Post - Graduate Diploma in Security Analysis & Trading (2 nd Semester Examination)

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1 Post - Graduate Diploma in Security Analysis & Trading (2 nd Semester Examination) Paper 206 FIMMDA Debt Market (Basic) Maximum Marks: 100 Time Allowed: 3 hours Roll No. Name. INSTRUCTIONS: 1. This Question Paper consists of 5 sections in 6 pages. 2. You are not allowed to leave your seat during the 1 st hour of examination for what-so-ever reasons. 3. There is a penalty (50% negative marks) for all incorrect answers of Part Sharing of resources is strictly prohibited. 5. Surrender any unauthorized material in your possession which you may have inadvertently brought into the examination room (including your MOBILE PHONES) before you start attempting your question paper. All the very best!!!

2 Part - I Section 1 Choose the right answer from the alternatives given: 25 * 1 = What is STRIPS? a) It is an acronym for Separate trading of Interest and Principal Securities b) Separate Zero Coupon Bonds are created out of each cash flow c) The coupon paying Bond is the Bond which is used to create many zero coupon paying Bonds e) Only b and c are true f) Only a and b are true g) All of the above 2. Coupon of a floating rate bond is a) Modified whenever there is a change in the benchmark rate b) Modified at pre set intervals with reference to a benchmark rate c) Modified for changes in benchmark rate beyond agreed levels d) Modified within a range for changes in the benchmark rate 3. Which of the following statements is TRUE about daily volumes in the call money market? a) These volumes are usually lower than the volumes in the Repo markets. b) These volumes are comparable with volumes in the ICD and CP markets c) They register the largest transaction value after government securities d) Call money markets record the highest daily transaction value amongst all segments of debt markets. 4. How are the market borrowings of state governments managed? a) Bonds are privately placed with PDs. b) Bonds are issued by the state governments c) Bonds are issued by the RBI as well as the respective state governments d) Bonds are issued by the RBI only 5. Which segment of the debt markets has highest market capitalization? a) Call money markets b) Government bonds c) PSU bonds d) Corporate bonds 6. The Repo auction conducted by the RBI on a daily basis is known as. a) Money market intervention b) Open market operations c) Liquidity adjustment facility d) Tri-partite repos 7. Which of the following factors does NOT directly affect call rates? a) Capital inflows and exchange rate situation b) Outcome of Treasury bill auctions c) Rates of growth in bank deposits d) Seasonal fluctuations in credit off take 8. Which of the following is FALSE? a) FIIs cannot invest more than 30% of their funds in Dated Government Securities and Treasury Bills.k b) RBI cannot buy or sell securities in the secondary markets. c) PDs cannot issue CPs. d) Provident funds cannot invest in call money markets

3 9. Interest rates fall, which of the following will hold good? a) The total return to the investor will change depending on the investor's investment horizon. b) The total return to the investor will increase because there would be capital gains on the bond. c) The total return to the investor will decrease because reinvestment income will become lower. d) The total return to the investor will remain unchanged as long as coupons are not defaulting and are the largest component of total return. 10. The Clearing Corporation of India Ltd. will settle transactions in. a) long term government debt b) money and Forex markets c) money, government securities and Forex markets d) money market instruments and government securities 11. A CP maturing on September 26, 2001 was issued on June 28, 2001 at a price of Rs What is the cut-off yield (%)? [ 2 Marks ] a) b) c) d) A 10.25% GOI security, maturing on 29-May-2021 is trading on 2-Jul-2001 at a YTM of %. How much interest has accrued on the security? a) Rs b) Rs c) Rs d) Rs Which of the following statements is FALSE? a) The lower the YTM of a bond, the lower its duration. b) The higher the YTM of a bond, the lower its duration. c) The higher the tenor of a bond, the higher its duration. d) The lower the coupon of a bond, the higher its duration 14. PV01 of a bond represents. a) the percentage change in value of the bond, for a 1bp change in yield b) the change in rupee value of the bond for a 1bp change in yield c) the change in duration of the bond for a 1 basis point change in yield d) the change in modified duration of the bond for a 1 basis point change in yield 15. A treasury bill maturing on 31-Jul-2002 has a market price of Rs on 3-Jul What is the discount rate (%) inherent in this price? a) b) c) d) e) None of the above State true or False 16. Dutch auction is Discriminatory or Multiple price auction

4 17. No stamp duty is paid either on primary issue or secondary market transactions in case of Government securities. 18. RBI may participate in auctions of Government securities as a Non Competitive bidder. 19. Debentures with maturity of less than 18 months of maturity are required to appoint a Debenture Trustee. 20. Every Issuer of CPs has to appoint an Issuing and Paying agent for issuance of CP s 21. Issue of and are subject to payment of Stamp Duty 22. NDS interfaces with for settlement of Government securities 23. CCIL is a Mechanism 24. Money lent for a fixed tenor of 14 days or more is called The day count convention for corporate bonds is SECTION 2 Choose the right answer from the alternatives given: 10 * 3 = Bank B purchased a T-Bill of Rs.1000 for Rs.995, one month ahead of its maturity. Calculate Yield. a) 6.11% b) 6.25% c) 6.78% 27. A corporate issues a CP at an effective rate of 7% for 90 days. Face value of security is Rs.100. Compute Price. a) b) c) A dealer purchased on April 12, 2005 a 11.50% GOI bond maturing on 24-Nov-2016 for Rs He held it for 1 year, and sold it on 11-April-2006 for Rs He reinvested the coupons received during the holding period (first and the second What is the realized yield (%) from the investment? a) b) c) d) e) None of the above 206-3

5 29. Who are currently the largest holders of T-bills? a) Banks b) Provident Funds c) Mutual Funds d) Primary Dealers 30. A Normal Yield Curve is one in which a) Long term maturities have higher yields than short term maturities b) Long term maturities have lower yields than short term maturities c) Long term interest rates are not going to increase, they will remain flat 31. Which factors out of the following affect yield curve a) Monetary Policy b) Economic Growth c) Fiscal Policy d) All of the above e) Only a and b f) Only b and c g) None of the above 32. If the YTMs of 2 bonds with tenors of years and years are % and % respectively, what is the YTM (%) of a bond with a tenor of years? (Hint: Use linear interpolation). a) b) c) d) e) None of the above Instruction: Based on the following information, answer Q. No Details of Repo transaction are as follows: Face Value of security =Rs No of securities forming part = 5 Market Price = Rs Coupon Rate = 10% Date of Repo = Jan, 31 Coupon Date June, 30 and Dec, 31 Repo rate = 11% Repo Term = 10 days 33. Calculate Broken Period Interest for the First Leg. a) 4265 b) 4167 c) Calculate Cash consideration for the First Leg. a) Rs b) Rs c) Rs

6 35. Calculate Cash Consideration for the Second Leg a) Rs b) Rs c) Rs SECTION 3 All questions carry 5 marks 3 * 5 = Calculate number of days from the previous coupon date and number of days from settlement to next coupon days for the following A Settlement date: February 5, 2002 Name of the Security: CG 12.5%2005 Maturity Date 23-March-2005 B Settlement date: February 5, 2002 Name of Security CG 11.68%, 2006 Maturity Date: April 10, 2007 a) 132,48 and 115,65 b) 135,50 and 118,68 c) 133,45 and 145, A 11.80% GOI security maturing on 6 th Aug-2002 is being priced in the market on 11-July-2001 at Rs The YTM of the bond is: a) 6.434% b) % c) % 38. Calculate Yield for a portfolio consisting of 2 securities. The description is mentioned as follows: Coupon Maturity date Market Price as on July 11, 2002 Number of Bonds 11.68% Aug 10, % Sep, 20, a) % b) % c) 6.782% PART II (Subjective) SECTION 4 Attempt any five questions. All questions carry 3 marks 5 * 3 = Write a Note on Negotiated Dealing System 40. What facilities are available to Primary Dealers 206-5

7 41. Write a Note on Liquidity Adjustment facility 42. Write a note on Certificate of deposit and Commercial paper. 43. Explain Continuous Market 44. A 364-day CP, maturing on 28th June 2002 is trading on 17th July 2001 at a price of Rs What is the yield inherent in this price? SECTION 5 Attempt any three questions. All questions carry 5 marks 3 * 5 = Explain in detail Issue process of Commercial Papers, Guidelines, Issuers, Rating, Maturity Etc 46. Write detailed note on Trading Mechanism in the NSE-WDM 47. What as per your views is the future of Debt markets in India? What is the link between Infrastructure development and Secondary Debt markets. 48. What are the factors which impact call rates * * * * * 206-6

Amount raised from Primary Market. Turnover in Secondary Market

Amount raised from Primary Market. Turnover in Secondary Market ISMR Debt Market 70 5. Debt Market Introduction 1 The debt market in India consists of mainly two categories the government securities or the g-sec markets comprising central government and state government