QUESTION PAPER SETS - INDIAN

FINANCIAL SYSTEM
Semester Examination | Total: 5 Complete Sets

GENERAL INSTRUCTIONS
Course: Financial System, Institutions, Services, and Market Services
Duration: 3 Hours
Maximum Marks: 100
Total Questions Per Set: 20 Questions (Varying Difficulty Levels)

Instructions for Answering

1. This question paper consists of four sections, each focusing on different cognitive
objectives (COs).
2. Read the instructions carefully for each section before attempting the questions.
3. Attempt all the questions in the specified sections. Marks for each section are
indicated in parentheses.
4. Ensure that you provide clear and concise answers.
5. Write your enrollment number and registration number on the answer sheet.

Question Paper Structure

Section Type Attempt Marks CO Focus
Section 1 Very Short Answer All 2×10 = 20 CO1 & CO2
Section 2 Short Answer Any 5 4×5 = 20 CO3 & CO4
Section 3 Structured Any 3 3×10 = 30 CO4 & CO5
Section 4 Case Analysis Any 2 2×15 = 30 CO5 & CO6

QUESTION PAPER SET 1

SECTION 1: VERY SHORT ANSWER QUESTIONS – Attempt
All (2×10 = 20 Marks)
CO 1 – Remembering [Define, Recall]
a. Define the Indian Financial System and state its primary objectives.

b. What is a financial institution? Give two examples from India.

CO 2 – Understanding [Discuss, Explain]
c. Explain the relationship between financial system development and economic growth.

d. Discuss the role of the Reserve Bank of India (RBI) as the apex monetary authority.
e. What are the key indicators of financial development? Explain briefly.
f. Describe the concept of risk in financial markets and its types.

g. Define return and yield in the context of financial assets. How are they different?
h. Explain the concept of asset pricing models and their importance in valuation.
i. What is meant by financial inclusion? State its significance for India.

j. Discuss the concept of non-performing assets (NPAs) in the banking sector.

SECTION 2: SHORT ANSWER QUESTIONS – Attempt any

Five (4×5 = 20 Marks)
CO 3 – Applying [Apply, Solve]
a. An investor wants to select between two securities with different risk-return profiles.
How would you guide the investment decision using asset pricing principles?
b. A company requires short-term financing for working capital. Which financial service
would be most appropriate – bills discounting or factoring? Justify your answer.

CO 4 – Analysing [Analyze, Examine]

c. Analyze the role of the Insurance Regulatory & Development Authority (IRDA) in
regulating the insurance sector. What are the key regulatory functions it performs?
d. Examine the functions of the Stock Exchange Board of India (SEBI) in ensuring market
transparency and investor protection.

e. Compare and contrast the roles of banking and non-banking financial institutions in the
Indian financial system.
f. Analyze the significance of derivatives market in managing financial risks. Provide
examples of different types of derivatives.
g. Examine the impact of foreign exchange market volatility on Indian exporters and
importers.
SECTION 3: STRUCTURED QUESTIONS – Attempt any
Three (3×10 = 30 Marks)
CO 4 – Analysing [Analyze, Examine]
a. The Indian financial system comprises multiple institutions and markets working in
coordination. Discuss the various components of the financial system, their functions, and
how they contribute to economic development. (10 marks)
b. The bond market serves as a critical avenue for both government and corporate
financing. Explain the features of bonds, discuss bond price volatility, and differentiate
between government securities and corporate bonds. (10 marks)

CO 5 – Evaluating [Evaluate, Critique]

c. Microfinancing has emerged as a powerful tool for financial inclusion in India. Critically
evaluate the role of microfinance institutions in providing services to the unbanked
population and discuss the challenges they face. (10 marks)
d. Leasing and hire purchase are alternative financing methods to traditional loans.
Evaluate the advantages and disadvantages of these services for both lessors and lessees.
(10 marks)

SECTION 4: CASE ANALYSIS/SITUATION BASED

QUESTIONS – Attempt any Two (2×15 = 30 Marks)
CO 5 – Evaluating [Evaluate, Critique]

a. A small manufacturing firm in rural India is struggling to secure working capital

financing from traditional banks due to lack of collateral and credit history. Using your
knowledge of financial services and microfinancing:
Identify the appropriate financial service(s) that could help this firm.
Discuss how factoring or bill discounting could be utilized.
Evaluate the role of microfinance institutions in bridging this financing gap.
What regulatory framework (PFRDA, SEBI, RBI guidelines) would be applicable?
(15 marks)

CO 6 – Creating [Create, Design, Develop, Formulate, Write]

b. You are a financial advisor appointed to help an individual investor develop a diversified
investment portfolio. The investor has ₹50 lakhs to invest and wants exposure to bonds,
equities, and derivatives for hedging.
Design a portfolio allocation strategy considering risk-return trade-off.
Explain how you would use the Capital Asset Pricing Model (CAPM) to determine
required returns.
Suggest specific financial market instruments (government securities, corporate
bonds, stocks, futures/options) that could be included.
Develop a risk management strategy using derivatives.
 Create a monitoring and rebalancing plan for the portfolio.
(15 marks)

CO 6 – Creating [Create, Design, Develop, Formulate, Write]

c. A multinational company operates in India and faces significant foreign exchange risk
due to volatile currency markets. Design a comprehensive foreign exchange risk
management strategy:
Identify the different types of FX risks the company faces.
Propose hedging techniques using forward contracts, options, and swaps.
Design a policy framework for managing FX exposures.
Develop standard operating procedures for executing hedging strategies.
Create a monitoring mechanism to track FX positions and exposures.

(15 marks)

QUESTION PAPER SET 2

SECTION 1: VERY SHORT ANSWER QUESTIONS – Attempt
All (2×10 = 20 Marks)
CO 1 – Remembering [Define, Recall]
a. Define "financial system" and list its main components in the Indian context.

b. What is a stock exchange? Name the two primary stock exchanges in India.
CO 2 – Understanding [Discuss, Explain]
c. Explain how financial system facilitates economic development.

d. Discuss the role of the Pension Fund Regulatory & Development Authority (PFRDA) in
India.
e. What are financial markets? Explain the difference between money market and capital
market.
f. Describe the concept of valuation of assets and its methods.

g. Define "return on investment" and explain how it relates to risk.

h. What is meant by "forward market" and what is its significance?
i. Explain the concept of venture capital financing and its role in startup ecosystem.

j. Discuss the regulatory framework for mutual fund services in India.

SECTION 2: SHORT ANSWER QUESTIONS – Attempt any
Five (4×5 = 20 Marks)
CO 3 – Applying [Apply, Solve]
a. A bank receives a bill of exchange worth ₹10 lakhs with 90 days maturity. How can it use
bill discounting to meet its liquidity requirements?

b. An exporter faces a payment risk when goods are shipped on credit terms. How can
forfeit services help mitigate this risk?
CO 4 – Analysing [Analyze, Examine]
c. Analyze the structure and functions of the Clearing Corporation of India Ltd (CCIL). What
role does it play in ensuring financial market stability?

d. Examine the difference between equity shares and bonds as investment instruments in
terms of risk, return, and regulatory requirements.
e. Compare the roles of banking institutions and non-banking financial companies
(NBFCs) in the Indian financial system.
f. Analyze the concept of foreign direct investment (FDI) and its impact on the Indian
economy.

g. Examine how the derivatives market helps in price discovery and risk management.

SECTION 3: STRUCTURED QUESTIONS – Attempt any

Three (3×10 = 30 Marks)
CO 4 – Analysing [Analyze, Examine]
a. The Indian insurance sector is a vital component of the financial system. Discuss the
various types of insurance services available, the regulatory role of IRDA, and how
insurance promotes financial stability. (10 marks)
b. Derivatives markets have become increasingly important in modern finance. Explain
the different types of derivatives, their pricing mechanisms, and applications in hedging.
(10 marks)

CO 5 – Evaluating [Evaluate, Critique]

c. Housing finance is critical for economic development and social welfare in India.
Evaluate the role of housing finance institutions, discuss the challenges in the sector, and
assess policy measures needed for improvement. (10 marks)
d. Mutual funds have democratized investment in securities market. Critically evaluate the
advantages and disadvantages of mutual fund investments for retail investors. (10 marks)
SECTION 4: CASE ANALYSIS/SITUATION BASED
QUESTIONS – Attempt any Two (2×15 = 30 Marks)
CO 5 – Evaluating [Evaluate, Critique]
a. ABC Finance Limited is an NBFC providing consumer credit. However, it faces challenges
from rising non-performing assets (NPAs) and regulatory compliance issues:

Evaluate the regulatory framework applicable to NBFCs under RBI guidelines.

Assess the reasons for increasing NPAs and their impact on financial stability.
Discuss the risk management practices that should be implemented.
Evaluate the role of credit rating institutions in assessing NBFC creditworthiness.
What measures should the company adopt for better asset quality?
(15 marks)
CO 6 – Creating [Create, Design, Develop, Formulate, Write]

b. You are a financial architect tasked with designing a comprehensive financial inclusion
program for a remote region:
Create a strategy combining banking services and microfinance.
Design a product mix including savings accounts, microloans, and insurance
services.
Develop a delivery mechanism using both physical branches and digital banking.
Formulate a sustainability model for the program.
Create performance metrics to measure financial inclusion success.
(15 marks)

CO 6 – Creating [Create, Design, Develop, Formulate, Write]

c. A securities trading firm wants to establish an options hedging strategy for institutional
clients:
Design an options strategy (call spreads, put spreads, straddles) for different market
outlooks.
Create a detailed pricing model for valuing these options.
Develop a risk management framework for the options portfolio.
Design an execution and settlement procedure.
Create a client education material on options trading.

(15 marks)

QUESTION PAPER SET 3

SECTION 1: VERY SHORT ANSWER QUESTIONS – Attempt
All (2×10 = 20 Marks)
CO 1 – Remembering [Define, Recall]
a. What is monetary policy? State the tools used by RBI for monetary policy
implementation.

b. Define "financial markets" and classify them based on maturity.

CO 2 – Understanding [Discuss, Explain]
c. Explain the functions of financial institutions in the Indian economy.

d. Discuss the role of SEBI in regulating capital markets and protecting investors.
e. What are the key features of government securities? Explain their importance.
f. Describe different types of mutual fund schemes available to investors.

g. Define "bill discounting" and explain how it benefits both banks and customers.
h. Explain the concept of hire purchase and its advantages over traditional loans.
i. What is meant by financial deepening? Discuss its indicators.

j. Explain the concept of credit rating and its significance in bond markets.

SECTION 2: SHORT ANSWER QUESTIONS – Attempt any

Five (4×5 = 20 Marks)
CO 3 – Applying [Apply, Solve]
a. A merchant bank is approached by a company for advice on raising capital. Which
financial services would you recommend and why?
b. An importer faces foreign exchange risk due to an upcoming payment in US dollars.
Design a hedging strategy using forward contracts.

CO 4 – Analysing [Analyze, Examine]

c. Analyze the role of the National Securities Depository Limited (NSDL) and Securities
Trading Corporation of India Ltd (STCI) in the financial system.
d. Examine how the Public Sector Undertaking (PSU) bonds combine safety and return.
What regulatory oversight applies?

e. Compare the features of bank deposits and insurance products from a financial stability
perspective.
f. Analyze the impact of foreign capital flows (FDI and FII) on the Indian financial markets.
g. Examine the pricing mechanisms for financial derivatives and their role in efficient
market functioning.
SECTION 3: STRUCTURED QUESTIONS – Attempt any
Three (3×10 = 30 Marks)
CO 4 – Analysing [Analyze, Examine]
a. The capital and money markets serve different purposes in the financial system. Analyze
the characteristics, instruments, participants, and regulatory framework of both markets.
How do they complement each other? (10 marks)
b. Financial services have evolved to meet diverse customer needs. Analyze leasing, hire
purchase, and factoring services—their features, applications, and impact on corporate
finance. (10 marks)

CO 5 – Evaluating [Evaluate, Critique]

c. The banking sector faces challenges from technological disruption and changing
customer preferences. Critically evaluate the role of traditional banks versus fintech in
delivering banking services and suggest adaptation strategies. (10 marks)
d. Foreign exchange markets are essential for international trade and capital flows.
Evaluate the mechanisms for managing FX risk, the role of central banks, and the
implications of currency volatility. (10 marks)

SECTION 4: CASE ANALYSIS/SITUATION BASED

QUESTIONS – Attempt any Two (2×15 = 30 Marks)
CO 5 – Evaluating [Evaluate, Critique]

a. A government initiative aims to increase insurance penetration in India. Evaluate the

challenges faced by insurance companies:
Assess the competitive landscape and pricing pressures.
Evaluate the role of IRDA in ensuring consumer protection.
Discuss the impact of regulatory requirements on profitability.
Analyze the potential of digital distribution channels.
What strategies should insurers adopt for sustainable growth?
(15 marks)

CO 6 – Creating [Create, Design, Develop, Formulate, Write]

b. You are developing a bond market strategy for an institutional investor with ₹100 crores
to deploy:
Design a bond portfolio allocation across government securities, PSU bonds, and
corporate bonds.
Create a duration and convexity strategy to manage interest rate risk.
Develop a credit analysis framework for corporate bond selection.
Design an execution strategy considering market liquidity.
Create a performance monitoring system with KPIs.
(15 marks)
CO 6 – Creating [Create, Design, Develop, Formulate, Write]

c. Design a comprehensive merchant banking service offering for multinational

corporations entering India:
Create a service portfolio including capital raising, M&A advisory, and FX
management.
Develop client onboarding and relationship management processes.
Design pricing models for different services.
Formulate a compliance and regulatory framework.
Create a 5-year business development strategy.
(15 marks)

QUESTION PAPER SET 4

SECTION 1: VERY SHORT ANSWER QUESTIONS – Attempt
All (2×10 = 20 Marks)
CO 1 – Remembering [Define, Recall]
a. Define the term "financial intermediation" and give examples of financial
intermediaries.
b. What is meant by "Discount and Finance House of India Limited"? State its primary
functions.

CO 2 – Understanding [Discuss, Explain]

c. Explain the structure of the Indian financial system and its key components.
d. Discuss the role of Forward Market Commission (FMC) in regulating commodity and
derivatives trading.

e. What are non-banking financial institutions? Give examples and explain their
significance.
f. Describe the concept of systemic risk in the financial system.
g. Define "yield curve" and explain its significance for bond investors.

h. Explain the concept of swap transactions and their applications.

i. What is financial development? Discuss its relationship with economic growth.
j. Explain the regulatory structure for pension funds in India under PFRDA.
SECTION 2: SHORT ANSWER QUESTIONS – Attempt any
Five (4×5 = 20 Marks)
CO 3 – Applying [Apply, Solve]
a. A venture capital firm is evaluating startup investments with high risk-return profiles.
How would you structure the investment to manage risks?

b. A small retail chain requires expansion capital. Which financial service—leasing or hire
purchase—would be more suitable for acquiring retail fixtures?
CO 4 – Analysing [Analyze, Examine]
c. Analyze the functions of the Discount and Finance House of India Limited in the money
market and its impact on credit management.

d. Examine the role of the Clearing Corporation in ensuring settlement finality and
reducing counterparty risk.
e. Compare bond features such as coupon, maturity, credit rating, and their impact on
pricing.
f. Analyze the role of interest rates in determining asset prices and financial market
dynamics.

g. Examine the mechanisms of foreign direct investment (FDI) and foreign institutional
investment (FII) in India.

SECTION 3: STRUCTURED QUESTIONS – Attempt any

Three (3×10 = 30 Marks)
CO 4 – Analysing [Analyze, Examine]
a. Financial services have diversified to meet various customer needs. Analyze the different
types of fund-based and non-fund-based services, their characteristics, regulatory
framework, and role in economic development. (10 marks)
b. The government securities market is fundamental to monetary policy implementation.
Analyze the characteristics of government securities, their valuation, market dynamics,
and the regulatory role of RBI. (10 marks)

CO 5 – Evaluating [Evaluate, Critique]

c. Venture capital financing plays a crucial role in nurturing innovation and
entrepreneurship. Evaluate the advantages and challenges of venture capital funding, the
role of various regulatory bodies, and policy measures needed for sector growth. (10 marks)
d. Stock market derivatives provide investors with powerful tools for speculation and
hedging. Critically evaluate their benefits and risks, and discuss regulatory safeguards
necessary to prevent market abuse. (10 marks)
SECTION 4: CASE ANALYSIS/SITUATION BASED
QUESTIONS – Attempt any Two (2×15 = 30 Marks)
CO 5 – Evaluating [Evaluate, Critique]
a. A pension fund regulator is designing new guidelines for improving retirement savings:

Evaluate the current pension system challenges in India.

Assess the role of PFRDA in regulating pension assets.
Discuss different asset allocation strategies for pension portfolios.
Evaluate the impact of inflation and longevity risks.
What regulatory measures would ensure adequate retirement income?
(15 marks)
CO 6 – Creating [Create, Design, Develop, Formulate, Write]

b. You are tasked with establishing a clearing and settlement system for a new financial
market:
Design the organizational structure and governance framework.
Create detailed settlement procedures and risk management protocols.
Develop a technology infrastructure specification.
Design participant eligibility and margin requirements.
Create a business continuity and disaster recovery plan.
(15 marks)

CO 6 – Creating [Create, Design, Develop, Formulate, Write]

c. A multinational company wants to establish a comprehensive treasury management
program:
Design a cash management strategy across multiple geographies.
Create a liquidity forecasting and management framework.
Develop foreign exchange exposure management policies.
Design investment and working capital optimization strategies.
Create KPIs for measuring treasury performance.

(15 marks)

QUESTION PAPER SET 5

SECTION 1: VERY SHORT ANSWER QUESTIONS – Attempt
All (2×10 = 20 Marks)
CO 1 – Remembering [Define, Recall]
a. Define the concept of "financial system" and list the regulatory agencies in India.

b. What is a commodity exchange? Name one major commodity exchange in India.

CO 2 – Understanding [Discuss, Explain]
c. Explain how the financial system contributes to economic development.

d. Discuss the role of the Reserve Bank of India (RBI) in regulating and supervising
financial institutions.
e. What are the characteristics of capital market securities? Explain the primary and
secondary markets.
f. Describe the concept of value-at-risk (VaR) in portfolio management.

g. Define "securitization" and explain its advantages.

h. Explain the concept of credit derivatives and their application in risk management.
i. What is financial literacy? Why is it important for financial system stability?

j. Discuss the implications of microfinancing for poverty alleviation and economic

inclusion.

SECTION 2: SHORT ANSWER QUESTIONS – Attempt any

Five (4×5 = 20 Marks)
CO 3 – Applying [Apply, Solve]
a. A manufacturing firm needs to manage inventory financing. How would you
recommend factoring or bills discounting and why?
b. An insurance company needs to invest its claim reserves in short-term instruments.
Which money market instruments would you recommend?

CO 4 – Analysing [Analyze, Examine]

c. Analyze the regulatory framework governing NBFCs and explain how it differs from
banking regulation.
d. Examine the features of corporate bonds and their role in corporate capital structure
decisions.

e. Compare the risk-return profiles of different financial market instruments (equity, debt,
derivatives).
f. Analyze how interest rate changes affect asset pricing across different asset classes.
g. Examine the role of rating agencies in reducing information asymmetry in financial
markets.
SECTION 3: STRUCTURED QUESTIONS – Attempt any
Three (3×10 = 30 Marks)
CO 4 – Analysing [Analyze, Examine]
a. The money market comprises various short-term financial instruments. Analyze the
types of money market instruments, their features, purposes, and the role they play in
providing liquidity to the financial system. (10 marks)

b. Financial institutions play a crucial intermediation role in the financial system. Analyze
the different types of financial institutions, their functions, regulatory framework, and
their contribution to financial development. (10 marks)
CO 5 – Evaluating [Evaluate, Critique]
c. Cryptocurrency and fintech are disrupting traditional financial services. Critically
evaluate their impact on banking and financial services delivery, and discuss the
regulatory challenges they pose. (10 marks)

d. The derivatives market has grown exponentially but poses systemic risks. Evaluate the
benefits of derivatives for hedging and speculation, and discuss the regulatory safeguards
needed to manage counterparty and systemic risks. (10 marks)

SECTION 4: CASE ANALYSIS/SITUATION BASED

QUESTIONS – Attempt any Two (2×15 = 30 Marks)
CO 5 – Evaluating [Evaluate, Critique]
a. A large bank is facing challenges from fintech competition and regulatory changes:
Evaluate the competitive threats from digital payment providers and neo-banks.
Assess the implications of regulatory reforms (Basel III, liquidity requirements).
Discuss the technological transformation needed to remain competitive.
Evaluate the cybersecurity and operational risks introduced by digitalization.
What strategic measures would strengthen the bank's position?

(15 marks)
CO 6 – Creating [Create, Design, Develop, Formulate, Write]
b. Design a comprehensive financial product for rural agricultural finance:

Create a credit product structure with flexible repayment terms aligned to crop
cycles.
Develop a risk assessment framework for agricultural borrowers.
Design insurance coverage for crop failure and price risks.
Create delivery mechanisms through bank branches and microfinance institutions.
Formulate a subsidy and interest rate structure for sustainability.
(15 marks)
CO 6 – Creating [Create, Design, Develop, Formulate, Write]
c. You are establishing a new financial regulatory authority. Design its framework:
Create an organizational structure with appropriate departments and functions.
Develop a regulatory framework for a specific financial sector (banking, insurance,
securities).
Design a compliance and enforcement mechanism.
Create a consumer protection framework and grievance redressal system.
Develop a monitoring and macro-prudential oversight system.

(15 marks)

APPENDIX: QUESTION MAPPING TO

SYLLABUS UNITS
Question Distribution Across Units
Un Q. Sets 1-5
Content Area
it Coverage
Section 1: Q1-10 (All
Un Indian Financial System - Concepts,
sets); Section 3: Q3a
it I Functions, Structure, Development
(All sets)
Section 1: Q4, Q6-10
Un Financial Institutions - RBI, SEBI,
(All sets); Section 2:
it Insurance Regulatory Authority, PFRDA,
Q3d-f (All sets);
II FMC, CCIL, DFHI, NSDL, STCI
Section 3: Q2a, Q3b
Financial Services - Leasing, Hire
Section 2: Q1-2b (All
Un Purchase, Bills Discounting, Factoring,
sets); Section 3: Q2b
it Housing Finance, Insurance, Venture
(All sets); Section 4:
III Capital, Mutual Funds, Banking,
Q1a, Q2b, Q3b
Merchant Banking
Section 1: Q3-5 (All
Un Financial Market Services - Bonds,
sets); Section 2: Q1a-
it Derivatives, FX Market, Capital & Money
f (All sets); Section 3:
IV Markets
Q1a, Q2a (All sets)
Cognitive Level Mapping
CO1 & CO2 (Section 1): Fundamental knowledge and understanding
CO3 & CO4 (Section 2): Application and analysis skills
CO5 (Section 3): Evaluation and critical thinking
CO6 (Section 4): Creative design and formulation skills

ANSWER GUIDANCE NOTES

Marking Rubric (General Guidelines)
Very Short Answer Questions (2 marks)
Definition/Concept: 1 mark
Explanation/Example: 1 mark

Short Answer Questions (4 marks)

Understanding/Analysis: 2 marks
Application/Relevant Points: 2 marks

Structured Questions (10 marks)

Introduction/Context: 2 marks
Analysis/Explanation: 4 marks
Critical Evaluation: 2 marks
Conclusion: 2 marks

Case Analysis Questions (15 marks)

Problem Understanding: 2 marks
Analysis Framework: 3 marks
Solutions/Recommendations: 5 marks
Implementation Plan: 3 marks
Conclusion/Justification: 2 marks

Document Prepared: December 2025

Syllabus Compliance: All 4 Units Covered
Total Question Papers: 5 Complete Sets
Question Distribution: Balanced across all cognitive levels and syllabus units