Logo

BBS Management of Financial Institutions

bbsfourth year
Chapter Wise NotesQuestion BanksSyllabusChapter Wise Questions

BBS Fourth Year Management of Financial Institutions Question Paper 2082 (TU) – Solved

tu-logo

Faculty of Management

2082

Bachelor of Business Studies

Management of Financial Institutions

FIN 255

Full Marks: 100

Candidates are required to give their answers in their own words as far as practicable. The figures in the margin indicate full marks.

"Section A"

Brief Answer Questions : Attempt all questions .

[10*2=20 ]

1.

Write the meaning of financial markets.

[2]
2.

What do you mean by the expectation theory of interest rate?

[2]
3.

Write down open market operations tools used by Nepal Rastra Bank.

[2]
4.

What are the two major liabilities of the commercial banks?

[2]
5.

State the meaning of group lending.

[2]
6.

What do you mean by cooperatives?

[2]
7.

Write the types of insurance business in Nepal.

[2]
8.

The real risk-free rate is 2%. Inflation is expected to be 2% this year and 4% during the next 2 years. Assume that the maturity risk premium is zero. What is the yield on 2-year Treasury securities?

[2]
9.

An investor purchases a mutual fund share for Rs 200. The fund pays dividends of Rs 4, distributes a capital gain of Rs 5, and charges a fee of Rs 3 when the fund is sold one year later for Rs 210. What is the net rate of return from this investment?

[2]
10.

The current one-year Treasury bill rate is 5 percent, and the expected one-year rate one year from now is 6 percent. According to the unbiased expectations theory, what should be the current rate for a two-year Treasury security?

[2]

"Section B"

Descriptive Answer Questions : Attempt any FIVE questions .

[5*10=50 ]

1.

Explain the concept and key principles of microfinance.

[10]
2.

Explain the rational of growing cooperatives in Nepal.

[10]
3.

Suppose, you deposit Rs 15,000 annually into a provident fund for the next 10 years after which time you plan to retire.

a. If the deposit are made at the beginning of the year and earn an interest rate of 10 percent, what will be the amount of retirement funds at the end of year 10?

 b. Instead of a lump sum, you want to receive annuities for the next 20 years (year 11 through 30). What is the constant annual payment you expect to receive at the beginning of each year if you assume an interest rate of 10 percent during the distribution period? c. What implications you find from above calculations to derive benefits from provident fund? Explain.

[10]
4.

Suppose that a mutual fund has the following assets and liabilities

Asset/Liability Rs
Stock (at current market value) 20,000,000
Bonds (at current market value) 10,000,000
Cash 500,000
Total value of assets 30,500,000
Less: Liabilities 300,000
Net worth 30,200,000

Number of outstanding shares: 1 million

a. What is the net asset value (NAV)?

 b. If the value of stock held in portfolio rises by 10% and value of bond held in the portfolio falls by 2%, and cash and liabilities remain the same, what will be net asset value?

 c. What will be the yield on your investment in the mutual fund if you purchase the mutual fund unit at NAV calculated in part 'a' and sell the unit at NAV calculated in part 'b'?

[10]
5.

Coverall Property and Casualty Co. has the following ratios:

Loss ratio = \( 75.5\ \)

Expense ratio =\( 29.2\% \)

Dividend ratio = \( 1.5\% \)

In addition, the company's net investment income divided by premiums earned was 9.5 percent.

a. Compute the company's combined ratio (after dividends).

b. Compute the company's operating ratio.

c. What do the numbers suggest about the Coverall's profitability?

[10]
6.

Following are the information of a hypothetical commercial bank (Rs in thousands):

Item Rs 30,000
Common Stock Rs 30,000
Perpetual preferred stock 5,000
Surplus 2,000
Undivided profit 100,000
Capital reserves 1,000
Reserves for loan and lease losses 5,000
Subordinated notes and debentures 2,000

a. What is Tier 1 capital, Tier 2 capital, and Total capital?

b. If the bank has total risk weighted assets (in thousands) of Rs 2,840,000, does it have adequate capital under regulatory standard?

c. If risk adjusted assets equal Rs 2,000,000(thousand), is capital 'adequate?

[10]

"Section C"

Analytical Answer Questions ( Attempt any TWO questions.)

[15*2=30 ]

1.

Investment banker is the middlemen between issuing company and investors. In this connection, briefly explain the functions performed by the investment bankers in the Nepalese capital market.

[15]
2.

Consider the following information for two commercial banks.

Particulars Bank Alpha Bank Zebra
Total interest income Rs 710.26 Rs 68,551.40
Total interest expenses 166.62 10,320.62
Investment securities 5,377.62 442,877.57
Net loans and leases 10,510.46 922,619.06
Interest bearing liabilities 15,151.56 1,414,090.10
Total noninterest income 189.12 32,831.80
Total noninterest expense 543.34 41,929.06

a. Calculate net interest margin for each bank.

b. Calculate the spread for each bank.

c. Calculate overhead efficiency of each bank. Interpret the results.

[15]
3.

Suppose the banking system has total deposits of Rs 1,000 billion. Nepal Rastra Bank's required reserve ratio is 4% and Nepal Rastra Bank has announced that the reserve ratio is increases by 1 percent to control the liquidity in the banking system.

a. What will be the required reserves before increasing the reserve ratio?

b. What will be the required reserves after increasing the reserve ratio?

c. What will be the short of reserves after increase in the reserve ratio?

d. What will be the money multiplier before and after increase in the reserve ratio?

e. Calculate the maximum amount of contraction of money supply in the banking system?

[15]