Question 1

Loss assets should be written off. If loss assets are permitted to remain in the books for any reason, ______percent of the outstanding should be provided for.

Accepted Answer

A)  150 
B)  75 
C)  100 
D)  50

Question 2

Satish Dhawan, a veteran fixed income trader is conducting interviews for the post of a junior fixed income trader. He interviewed four candidates Adam, Balkrishnan, Catherine and Deepak and following are the answers to his questions. Question 1: Tell something about Option Adjusted Spread Adam: OAS is applicable only to bond which do not have any options attached to it. It is for the plain bonds. Balkishna: In bonds with embedded options, AS reflects not only the credit risk but also reflects prepayment risk over and above the benchmark. Catherine: Sincespreads are calculated to know the level of credit risk in the bound, OAS is difference between in the Z spread and price of a call option for a callable bond. Deepark: For callable bond OAS will be lower than Z Spread. Question 2 : This is a spread that must be added to the benchmark zero rate curve in a parallel shift so that the sum of the risky bond's discounted cash flows equals its current market price. Which Spread I am talking about? Adam: Z Spread Balkrishna: Nominal Spread Catherine: Option Adjusted Spread Deepark: Asset Swap Spread Question 3 : What do you know about Interpolated spread and yield spread? Adam: Yield spread is the difference between the YTM of a risky bond and the YTM of an on-the-run treasury benchmark bond whose maturity is closest, but not identical to that of risky bond. Interpolated spread is the spread between the YTM of risky bond and the YTM of same maturity treasury benchmark, which is interpolated from the two nearest on-the-run treasury securities. Balkrishna: Interpolated spread is preferred to yield spread because the latter has the maturity mismatch, which leads to error if the yield curve is not flat and the benchmark security changes over time, leading to inconsistency. Catherine: Interpolated spread takes account the shape of the benchmark yield curve and therefore better than yield spread. Deepak: Both Interpolated Spread and Yield Spread rely on YTM which suffers from drawbacks and inconsistencies such as the assumption of flat yield curve and reinvestment at YTM itself. Then Satish gave following information related to the benchmark YTMs:  There is an 8.75% risky bond with a maturity of 2.75% year(s). Its current price is INR102.31, which corresponds to YTM of 8.52%. Compute Yield Spread from the information provided in the vignette:

Accepted Answer

A)  0.13% 
B)  0.00% 
C)  0.36% 
D)  0.27%

Question 3

During FY13, Small Bazar, a leading retail company has sold three of its prime properties for a sum of USD 24 Million. The same had a carrying value of USD 30 Million. Analyst had considered the same as operating income and considered it to be part of operating expenses. However, she realized her mistake and recorded the loss as non-operating loss. Which of the following ratio will not change despite the correction? A) EBITDA Margins B) Interest Coverage C) PAT Margins D) Gross Profit Margin

Accepted Answer

A)  B, C & D 
B)  A, B & C 
C)  B, C 
D)  All Ratios will change

Question 4

Butterfly strategy is a combination of

Accepted Answer

A)  Ladder and Barbell on the same market sides 
B)  Barbell and Bullet on the opposite market sides 
C)  Barbell and Bullet on the same market sides 
D)  Ladder and barbell on the opposite market sides

Question 5

Which of the following statements concerning having a CEO serve as chairman of the board is most accurate? Having a CEO also serve as chairman is considered:

Accepted Answer

A)  poor corporate governance practice as having the CEO server as chairman is an inherent conflict when determining management compensation. 
B)  good corporate governance practice as the CEO is the best person to provide the board with information about the company's strategy and operations. 
C)  cannot be determined 
D)  poor corporate governance practice as having the CEO and chairman serve as separate positions ensures a properly-functioning board.

Question 6

In a weakening economy, which of the following is least accurate?

Accepted Answer

A)  Interest costs go up and create refunding risk for those who have bonds maturing which need to be rolled over. 
B)  Interest costs go up and create rate risk for have bonds maturing which need to be rolled over. 
C)  None of the other options. 
D)  Interest costs go up and create funding risk for those who have borowing plans lined up.

Question 7

Project 1: Company X has a sugar mill at Philadelphia and is replicating same at Toronto. Project 2: Company Y has a sugar mill at Philadelphia and is increasing capacity from 100000 MT to 140000 MT per annum. What type of projects are Project 1 and Project 2?

Accepted Answer

A)  Project 1: Diversification; Project 2: Forward Integration 
B)  Project 1: Expansion; Project 2: Forward Integration 
C)  Project 1: Diversification; Project 2: Expansion 
D)  Project 1: Expansion; Project 2: Expansion

Question 8

Scott is a credit analyst with one of the credit rating agencies in India. He was looking in Oil and Gas Industry companies and has presented brief financials for following 4 entities:  Giving equal weightage to all three ratios, determine which of the above entities should be rated highest on a relative scale.

Accepted Answer

A)  C Ltd 
B)  A Ltd 
C)  D Ltd 
D)  B Ltd

Question 9

Awesome Mobile Ltd is a leading mobile seller who manufactures mobile phone under own brand Awesome. Which of the following is the biggest business risk for Awesome?

Accepted Answer

A)  Technology Risk 
B)  Branding risk 
C)  Raw material price risk 
D)  Competition

Question 10

The longer the term to maturity of bond:

Accepted Answer

A)  term to maturity and price of a bond are not related 
B)  The lesser is the risk associated with price of a bond 
C)  The higher is the return from the bond 
D)  The more risk in the price of a bond

Question 11

In an industry there are only 20 firms and each of them has equal share. Compute Herfindahl Hirschman Index and state the level of concentration in the industry.

Accepted Answer

A)  HHI = 500; High Concentration 
B)  HHI = 8000; low Concentration 
C)  HHI = 8000; High Concentration 
D)  HHI = 500; Low Concentration

Question 12

Satish Dhawan, a veteran fixed income trader is conducting interviews for the post of a junior fixed income trader. He interviewed four candidates Adam, Balkrishnan, Catherine and Deepak and following are the answers to his questions. Question 1: Tell something about Option Adjusted Spread Adam: OAS is applicable only to bond which do not have any options attached to it. It is for the plain bonds. Balkishna: In bonds with embedded options, AS reflects not only the credit risk but also reflects prepayment risk over and above the benchmark. Catherine: Sincespreads are calculated to know the level of credit risk in the bound, OAS is difference between in the Z spread and price of a call option for a callable bond. Deepark: For callable bond OAS will be lower than Z Spread. Question 2 : This is a spread that must be added to the benchmark zero rate curve in a parallel shift so that the sum of the risky bond's discounted cash flows equals its current market price. Which Spread I am talking about? Adam: Z Spread Balkrishna: Nominal Spread Catherine: Option Adjusted Spread Deepark: Asset Swap Spread Question 3 : What do you know about Interpolated spread and yield spread? Adam: Yield spread is the difference between the YTM of a risky bond and the YTM of an on-the-run treasury benchmark bond whose maturity is closest, but not identical to that of risky bond. Interpolated spread is the spread between the YTM of risky bond and the YTM of same maturity treasury benchmark, which is interpolated from the two nearest on-the-run treasury securities. Balkrishna: Interpolated spread is preferred to yield spread because the latter has the maturity mismatch, which leads to error if the yield curve is not flat and the benchmark security changes over time, leading to inconsistency. Catherine: Interpolated spread takes account the shape of the benchmark yield curve and therefore better than yield spread. Deepak: Both Interpolated Spread and Yield Spread rely on YTM which suffers from drawbacks and inconsistencies such as the assumption of flat yield curve and reinvestment at YTM itself. Then Satish gave following information related to the benchmark YTMs:  There is a 10.25% risky bond with a maturity of 4.75 year(s). Its current price is INR105.31, which corresponds to YTM of 9.22%. Compute Interpolated Spread from the information provided in the vignette:

Accepted Answer

A)  0.20% 
B)  0.21% 
C)  0.24% 
D)  0.22%

Question 13

Two economies HardLand and SincereLand have provided following information with respect to their economies in USD Billion:  Based on the above information which entity is better in terms of current account deficit %?

Accepted Answer

A)  Sincereland by 583 bps 
B)  Hardland by 56 bps 
C)  Sincereland by 56 bps 
D)  Hardland by 583 bps

Question 14

Satish Dhawan, a veteran fixed income trader is conducting interviews for the post of a junior fixed income trader. He interviewed four candidates Adam, Balkrishnan, Catherine and Deepak and following are the answers to his questions. Question 1: Tell something about Option Adjusted Spread Adam: OAS is applicable only to bond which do not have any options attached to it. It is for the plain bonds. Balkishna: In bonds with embedded options, AS reflects not only the credit risk but also reflects prepayment risk over and above the benchmark. Catherine: Sincespreads are calculated to know the level of credit risk in the bound, OAS is difference between in the Z spread and price of a call option for a callable bond. Deepark: For callable bond OAS will be lower than Z Spread. Question 2 : This is a spread that must be added to the benchmark zero rate curve in a parallel shift so that the sum of the risky bond's discounted cash flows equals its current market price. Which Spread I am talking about? Adam: Z Spread Balkrishna: Nominal Spread Catherine: Option Adjusted Spread Deepark: Asset Swap Spread Question 3 : What do you know about Interpolated spread and yield spread? Adam: Yield spread is the difference between the YTM of a risky bond and the YTM of an on-the-run treasury benchmark bond whose maturity is closest, but not identical to that of risky bond. Interpolated spread is the spread between the YTM of risky bond and the YTM of same maturity treasury benchmark, which is interpolated from the two nearest on-the-run treasury securities. Balkrishna: Interpolated spread is preferred to yield spread because the latter has the maturity mismatch, which leads to error if the yield curve is not flat and the benchmark security changes over time, leading to inconsistency. Catherine: Interpolated spread takes account the shape of the benchmark yield curve and therefore better than yield spread. Deepak: Both Interpolated Spread and Yield Spread rely on YTM which suffers from drawbacks and inconsistencies such as the assumption of flat yield curve and reinvestment at YTM itself. Then Satish gave following information related to the benchmark YTMs:  An investor decides to invest in the bond futures and has an outlook that the term structure curve would steepen. What should be his trading strategy?

Accepted Answer

A)  Sell futures on short-maturity underlying, Buy futures on long-maturity underlying 
B)  Buy futures on short-maturity underlying, Buy futures on long-maturity underlying and Sell futures on middle-maturity underlying 
C)  Buy futures on short-maturity underlying, Sell futures on long-maturity underlying. 
D)  Sell futures on short-maturity underlying, Sell futures on long-maturity underlying and Buy futures on middle-maturity underlying.

Question 15

The following information pertains to bonds:  Further following information is available about a particular bond 'Bond F' There is a 10.25% risky bond with a maturity of 2.25% year(s) its current price is INR105.31, which corresponds to YTM of 9.22%. The following are the benchmark YTMs.  Compute interpolated spread for Bond F based on the information provided in the vignette:

Accepted Answer

A)  1.64% 
B)  0.43% 
C)  0.61% 
D)  1.46%

Question 16

Short term rates are determined by____________

Accepted Answer

A)  All of the other options 
B)  Liquidity position caused by seasonal demand supply for credit 
C)  Foreign portfolio investment inflows and outflows 
D)  Bunching of tax and government payments

Question 17

Change in priority ranking of reference obligations is:

Accepted Answer

A)  Obligation acceleration 
B)  Obligation default 
C)  Restructuring 
D)  Repudiation

Question 18

An increase in the salaries of the bank employees due to new bank employee pay commission implemented by the Central Government will lead to deterioration of which of the following ratios: A: Cost to Income Ratio B: Net Interest Margin C: Core Spread

Accepted Answer

A)  Only A 
B)  A B and C 
C)  Only B 
D)  Only C

Question 19

Following is information related banks: Auckland Ltd is a public sector bank operating with about 120 branches across India. The bank has been in business since 1971 and has about 40% branches in rural areas and about 75% of all branches are in Western India. On the basis of the size, Auckland Ltd will be ranked at number 31 amongst 40 banks in India. Although top management has appointment period of 5 years, generally they retire on ach sieving age of 60 years with an average tenure of only 2 years at the top job. Profit and Loss Account  Balance Sheet   The rating wise break-up of assets for FY11 is as follows:  The ROTA for Auckland deteriorated from ___in FY12 to___ in FY13.

Accepted Answer

A)  0,.7%, 0,3% 
B)  7%; 2% 
C)  2.3%; 0.7% 
D)  1.9%; 0.6%

Question 20

Which of the following shall not be used as a source of information for the credit risk assessment?

Accepted Answer

A)  Annual Report 
B)  Reports issued by brokerages on companies 
C)  Analyst Presentations 
D)  Concall transcripts

Exam 1: Certified Credit Research Analyst