JAIIB Examination
Accounting & Financial Management For
Bankers
Most Expected Questions
AFM – Module C– JAIIB 2025
Practice question -
Food Corporation of India is an example of ______________
a. Statutory companies
b. Chartered companies
c. Private Limited companies
d. Holding companies
AFM – Module C– JAIIB 2025
Practice question -
Which one of the following is a source of funds?
a. Increase in fixed assets
b. Increase in inventory
c. Increase in current liabilities
d. Decrease in capital
AFM – Module C– JAIIB 2025
MODULE – C FINANCIAL MANAGEMENT
Unit 19 Financial Management – An Overview
Unit 20 Ratio Analysis
Unit 21 Financial Mathematics – Calculation of Interest and Annuities
Unit 22 Financial Mathematics – Calculation of YTM
Unit 23 Financial Mathematics – Forex Arithmetic
Unit 24 Capital Structure and Cost of Capital
Unit 25 Capital Investment Decisions/Term Loans
Unit 26 Equipment Leasing/Lease Financing
Unit 27 Working Capital Management
Unit 28 Derivatives
AFM – Module C– JAIIB 2025
Q. 1
Which of the following statements about a Limited Liability Partnership (LLP) is correct?
a) LLP does not have a separate legal entity from its partners
b) Partners in an LLP have unlimited liability
c) LLP is governed by the Indian Partnership Act, 1932
d) One partner is not liable for the misconduct of another partner in LLP
Correct Answer: d) One partner is not liable for the misconduct of another partner
in LLP
AFM – Module C– JAIIB 2025
Q. 2
Assertion (A): A Limited Liability Partnership (LLP) provides legal protection to individual
partners from the misconduct of other partners.
Reason (R): LLPs are governed under the Indian Partnership Act, 1932 and do not have a
separate legal entity.
Choose the correct option:
a) Both A and R are true, and R is the correct explanation of A
b) Both A and R are true, but R is not the correct explanation of A
c) A is true, but R is false
d) A is false, but R is true
Correct Answer: c) A is true, but R is false
Explanation: LLPs do offer protection from other partners’ actions, but they are governed
under the LLP Act, 2008 (not the Indian Partnership Act), and have a separate legal entity.
AFM – Module C– JAIIB 2025
Q. 3
Which of the following statements is correct regarding the Agency Problem in Financial Management?
a) In a sole proprietorship, agency problems are more severe due to multiple ownerships.
b) Agency conflicts only arise between shareholders and customers of a company.
c) Linking management compensation to stock performance is one way to reduce agency conflict.
d) The agent always acts in the best interest of the principal due to legal obligations.
Correct Answer: c) Linking management compensation to stock performance is one
way to reduce agency conflict.
AFM – Module C– JAIIB 2025
Q. 4
If market price per equity share is Rs.10,000 and earning per share is Rs.500. Compute the price earning
ratio of the firm ABC ltd.
[A] 50,00,000 : 1
[B] 2 : 1
[C] 20 : 1
[D] 2%
Answer: Option C
AFM – Module C– JAIIB 2025
Q. 4
AFM – Module C– JAIIB 2025
Q. 4
Which ratio indicates the degree to which the selling price of goods per unit may decline without resulting in
losses from operations, to the firm?
[A] Net profit ratio
[B] Operating profit ratio
[C] Gross profit ratio
[D] All the above
[A] Net profit ratio
AFM – Module C– JAIIB 2025
Q. 5
________________ is the amount of interest calculated as a fixed percentage of the
amount borrowed or lent at the start and is paid or received at the end of the contracted
period.
[A] Compound interest
[B] Simple interest
[C] Interest rate
[D] Principal amount
Answer: Option B
AFM – Module C– JAIIB 2025
Q. 6
Which among the following two statements are correct?
I - The fixed rate is, normally, lower than the floating rate, as it is not affected by market fluctuations.
II - Under floating rate, the interest rate is usually linked to a benchmark rate which could be the MCLR/base
rate of the bank.
[A] Both statements I and II are incorrect
[B] Both statements I and II are correct
[C] Statement II is correct and I is incorrect
[D] Statement II is incorrect and I is correct
Answer: Option C
AFM – Module C– JAIIB 2025
Q. 7
If the interest is deducted from the principal amount and only the net amount is
disbursed, it is called ________________ .
[A] Back-end interest rate
[B] Floating interest rate
[C] Front-end interest rate
[D] Fixed rate interest rate
Answer: Option C
AFM – Module C– JAIIB 2025
Q. 8
Which of the following statements is correct in the context of the fixed assets ratio?
[A] It is the ratio of fixed assets to short-term funds.
[B] A ratio of 0.67 or below is considered satisfactory.
[C] A ratio of less than 1 shows that a part of the working capital is financed through short-
term funds.
[D] All of the above
Answer: Option C
AFM – Module C– JAIIB 2025
Q. 9
XYZ Corporation, a technology company, is in need of office space for its expanding
operations. They have found a suitable office building and are considering their options
for acquiring it. After careful consideration, XYZ Corporation decides to lease the office
building for a fixed term of 10 years. The lease agreement includes maintenance and
insurance responsibilities assigned to the lessor. Based on the given scenario, what type
of lease is XYZ Corporation entering into?
[A] Financial lease
[B] Operating lease
[C] Direct lease
[D] Sale and leaseback
Answer: [B]
AFM – Module C– JAIIB 2025
Q. 10
Calculate the Bank Finance for Working Capital under the Turnover Method of
Assessment, if the projected turnover of the company = Rs. 500 lakhs
[A] Rs. 25 lakhs
[B] Rs. 125 lakhs
[C] Rs. 200 lakhs
[D] Rs. 100 lakhs
Answer: [D]
AFM – Module C– JAIIB 2025
Q. 10
Explanation:
Under the Turnover Method of Assessment, it is assumed that an enterprise requires
25% of its annual turnover as its gross working capital requirement. This is funded as
follows:
Working Capital Requirement = 25% of Projected Turnover= 25/100 × 500 = Rs. 125 lakhs
Working Capital Margin = 5% of Projected Turnover (contributed by the enterprise)
= 5/100 × 500 = Rs. 25 lakhs
Bank Finance for Working Capital = 20% of Projected Turnover
= 20/100 × 500 = Rs. 100 lakhs
AFM – Module C– JAIIB 2025
Q. 11
Given the following information: Spot – USD 1 = Rs. 74.8450 3 months Forward – USD 1 =
Rs. 74.7950 The base currency (INR) is at _______.
[A] premium
[B] discount
[C] par
[D] None of the above
Answer: [A]
AFM – Module C– JAIIB 2025
Q. 12
Which option best describes how to calculate the estimated time for an investment to
double using the Rule of 72?
[A] Divide the annual interest rate by 72.
[B] Divide 72 by the annual interest rate.
[C] Multiply the annual interest rate by 72.
[D] Multiply 72 by the annual interest rate.
Answer: Option B
AFM – Module C– JAIIB 2025
Q. 13
Calculate the cost of equity from the following information: Proportion of equity = 50%
WACC = 17.5% Cost of debt = 12%
[A] 20%
[B] 19%
[C] 25%
[D] 23%
Answer: Option D
AFM – Module C– JAIIB 2025
Q. 14
Which statement(s) best describe the difference between futures and forward contracts?
I. Futures contracts are traded on organized exchanges, while forward contracts are privately negotiated
between two parties.
II. Futures contracts have standardized terms and are settled daily, while forward contracts have
customized terms and are settled at the end of the contract.
III. Futures contracts are more commonly used for speculative purposes, while forward contracts are
primarily used for hedging.
[A] Only I
[B] I & II
[C] I, II & III
[D] I & III
Answer: C
AFM – Module C– JAIIB 2025
Q. 15
What is the strategy called when John takes advantage of a price difference between two
dealers in the foreign exchange market by buying dollars from Dealer A at Rs 75 per
dollar and selling them to Dealer B at Rs 75.10 per dollar?
[A] Arbitrage
[B] Speculation
[C] Long position
[D] Short position
Answer: Option A
AFM – Module C– JAIIB 2025
Q. 16
Calculate Capital Employed in the company: Profit Before Interest and Tax = Rs. 50,00,000
ROI = 25%
[A] 20,00,000
[B] 2,00,00,000
[C] 1,00,00,000
[D] 80,00,000
Answer: Option B
AFM – Module C– JAIIB 2025
Q. 17
What is the primary motive for Alpha Corporation to enter into this interest rate swap
agreement?
[A] Hedge against interest rate risk
[B] Speculate on future interest rate movements
[C] Reduce its borrowing costs
[D] Generate additional income from the swap
Answer: Option A
AFM – Module C– JAIIB 2025
Q. 18
Which of the following statements about bond valuation is/are correct?
A. When the required rate of return is greater than the coupon rate, the bond will sell at a discount.
B. For a given YTM change, bonds with lower coupon rates experience greater price changes.
C. Bond prices react asymmetrically to equal increases and decreases in yield to maturity.
D. When a bond is priced at par, the YTM is lower than the coupon rate.
Choose the correct option:
a) A and D only
b) A, B, and C only
c) B, C, and D only
d) A, B, C, and D
Correct Answer: b) A, B, and C only
AFM – Module C– JAIIB 2025
Q. 19
The duration of a bond is ____________
a. the holding period for which interest rate risk disappears
b. the period remaining for the maturity
c. the period for which the bond has been issued
d. the gap between two interest payments
Answer: Option A
AFM – Module C– JAIIB 2025
Q. 21
X invested Rs. 5,000 in a fixed deposit account for 3 years at an annual interest rate of
6%. Calculate the compound interest and simple interest earned on the investment.
What is the difference between compound interest and simple interest?
[A] CI = 955; SI = 900; Difference = 55
[B] CI = 950; SI = 900; Difference = 50
[C] CI = 945; SI = 900; Difference = 45
[D] CI = 940; SI = 900; Difference = 40
Answer: Option A
AFM – Module C– JAIIB 2025
Q. 21.
Explanation:
Step 1: Calculate Simple Interest (SI):
SI = 5000 * 6/100 * 3SI = 5000 * 18/100 = 900
Step 2: Calculate Compound Interest (CI):
CI = 5000 * (1 + 6/100) ^ 3 - 5000CI = 5000 * (1 + 6/100) ^ 3 - 5000CI = 5000 * (106/100) ^
3 - 5000
Simplify:CI = 5000 * (1.06 * 1.06 * 1.06) - 5000CI = 5000 * 1.191016 - 5000CI = 5955.08 -
5000 = 955.08
Step 3: Calculate Difference:
Difference = CI - SIDifference = 955 - 900 = 55
AFM – Module C– JAIIB 2025
Q. 22
Which of the following investors take maximum risks compared to others?
[A] Equity Share Capital
[B] Debt Share Capital
[C] Preference share capital
[D] Deferred share Capital
Answer: Option A
AFM – Module C– JAIIB 2025
Q. 23
A company is considering a project with an initial investment of ₹10,000 and expected cash
inflows of ₹4,000 per year for five years. The company's required rate of return is 10%. What is
the statement about NPV that is NOT true?
[A] NPV considers the time value of money by discounting future cash flows to their present
value.
[B] A positive NPV indicates that the project is expected to generate a return that exceeds the
required rate of return.
[C] NPV can be used to compare different investment options with varying initial investments and
cash flow patterns.
[D] A higher required rate of return will always result in a lower NPV for the same project.
Answer: Option D
AFM – Module C– JAIIB 2025
Q. 24
Which of the following statements is NOT a characteristic of a finance lease?
[A] The lease term covers a major part of the economic life of the asset.
[B] The present value of the minimum lease payments is at least equal to the fair value of
the leased asset.
[C] The lessee bears the risks and rewards associated with ownership of the asset.
[D] The lease agreement does not include a bargain purchase option at the end of the
lease term.
Solution: D
AFM – Module C– JAIIB 2025
Q. 25
What is the key difference between a wet lease and a dry lease?
[A] In a wet lease, the lessor operates the equipment, while in a dry lease, the lessee
operates the equipment.
[B] In a wet lease, the lessee is responsible for insurance and maintenance, while in a dry
lease, the lessor is responsible for these functions.
[C] In a wet lease, the lessor is responsible for insurance and maintenance, while in a dry
lease, the lessee is responsible for these functions.
[D] In a wet lease, both the lessor and lessee share responsibility for operating the
equipment, while in a dry lease, only the lessor is responsible for operating the
equipment.
Answer: Option C
AFM – Module C– JAIIB 2025
Q. 26
What does Working Capital Management primarily involve?
[A] Managing long-term investments in fixed assets
[B] Managing the company's short-term liabilities
[C] Managing the company's day-to-day operational expenses
[D] Managing the company's overall capital structure
Answer: Option C
AFM – Module C– JAIIB 2025
Q. 27
Which of the following statements is TRUE about Yield to Maturity (YTM)?
[A] It is the simple interest rate earned on a bond held until maturity.
[B] It is the internal rate of return (IRR) that equates the present value of all future cash
flows from a bond to its current market price.
[C] It is always higher than the coupon rate of the bond.
[D] It can be calculated directly using a simple formula with the bond's face value,
maturity date, and coupon rate.
Answer: Option B
AFM – Module C– JAIIB 2025
Q. 28
Calculate the approximate forward points for a given forward period with the help of
the following information: Spot exchange rate = 1.5000 Interest rate differential = 3%
per annum Forward period = 90 days No. of days in an year (360 or 365) = 360 days
A) 0.01266
B) 0.01125
C) 0.01762
D) 0.07662
Answer: B
AFM – Module C– JAIIB 2025
Q. 28
AFM – Module C– JAIIB 2025
Q. 29
A high inventory turnover ratio indicates:
[A] Efficient inventory management
[B] Poor liquidity
[C] Decreased profitability
[D] High debt levels
Answer: A
AFM – Module C– JAIIB 2025
Q.30
A firm starts its business by raising total long-term funds of 500 lakh; to meet its
requirements
1. Equiry capital = 200 lakh
2. Debr capital = 300 lakh
What is the Capital structure of the firm?
[A] 60% Equity 30% Debt
[B] 70% Equity 30 % Debt
[C] 60% Debt 40% Equity
[D] 60% Debt 40% Retained Earning
Answer: C
AFM – Module C– JAIIB 2025
Q.31
What is the primary concept behind "Trading on Equity"?
[A] Deploying borrowed funds at a cost higher than the return generated.
[B] Utilizing equity capital to borrow funds at the same cost.
[C] Deploying borrowed funds at a cost lower than the return generated.
[D] Maximizing equity capital without considering the cost of borrowing.
Answer: Option C
AFM – Module C– JAIIB 2025
Q.32
Which of the following statements is/are not correct for Net Income Approach?
I. Net Income Approach is given by David Durand
II. Cos of debt and equity remain same irrespective of capital structure.
III. Overal cost of capital (WACC) remains constant with increase in proportion of debt.
IV. The value of firm decreased with a higher debt proportion.
[A] I & IV
[B] III & IV
[C] I, II, IV
[D] I & II
Answer: D
AFM – Module C– JAIIB 2025
Q.33
XYZ Company is evaluating a new project with the following details:
Initial outlay: Rs. 2,00,000
Expected annual revenue: Rs. 60,000
Expected annual operating expenses: Rs. 30,000
Project duration: 5 years
Corporate tax rate: 25%
What is the Profit After Tax for this project?
[A] Rs. 7,500
[B] Rs. 30,000
[C] Rs. 22,500
[D] None of the above Answer:C
AFM – Module C– JAIIB 2025
Q.33
Explanation:
Step 1: Calculate the annual profit before tax (PBT). Annual PBT = Annual Revenue -
Annual Operating Expenses Annual PBT = Rs. 60,000 - Rs. 30,000 Annual PBT = Rs. 30,000
Step 2: Calculate the annual tax amount. Annual Tax = Annual PBT × Corporate Tax Rate
Annual Tax = Rs. 30,000 × 25% Annual Tax = Rs. 7,500
Step 3: Calculate the annual Profit After Tax (PAT). Annual PAT = Annual PBT - Annual Tax
Annual PAT = Rs. 30,000 - Rs. 7,500 Annual PAT = Rs. 22,500
AFM – Module C– JAIIB 2025
Q.34
Select the features that accurately capture the nature of the Deferred Payment
Guarantee:
1. Ensures upfront payment before the delivery of goods or services.
2. Fund-based method of financing.
3. The risk involved is less than the risks in a term loan.
4. The appraisal process is the same as that of a term loan.
[A] 4 only
[B] 1 and 3 only
[C] 1, 2, and 4 only
[D] 1, 2, and 3 only
Answer: A
AFM – Module C– JAIIB 2025
Q.35
ABC Company is evaluating a new project with the following details:
Initial investment: Rs. 100,000
Expected annual cash flows: Rs. 30,000
Project duration: 5 years Payback period is-
[A] 3.3 years
[B] 3.1 years
[C] 2.8 year
[D] 2.2 years
Answer: A
AFM – Module C– JAIIB 2025
Q. 36
Assess the accuracy of the following statements in describing the purpose and
characteristics of sinking funds in financial management.
[A] Sinking funds are specifically earmarked investments that are accumulated for the
purpose of redeeming long-term debt or replacing fixed assets.
[B] Sinking funds are a type of reserve created by investing in securities to cover
unexpected expenses or losses.
[C] Sinking funds are reserves set aside to finance expansion projects and strategic
initiatives undertaken by a company.
[D] Sinking funds are accumulated to meet the short-term working capital requirements
of a business.
Answer: Option A
AFM – Module C– JAIIB 2025
Q. 37
If the USD/INR exchange rate is 75.50, what is the INR/USD exchange rate?
[A] 0.0132
[B] 0.0133
[C] 0.0134
[D] 0.0135
Answer: Option a
AFM – Module C– JAIIB 2025
Q. 38
Which of the following assumptions is wrong in NPV and IRR methods?
[A] That the sums of money, resulting from an investment, that accrue in future, are
known with certainty.
[B] That there is no inflation.
[C] Both A & B
[D] None of the above
Answer: Option D
AFM – Module C– JAIIB 2025
Q. 39
Which of the following statements regarding Documented Payment Guarantee (DPG) is
correct?
[A] DPG is a fund-based method for financing the purchase of fixed assets.
[B] In DPG, the bank does not guarantee the repayment schedule.
[C] If the purchaser defaults in payment, the bank is not obligated to pay the supplier.
[D] The risks involved in DPG are same from those in a term loan.
Answer D
AFM – Module C– JAIIB 2025
Q. 40
What is the primary purpose of syndication in banking?
[A] To compete for small-scale loans
[B] To share the risk associated with large loans
[C] To charge higher interest rates to borrowers
[D] To streamline the loan approval process
Answer: B
AFM – Module C– JAIIB 2025
Q. 41
When determining the cost of preference capital using the Yield to Maturity (YTM)
formula, which of the following statements is correct?
[A] The cost of preference capital is tax-deductible.
[B] Preference capital carries a variable rate of interest.
[C] In case of liquidation, preference capital holders have priority after unsecured
creditors
[D] The YTM formula for preference capital is different from the formula used for bonds
and debentures.
Answer: Option C
AFM – Module C– JAIIB 2025
PYQ
Q. 42
____________ is a derivative product whose maturity and size of these products are
standardized by the Exchange.
[A] Over-the-counter (OTC) derivatives
[B] Stock Exchange
[C] Exchange-traded derivatives:
[D] None of the above
Answer: C
AFM – Module C– JAIIB 2025
PYQ
Q. 43
Which of the following statements is correct for "Firms own working capital funds"?
[A] Firms own working capital fund represents the amount to be brought in by the firm
through its own long term sources
[B] Financing some part of working capital through long-term sources brings the problem
of a liquidity crunch
[C] Bankers in India expect a minimum of 10% of the total current assets should be
financed through long-term sources
[D] Firms own working capital fund represents the amount to be brought in by the firm
through its own short term sources
Answer: A
AFM – Module C– JAIIB 2025
Q. 43
What does it mean when the purchase of book debts/receivables is done "without
recourse" to the client?
[A] The client is fully liable for the payment even if the buyer defaults
[B] The client is not liable for the payment if the buyer defaults.
[C] The client has the option to dispute the payment if the buyer defaults.
[D] The client's liability depends on the credit worthiness of the buyer.
Answer: B
AFM – Module C– JAIIB 2025
Q. 44
Which of the following statements is/are correct for commercial paper ?
I) Commercial paper (CP) is an unsecured money market instrument
II) It introduced in India in 1990
III) The cost of borrowing through CP is generally lower as compared to other methods
IV) CP should be issued in denominations of 5 lakh and multiples thereof
[A] I & II
[B] I & III
[C] I, II, III
[D] I, II, III, IV
Answer: D
AFM – Module C– JAIIB 2025
Q. 45
Leasing offers the advantage of passing which risk to the lessor?
[A] Credit risk
[B] Obsolescence risk
[C] Market risk
[D] Inflation risk
Answer: Option B
AFM – Module C– JAIIB 2025
Q. 46
An operating cycle is the time between the acquisition of assets and _________.
a) Their realization as cash or cash equivalents.
b) Their sale.
c) Their conversion into final goods.
d) Their conversion into Work-In-Progress.
Answer: A
AFM – Module C– JAIIB 2025
Q. 47
Which among the following statements are correct about the asset classification norms
for banks?
I. Securities ‘held for trading’ are to be sold within 90 days.
II. The securities ‘held to maturity’ need not be marked to market.
III. Securities ‘held to maturity’ should not exceed 20% of the total investments.
IV. Mutual Units are classified as non-SLR investments.
a) II, III and IV
b) I, II and IV
c) I, II and III
d) I, III and IV
Answer: B
AFM – Module C– JAIIB 2025
Q. 48
Compound interest for one year is calculated with the help of which of the following
formulas in case the interest is compounded quarterly?
a) P(1+r)
b) P(1+r)4
c) P(1+r/2)2
d) P(1+r/4)4
Answer: D
AFM – Module C– JAIIB 2025
Q. 49
What is the required rate of return on the company’s equity, if the expected return on
portfolio of equity shares is 12% p.a. (risk free return is 9% p.a. and the beta of
company’s share price is 1)?
a) 15%
b) 20%
c) 12%
d) 8%
Answer: C
AFM – Module C– JAIIB 2025
Q. 49
Explanation
The required rate of return on the company's equity can be calculated using the Capital
Asset Pricing Model (CAPM):
Required Rate of Return on Equity = Risk-Free Rate + [Beta x (Market Return - Risk-Free
Rate)]
Given:Risk-Free Rate = 9%, Beta = 1, Market Return = 12%
Calculation:
Required Rate of Return on Equity = 9% + 1 * (12% - 9%) = 12%
Therefore, the required rate of return on the company's equity is 12%.
Hence option C is correct
AFM – Module C– JAIIB 2025
Q. 50
Choose the incorrect statement:
a) Capital investment decisions are easily reversible
b) Opportunity Cost of inputs is considered in capital investment appraisal
c) Cash flow & profits are different
d) All are true
Answer: A
AFM – Module C– JAIIB 2025
Practice question -
Who is the regulator of Interest rate derivatives, in India?
a. RBI
b. SEBI
c. FMC
d. None of the above
AFM – Module C– JAIIB 2025
Practice question -
Which one of the following is a source of funds?
a. Increase in fixed assets
b. Increase in inventory
c. Increase in current liabilities
d. Decrease in capital