Foundation of Financial Systems

Write the meaning of financial system.

What do you mean by capital market?

What are the components of bank equity capital?

State the concept of non-depository institutions.

How do you compute NEPSE index.

Write the meaning of initial public offerings.

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?

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

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?

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

Describe the meaning and functions of secondary markets.

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

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?

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?

Write short notes on (Any TWO):

a. Ancillary services

b. Securities Board of Nepal

c. Credit rating

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

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?

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.