0804 FM (CFA540) - Question Paper Finanical...

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1 Question Paper Finanical Management (CFA540): April 2008 Answer all 74 questions. Marks are indicated against each question. Total Marks : 100 1. Which of the following proposition is/are true with respect to traditional approach of capital structure theory? I. The cost of debt capital, remains more or less constant up to a certain degree of leverage and falls sharply after that. II. The cost of equity capital remains more or less constant or rises only gradually up to a certain degree of leverage and falls sharply thereafter. III. The average cost of capital, decreases up to a certain point, remains more or less unchanged for moderate increase in leverage there after, and rises beyond a certain point. (a) Only (I) above (b) Only (III) above (c) Both (I) and (II) above (d) Both (II) and (III) above (e) All (I), (II) and (III) above. (1 mark) <Answer > 2. Which of the following is/are the reason(s) for companies investing in foreign physical asset? I. Economies of scale. II. Need to get around trade barriers. III. Transferable knowledge. <Answer > 3. The risk associated with which of the following factors is not diversifiable? <Answer > 4. Which of the following forms of purchasing power parity states that changes in spot rates over a period of time reflect the changes in the price levels over the same period in the currencies of the concerned economies? I. Absolute form. II. Expectations form. III. Relative form. <Answer > 5. SBI has quoted the following exchange rate to a customer. Rs./$. (39.85/39.95). It indicates that (a) The SBI stands ready to sell one dollar in exchange for Rs. 39.90 (b) The customer stands ready to sell one dollar in exchange for Rs.39.95 (c) The SBI stands ready to buy one dollar in exchange for Rs 39.95 (d) The customer stands ready to buy one dollar in exchange for Rs 39.85 (e) The SBI stands ready to sell one dollar in exchange for Rs 39.95. (1 mark) <Answer > 6. Which of the following statements is/are the feature(s) of commercial papers? I. They are negotiable by endorsement and delivery. (1 mark) <Answer >
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2 II. They are issued in multiples of 10 lakhs. III. The maturity varies between 1 day to a year. IV. They are purely unsecured as they are not backed by any asset of the issuing company.
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