BBS Foundation of Financial Systems

Write the meaning of financial system.

Describe the components of financial system? Explain the current status of financial institutions in Nepal.

What is financial intermediation? Give some example of financial intermediaries in Nepal.

Explain the concept of financial system. What are the major components of Nepalese financial system? Discuss.

What do you mean by indirect process of fund transfer?

Explain the major components of financial system of Nepal.

What do you mean by capital market?

A T-bill with face value Rs 10,000 and 180 days to maturity is selling at Rs 9,750. Calculate annual yield on the T-bill.

Bank ABC has a gap ratio of 18 percent, while that of Bank XYZ is 24 percent. Which bank is more interest rate sensitive?

Assume that the real risk-free rate of interest is currently 2 percent Inflation is expected to be 5 percent this year, 6 percent in the second year

and 7 percent in the third year and thereafter. Assume that the maturity risk premium up to three-year maturity is zero.

a. What is the yield on 2-year Treasury securities?

b. What is the yield on 3-year Treasury securities?

c. If the maturity risk premium on 4- year securities is 0.75 percent, what is the yield on 4-year Treasury securities?

d. What are the possible reasons that yields on long-term securities are usually larger than those of short-term securities?

e. Briefly explain the determinants of interest rates.

What do you mean by capital market?

A T-bill with face value Rs. 10,000 and 180 days to maturity is selling at Rs. 9,700, what will be annual yield on T-bill?

Gap ratio of Bank A and Bank B are 25 and 30 percent respectively. Which bank is more interest rate sensitive?

Assume that it is now January 1, 2022. The rate of inflation is expected to be 5 percent throughout 2022. Investors expect the inflation rate to be

 6 percent in 2023, 7 percent in 2024, and 8 percent in 2025. The real risk-free rate currently is 3 percent. Assume that no maturity risk premium

is required on bonds with 5 years or less to maturity. The current interest rate on 5-year T-bonds is 10 percent.

a. What is the average expected inflation rate over the next 4 years?

b. What should be the prevailing interest rate on 4-year T-bonds?

c. What is the implied expected inflation rate in 2026, or year 5, given that bonds, which mature in that year, yield 10 percent?

The following are the information extracted from financial statements of City Bank and Metro Bank for the fiscal year 2078/79 (in Million Rs)

a. Calculate non-interest income ratio of both banks for the fiscal year 2078/79 

b. Calculate net interest margin ratio of both banks for the fiscal year 2078/79 

c . Calculate spread ratio of both banks for the fiscal year 2078/79 

d. How do you evaluate both bank's performance on the basis of calculated ratios ? 

A Treasury bill with 180 days to maturity, a face value of Rs. 10,000 is selling for Rs. 9,800 on bank discount basis. What is annualized yield of T-

bill on the bank discount basis?

Bank X has gap ratio of 20% and that of Bank Y is 25%. Which bank is more sensitivity to the interest rate change?

It is now January 1, 2023. Inflation was about 4 percent, throughout 2022. The government took action to maintain inflation at this level.

However, the economy is in a recovery, and reports indicate that inflation is expected to increase during the next 4 years. Assume that 5 percent

will be the expected inflation rate for 2023, 6 percent for 2079, 6.5 percent for 2025, and thereafter inflation rate will stable at 7 percent.

a. What is the average expected inflation rate over the next 4 years period 2023-2026?

b. What average nominal interest rate, over the 4 years period 2023-2026, would be expected to produce 2.5 percent real risk-free rate of return on 4-year Treasury securities?

c. Assume a risk-free rate of 2.5 percent and a maturity risk premium which starts at 0.04 percent on 1-year security and increases by 0.04 percent each year. Estimate the interest rate in January 2023 on the Treasury securities that mature in 1,2,5, 10 and 20 years?

d. Assume that default risk premium associated with a 5-year corporate security is 1.9 percent. What is the yield on 5-year corporate securities?

e. Describe the general economic condition that could be expected to produce an upward sloping yield curve.

What are the components of bank equity capital?

A bank has profit margin ratio of 12 percent and asset utilization ratio of 0.6 times. What is its return on assets?

Himalayan Bank Limited (HBL) has Rs 500 million in the reserve for loan loss account on its balance sheet. The bank management has decided

that the minimum adequate reserve is Rs 475 million. Assume that Rs 50 million of loans are uncollectible and bank management charges off

these loans.

a. How much the bank management should increase the accrued expenses item, provision for loan losses to replenish the reserve?

b. Suppose that the bank management charges off Rs 100 million and recovers Rs 50 million. What will be the amount of net charge-off?

c. What will be the provision for loan losses for the current year if bank maintains the minimum adequate reserve for loan losses assuming that amount of gross charge-off is Rs 100 million and recovery amount is Rs 50 million?

d. What will be the reserves for loan losses?

What is the profit margin of a bank given that its asset utilization ratio is 1.45 and return on asset is 14.5%?

Write the classification of depository financial institutions in Nepal.

Calculate return on assets if profit margin ratio is 10 percent and assets utilization ratio is 1.8 times.

A commercial bank has Rs. 300 million in the reserve for loan loss account on its balance sheet and its management has decided that the

 minimum adequate reserve is Rs. 280 million. Now assume that Rs. 25 million of loans are uncollectible and bank management charges these

 loans off.

a. How much management should increase the accrued expenses item, to replenish the reserve?

b. Suppose that bank management chares off Rs. 35 million and recovers Rs. 25 million. What will be the net charge-off?

c. What will be the provision for loan losses for the current year if bank maintains the minimum adequate reserve for loan losses assuming that amount of gross charge-off and recovery amount will be as in (b)?

Explain the need for regulation of depository financial institution by NRB. Describe the onsite and offsite supervision and supervisory tools.

State the concept of non-depository institutions.

XYZ mutual fund has 500,000 shares outstanding, and its assets consist of common stock with an aggregate market value of Rs 6,800,000 and

liabilities of Rs 300,000 as of Asar 31, 2081. What is the NAV per share of the fund?

State the major roles of risk management industry.

The Mega Fund, a closed-end fund, has a portfolio of assets worth Rs. 220 million. It has liabilities of Rs. 10 million. It also has 20 million shares outstanding. What is the fund's NAV? If the fund trades at 2 percent discount from its NAV, what is the market price of the fund's shares?

Write short notes on (Any TWO):

a. Citizen Investment Trust (CIT)

b. Insurance board

c. Pension fund

What role does the risk management industry play in the economy?

ABC fund has assets worth Rs. 2,300,000 and accounts payable Rs. 100,000. There are 200,000 shares outstanding. What is the net asset value?

Explain the major types of insurance services available in Nepal to manage the risk.

Write short notes on (Any TWO):

a. Ancillary services

b. Securities Board of Nepal

c. Credit rating

Write the meaning of ancillary financial services.

Write the meaning of credit rating agencies.

What do you mean by a security dealer? How does securities dealer differ from securities broker?

Write the meaning of ancillary financial services.

Write the meaning of initial public offerings.

Green Food Limited has grown rapidly during the past five years. Recently, company has discovered some good investment opportunity. It plans

to raise an additional Rs 2,000,000 through rights offerings. Current market price of the stock is Rs 200. But subscription price is set at Rs 100

 which is equal to its par value. Company has 80,000 shares outstanding.

a. How many new shares of common stock the company must issue to raise required amount of funds?

b. What are the number of rights required to purchase one new share?

c. Calculate theoretical value of each right.

d. Calculate theoretical value of a share when stock goes ex-right.

e. Calculate theoretical value of a right when the stock sells ex-rights and the actual market price goes to Rs 185 per share

Himal Cement Company plans to raise an additional Rs. 50 million through rights offerings. Current market price per share of the bank is Rs.

 220. Stockholders are offered a new share at a price of Rs. 100 each for two shares held.

a. Calculate the theoretical value of a rights.

b. Calculate ex-right price.

c. What are the advantages of rights offering?

Define primary market in Nepal with example.

New Era Company is proposing a rights offering. Presently there are 150,000 shares outstanding at Rs. 150 each. The company is planning to sell

 new 60,000 shares through rights offering at a subscription price of Rs. 100 each per share.

a. How many rights are associated with one of the new shares?

b. What is the ex-rights price?

c. What is the value of a right?

d. Why might a company have a rights offering rather than a general cash offer?

Write short notes on (Any TWO)

a. Initial public offering

b. Stock dealer

c. Credit information bureau of Nepal

Nepal Rastra Bank has published summary of BOP for the first eight months for the fiscal year 2021/022. Summary of current account for the first eight months of the fiscal year 2021/022 is as follows:

Summary of Current Account (Rs. in Million)

On the basis of data given above answer to the following questions.

a. What is the net of goods and services account during the given period of three fiscal years?

b. What is the net of primary income account and secondary income account during the given period of the fiscal year?

c. Which accounts have contributed to increase the current account deficit?

d. Which accounts have contributed to decrease the current account deficit?

e. What is the trade deficit/surplus during the first eight months of given fiscal year?

How do you compute NEPSE index.

Describe the meaning and functions of secondary markets.

Consider the following stock quote for Nabil Bank Limited derived from NEPSE trading as on July 31, 2024.

a. What do 'Open', 'High' and 'Low' mean?
b. At what price did the stock close on the trading day?
c. What were the maximum and the minimum trading prices of NABIL stock on the day of quotation?
d. How many shares of NABIL stock were traded on the day?
e. What is total value of shares traded on the day?
f. Did the stock price increase or decrease on the day of quotation as compared to previous day?
g. What does 'diff%' mean?
h. How do you explain '52 weeks High-Low' quote?

Consider the following summary of BOP for the fiscal year 2021/022 published by Nepal Rastra Bank. (Rs. in million)

      a. What is the net of goods and services account during the fiscal year 2021/022?

      b. What is the net of primary income account and secondary income account during the fiscal year?

      c. What is the trade deficit/surplus during the fiscal year?

Following is the market information for the securities of three companies:

No new listing has been incorporated in the stock market since base period. But there has been 2 for 1 stock split in Alpha stock at the beginning of 2022.

       a. Determine value weighted index for as used by NEPSE for the year 2021 and 2022. Assume base value of index is 100.

       b. Why do you think the value weighted index like NEPSE index is not affected by stock split?

      c. What are the uses of market index?

Write about NEPSE float index.

Consider the following stock price and shares outstanding information:

Balance Sheet of BHC as on December 31, 2079

Assume base value of market capitalization is Rs. 1,400,000 and base index is 100.

a. Compute the value weighted index like NEPSE, index for Asar 31, 2078 and Asar 31, 2079.

b. Compute the percentage change in the value of index in Asar 31, 2079 as compared to Asar 31, 2078.

Explain the major functions, duties and power of Nepal Rastra Bank as the monetary authority.

Explain the need for regulation of depository financial institution by NRB.

Summary of current account for the first nine months of the fiscal year 2023/24 published by Nepal Rastra Bank is as follows:

Summary of Current Account (Rs. in million)

Based on the information contained in the summary of current account, you are required to answer the following questions:

a. What do you mean by balance of payment and balance of trade?

b. What is the net of goods and services account during the given period of fiscal years?

 c. What is the net of primary income account and secondary income account during the given period of fiscal year?

 d. Which accounts have contributed to increase the current account deficit? Explain.

e. Which accounts have contributed to decrease the current account deficit? Explain.

f. What is the trade deficit or surplus during the first nine months of given fiscal year? What does it mean?

What do you mean by foreign direct investment?