FINANCE MANAGEMENT -- BOI EXAM QUESTIONS

(BANK OF INDIA CREDIT OFFICER EXAM., 2018

(Held in June 2018))

FINANCIAL MANAGEMENT

1. As per RBI norms, ‘Term Money’ means deals in funds for …… to 1 year.

1) 30 days   2) 15 days   3) 10 days   4) 20 days   5) Other than those given as options

2. The total cost that arises when the quantity produced is increased by one unit is called –

1) Average cost   2) Marginal cost   3) Fixed cost   4) Unit cost   5) None of the given options

3. ‘Subprime lending’ is a term applied to the loans made to –

1) Those borrowers who do not have a good credit history

2) Those borrowers who do not have a good debit history

3) Those borrowers who have a good credit history

4) Those borrowers who are employees

5) Those borrowers who have a good debit history

4. Which of the following is correct IRR of a capital investment project?

1) It must exceed the cost of capital in order for the firm to accept the investment

2) It requires discount rate to be assumed beforehand

3) It is equal to cost of debt for a project

4) It is equal to annual cash flows divided by the project’s cost when the cash flows are an annuity

5) It changes when the cost of capital charges

5. Provision for Bad Debts is made as per the –

1) Entity concept   2) Going concern concept   3) Cost concept   4) Materiality concept

5) Conservatism concept

6. What is venture capital?

1) Financing for new firms which   2) Bank loans used to pay the start

3) Equity funds from international source   4) Capital raised from issuing equity

5) The use of supplier credit as a

7. With increasing discount rate, the NPV of a project –

1) decreases at a steady rate   2) decreases at a decreasing rate   3) decreases at an increasing rate

4) neither increases nor decreases   5) increases at a decreasing rate

8. If the Asset Turnover and Net Profit Margin of a company are 4.80 and 0.60 respectively. Return on assets (ROA) is –

1) 8.00   2) 1.40   3) 2.10    4) 2.70   5) 2.88

9. Who typically, designs the project, procures all the engineering skills and equipment to construct the project, erects all the project facilities among other works up to finally commissioning?

1) O & M contractor   2) EPC contractor   3) Project sponsors   4) Project lenders

5) Project vehicle

10. In case of STRIPS instruments, the minimum amount of ssecurities that needs to be submitted for stripping/reconstitution would be …… and in multiples thereof.

1)  3 crore2)  5 crore   3)  10 crore   4)  1 crore   5) Other than those given as options

11. Dated Government Securities are long term securities and carry a fixed or floating coupon which is paid on the face value; payable at fixed time periods (usually half yearly) and the tenor of these securities can be upto ….. years.

1) 15   2) 30   3) 25   4) 50   5) Other than those given as options

12. A company has a single product. The following budgeted information relates to a period –

Sales units                  8,00,000

Sales revenue              10,00,000

Total variable cost      5,90,000

Total fixed costs         3,50,000

What sales revenue (to the nearest  ‘000) is required to break even?

1)  6,83,000   2)  3,50,000   3)  8,54,000   4)  3,55,000   5)  9,55,000

13. The SGL depository of the RBI maintains custody and owner-ship of ……. Securities in electronic form.

1) Commercial papers   2) SLR   3) CRR   4) Corporate bonds

5) Other than those given as options

14. As per RBI norms, Commercial Paper should be issued in the form of a/an –

1) Other than those given as options   2) Guarantee   3) Bill of Exchange   4) Promissory Note

5) Letter of Credit

15. As per RBI norms, the maturity period of Commercial Paper (CP) issued by banks should not be less than ….. days and not more than one year, from the date.

1) Other than those given as options   2) 14   3) 30   4) 7   5) 15

16. The cost of  resource that may be relevant to a project investment decision even when no cash exchanges hands is called a/an –

1) Depreciation cost   2) Sunk cost   3) Opportunity cost   4) Firm registration cost

5) Average cost

17. 4,000 kgs of material were purchased @  2 per kg. Normal wastage is estimated at the rate of 10%. The wastage has recovery value of  1.10 per kg. Calculate net cost of material required for executing the work order of 600 units, if each unit requires 1.5 kg of material –

1)  1,800   2)  1,260   3)  1,890   4)  1,620   5)  1,870

18. While evaluating projects, the issues related to the Environment and Social Cost benefit are typically considered part of –

1) Regulatory analysis   2) Political analysis   3) Economic analysis   4) Financial analysis

5) Market analysis

19. The NPV break-even point occurs with –

1) The present value of inflows cuts the fixed cost line

2) The total revenue line cuts the total cost line

3) The total revenue line cuts the fixed cost line

4) The total revenue line cuts the present value of outflows line

5) The present value of inflows line cuts the present of outflows line

20. Which one of the following is the rate at which RBI lends money to commercial banks in the event of any shortfall of funs?

1) Reverse repo rate   2) Bank rate   3) Repo rate   4) Benchmark prime lending rate

5) Annual percentage rate

21. Which of the following is not correct about project Network Diagram?

1) It is also known as project graph   2) It shows the activities and events of the project

3) It shows logical relationship between events of the project

4) It is basic to PERT and CPM

5) Each activity in the project diagram should not have preceding and succeeding event

22. The Cash Management Bills issued by RBI have the generic character of T-Bills but are issued for maturities less than –

1) 364 days   2) Other than those given as options   3) 182 days   4) 91 days   5) 60 days

23. In social cost benefit analysis, …… is computed by following formula. 100 * (Value added at domestic Prices-Value added at the world prices)/Value added at the world prices.

1) The effective rate of return   2) The effective rate of protection   3) Discount rate

4) The economic rate of return   5) The real rate of return

24. A capital equipment costing  2,50,000 today has  50,000 salvage value at the end of five years. If the straight-line depreciation method is used, what will be the book value of the equipment at the end of two years?

1)  40,000   2)  1,50,000   3)  1,70,000   4)  2,00,000   5)  1,40,000

25. If a firm is financed with both debt and equity, the firm’s equity is known as –

1) Private equity   2) Preferred equity   3) Levered equity   4) Unleveraged equity

5)Volatile equity

26. While preparing the Cash Flow Statements, the repayment of a loan during the year should be included under the heading of –

1) Financing activities   2) None of the given options   3) Operating activities

4) Investing activities   5) Cash and Bank balances

27. A person can be a Director of maximum ………. companies.

1) 17   2) 15   3) 7   4) 10   5) 20

28. After completing a project analysis, an analyst should rely on which tool to make a final recommendation on the project?

1) Decision tree analysis   2) Scenario analysis   3) Break even analysis   4) NPV analysis

5) Sensitivity analysis

29. YTM (Yield To Maturity) is that rate of discount that equates the discounted value of –

1) Other than those given as options   2) All current cash flows of a security with its current price

3) All future cash flows of a security with its current price

4) All future cash flows of a security with its future price

5) All present cash flows of a security with its future price

30. The ABC Ltd. reported earnings before interest and tax for the year 2016 as  260 crores and the yearly interest to be paid to the banks was  80 crore. What is the interest coverage ratio for the firm?

1) 0.30   2) 2.50   3) 0.42   4) None of those given as options   5) 3.25

31. Cash budget is prepared because it –

1) encourages over spending   2) helps in cash management   3) is legally compulsory

4) indicates liquidity   5) indicates profitability

32. In ABC analysis, ‘A’ class consists of items having –

1) Accurate methods   2) Good records   3) Minimal records   4) No records

5) None of the given options

33. The comparison of financial data of same time period of different organizations engaged in similar business –

1) Time series analysis   2) Cross sectional analysis   3) Spatial data analysis

4) Working capital analysis   5) None of the given options

34. The assets held by a business which can be converted in the form of cash, without disturbing the normal operations of a business –

1) Tangible assets   2) Intangible assets   3) Fixed assets   4) Current assets

5) None of the given options

ANSWERS WITH HINTS

1.(2)    2.(2)    3.(1)    4.(1)    5.(5)    6.(1)    7.(3)

8.(5) Return on assets

= Asset turnover ratio  profit margin percentage

= 4.8  0.6

= 2.88

9.(2)

10.(4) STRIPS – Separate Trading of Registered Interest and Principal of Securities.

11.(2)

12.(1) No. of units sold = 8,00,000

Sales revenue =  10,00,000

Per unit sales price = 10,00,000  8,00,000

=  1.25

Variable cost =  5,90,000

Per unit variable cost = 5,90,000  8,00,000

= 0.7375

Break even point = =     =

= 682926.82 or 6,83,000

13.(5) Subsidiary General Account opened and maintained with RBI by an agent on behalf of the constituents of such agent i.e. a second SGL account opened by an agent with RBI to hold the securities on behalf of their constituents.

14.(4) Commercial paper is an unsecured form of promissory note that pays a fixed rate of interest. It is typically issued by large banks or corporations to cover short-term receivables and meet short-term financial obligations.

15.(4)  16.(3)

17.() Material purchased = 4000 kg

Price @ =  2.00

Total purchase cost = 400  2   = 8000

Normal wastage = 10% of 4000 = 400

Recovery @  1.10 =  440

Net cost of 3600 kg = 8000 – 440   = 7560

Per unit cost =    =  2.1

Net cost of material to executer = 600 1.5

Order of 600 units = 900 kg

Net cost = 900  2.1   =  1890

18.(3)  19.(2)  20.(3)  21.(5)  22.(4)  23.(2)

24.(3) Cost of capital equipment = 2,50,000

Salvage value after 5 years = 50,000

Depreciable amount = 2,50,000 – 50,000   = 2,00,000

Depreciation expenses for a year 2,00,000  5 = 40,000

Book value after 2 years 2,50,000 – 40,000 – 40,000 = 2,50,000 – 80,000 =  1,70,000

25.(3)

26.(1) A loan instalment mostly has two components –

(i) Interest which is basically debt services cost.

(ii) Principal or capital which is simply the actual amount paid back towards borrowing.

As per IAS7 principal or capital amount repaid is disclosed under financing activity whereas interest payment is disclosed as an outflow either under operating activity or financing activity.

27.(5) As per the provisions of the Companies Act, 2013, a person is allowed to be the Director of a maximum of 20 companies simultaneously.

28.(1)  29.(3)

30.(5) Interest coverage ratio =    =    = 3.25

31.(2)  32.(1)  33.(2)  34.(4)

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