Financial institution and markets DEC 2025

Description

Financial Institutions and Markets

Dec 2025 Examination

 

 

Q1. You are a financial advisor working for a corporate firm that has just received surplus cash of Rs.5 crores. The management is interested in investing this surplus for short- term gains without taking significant risks and prefers high liquidity. Based on the nature and objectives of the firm,    identify and explain which money market instruments you would recommend for investing the surplus funds. Justify your choices by explaining how each instrument works and how it meets the firm’s requirements. (10 Marks)

Ans 1.

Introduction

Surplus funds in a corporate environment must be invested with a clear focus on safety, liquidity, and short-term returns. Unlike long-term investments that emphasize capital appreciation, short-term treasury management requires instruments that can be quickly converted into cash without significant risk. In the Indian financial system, the money market provides a range of instruments designed specifically to meet these objectives. For a corporate firm with Rs. 5

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Q2. You are working as a personal financial advisor and are approached by three different clients, each with unique financial goals and risk preferences. Client A is a young professional who is willing to take high risks in exchange for the potential of high returns. Client B is nearing retirement and is more focused on preserving capital while earning stable, low-risk returns. Client C is a middle-aged salaried individual who is looking for a balanced investment option that offers moderate returns and aligns with medium-term goals like funding children’s education or home improvement.

Based on their individual profiles, evaluate the various types of mutual funds available in the market and recommend the most suitable type of mutual fund for each client. Justify your recommendations by comparing the risk level, return expectations, and investment horizon associated with each fund type. (10 Marks)

Ans 2.

Introduction

Mutual funds are one of the most popular investment avenues in India as they pool resources from multiple investors and channel them into diversified portfolios of equities, debt, or hybrid instruments managed by professionals. The suitability of a mutual fund depends largely on the investor’s financial goals, time horizon, and risk appetite. A young professional may be inclined to pursue high-risk equity funds for potential wealth creation, whereas a retiree will prefer conservative, income-generating debt funds. A salaried middle-aged investor often requires a balanced

 

Q3(A). You have been hired as a research analyst by a media company producing a documentary series titled “Boom, Bust, and Beyond: India’s Financial Scandals.” One of the episodes focuses on IPO-related scams in the Indian stock market. Your task is to explore the phenomenon of IPO bubbles and scams that misled investors through overhyped public issues. In this context, explain what an IPO bubble scam is, how such scams typically occur (e.g., overpricing, misinformation, grey market manipulation). Evaluate the consequences of the scam on retail investors and discuss the regulatory responses or lessons learned from such incidents. (5 Marks)

Ans 3a.

Introduction

The Initial Public Offering (IPO) market in India has historically attracted immense investor interest, often fueled by the promise of quick wealth creation. However, certain IPOs have turned into scams where companies or intermediaries misled retail investors through overhyped valuations, false information, or market manipulation. These episodes, known as IPO bubble scams, not only caused heavy financial losses but also eroded trust in capital markets. Understanding how

 

 

Q3(B). A mid-sized Indian manufacturing company is planning a major expansion and needs to raise significant long-term capital. The management is debating whether to issue new equity shares or debentures in the primary market but is concerned about regulatory compliance, investor appetite, and the impact on the company”s financial structure. They seek expert advice on how to best approach the capital market to achieve their goals while maintaining investor trust and meeting regulatory standards. As a financial consultant, you are approached by a mid-sized Indian manufacturing firm seeking to raise long-term capital for expansion. The firm is unsure whether to issue new equity shares or debentures in the primary market. Design a comprehensive capital-raising strategy that leverages the structure and functions of the Indian capital market, considering investor preferences, regulatory requirements, and the firm”s long-term objectives. How would your strategy ensure both effective mobilisation of savings and investor confidence? (5 Marks)

Ans 3b.

Introduction

Capital raising is a strategic decision that shapes the financial structure, investor relations, and long-term sustainability of a company. For a mid-sized manufacturing firm planning expansion, the primary market provides two major avenues: issuing new equity shares or raising funds through debentures. While equity offers permanent capital without repayment obligations, debentures