust banks are licensed to carry out both banking and trust
activities.

(d) The increase in the volume of bad loans held by Japanese banks may
be regarded as representing how the banks worked as a shock
absorber, effectively safeguarding businesses from the negative

impacts of the bubble economy in the short-term.

(e) The German financial system has historically been a príme example
of a bank-based system.

() AllJapanese banks are universal banks as they offer services that

one can classify as commercial and investrnent banking services.
(e) Yankee bonds are bonds of Japan issued in US. (April 18)
(h) SEC is

run by

(h)True]
a non- Profit, co-operative
its members.
(Ans:(a) False, (b) True,

(4) Match the Columns:

(April 18)

(c) True, (d) True, (e) True, )

financial institutions owned and

False, (g) True,

Group 'A' Group 'B'

(a) Bank based system (0) England

|(b) Market oriented System (1) Germany

(c) London Stock Exchange |(ii) UK
AS)
|
Gobal Fiirnancial
System Design
285

ds () Bank of England
(iv) Japan
(e) Universal Banks (v) USA
8 [Ans.: (a -iv), (b-v),(c- i), (d -i), (e -))
(5) Explain in brief about Japanese financial system.
(6) Explain in detail the Three Pillar banking system of Germany.

(7) Write short notes on:

(a) Impact of crisis on Japanese banking system.
es (b) Impact of crisis on German banking system.
an (c) Financial system of UK.
in the USA.
(d) Financial system
d,

al

st