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Q1. Financial markets bring the providers and users in direct contact without any
intermediary. Financial markets permits the businesses and governments to raise the funds
needed by sale of securities. Describe the money market/capital market features and its
composition.
(Money market- features and composition-5 marks, Capital market-features and composition-5
marks) 10 marks
Answer:
Money Market
The money market consists of financial institutions and dealers in money or credit who wish to either
borrow or lend. Participants borrow and lend for short periods, typically up to thirteen months.
Money market trades in short-term financial instruments commonly called "paper". This contrasts
with the capital market for longer-term funding, which is supplied by bonds and equity.
Q2. Risk is the likelihood that your investment will either earn money or lose money. Explain
the factors that affect risk. Mr. Rahul invests in equity shares of Wipro. Its anticipated returns
and associated probabilities are given below:
Q3. Explain the business cycle and leading coincidental & lagging indicators. Analyze the issues
in fundamental analysis
(Explanation of business cycle-leading coincidental and lagging indicators-6 marks, Analysis
and explanation of the issues in fundamental analysis all the four points-4 marks) 10 marks
Answer:
Q4. Discuss the implications of EMH for security analysis and portfolio
management.
(Implications for active and passive investment-5 marks, Implications for investors and
companies-5 marks) 10 marks
Answer:
Q5. Explain about the interest rate risk and the two components in it.
An investor is considering the purchase of a share of XYZ Ltd. If his required rate of return is
10%, the year-end expected dividend is Rs. 5 and year-end price is expected to be Rs. 24,
Compute the value of the share.
(Introduction of interest rate risk-2 marks, Explanation of two components of interest rate risk-
4 marks, Calculation of value of the share-4 marks) 10 marks
Answer:
Interest Rate Risk: With the passage of time, interest rate changes in the market. The cash flows
from a bond (coupon payments and principal repayment) however, remain fixed. As a result, the
value of a bond fluctuates. Thus interest rate risk arises because the changes in the market interest
rates affect the value of the bond. The return on a bond comes from coupons payments, the interest
earned
Q6. Elucidate the risk and returns of foreign investing. Analyze international listing.
(Explanation of all the points in risks and returns from foreign investing-7 marks, Introduction
of international listing-3 marks)10 marks
Answer:
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