Financial institution and markets June 2024

Description

Financial Institutions and Markets

June 2024 Examination

 

 

Q1. Ms. Suraksha, after completing her graduation, has recently joined a bank. With a steady income and good growth prospects for her career, she intends to save regularly and increase the amount of savings gradually over the years. Her colleagues in the bank have advised her investing in Mutual Funds (MFs), as a suitable option for her. However, Ms. Suraksha is not at aware with MFs. Help Suraksha to understand about mutual funds, types of MF and why she should invest through mutual fund?    (10 marks)

Ans 1.

Introduction

Mutual funds represent a cornerstone of the modern investment landscape, offering individuals a way to participate in the financial markets with relative ease and diversification. For Ms. Suraksha, a newcomer to the world of investing, mutual funds could serve as an invaluable tool to grow her savings while mitigating risks. At their core, mutual funds pool money from many investors to purchase a broad portfolio of stocks, bonds, or other securities. This collective investment scheme democratizes access to sophisticated investment strategies and asset classes that might be out of reach for individual investors. Additionally, mutual funds are managed by professional fund managers, who apply their expertise to select investments that align

 

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Q2. You are appointed as a Senior financial research analyst in a reputed firm. Your manager asks you to advise him on the different ways to test market efficiency. Discuss the various test for market efficiency which will help the Firm’s investment to earn excess returns.   (10 Marks)

Ans 2.

Introduction

Market efficiency is a fundamental concept in financial economics that posits prices of securities in the stock market fully reflect all available information at any given time. As a senior financial research analyst, understanding and testing for market efficiency is crucial, not just for academic purposes but also for practical investment strategies. The Efficient Market Hypothesis (EMH) suggests that it’s impossible to consistently achieve higher than average returns by using any information that the market already knows. However, testing for market efficiency

 

Q3. “PNB unearthed the scam on January 25, 2018, and submitted a fraud report to the Reserve Bank of India (RBI) on January 29. On that day, a criminal complaint for registration of FIR was also made with the CBI. This was followed by another fraud report being submitted to the RBI on February 7, the day when one more complaint was filed with the CBI”

1. With reference to the PNB Fraud case, analyse the event in details. (5 Marks)

Ans 3a.

Introduction

The Punjab National Bank (PNB) fraud case, detected in early 2018, stands as one of the largest financial frauds in Indian banking history. It involved the issuance of fraudulent Letters of Undertaking (LoUs) in favor of companies associated with billionaire jeweler Nirav Modi and his uncle, Mehul Choksi. These LoUs were used to obtain short-term loans from overseas branches of Indian banks, without proper authorization and collateral, leading to a massive financial embezzlement that shook the foundations of the banking sector in India.

Concept and

 

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1. Enumerate the various risk that is highlighted in this event and bring out the difference between Systemic Risk and Unsystematic Risk. (5 Marks)

Ans 3b.

Introduction

The Punjab National Bank (PNB) fraud case not only unveiled a significant financial scam but also exposed various risks within the banking sector. This event serves as a prime example to differentiate between systemic and unsystematic risk, highlighting the vulnerabilities in the financial system. Systemic risk affects the entire banking system and financial markets, potentially leading to a collapse, while unsystematic risk is specific to a single entity or group,