AIWMI CCRA

Certified Credit Research Analyst Level 2

Version: 1.0
 AIWMI CCRA Exam

QUESTION NO: 1

Case Facts as on March 31, 2012

Mark Construction Company (MCC) has bagged a contract for construction of a large dam and
hydro power project on river Shivna in Madhya Pradesh (MP). The project is also of relevance
from the irrigation perspective due to its location and as per the agreement MCC will have to
undertake construction of web of canals, approach road to dam, power house and other
ancillary units. MCC is promoted by Mr. Thomas Mark, who is a MP from the ruling party
which recently formed government in MP. Historically, MCC has been engaged into
construction of rural roads, small bridges and railway platforms on contract basis for the
Government. MCC will have a separate special purpose vehicle (SPV) floated for this venture.

The hydro power project comes under the public private partnership scheme of the Government
of MP, where in the private partner builds owns operates and transfers (BOOT) the hydro power
plant. The detailed terms of the hydro power project agreement are as follows:

1. The construction of the dam, canals and hydro power plant shall be undertaken by the
contractor. The Government of MP will have to acquire land which will submerge on
construction of dam and shall rehabilitate the owners of land.

2. MCC shall have right to operate the hydro power project from date of commencement of
commercial operations (DCCO) for a period of 20 years and shall transfer the project to
Government thereafter. Further, SPV shall be tax exempt for a period of five years from DCCO
i.e. FY17-FY21.

3. The power project is of 600 megawatts (MW) shall comprise 4 units of 150 MW each. The
estimated cost of project is about INR3, 500 Million to be spent over a period of 4 year(s) the
project is estimated to be commercially operational by April 1, 2016 with two units operational
om same day and one unit each will be operational on April 1, 2017 and April 1, 2018.

4. Means of finance:
Means of Finance INR Million
Government Aid (To be classified as Equity) 500Equity 900 Debt 2100

5. Amount if expenditure estimated in various years is as follows:

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 AIWMI CCRA Exam

Funding

Cost of Project
INR Million

Debt
Govt Aid

Equity
Total
FY13 (April to march)
700

0
250
450
700
FY14
1200

500
250
450
1200
FY15
1200

1200
-
1200

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 AIWMI CCRA Exam

FY15
400

400
-

400

Debt shall bear a fixed rate of interest of 10% and all interest till DCCO shall be added to the
principal. The expected principal along with capitalized interest is expected to be INR2, 400
Million (i.e.INR2100 Million debt plus INR300 Million capitalized interest). The repayment of
the same shall be in 12 equated annual installments starting from FY17.

Brief projections for the period of FY17 to FY21 are given below:

Developments as on March 31, 2015

The project manager for the SPV made following comments at a press conferee on March
31, 2015:

As you all are aware, we were running bang on schedule till we last met on December 21, 2014.
From today we are just left with one more year to complete the project in time. However, the
flash floods which struck our dam site on this March 15, 2015 have created havoc in the region.
I shall not point out the loss of lives in the region as you all are well aware of those. Our project
has also been badly hit due to the same and we have been assessing the damage over the last one
week. After analyzing damage, we have made changes in project schedule. Now we will be
making only one unit of 150 MW operational on April 1, 2016 and 1 unit each will be added in
each of subsequent year(s).

Development as on September 30, 2015

Post the flash floods, lot of environmentalists started raising issues of changes in environment
due to construction of large number of dams. A few Public Interest Litigations (PILs) have been
filed in various courts.

Honorable High Court of MP on September 27, 2015, banned construction of any dams in the

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 AIWMI CCRA Exam

region and banned permissions for new dams till next hearing scheduled on November 30, 2015.
MCC in its press release has indicated that they will apply to the higher court on the matter.

As a credit analyst on March 31, 2012, which of the following sets of risks are you going to put
in your credit appraisal note?

A.

Off-take risk, Cost and Time over run risk, lack of management experience in such big projects.
B.

Lack of management experience in large projects, Exchange rate risks, Cost and time over
run risks.
C.

Cost and Time over run risk, lack of management experience in such big projects.
D.
Obsolete technology risk, political risks and Cost and time over run risks

Answer: C
Explanation:

QUESTION NO: 2
Case Facts as on March 31, 2012

Mark Construction Company (MCC) has bagged a contract for construction of a large dam and
hydro power project on river Shiva in Madhya Pradesh (MP). The project is also of relevance
from the irrigation perspective due to its location and as per the agreement MCC will have to
undertake construction of web of canals, approach road to dam, power house and other ancillary
units. MCC is promoted by Mr. Thomas Mark, who is a MP from the ruling party which
recently formed government in MP. Historically, MCC has been engaged into construction of
rural roads, small bridges and railway platforms on contract basis for the Government. MCC
will have a separate special purpose vehicle (SPV) floated for this venture.
The hydro power project comes under the public private partnership scheme of the Government
of MP, where in the private partner builds owns operates and transfers (BOOT) the hydro power
plant. The detailed terms of the hydro power project agreement are as follows:

1. The construction of the dam, canals and hydro power plant shall be undertaken by the
contractor. The Government of MP will have to acquire land which will submerge on
construction of dam and shall rehabilitate the owners of land.

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 AIWMI CCRA Exam

2. MCC shall have right to operate the hydro power project from date of commencement of
commercial operations (DCCO) for a period of 20 years and shall transfer the project to
Government thereafter. Further, SPV shall be tax exempt for a period of five years from DCCO
i.e. FY17-FY21.

3. The power project is of 600 megawatts (MW) shall comprise 4 units of 150 MW each. The
estimated cost of project is about INR3, 500 Million to be spent over a period of 4 year(s) the
project is estimated to be commercially operational by April 1, 2016 with two units operational
om same day and one unit each will be operational on April 1, 2017 and April 1, 2018.

4. Means of finance:

Means of Finance INR Million

Government Aid (To be classified as Equity) 500Equity 900 Debt 2100

5. Amount if expenditure estimated in various years is as follows:

Funding

Cost of Project
INR Million

Debt
Govt Aid
Equity
Total

FY13 (April to march)

700

250

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 AIWMI CCRA Exam

450
700
FY14
1200

500
250
450
1200
FY15
1200

1200
-

1200
FY15
400

400
-

400

Debt shall bear a fixed rate of interest of 10% and all interest till DCCO shall be added to the
principal. The expected principal along with capitalized interest is expected to be INR2, 400
Million (i.e.INR2100 Million debt plus INR300 Million capitalized interest). The repayment of
the same shall be in 12 equated annual installments starting from FY17.

Brief projections for the period of FY17 to FY21 are given below:
7
 AIWMI CCRA Exam

Developments as on March 31, 2015

The project manager for the SPV made following comments at a press conferee on March
31, 2015:

As you all are aware, we were running bang on schedule till we last met on December 21, 2014.
From today we are just left with one more year to complete the project in time. However, the
flash floods which struck our dam site on this March 15, 2015 have created havoc in the region.
I shall not point out the loss of lives in the region as you all are well aware of those. Our project
has also been badly hit due to the same and we have been assessing the damage over the last
one week. After analyzing damage, we have made changes in project schedule. Now we will be
making only one unit of 150 MW operational on April 1, 2016 and 1 unit each will be added in
each of subsequent year(s).

Development as on September 30, 2015

Post the flash floods, lot of environmentalists started raising issues of changes in environment
due to construction of large number of dams. A few Public Interest Litigations (PILs) have been
filed in various courts.

Honorable High Court of MP on September 27, 2015, banned construction of any dams in the
region and banned permissions for new dams till next hearing scheduled on November 30,
2015. MCC in its press release has indicated that they will apply to the higher court on the
matter.

Based on the initial projections, do scenario analysis assuming only 75% capacity is utilized
in FY17 and FY18 and thereby revenues will be proportionally reduced.

Compute DSCR under such scenario for FY17 and FY18, assuming other things remain
constant?

A.
FY17: 0.85; FY18: 1.26
B.
FY17: 0.74; FY18: 1.09
C.
FY17:1.35; FY18: 2.09

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 AIWMI CCRA Exam

D.
FY17:0.98; FY18: 1.46

Answer: A
Explanation:

QUESTION NO: 3

Case Facts as on March 31, 2012

Mark Construction Company (MCC) has bagged a contract for construction of a large dam and
hydro power project on river Shivna in Madhya Pradesh (MP). The project is also of relevance
from the irrigation perspective due to its location and as per the agreement MCC will have to
undertake construction of web of canals, approach road to dam, power house and other
ancillary units. MCC is promoted by Mr. Thomas Mark, who is a MP from the ruling party
which recently formed government in MP. Historically, MCC has been engaged into
construction of rural roads, small bridges and railway platforms on contract basis for the
Government. MCC will have a separate special purpose vehicle (SPV) floated for this venture.

The hydro power project comes under the public private partnership scheme of the Government
of MP, where in the private partner builds owns operates and transfers (BOOT) the hydro power
plant. The detailed terms of the hydro power project agreement are as follows:

1. The construction of the dam, canals and hydro power plant shall be undertaken by the
contractor. The Government of MP will have to acquire land which will submerge on
construction of dam and shall rehabilitate the owners of land.

2. MCC shall have right to operate the hydro power project from date of commencement of
commercial operations (DCCO) for a period of 20 years and shall transfer the project to
Government thereafter. Further, SPV shall be tax exempt for a period of five years from DCCO
i.e. FY17-FY21.

3. The power project is of 600 megawatts (MW) shall comprise 4 units of 150 MW each. The
estimated cost of project is about INR3, 500 Million to be spent over a period of 4 year(s) the
project is estimated to be commercially operational by April 1, 2016 with two units operational
om same day and one unit each will be operational on April 1, 2017 and April 1, 2018.

4. Means of finance:

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 AIWMI CCRA Exam

Means of Finance INR Million

Government Aid (To be classified as Equity) 500Equity 900 Debt 2100

5. Amount if expenditure estimated in various years is as follows:

Funding

Cost of Project
INR Million

Debt

Govt Aid
Equity
Total
FY13 (April to march)
700

0
250
450
700
FY14
1200

500
250

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 AIWMI CCRA Exam

450
1200
FY15
1200

1200
-

1200
FY15
400

400
-

400

Debt shall bear a fixed rate of interest of 10% and all interest till DCCO shall be added to the
principal. The expected principal along with capitalized interest is expected to be INR2, 400
Million (i.e.INR2100 Million debt plus INR300 Million capitalized interest). The repayment of
the same shall be in 12 equated annual installments starting from FY17.

Brief projections for the period of FY17 to FY21 are given below:
Developments as on March 31, 2015

The project manager for the SPV made following comments at a press conferee on March
31, 2015:

As you all are aware, we were running bang on schedule till we last met on December 21, 2014.
From today we are just left with one more year to complete the project in time. However, the
flash floods which struck our dam site on this March 15, 2015 have created havoc in the region.
I shall
11
 AIWMI CCRA Exam

not point out the loss of lives in the region as you all are well aware of those. Our project has
also been badly hit due to the same and we have been assessing the damage over the last one
week. After analyzing damage, we have made changes in project schedule. Now we will be
making only one unit of 150 MW operational on April 1, 2016 and 1 unit each will be added in
each of subsequent year(s).

Development as on September 30, 2015

Post the flash floods, lot of environmentalists started raising issues of changes in environment
due to construction of large number of dams. A few Public Interest Litigations (PILs) have been
filed in various courts.

Honorable High Court of MP on September 27, 2015, banned construction of any dams in the
region and banned permissions for new dams till next hearing scheduled on November 30,
2015. MCC in its press release has indicated that they will apply to the higher court on the
matter.

After the developments of March 31, 2015, assuming revenues are directly linked to the
power production and the EBITDA margins remain intact for the year, as were projected,
compute the revised interest coverage ratio for FY17 and FY18?

A.
FY17: 0.90; FY18: 1.85
B.
FY17: 1.85; FY18: 2.93
C.
FY17: 0.49; FY18: 0.97
D.
FY17: 1.80; FY18: 2.78

Answer: B
Explanation:
QUESTION NO: 4

Case Facts as on March 31, 2012

Mark Construction Company (MCC) has bagged a contract for construction of a large dam
and hydro power project on river Shivna in Madhya Pradesh (MP). The project is also of
relevance from the irrigation perspective due to its location and as per the agreement MCC
will have to

12
 AIWMI CCRA Exam

undertake construction of web of canals, approach road to dam, power house and other
ancillary units. MCC is promoted by Mr. Thomas Mark, who is a MP from the ruling party
which recently formed government in MP. Historically, MCC has been engaged into
construction of rural roads, small bridges and railway platforms on contract basis for the
Government. MCC will have a separate special purpose vehicle (SPV) floated for this venture.

The hydro power project comes under the public private partnership scheme of the Government
of MP, where in the private partner builds owns operates and transfers (BOOT) the hydro power
plant. The detailed terms of the hydro power project agreement are as follows:

1. The construction of the dam, canals and hydro power plant shall be undertaken by the
contractor. The Government of MP will have to acquire land which will submerge on
construction of dam and shall rehabilitate the owners of land.

2. MCC shall have right to operate the hydro power project from date of commencement of
commercial operations (DCCO) for a period of 20 years and shall transfer the project to
Government thereafter. Further, SPV shall be tax exempt for a period of five years from DCCO
i.e. FY17-FY21.

3. The power project is of 600 megawatts (MW) shall comprise 4 units of 150 MW each. The
estimated cost of project is about INR3, 500 Million to be spent over a period of 4 year(s) the
project is estimated to be commercially operational by April 1, 2016 with two units operational
om same day and one unit each will be operational on April 1, 2017 and April 1, 2018.

4. Means of finance:

Means of Finance INR Million

Government Aid (To be classified as Equity) 500Equity 900 Debt 2100
5. Amount if expenditure estimated in various years is as follows:

Funding

Cost of Project
INR Million

13
 AIWMI CCRA Exam

Debt
Govt Aid
Equity
Total

FY13 (April to march)

700

0
250
450
700
FY14
1200

500
250
450
1200
FY15

1200

1200
-

1200
FY15
400
400
-

14
 AIWMI CCRA Exam

400

Debt shall bear a fixed rate of interest of 10% and all interest till DCCO shall be added to the
principal. The expected principal along with capitalized interest is expected to be INR2, 400
Million (i.e.INR2100 Million debt plus INR300 Million capitalized interest). The repayment of
the same shall be in 12 equated annual installments starting from FY17.

Brief projections for the period of FY17 to FY21 are given below:

Developments as on March 31, 2015

The project manager for the SPV made following comments at a press conferee on March
31, 2015:

As you all are aware, we were running bang on schedule till we last met on December 21, 2014.
From today we are just left with one more year to complete the project in time. However, the
flash floods which struck our dam site on this March 15, 2015 have created havoc in the region.
I shall not point out the loss of lives in the region as you all are well aware of those. Our project
has also been badly hit due to the same and we have been assessing the damage over the last one
week. After analyzing damage, we have made changes in project schedule. Now we will be
making only one unit of 150 MW operational on April 1, 2016 and 1 unit each will be added in
each of subsequent year(s).

Development as on September 30, 2015

Post the flash floods, lot of environmentalists started raising issues of changes in environment
due to construction of large number of dams. A few Public Interest Litigations (PILs) have been
filed in various courts.

Honorable High Court of MP on September 27, 2015, banned construction of any dams in the
region and banned permissions for new dams till next hearing scheduled on November 30,
2015. MCC in its press release has indicated that they will apply to the higher court on the
matter.

As a credit rating analyst on September 30, 2015, on receipt of the high court order, what
rating action you will take:

A.

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 AIWMI CCRA Exam

Put ratings on rating watch.

B.
Change rating outlook for long term to negative.
C.

No action, wait for order if higher courts or hearing on November 30, 2015.
D.
Immediately downgrade ratings of SPV.

Answer: A
Explanation:

QUESTION NO: 5

Case Facts as on March 31, 2012

Mark Construction Company (MCC) has bagged a contract for construction of a large dam and
hydro power project on river Shivna in Madhya Pradesh (MP). The project is also of relevance
from the irrigation perspective due to its location and as per the agreement MCC will have to
undertake construction of web of canals, approach road to dam, power house and other
ancillary units. MCC is promoted by Mr. Thomas Mark, who is a MP from the ruling party
which recently formed government in MP. Historically, MCC has been engaged into
construction of rural roads, small bridges and railway platforms on contract basis for the
Government. MCC will have a separate special purpose vehicle (SPV) floated for this venture.

The hydro power project comes under the public private partnership scheme of the Government
of MP, where in the private partner builds owns operates and transfers (BOOT) the hydro power
plant. The detailed terms of the hydro power project agreement are as follows:

1. The construction of the dam, canals and hydro power plant shall be undertaken by the
contractor. The Government of MP will have to acquire land which will submerge on
construction of dam and shall rehabilitate the owners of land.
2. MCC shall have right to operate the hydro power project from date of commencement of
commercial operations (DCCO) for a period of 20 years and shall transfer the project to
Government thereafter. Further, SPV shall be tax exempt for a period of five years from DCCO
i.e. FY17-FY21.

3. The power project is of 600 megawatts (MW) shall comprise 4 units of 150 MW each.
The estimated cost of project is about INR3, 500 Million to be spent over a period of 4
year(s) the
16
 AIWMI CCRA Exam

project is estimated to be commercially operational by April 1, 2016 with two units operational
om same day and one unit each will be operational on April 1, 2017 and April 1, 2018.

4. Means of finance:

Means of Finance INR Million

Government Aid (To be classified as Equity) 500Equity 900 Debt 2100

5. Amount if expenditure estimated in various years is as follows:

Funding

Cost of Project
INR Million

Debt
Govt Aid
Equity
Total
FY13 (April to march)
700
0
250
450
700

FY14
1200

17
 AIWMI CCRA Exam

500
250
450
1200

FY15
1200

1200
-

1200

FY15
400

400
-

400

Debt shall bear a fixed rate of interest of 10% and all interest till DCCO shall be added to the
principal. The expected principal along with capitalized interest is expected to be INR2, 400
Million (i.e.INR2100 Million debt plus INR300 Million capitalized interest). The repayment of
the same shall be in 12 equated annual installments starting from FY17.

Brief projections for the period of FY17 to FY21 are given below:
Developments as on March 31, 2015

The project manager for the SPV made following comments at a press conferee on March
31, 2015:

18
 AIWMI CCRA Exam

As you all are aware, we were running bang on schedule till we last met on December 21, 2014.
From today we are just left with one more year to complete the project in time. However, the
flash floods which struck our dam site on this March 15, 2015 have created havoc in the region.
I shall not point out the loss of lives in the region as you all are well aware of those. Our project
has also been badly hit due to the same and we have been assessing the damage over the last one
week. After analyzing damage, we have made changes in project schedule. Now we will be
making only one unit of 150 MW operational on April 1, 2016 and 1 unit each will be added in
each of subsequent year(s).

Development as on September 30, 2015

Post the flash floods, lot of environmentalists started raising issues of changes in environment
due to construction of large number of dams. A few Public Interest Litigations (PILs) have been
filed in various courts.

Honorable High Court of MP on September 27, 2015, banned construction of any dams in the
region and banned permissions for new dams till next hearing scheduled on November 30,
2015. MCC in its press release has indicated that they will apply to the higher court on the
matter.

On receiving the credit proposal, the banker informed the company that in FY17 the DSCR
is below unity, which is not acceptable to bank. Which of the following is correct?

A.

Had the cash accruals be more by INR50 Million, DSCR would have been unity. SPV can
provide an implicit credit enhancement for the same from MCC.
B.

Had the cash accruals be more by INR8 Million, DSCR would have been unity. SPV can
provide an implicit credit enhancement for the same from MCC.
C.

Had the cash accruals be more by INR8 Million, DSCR would have been unity, SPV can
provide an explicit credit enhancement for the same from MCC.
D.

Had the cash accruals be more by INR12 Million, DSCR would have been unity. SPV can
provide an explicit credit enhancement for the same from MCC.
Answer: C
Explanation:

QUESTION NO: 6

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 AIWMI CCRA Exam

Scott is a credit analyst with one of the credit rating agencies in India. He was looking in Oil and
Gas Industry companies and has presented brief financials for following 4 entities:

Which of the four entities has best interest coverage ratios?

A.
C Ltd
B.
D Ltd
C.
A Ltd
D.
B Ltd

Answer: D
Explanation:

QUESTION NO: 7
Scott is a credit analyst with one of the credit rating agencies in India. He was looking in Oil and
Gas Industry companies and has presented brief financials for following 4 entities:

Two credit analysts are discussing the DM-approach to credit risk modeling. They make
the following statements:

Analyst A: A portfolio’s standard deviation of credit losses can be determined by considering

the

20
 AIWMI CCRA Exam

standard deviation of credit losses of individual exposures in the portfolio and summing them
all up.

Analyst B: I do not fully agree with that. Apart from individual standard deviations, one also
needs to consider the correlation of the exposure with the rest of the portfolio so as to account for
diversification effects. Higher correlations among credit exposures will lead to higher standard
deviation of the overall portfolio.

A.
Only Analyst A is correct
B.
Both are correct
C.
Only Analyst B is correct
D.
Both are incorrect

Answer: C
Explanation:

QUESTION NO: 8
Scott is a credit analyst with one of the credit rating agencies in India. He was looking in Oil and
Gas Industry companies and has presented brief financials for following 4 entities:
Giving equal weightage to all three ratios, determine which of the above entities should be
rated highest on a relative scale.

A.
C Ltd
B.
A Ltd
C.

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 AIWMI CCRA Exam

D Ltd
D.
B Ltd

Answer: A
Explanation:

QUESTION NO: 9

Scott is a credit analyst with one of the credit rating agencies in India. He was looking in Oil and

Gas Industry companies and has presented brief financials for following 4 entities:

From the data given below, calculate the standard deviation of the credit portfolio assuming
that facility’s exposure is known with certainty, customer defaults and LGDs are independent
of one another and LGDs are independent across borrower(s).

Credit Facility A – Loss Equivalent Exposure of $60m, expected Default frequency of 1.5%,
loss given default of 30%, Std Deviation of LGD – 5% and Correlation to portfolio – 0.10

Credit Facility B – Loss Equivalent Exposure of $25m, expected Default frequency of 2%,
loss given default of 12%, Std Deviation of LGD – 12% and Correlation to portfolio – 0.45
Credit Facility C – Loss Equivalent Exposure of $15m, expected Default frequency of 5%,
loss given default of 85%, Std Deviation of LGD – 18% and Correlation to portfolio – 0.22

A.
US$6.88 million
B.

US$ 1.16 million

C.
US$ 1.66 million
D.

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 AIWMI CCRA Exam

US$ 0.10 million

Answer: B
Explanation:

QUESTION NO: 10

Scott is a credit analyst with one of the credit rating agencies in India. He was looking in Oil and
Gas Industry companies and has presented brief financials for following 4 entities:

Which of the following statements is incorrect?

A.
B Ltd has higher EBITDA margins as compared to C Ltd.
B.
D Ltd has higher EBITDA margins as competed to B Ltd.
C.
C Ltd has worst total debt to EBITDA ratio.
D.
B Ltd has worst interest coverage ratio.

Answer: A

Explanation:

QUESTION NO: 11

Following is information related banks:

Auckland Ltd is a public sector bank operating with about 120 branches across India. The bank
has been in business since 1971 and has about 40% branches in rural areas and about 75% of all

23
 AIWMI CCRA Exam

branches are in Western India. On the basis of the size, Auckland Ltd will be ranked at number
31 amongst 40 banks in India. Although top management has appointment period of 5 years,
generally they retire on ach sieving age of 60 years with an average tenure of only 2 years at the
top job.

Profit and Loss Account

Balance Sheet
The rating wise break-up of assets for FY11 is as follows:

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 AIWMI CCRA Exam

The core spreads for FY13 as compared to FY12 have:

A.
Expanded by 136 bps
B.
Contracted by 327 bps
C.
Contracted by 136 bps
D.
Expanded by 191 bps

Answer: C
Explanation:
QUESTION NO: 12

Following is information related banks:

Auckland Ltd is a public sector bank operating with about 120 branches across India. The bank
has been in business since 1971 and has about 40% branches in rural areas and about 75% of all
branches are in Western India. On the basis of the size, Auckland Ltd will be ranked at number
31 amongst 40 banks in India. Although top management has appointment period of 5 years,
generally they retire on ach sieving age of 60 years with an average tenure of only 2 years at the
top job.

Profit and Loss Account

25
 AIWMI CCRA Exam

Balance Sheet
The rating wise break-up of assets for FY11 is as follows:
26
 AIWMI CCRA Exam

The ROTA for Auckland deteriorated from ___in FY12 to___ in FY13.

A.
0,.7%, 0,3%

B.
7%; 2%
C.
2.3%; 0.7%
D.
1.9%; 0.6%

Answer: C

Explanation:
QUESTION NO: 13

Following is information related banks:

Auckland Ltd is a public sector bank operating with about 120 branches across India. The bank
has been in business since 1971 and has about 40% branches in rural areas and about 75% of all
branches are in Western India. On the basis of the size, Auckland Ltd will be ranked at number
31 amongst 40 banks in India. Although top management has appointment period of 5 years,
generally they retire on ach sieving age of 60 years with an average tenure of only 2 years at the
top job.

Profit and Loss Account

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 AIWMI CCRA Exam

Balance Sheet
The rating wise break-up of assets for FY11 is as follows:
28
 AIWMI CCRA Exam

Cost to income ratio is best for which year

A.
FY13
B.
FY11
C.
Same FY11 and FY12
D.
FY12

Answer: A
Explanation:
QUESTION NO: 14

Following is information related banks:

Auckland Ltd is a public sector bank operating with about 120 branches across India. The bank
has been in business since 1971 and has about 40% branches in rural areas and about 75% of all
branches are in Western India. On the basis of the size, Auckland Ltd will be ranked at number
31 amongst 40 banks in India. Although top management has appointment period of 5 years,
generally they retire on ach sieving age of 60 years with an average tenure of only 2 years at the
top job.

Profit and Loss Account

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 AIWMI CCRA Exam

Balance Sheet
The rating wise break-up of assets for FY11 is as follows:
30
 AIWMI CCRA Exam

Computer risk weighted assets for Auckland Ltd for FY11:

A.
10,10,000 Million

B.
13,24,500 Million
C.
11,64,500 Million
D.
11,60,000 Million

Answer: C

Explanation:
QUESTION NO: 15

Following is information related banks:

Auckland Ltd is a public sector bank operating with about 120 branches across India. The bank
has been in business since 1971 and has about 40% branches in rural areas and about 75% of all
branches are in Western India. On the basis of the size, Auckland Ltd will be ranked at number
31 amongst 40 banks in India. Although top management has appointment period of 5 years,
generally they retire on ach sieving age of 60 years with an average tenure of only 2 years at the
top job.

Profit and Loss Account

31
 AIWMI CCRA Exam

Balance Sheet
The rating wise break-up of assets for FY11 is as follows:
32
 AIWMI CCRA Exam

During which year amongst the three, was the overall financial profile of bank most string?

A.
No change in three years

B.
FY13
C.
FY11
D.
FY12

Answer: B

Explanation:
QUESTION NO: 16

Ms. Mary Brown is a credit rating analyst. She had prepared a detailed report on one of her
client, FlyHigh Airlines Ltd, a company operating chartered aircrafts in India. As she was
heading for a meeting with her superior on the matter, coffee spilled over her set of prepared
paper(s). As she was getting late for meeting, instead of preparing entire set she could recollect
few numbers from her memory and reconstructed following partial financial table:

33
AIWMI CCRA Exam
An analyst comparing two competitors Comp Systems and Big Tables gathers the data below:

Cash Conversions Cycle:

Comp Systems: 18 days and Big Tables 32 days

34
 AIWMI CCRA Exam

Defense Interval Ratio:

Comp Systems: 50 and Big Tables: 20

What can the analyst conclude regarding the liquidity of these companies?

A.
Both indicators suggest that Comp Systems is more liquid than Big Tables
B.
Both indicators suggest that Big Tables manages it/s cash better than Comp Systems
C.
Both indicators give contradictory results

D.

While Comp Systems is more liquid as per the Cash conversion cycle, Big Tables manages
its cash better as indicated by a lower, hence better Defense Ratio

Answer: C
Explanation:

QUESTION NO: 17

Ms. Mary Brown is a credit rating analyst. She had prepared a detailed report on one of her
client, FlyHigh Airlines Ltd, a company operating chartered aircrafts in India. As she was
heading for a meeting with her superior on the matter, coffee spilled over her set of prepared
paper(s). As she was getting late for meeting, instead of preparing entire set she could recollect
few numbers from her memory and reconstructed following partial financial table:
35
AIWMI CCRA Exam
What is Total Income FY10 and FY12?

A.

FY10: INR400 Million; FY12:INR575 Million

36
 AIWMI CCRA Exam

B.
FY10: INR525.56 Million; FY12: INR755.49 Million
C.
Insufficient Information to compute

D.
FY10: INR656.94 Million; FY12: INR821.18 Million

Answer: A
Explanation:

QUESTION NO: 18

Ms. Mary Brown is a credit rating analyst. She had prepared a detailed report on one of her
client, FlyHigh Airlines Ltd, a company operating chartered aircrafts in India. As she was
heading for a meeting with her superior on the matter, coffee spilled over her set of prepared
paper(s). As she was getting late for meeting, instead of preparing entire set she could recollect
few numbers from her memory and reconstructed following partial financial table:
37
AIWMI CCRA Exam
Compute growth in PAT for FY12?

A.

25%

38
 AIWMI CCRA Exam

B.
19%
C.
22%

D.
21%

Answer: B
Explanation:

QUESTION NO: 19

Ms. Mary Brown is a credit rating analyst. She had prepared a detailed report on one of her
client, FlyHigh Airlines Ltd, a company operating chartered aircrafts in India. As she was
heading for a meeting with her superior on the matter, coffee spilled over her set of prepared
paper(s). As she was getting late for meeting, instead of preparing entire set she could recollect
few numbers from her memory and reconstructed following partial financial table:
39
AIWMI CCRA Exam
PAT margins are highest in which of the years?

A.

FY12

40
 AIWMI CCRA Exam

B.
FY11
C.
FY10

D.
Equal in FY10 and FY12

Answer: A
Explanation:

QUESTION NO: 20

Ms. Mary Brown is a credit rating analyst. She had prepared a detailed report on one of her
client, FlyHigh Airlines Ltd, a company operating chartered aircrafts in India. As she was
heading for a meeting with her superior on the matter, coffee spilled over her set of prepared
paper(s). As she was getting late for meeting, instead of preparing entire set she could recollect
few numbers from her memory and reconstructed following partial financial table:
41
AIWMI CCRA Exam
Compute Interest for FY10 and FY12?

A.

Insufficient Information to compute

42
 AIWMI CCRA Exam

B.
FY10: INR50.53 Million; FY12:INR81.38 Million
C.
FY10: INR161.71 Million; FY12: INR252.27 Million

D.
FY10: INR17.47 Million; FY12:INR782.03 Million

Answer: C
Explanation:

QUESTION NO: 21

“Following four entities operate in the Indian IT and BPO space. They all are into same segment
of providing off-shore analytical services. They all operate on the labour cost-arbitrage in India
and the countries of their clients. Following information pertains for the year ended March 31,
2013.
43
AIWMI CCRA Exam
The year FY13, was typically a good year for Indian IT companies. For FY14, the
economic analysts have given following predictions about the IT Industry:

A) It is expected that INR will appreciate sharply against other USD.

B) Given high inflation and attrition in IT Industry in India, the wages of IT sector employees
will increase more sharply than Inflation and general wage rise in country.

C) US Congress will be passing a bill which restricts the outsourcing to third world countries
like India.
While analyzing the four entities, you come across following findings related to Glowing:

Glowing is promoted by Mr.M R Bhutta, who has earlier promoted two other business ventures,
He started with ABC Entertainment Ltd in 1996 and was promoter and MD of the company.
ABC was a listed entity and its share price had sharp movements at the time of stock market
scam in late 1990s. In 1999, Mr.Bhutta sold his entire stake and resigned from the post of MD.
The stock price declined by about 90% in coming days and has never recovered. Later on in
2003, Mr.Bhutta again promoted a new business, Klear Publications Ltd (KCL) an in the
business of magazine publication. The entity had come out with a successful IPO and raised
money from public. Thereafter it ran into troubles and reported losses. In 2009, Mr.Bhutta went
on to exit this business as well by selling stake to other promoter(s). There have been reports in
both instances with allegations that promoters have siphoned off money from listed entities to
other group entities, however, nothing has been proved in any court.”

44
 AIWMI CCRA Exam

Which of the following risks do not exist for Indian IT industry?

A.
Raw material price risk, Exchange rate Risk
B.
Interest rate risk, Skilled Manpower Risk
C.
Exchange Rate Risk, Interest rate risk
D.
Domestic and international regulatory risk, technological risk

Answer: B
Explanation:

QUESTION NO: 22

“Following four entities operate in the Indian IT and BPO space. They all are into same segment
of providing off-shore analytical services. They all operate on the labour cost-arbitrage in India
and the countries of their clients. Following information pertains for the year ended March 31,
2013.
45
AIWMI CCRA Exam
The year FY13, was typically a good year for Indian IT companies. For FY14, the
economic analysts have given following predictions about the IT Industry:

A) It is expected that INR will appreciate sharply against other USD.

B) Given high inflation and attrition in IT Industry in India, the wages of IT sector employees
will increase more sharply than Inflation and general wage rise in country.

C) US Congress will be passing a bill which restricts the outsourcing to third world countries
like India.
While analyzing the four entities, you come across following findings related to Glowing:

Glowing is promoted by Mr.M R Bhutta, who has earlier promoted two other business ventures,
He started with ABC Entertainment Ltd in 1996 and was promoter and MD of the company.
ABC was a listed entity and its share price had sharp movements at the time of stock market
scam in late 1990s. In 1999, Mr. Bhutta sold his entire stake and resigned from the post of MD.
The stock price declined by about 90% in coming days and has never recovered. Later on in
2003, Mr. Bhutta again promoted a new business, Klear Publications Ltd (KCL) an in the
business of magazine publication. The entity had come out with a successful IPO and raised
money from public. Thereafter it ran into troubles and reported losses. In 2009, Mr. Bhutta went
on to exit this business as well by selling stake to other promoter(s). There have been reports in
both instances with allegations that promoters have siphoned off money from listed entities to
other group entities, however, nothing has been proved in any court.”

46
 AIWMI CCRA Exam

Which entity is best in terms of overall gearing ratio and net gearing ratio respectively:

A.
Glowing and Beautiful
B.
Handsome and Handsome
C.
Glamorous and Glowing
D.
Glamorous and Glamorous

Answer: C
Explanation:

QUESTION NO: 23

“Following four entities operate in the Indian IT and BPO space. They all are into same segment
of providing off-shore analytical services. They all operate on the labour cost-arbitrage in India
and the countries of their clients. Following information pertains for the year ended March 31,
2013.
47
AIWMI CCRA Exam
The year FY13, was typically a good year for Indian IT companies. For FY14, the
economic analysts have given following predictions about the IT Industry:

A) It is expected that INR will appreciate sharply against other USD.

B) Given high inflation and attrition in IT Industry in India, the wages of IT sector employees
will increase more sharply than Inflation and general wage rise in country.

C) US Congress will be passing a bill which restricts the outsourcing to third world countries
like India.
While analyzing the four entities, you come across following findings related to Glowing:

Glowing is promoted by Mr.M R Bhutta, who has earlier promoted two other business ventures,
He started with ABC Entertainment Ltd in 1996 and was promoter and MD of the company.
ABC was a listed entity and its share price had sharp movements at the time of stock market
scam in late 1990s. In 1999, Mr.Bhutta sold his entire stake and resigned from the post of MD.
The stock price declined by about 90% in coming days and has never recovered. Later on in
2003, Mr.Bhutta again promoted a new business, Klear Publications Ltd (KCL) an in the
business of magazine publication. The entity had come out with a successful IPO and raised
money from public. Thereafter it ran into troubles and reported losses. In 2009, Mr.Bhutta went
on to exit this business as well by selling stake to other promoter(s). There have been reports in
both instances with allegations that promoters have siphoned off money from listed entities to
other group entities, however, nothing has been proved in any court.”

48
 AIWMI CCRA Exam

Based solely on Total Debt to EBITDA and Interest Coverage, which of the four entities is
best amongst the four respectively:

A.
Glamorous and Glamorous
B.
Glamorous and Glowing
C.
Glowing and Beautiful
D.
Glamorous and Glamorous

Answer: B
Explanation:

QUESTION NO: 24

“Following four entities operate in the Indian IT and BPO space. They all are into same segment
of providing off-shore analytical services. They all operate on the labour cost-arbitrage in India
and the countries of their clients. Following information pertains for the year ended March 31,
2013.
49
AIWMI CCRA Exam
The year FY13, was typically a good year for Indian IT companies. For FY14, the
economic analysts have given following predictions about the IT Industry:

A) It is expected that INR will appreciate sharply against other USD.

B) Given high inflation and attrition in IT Industry in India, the wages of IT sector employees
will increase more sharply than Inflation and general wage rise in country.

C) US Congress will be passing a bill which restricts the outsourcing to third world countries
like India.
While analyzing the four entities, you come across following findings related to Glowing:

Glowing is promoted by Mr.M R Bhutta, who has earlier promoted two other business ventures,
He started with ABC Entertainment Ltd in 1996 and was promoter and MD of the company.
ABC was a listed entity and its share price had sharp movements at the time of stock market
scam in late 1990s. In 1999, Mr.Bhutta sold his entire stake and resigned from the post of MD.
The stock price declined by about 90% in coming days and has never recovered. Later on in
2003, Mr. Bhutta again promoted a new business, Klear Publications Ltd (KCL) an in the
business of magazine publication. The entity had come out with a successful IPO and raised
money from public. Thereafter it ran into troubles and reported losses. In 2009, Mr. Bhutta went
on to exit this business as well by selling stake to other promoter(s). There have been reports in
both instances with allegations that promoters have siphoned off money from listed entities to
other group entities, however, nothing has been proved in any court.”

50
 AIWMI CCRA Exam

What will be impact of on the predictions A and B of the economic analysts, on companies:

A.

Handsome: No Impact on sales; Margins may squeeze; Glowing: INR Sales may decline;
margins may squeeze.
B.

Handsome: INRSales may increase; margins may squeeze; Glowing: INRSales will
increase; margins may squeeze.
C.

Handsome: INR Sales may decline; margins may squeeze; Glowing: INR Sales may
decline; margins may squeeze.
D.

Handsome: No Impact on sales; Margins may squeeze; Glowing: No Impact on sales;

Margins may squeeze.

Answer: B
Explanation:

QUESTION NO: 25

“Following four entities operate in the Indian IT and BPO space. They all are into same segment
of providing off-shore analytical services. They all operate on the labour cost-arbitrage in India
and the countries of their clients. Following information pertains for the year ended March 31,
2013.
51
AIWMI CCRA Exam
The year FY13, was typically a good year for Indian IT companies. For FY14, the
economic analysts have given following predictions about the IT Industry:

A) It is expected that INR will appreciate sharply against other USD.

52
 AIWMI CCRA Exam

B) Given high inflation and attrition in IT Industry in India, the wages of IT sector employees
will increase more sharply than Inflation and general wage rise in country.

C) US Congress will be passing a bill which restricts the outsourcing to third world countries
like India.
While analyzing the four entities, you come across following findings related to Glowing:

Glowing is promoted by Mr.M R Bhutta, who has earlier promoted two other business ventures,
He started with ABC Entertainment Ltd in 1996 and was promoter and MD of the company.
ABC was a listed entity and its share price had sharp movements at the time of stock market
scam in late 1990s. In 1999, Mr. Bhutta sold his entire stake and resigned from the post of MD.
The stock price declined by about 90% in coming days and has never recovered. Later on in
2003, Mr. Bhutta again promoted a new business, Klear Publications Ltd (KCL) an in the
business of magazine publication. The entity had come out with a successful IPO and raised
money from public. Thereafter it ran into troubles and reported losses. In 2009, Mr. Bhutta went
on to exit this business as well by selling stake to other promoter(s). There have been reports in
both instances with allegations that promoters have siphoned off money from listed entities to
other group entities, however, nothing has been proved in any court.”

Based on your findings in the case of Glowing, how will you handle the same as a credit
rating analyst:

A.

Be more cautious and skeptical on any information received from Glowing and give
negative marks in management risk and use it as an overriding factor to lower the credit
ratings.
B.
Any of the three.
C.
Deny taking up assignment for Glowing.
D.

One needs to check only the corporate governance aspect of the Glowing and the past same
should not have any bearing on Glowing.

Answer: D
Explanation:

QUESTION NO: 26

Satish Dhawan, a veteran fixed income trader is conducting interviews for the post of a junior
fixed

53
 AIWMI CCRA Exam

income trader. He interviewed four candidates Adam, Balkrishnan, Catherine and Deepak
and following are the answers to his questions.
Question 1: Tell something about Option Adjusted Spread

Adam: OAS is applicable only to bond which do not have any options attached to it. It is for
the plain bonds.

Balkishna: In bonds with embedded options, AS reflects not only the credit risk but also
reflects prepayment risk over and above the benchmark.

Catherine: Sincespreads are calculated to know the level of credit risk in the bound, OAS
is difference between in the Z spread and price of a call option for a callable bond.

Deepark: For callable bond OAS will be lower than Z Spread.

Question 2: This is a spread that must be added to the benchmark zero rate curve in a parallel
shift so that the sum of the risky bond’s discounted cash flows equals its current market price.
Which Spread I am talking about?

Adam: Z Spread

Balkrishna: Nominal Spread

Catherine: Option Adjusted Spread

Deepark: Asset Swap Spread

Question 3: What do you know about Interpolated spread and yield spread?

Adam: Yield spread is the difference between the YTM of a risky bond and the YTM of an on-
the-run treasury benchmark bond whose maturity is closest, but not identical to that of risky
bond. Interpolated spread is the spread between the YTM of risky bond and the YTM of same
maturity treasury benchmark, which is interpolated from the two nearest on-the-run treasury
securities.

Balkrishna: Interpolated spread is preferred to yield spread because the latter has the maturity
mismatch, which leads to error if the yield curve is not flat and the benchmark security
changes over time, leading to inconsistency.
Catherine: Interpolated spread takes account the shape of the benchmark yield curve and
therefore better than yield spread.

54
 AIWMI CCRA Exam

Deepak: Both Interpolated Spread and Yield Spread rely on YTM which suffers from
drawbacks and inconsistencies such as the assumption of flat yield curve and reinvestment at
YTM itself.

Then Satish gave following information related to the benchmark YTMs:

Which of the modified statement of Balkrishna will be a correct statement?

A.

In bonds with embedded options, Nominal Spread reflects not only the credit risk but also
reflects prepayment risk over and above the benchmark.
B.

In bonds with embedded options, spread reflects not only the credit risk but also
reflects prepayment risk over and above the benchmark.

C.
None of the three.
D.

In bonds with embedded options, Z Spread reflects not only the credit risk but also
reflects prepayment risk over and above the benchmark.

Answer: A
Explanation:
QUESTION NO: 27

Satish Dhawan, a veteran fixed income trader is conducting interviews for the post of a junior
fixed income trader. He interviewed four candidates Adam, Balkrishnan, Catherine and Deepak
and following are the answers to his questions.

Question 1: Tell something about Option Adjusted Spread

Adam: OAS is applicable only to bond which do not have any options attached to it. It is for
the plain bonds.

Balkishna: In bonds with embedded options, AS reflects not only the credit risk but also reflects

55
 AIWMI CCRA Exam

prepayment risk over and above the benchmark.

Catherine: Sincespreads are calculated to know the level of credit risk in the bound, OAS
is difference between in the Z spread and price of a call option for a callable bond.

Deepark: For callable bond OAS will be lower than Z Spread.

Question 2: This is a spread that must be added to the benchmark zero rate curve in a parallel
shift so that the sum of the risky bond’s discounted cash flows equals its current market price.
Which Spread I am talking about?

Adam: Z Spread

Balkrishna: Nominal Spread

Catherine: Option Adjusted Spread

Deepark: Asset Swap Spread

Question 3: What do you know about Interpolated spread and yield spread?

Adam: Yield spread is the difference between the YTM of a risky bond and the YTM of an on-
the-run treasury benchmark bond whose maturity is closest, but not identical to that of risky
bond. Interpolated spread is the spread between the YTM of risky bond and the YTM of same
maturity treasury benchmark, which is interpolated from the two nearest on-the-run treasury
securities.

Balkrishna: Interpolated spread is preferred to yield spread because the latter has the maturity
mismatch, which leads to error if the yield curve is not flat and the benchmark security
changes over time, leading to inconsistency.

Catherine: Interpolated spread takes account the shape of the benchmark yield curve and
therefore better than yield spread.

Deepak: Both Interpolated Spread and Yield Spread rely on YTM which suffers from
drawbacks and inconsistencies such as the assumption of flat yield curve and reinvestment at
YTM itself.
Then Satish gave following information related to the benchmark YTMs:

56
 AIWMI CCRA Exam

There is a 10.25% risky bond with a maturity of 4.75 year(s). Its current price is INR105.31,
which corresponds to YTM of 9.22%. Compute Interpolated Spread from the information
provided in the vignette:

A.
0.20%
B.
0.21%

C.
0.24%
D.
0.22%

Answer: C
Explanation:

QUESTION NO: 28

Satish Dhawan, a veteran fixed income trader is conducting interviews for the post of a junior
fixed income trader. He interviewed four candidates Adam, Balkrishnan, Catherine and Deepak
and following are the answers to his questions.
Question 1: Tell something about Option Adjusted Spread

Adam: OAS is applicable only to bond which do not have any options attached to it. It is for
the plain bonds.

Balkishna: In bonds with embedded options, AS reflects not only the credit risk but also
reflects prepayment risk over and above the benchmark.

Catherine: Sincespreads are calculated to know the level of credit risk in the bound, OAS
is difference between in the Z spread and price of a call option for a callable bond.

Deepark: For callable bond OAS will be lower than Z Spread.

Question 2: This is a spread that must be added to the benchmark zero rate curve in a parallel
shift so that the sum of the risky bond’s discounted cash flows equals its current market price.
Which Spread I am talking about?

57
 AIWMI CCRA Exam

Adam: Z Spread

Balkrishna: Nominal Spread

Catherine: Option Adjusted Spread
Deepark: Asset Swap Spread

Question 3: What do you know about Interpolated spread and yield spread?

Adam: Yield spread is the difference between the YTM of a risky bond and the YTM of an on-
the-run treasury benchmark bond whose maturity is closest, but not identical to that of risky
bond. Interpolated spread is the spread between the YTM of risky bond and the YTM of same
maturity treasury benchmark, which is interpolated from the two nearest on-the-run treasury
securities.

Balkrishna: Interpolated spread is preferred to yield spread because the latter has the maturity
mismatch, which leads to error if the yield curve is not flat and the benchmark security
changes over time, leading to inconsistency.

Catherine: Interpolated spread takes account the shape of the benchmark yield curve and
therefore better than yield spread.

Deepak: Both Interpolated Spread and Yield Spread rely on YTM which suffers from
drawbacks and inconsistencies such as the assumption of flat yield curve and reinvestment at
YTM itself.

Then Satish gave following information related to the benchmark YTMs:

An investor decides to invest in the bond futures and has an outlook that the term structure
curve would steepen. What should be his trading strategy?
A.
Sell futures on short-maturity underlying, Buy futures on long-maturity underlying
B.

Buy futures on short-maturity underlying, Buy futures on long-maturity underlying and Sell
futures on middle-maturity underlying
C.
Buy futures on short-maturity underlying, Sell futures on long-maturity underlying.

58
 AIWMI CCRA Exam

D.

Sell futures on short-maturity underlying, Sell futures on long-maturity underlying and Buy
futures on middle-maturity underlying.

Answer: A
Explanation:

QUESTION NO: 29

Satish Dhawan, a veteran fixed income trader is conducting interviews for the post of a junior
fixed income trader. He interviewed four candidates Adam, Balkrishnan, Catherine and Deepak
and following are the answers to his questions.
Question 1: Tell something about Option Adjusted Spread

Adam: OAS is applicable only to bond which do not have any options attached to it. It is for
the plain bonds.

Balkishna: In bonds with embedded options, AS reflects not only the credit risk but also
reflects prepayment risk over and above the benchmark.

Catherine: Sincespreads are calculated to know the level of credit risk in the bound, OAS
is difference between in the Z spread and price of a call option for a callable bond.

Deepark: For callable bond OAS will be lower than Z Spread.

Question 2: This is a spread that must be added to the benchmark zero rate curve in a parallel
shift so that the sum of the risky bond’s discounted cash flows equals its current market price.
Which Spread I am talking about?

Adam: Z Spread

Balkrishna: Nominal Spread

Catherine: Option Adjusted Spread
Deepark: Asset Swap Spread

Question 3: What do you know about Interpolated spread and yield spread?

59
 AIWMI CCRA Exam

Adam: Yield spread is the difference between the YTM of a risky bond and the YTM of an on-
the-run treasury benchmark bond whose maturity is closest, but not identical to that of risky
bond. Interpolated spread is the spread between the YTM of risky bond and the YTM of same
maturity treasury benchmark, which is interpolated from the two nearest on-the-run treasury
securities.

Balkrishna: Interpolated spread is preferred to yield spread because the latter has the maturity
mismatch, which leads to error if the yield curve is not flat and the benchmark security
changes over time, leading to inconsistency.

Catherine: Interpolated spread takes account the shape of the benchmark yield curve and
therefore better than yield spread.

Deepak: Both Interpolated Spread and Yield Spread rely on YTM which suffers from
drawbacks and inconsistencies such as the assumption of flat yield curve and reinvestment at
YTM itself.

Then Satish gave following information related to the benchmark YTMs:

There is an 8.75% risky bond with a maturity of 2.75% year(s). Its current price is INR102.31,
which corresponds to YTM of 8.52%. Compute Yield Spread from the information provided in
the vignette:

A.
0.13%
B.
0.00%
C.
0.36%
D.
0.27%

Answer: C
Explanation:

QUESTION NO: 30

60
 AIWMI CCRA Exam

Satish Dhawan, a veteran fixed income trader is conducting interviews for the post of a junior
fixed income trader. He interviewed four candidates Adam, Balkrishnan, Catherine and Deepak
and following are the answers to his questions.
Question 1: Tell something about Option Adjusted Spread

Adam: OAS is applicable only to bond which do not have any options attached to it. It is for
the plain bonds.

Balkishna: In bonds with embedded options, AS reflects not only the credit risk but also
reflects prepayment risk over and above the benchmark.

Catherine: Sincespreads are calculated to know the level of credit risk in the bound, OAS
is difference between in the Z spread and price of a call option for a callable bond.

Deepark: For callable bond OAS will be lower than Z Spread.

Question 2: This is a spread that must be added to the benchmark zero rate curve in a parallel
shift so that the sum of the risky bond’s discounted cash flows equals its current market price.
Which Spread I am talking about?

Adam: Z Spread

Balkrishna: Nominal Spread

Catherine: Option Adjusted Spread
Deepark: Asset Swap Spread

Question 3: What do you know about Interpolated spread and yield spread?

Adam: Yield spread is the difference between the YTM of a risky bond and the YTM of an on-
the-run treasury benchmark bond whose maturity is closest, but not identical to that of risky
bond. Interpolated spread is the spread between the YTM of risky bond and the YTM of same
maturity treasury benchmark, which is interpolated from the two nearest on-the-run treasury
securities.

Balkrishna: Interpolated spread is preferred to yield spread because the latter has the maturity
mismatch, which leads to error if the yield curve is not flat and the benchmark security
changes over time, leading to inconsistency.

Catherine: Interpolated spread takes account the shape of the benchmark yield curve and
therefore better than yield spread.

61
 AIWMI CCRA Exam

Deepak: Both Interpolated Spread and Yield Spread rely on YTM which suffers from
drawbacks and inconsistencies such as the assumption of flat yield curve and reinvestment at
YTM itself.

Then Satish gave following information related to the benchmark YTMs:

Who amongst the four candidates is correct regarding OAS?

A.
Only Catherine

B.
Only Deepak
C.
Only Adam and Catherine
D.
Only Deepak and Catherine

Answer: C
Explanation:
QUESTION NO: 31

The following information pertains to bonds:

62
 AIWMI CCRA Exam

Further following information is available about a particular bond ‘Bond F’

There is a 10.25% risky bond with a maturity of 2.25% year(s) its current price is INR105.31,
which corresponds to YTM of 9.22%. The following are the benchmark YTMs.
From the time January 2013 to April 2013, what can you predict about the market
conditions, assuming the G-Sec has not changed?
A.

There has been credit spread compression, which means the spreads have declines, which can
be lead indicator of oncoming economy stress.

B.

There has been widening of credit spread, which means the spreads have increased, which can
be lead indicator of oncoming economy stress.
C.

There has been widening of credit spread, which means the spreads have increased, which can
be lead indicator of oncoming economy stress.
D.

There has been credit spread compression, which means the spreads have declines, which can
be lead indicator of oncoming economy boom.

Answer: C
Explanation:

63
 AIWMI CCRA Exam

QUESTION NO: 32

The following information pertains to bonds:

Further following information is available about a particular bond ‘Bond F’

There is a 10.25% risky bond with a maturity of 2.25% year(s) its current price is INR105.31,
which corresponds to YTM of 9.22%. The following are the benchmark YTMs.
Compute interpolated spread for Bond F based on the information provided in the vignette:

A.
1.64%

B.
0.43%
C.
0.61%
D.
1.46%

Answer: A
Explanation:

64
 AIWMI CCRA Exam

QUESTION NO: 33

The following information pertains to bonds:

Further following information is available about a particular bond ‘Bond F’

There is a 10.25% risky bond with a maturity of 2.25% year(s) its current price is INR105.31,
which corresponds to YTM of 9.22%. The following are the benchmark YTMs.
Following are the relevance of Industry Analysis:

Statement 1: Evaluating Industry risk is the first and foremost step for top down approach
of analysis.

Statement 2: Industry Analysis is relevant for analyzing the industry life cycle, which is
highly important from the perspective of an investor or lender.

State which is/are correct?

A.
Both are incorrect
B.
Both are correct
C.
Only Statement 2 is correct

65
 AIWMI CCRA Exam

D.
Only Statement 1 is correct

Answer: B
Explanation:

QUESTION NO: 34

The following information pertains to bonds:

Further following information is available about a particular bond ‘Bond F’

There is a 10.25% risky bond with a maturity of 2.25% year(s) its current price is INR105.31,
which corresponds to YTM of 9.22%. The following are the benchmark YTMs.

Assuming the G-Sec has not changed from the time January 2013 to April 2013, what can
you predict about the changes bond price and change in issues borrowing rates:

A.
Decrease and Increase
B.
Increase and Increase
C.

66
 AIWMI CCRA Exam

Decrease and Decrease

D.
Increase and Decrease

Answer: D
Explanation:

QUESTION NO: 35

The following information pertains to bonds:

Further following information is available about a particular bond ‘Bond F’

There is a 10.25% risky bond with a maturity of 2.25% year(s) its current price is INR105.31,
which corresponds to YTM of 9.22%. The following are the benchmark YTMs.

Assume that the general market rates have increased. An issuer, Revolution Ltd has plans to roll
over its existing commercial paper and forth coming reset dates for its floating rate bonds are
very near. Which of the following ratios for revolution will get impacted?

A.
Interest Coverage and Return on assets
B.

67
 AIWMI CCRA Exam

DSCR, and Return on Assets

C.
DSCR, Interest Coverage and Return on assets
D.

DSCR and interest Coverage

Answer: A
Explanation:

QUESTION NO: 36

If XYZ Ltd. incurs (with purchase and installation of machinery) using cash, which of the
following ratios will remain unchanged, if all other things remain constant?

A.
None of the three
B.
Asset Turnover ratio
C.
Current Ratio
D.
Quick Ratio

Answer: C
Explanation:
QUESTION NO: 37

Mr. Gopi, while teaching the CCRA course to students described Altman’s Model and stated
that following variables do exist for Altman’s Model:

1. total debt/total assets,

2. retained earnings/total assets.

68
 AIWMI CCRA Exam

3. earnings before interest and taxes/total assets,

4. market value equity/book value of total liabilities,

5. sales/total assets

Exactly how many variables are incorrectly identified?

A.

Exactly Four
B.
Exactly One
C.
Exactly Two
D.
Exactly Three

Answer: A
Reference: https://www.investopedia.com/terms/a/altman.asp

QUESTION NO: 38

Two economies HardLand and SincereLand have provided following information with respect
to their economies in USD Billion:
Based on the above information which entity is better in terms of current account deficit %?

A.

69
 AIWMI CCRA Exam

Sincereland by 583 bps

B.
Hardland by 56 bps
C.

Sincereland by 56 bps
D.
Hardland by 583 bps

Answer: B
Explanation:

QUESTION NO: 39

The longer the term to maturity of bond:

A.
term to maturity and price of a bond are not related
B.
The lesser is the risk associated with price of a bond
C.
The higher is the return from the bond
D.
The more risk in the price of a bond

Answer: D
Reference: https://www.investopedia.com/university/advancedbond/advancedbond5.asp
QUESTION NO: 40

Loss assets should be written off. If loss assets are permitted to remain in the books for
any reason, ______percent of the outstanding should be provided for.

A.

70
 AIWMI CCRA Exam

150
B.
75
C.

100
D.
50

Answer: C
Reference: https://currentaffairs.gktoday.in/tags/provision-coverage-ratio

QUESTION NO: 41

Under an advance factoring contract, following flow of money takes place:

A.
Factor pays a percentage of the invoice face value to the seller at the time of sale

B.

The remainder of the purchase price is held by factor until the payment by the account debtor
is made.
C.
The cost associated with the transaction is paid upfront by the seller to the factoring agent.
D.
Only B
E.
A, B and C
F.
Only C

G.
Only A and B

Answer: D

Reference:

https://www.google.com/url?
sa=t&rct=j&q=&esrc=s&source=web&cd=2&cad=rja&uact=8&ved=2a
hUKEwjgyrT_jdzeAhXlAMAKHS5ACywQFjABegQIBBAC&url=https%3A%2F%2Fsiteproxy.ruqli.workers.dev%3A443%2Fhttps%2Fwww.ansarbank.

71
 AIWMI CCRA Exam

com%2FAssets%2FData%2Fuserfiles%2Ffiles%2FFactoring(zarineh).docx&usg=AOvVaw0Oaoifq
INnnvz3sRedVCii

QUESTION NO: 42

In Steepening short term rates ______relative to long term rate

A.
falls
B.
rises
C.
is independent of each other
D.
remains constant

Answer: A
Reference: https://www.analystforum.com/forums/cfa-forums/cfa-level-ii-forum/91348766

QUESTION NO: 43

If you yield curve is humped and the medium rates drop, what will happen to the yield curve?

A.
It will move from negative to positive
B.
It will shift up in a uniform fashion
C.
It will become steeper

D.
It will flatten

72
 AIWMI CCRA Exam

Answer: C
Explanation:

QUESTION NO: 44

Which of the following statement is false?

A.
DEF Ltd. has received a speculative grade rating as its outstanding rating is B+
B.

Non-Convertible debenture of PQR Ltd. has a speculative rating since its outstanding rating is C
C.
ABC Ltd. short term is BBB- for its commercial paper
D.
XYZ has an investment grade rating as his outstanding rating is A1

Answer: B
Explanation:

QUESTION NO: 45

Which of the following is not one of the C in the 5 C Model?

A.
Capacity

B.
Capital
C.
Covenants
D.

Conditions

Answer: C
Reference: https://www.investopedia.com/terms/f/five-c-credit.asp
73
 AIWMI CCRA Exam

QUESTION NO: 46

Change in priority ranking of reference obligations is:

A.
Obligation acceleration
B.
Obligation default
C.
Restructuring
D.
Repudiation

Answer: C
Reference:
https://books.google.com.pk/books?
id=NDvNAgAAQBAJ&pg=PA279&lpg=PA279&dq=credit+Cha

nge+in+priority+ranking+of+reference+obligations+is&source=bl&ots=L0YrHy6KrW&sig=NZErE0e
K_DnEL-1UOYW3y7vZ2og&hl=en&sa=X&ved=2ahUKEwi38J-
F_t3eAhXHAsAKHSKIBE4Q6AEwAHoECAkQAQ#v=onepage&q=credit%20Change%20in%20pri
ority%20ranking%20of%20reference%20obligations%20is&f=false

QUESTION NO: 47

In an industry there are only 20 firms and each of them has equal share. Compute
Herfindahl Hirschman Index and state the level of concentration in the industry.

A.
HHI = 500; High Concentration
B.
HHI = 8000; low Concentration
C.
HHI = 8000; High Concentration
D.
HHI = 500; Low Concentration
74
 AIWMI CCRA Exam

Answer: D
Reference: https://www.investopedia.com/terms/h/hhi.asp

QUESTION NO: 48

Z spreads in Callable bonds include:

A.
Does not include premium for credit risk and call option price for prepayment risk.
B.
Premium for credit risk and call option price for prepayment risk in included.
C.
Premium for credit risk is only included.
D.
Premium for call option price for prepayment risk os only included.

Answer: B

Reference:
https://books.google.com.pk/books?
id=WTvNAgAAQBAJ&pg=PA224&lpg=PA224&dq=credit+Z+s
preads+in+Callable+bonds+include+Premium+for+credit+risk+and+call+option+price+for+prepay

ment+risk+in+included&source=bl&ots=cdWVJiWQSC&sig=d9Y2vg5dyIZIrlBT7tmKRihUg2M&hl=
en&sa=X&ved=2ahUKEwiUqN2I_93eAhXMA8AKHSb1B7gQ6AEwCXoECAcQAQ#v=onepage&q
=credit%20Z%20spreads%20in%20Callable%20bonds%20include%20Premium%20for%20credit
%20risk%20and%20call%20option%20price%20for%20prepayment%20risk%20in%20included&f
=false
QUESTION NO: 49

Risk in CDS price is reflective of

A.
increase in probability of default
B.
increase in interest rates

75
 AIWMI CCRA Exam

C.
decrease in probability of default
D.
increase in recovery rates

Answer: A
Explanation:

QUESTION NO: 50

Which of the following is a factor considered while evaluating resources profile for rating of
bank?

A.
Size and growth of deposits
B.
All of the three
C.
Deposit composition & stickiness

D.
Geographic distribution of deposits

Answer: B
Explanation:

QUESTION NO: 51
Which of the following shall not be used as a source of information for the credit risk
assessment?

A.
Annual Report
B.

Reports issued by brokerages on companies

C.
Analyst Presentations

76
 AIWMI CCRA Exam

D.
Concall transcripts

Answer: A
Explanation:

QUESTION NO: 52

Which of the following are types of bank guarantee?

A.
Deferred and Term
B.
Financial and Performance
C.
Usance and Sight

Answer: B

Explanation:
Reference https://www.hdfcbank.com/sme/trade-services/letters-of-credit-and-bank-guarantees

QUESTION NO: 53

Mr. A shares details of two bonds as follows:

77
 AIWMI CCRA Exam

Determine the interpolated spread for Bond X and Bond Y?

A.
Bond X: 80 bps
Bond Y: Negative
B.
Bond X: 35 bps
Bond Y: 5 bps

C.
Bond X: 65 bps
Bond Y: Nil
D.
Bond X: 20 bps

Bond Y: 20 bps

Answer: B
Explanation:

QUESTION NO: 54

A coupon bond is trading at 110% of the USD 1000 par value. If the last interest payment was

78
 AIWMI CCRA Exam

made one month ago and the coupon rate is 12%, the accrued interest on this bond is_______

A.
110
B.
100
C.
120
D.
10

Answer: D
Reference: http://www.faculty.umassd.edu/xtras/catls/resources/binarydoc/2288.pdf

QUESTION NO: 55

Basket Default swaps could be

A.
reference sectors could be from the same economy
B.
reference sectors could be the entire global space
C.
reference securities are from the same sector

Answer: C
Explanation:
QUESTION NO: 56

Which of the following statement is (are) correct?

Statement 1: Industry analysis is the first and foremost step in the bottom up approach of
analysis.
79
 AIWMI CCRA Exam

Statement 2: Industry analysis would enable an analyst to figure out the relative positions
of various market players and thereby make informed investment decisions.

A.
Both are incorrect
B.
Only Statement 1 is correct
C.
Only Statement 2 is correct
D.
Both are correct

Answer: C
Reference:
https://books.google.com.pk/books?
id=WTvNAgAAQBAJ&pg=PA33&lpg=PA33&dq=Industry+anal
ysis+would+enable+an+analyst+to+figure+out+the+relative+positions+of+various+market+players
+and+thereby+make+informed+investment+decisions&source=bl&ots=cdWVJjXJOD&sig=ylQxA7
NKQBDIaUibTdf3F8GgZh4&hl=en&sa=X&ved=2ahUKEwiKptmlpd7eAhVQQcAKHclLCCoQ6AEw
AHoECAgQAQ#v=onepage&q=Industry%20analysis%20would%20enable%20an%20analyst%20t
o%20figure%20out%20the%20relative%20positions%20of%20various%20market%20players%20
and%20thereby%20make%20informed%20investment%20decisions&f=false

QUESTION NO: 57

Proportion of fee based income is examined as the same is an _____ efficient source of bank’s
profitability.

A.
Interest based
B.
Capital

C.
Current
D.
Fee Based

80
 AIWMI CCRA Exam

Answer: A
Explanation:

QUESTION NO: 58

Attributes of healthy cultural values exclude:

A.
Experienced management.
B.

Diversified sources of revenue.

C.
Brand.
D.
Healthy relationship with employees

Answer: B
Explanation:

QUESTION NO: 59

The extension of a guarantee by company A to company B can lower the rating of___________

A.
Company B

B.
Both A and B
C.
Guarantee has no impact on ratings of company A and company B
D.

Company A

Answer: A

81
 AIWMI CCRA Exam

Explanation:

QUESTION NO: 60

For considering the assignment of probabilities, which of the following aspects are taken
into account?

A.
Economic cycle – bearish phase or boom
B.

All of the other options

C.
The date of valuation of assets on the financials
D.
The nature and age of assets

Answer: C
Explanation:

QUESTION NO: 61

An increase in the salaries of the bank employees due to new bank employee pay commission
implemented by the Central Government will lead to deterioration of which of the following
ratios:

A.
Cost to Income Ratio
B.
Net Interest Margin
C.
Core Spread

D.
Only A
E.
A B and C
82
 AIWMI CCRA Exam

F.
Only B
G.
Only C

Answer: A
Explanation:

QUESTION NO: 62

Project 1: Company X has a sugar mill at Philadelphia and is replicating same at Toronto.

Project 2: Company Y has a sugar mill at Philadelphia and is increasing capacity from 100000
MT to 140000 MT per annum.

What type of projects are Project 1 and Project 2?

A.
Project 1: Diversification; Project 2: Forward Integration

B.
Project 1: Expansion; Project 2: Forward Integration
C.
Project 1: Diversification; Project 2: Expansion
D.
Project 1: Expansion; Project 2: Expansion

Answer: C

Explanation:
QUESTION NO: 63

Which of the following may lead to the deterioration in credit profile of a bank?

Statement 1. Bank’s Capital adequacy falling below regulatory requirement.

83
 AIWMI CCRA Exam

Statement 2. Rise in Slippage ratio

A.
None of the statement is correct
B.
Both statement 1 and 2 are correct
C.
Statement 1 is correct
D.
Statement 2 is correct

Answer: A

Reference: https://economictimes.indiatimes.com/industry/banking/finance/pnbs-capital-
adequacy-falls-below-regulatory-requirement-due-to-nirav-scam/articleshow/64573303.cms

QUESTION NO: 64

During FY13, Small Bazar, a leading retail company has sold three of its prime properties
for a sum of USD 24 Million. The same had a carrying value of USD 30 Million.

Analyst had considered the same as operating income and considered it to be part of operating
expenses. However, she realized her mistake and recorded the loss as non-operating loss. Which
of the following ratio will not change despite the correction?

A) EBITDA Margins

B) Interest Coverage

C) PAT Margins

D) Gross Profit Margin

A.
B,C&D
B.
A,B&C
C.

B, C

84
 AIWMI CCRA Exam

D.
All Ratios will change

Answer: B
Explanation:

QUESTION NO: 65

Which of the following statements concerning having a CEO serve as chairman of the board
is most accurate? Having a CEO also serve as chairman is considered:

A.

poor corporate governance practice as having the CEO server as chairman is an inherent
conflict when determining management compensation.
B.

good corporate governance practice as the CEO is the best person to provide the board with
information about the company’s strategy and operations.
C.
cannot be determined
D.

poor corporate governance practice as having the CEO and chairman serve as separate positions
ensures a properly-functioning board.

Answer: D
Explanation:

QUESTION NO: 66
A holder of which of the following types of bonds is least likely to suffer from rising interest
rates?

A.
Floating rate bonds
B.

Fixed rate bond

85
 AIWMI CCRA Exam

C.
Zero-coupon bonds

Answer: A
Reference: https://www.nuveen.com/fixed-income-strategies-for-low-and-rising-rates

QUESTION NO: 67

The most important metric for a bank is the Net Interest Income (NII) which is the
difference between____income and____expense.

A.
Interest; Total
B.
Interest; Fee
C.
Interest; Interest

D.
Total; Total

Answer: C
Reference: https://economictimes.indiatimes.com/definition/net-interest-income-nii

QUESTION NO: 68
Based on the common size statement analysis which of the following statement
regarding employee cost is correct?

86
 AIWMI CCRA Exam

A.
The employee cost is expected to contribute 8% to decrease in PAT in FY15
B.
The employee cost is expected to contribute 7% to decrease in PAT in FY15

C.
The employee cost is expected to contribute 6% to decrease in PAT in FY15
D.
The employee cost is expected to contribute 5% to decrease in PAT in FY15

Answer: C
Explanation:
QUESTION NO: 69

Butterfly strategy is a combination of

A.
Ladder and Barbell on the same market sides
B.
Barbell and Bullet on the opposite market sides

C.
Barbell and Bullet on the same market sides
D.
Ladder and barbell on the opposite market sides

Answer: B

87
 AIWMI CCRA Exam

Reference:
https://books.google.com.pk/books?
id=WTvNAgAAQBAJ&pg=PA213&lpg=PA213&dq=Butterfly+s
trategy+is+a+combination+of+Barbell+and+Bullet+on+the+opposite+market+sides&source=bl&ots
=cdWVJkVMRG&sig=XIB-
7YqySq5YDEUmEWusH5JCsjY&hl=en&sa=X&ved=2ahUKEwj3_pCrxN7eAhVkK8AKHYuDCwUQ
6AEwBnoECAUQAQ#v=onepage&q=Butterfly%20strategy%20is%20a%20combination%20of%20

Barbell%20and%20Bullet%20on%20the%20opposite%20market%20sides&f=false

QUESTION NO: 70

Awesome Mobile Ltd is a leading mobile seller who manufactures mobile phone under own
brand Awesome. Which of the following is the biggest business risk for Awesome?

A.
Technology Risk
B.
Branding risk

C.
Raw material price risk
D.
Competition

Answer: C
Explanation:
QUESTION NO: 71

Based on the Moody’s KMV model which of the following is not correct?

A.

Growth variables are important for default analysis. rapid growth will lead to lower
probability of default and rapid decline will lead to higher probability of default.
B.

Activity ratios are relevant for default analysis. A large stock of inventories relative to sales
will lead to a higher probability of default.

88
 AIWMI CCRA Exam

C.
Only Statement A is correct
D.
Both the statements are correct

E.
None of the statements is correct
F.
Only Statement B is correct

Answer: D
Reference:
https://books.google.com.pk/books?
id=g8XgCwAAQBAJ&pg=PA67&lpg=PA67&dq=Activity+ratios
+are+relevant+for+default+analysis.+A+large+stock+of+inventories+relative+to+sales+will+lead+t
o+a+higher+probability+of+default&source=bl&ots=Q-6qbboNbl&sig=iKGUJsn0wKNSv-
F7pZ5B_GElw5E&hl=en&sa=X&ved=2ahUKEwjsruKZwd7eAhUqB8AKHQFGAtAQ6AEwC3oECA
sQAQ#v=onepage&q=Activity%20ratios%20are%20relevant%20for%20default%20analysis.%20A

%20large%20stock%20of%20inventories%20relative%20to%20sales%20will%20lead%20to%20a
%20higher%20probability%20of%20default&f=false

QUESTION NO: 72

In a weakening economy, which of the following is least accurate?

A.

Interest costs go up and create refunding risk for those who have bonds maturing which need
to be rolled over.

B.
Interest costs go up and create rate risk for have bonds maturing which need to be rolled over.

C.
None of the other options.
D.
Interest costs go up and create funding risk for those who have borowing plans lined up.

Answer: D
Explanation:

89
 AIWMI CCRA Exam

QUESTION NO: 73

Which of the following is not an importance of the sovereign rating?

A.
To arrive at cost of lending to a country
B.
To set lower floor for the rating of the corporate and banks of the countries on international
scale.
C.
For determining the risk levels for international investment portfolios
D.
Only A and C
E.
Only B
F.
Only A and B

G.
None of the three

Answer: B
Explanation:

QUESTION NO: 74

Bank A has an imaginary portfolio of USD 1000 Million distributed towards following four
entities:

90
 AIWMI CCRA Exam

Bank A is stipulated to maintain a capital adequacy ratio of 11% on its risk weighted assets. It
is being stipulated that the ratings for all the four entities is expected to be downgraded by 1
notch each. Estimate the amount of new capital required for Bank A?

A.
USD 93.5 Million
B.
USD 38.5 Million
C.
USD 55 Million
D.
USD 850 Million

Answer: B
Explanation:

QUESTION NO: 75

Stand by letter of credits are typically taken as credit enhancement for___________

A.
Commercial Paper
B.
Long term Bond issues
C.
Long term debenture issues
D.

91
 AIWMI CCRA Exam

Bank debt

Answer: D
Reference: https://www.investopedia.com/terms/s/standbyletterofcredit.asp

QUESTION NO: 76

Statement 1: The Yields on the MBS PTCs are normally higher than the yields on the
corporate bonds of similar ratings.

Statement 2: The reason for difference in yields on the corporate bonds and similarly rated
PTCs is on account of the optionality in the PTC, the unfamiliarity of the structure and
uncertainties in respect of legal and structural issues.

Which of the above statements is correct?

A.
None of the statements
B.
Both the statements
C.

Only Statement 2 is correct

D.
Only Statement 1 is correct

Answer: D
Reference:

https://books.google.com.pk/books?
id=WTvNAgAAQBAJ&pg=PA305&lpg=PA305&dq=The+Yield
s+on+the+MBS+PTCs+are+normally+higher+than+the+yields+on+the+corporate+bonds+of+simil
ar+ratings&source=bl&ots=cdWVJkUPUC&sig=LXN-
pawMofH61opTbPnHkHoNc0I&hl=en&sa=X&ved=2ahUKEwiSldjpwd7eAhUMDsAKHbneBtsQ6AE
wAHoECAkQAQ#v=onepage&q=The%20Yields%20on%20the%20MBS%20PTCs%20are%20nor
mally%20higher%20than%20the%20yields%20on%20the%20corporate%20bonds%20of%20simil
ar%20ratings&f=false

92
 AIWMI CCRA Exam

QUESTION NO: 77

Which of the following is NOT a conceptual definition of credit risk on which credit models
are based?

A.
Default Mode Paradigm

B.
Value-at-Risk paradigm
C.
Mark-to-Market Paradigm

Answer: B

Reference:
http://www.bulentsenver.com/yeditepe/pdf/Credit%20Risk%20Modelling%20BIS49.pdf (page
9)

QUESTION NO: 78

Which of the following is false in case of credit enhancements?

A.

It reduces the default risk of the borrowing entity for the lender, thereby deteriorating the
overall credit worthiness of the borrower
B.
Credit enhancement could be implicit or explicit
C.

Credit enhancement is a mechanism whereby external cash flows is extended by an entity

which has a stringer credit profile, so that it benefits the fund raising entity
Answer: A
Explanation:

QUESTION NO: 79

93
 AIWMI CCRA Exam

Short term rates are determined by____________

A.
All of the other options
B.
Liquidity position caused by seasonal demand supply for credit
C.
Foreign portfolio investment inflows and outflows
D.
Bunching of tax and government payments

Answer: B
Explanation:

QUESTION NO: 80

Which of the following factor is considered while undertaking management evaluation?

A.
All of the other options
B.
Corporate Strategy
C.
Performance of group concerns
D.
Past track record
Answer: D
Explanation:

QUESTION NO: 81

94
 AIWMI CCRA Exam

The _______ cycle is the length of time between the company’s outflow on raw materials and
the
manufacturing expenses and the inflow of cash from the sale of goods.

A.

Cash flow mismatch

B.
Money
C.
Running
D.
Operating

Answer: D
Reference:

https://books.google.com.pk/books?
id=WTvNAgAAQBAJ&pg=PA407&lpg=PA407&dq=credit+cycl
e+is+the+length+of+time+between+the+company’s+outflow+on+raw+materials+and+the+manufa

cturing+expenses+and+the+inflow+of+cash+from+the+sale+of+goods&source=bl&ots=cdWVJkU
RXD&sig=qMKOpz5Q6EormgDXh9hCHWQSsHI&hl=en&sa=X&ved=2ahUKEwiY1PjXwt7eAhUJK
8AKHbLZB3UQ6AEwCXoECAcQAQ#v=onepage&q=credit%20cycle%20is%20the%20length%20
of%20time%20between%20the%20company’s%20outflow%20on%20raw%20materials%20and%
20the%20manufacturing%20expenses%20and%20the%20inflow%20of%20cash%20from%20the
%20sale%20of%20goods&f=false

QUESTION NO: 82
Step up upon feature will lead to

A.
no change as step is not linked to issuers rating
B.
positive basis because the bond holder is compensated
C.
negative basis given that the bondholder is not compensated
D.
Will lead to a change only if there is a linkage to the issuer’s rating

Answer: B

95
 AIWMI CCRA Exam

Reference:
https://books.google.com.pk/books?
id=WTvNAgAAQBAJ&pg=PA242&lpg=PA242&dq=credit+rese
arch+Step+up+upon+positive+basis+because+the+bond+holder+is+compensated&source=bl&ots
=cdWVJkYMRF&sig=t3wUd2qxS8OTjzUl8EfSzkmf7Eg&hl=en&sa=X&ved=2ahUKEwi8w4rBz97e
AhUPgVwKHRAfAMgQ6AEwAHoECAkQAQ#v=onepage&q=credit%20research%20Step%20up%

20upon%20positive%20basis%20because%20the%20bond%20holder%20is%20compensated&f=
false

QUESTION NO: 83

Provisioning Coverage Ratio (PCR) is essentially the ratio of provisioning to ______ and
indicates

the extent of funds a bank has kept aside to cover loan losses.

A.
total loan portfolio
B.

gross non-performing assets

C.
total assets

Answer: B
Reference: https://currentaffairs.gktoday.in/tags/provision-coverage-ratio
QUESTION NO: 84

__________Strategy consists of buying a bond with maturity longer than the investment horizon
(for investor) or buying a long-maturity bond with short-term funding through repo (for
speculator).

A.

Barbell, Ladder and Butterfly

B.
Yield Spread Anticipation
C.
Rate Anticipation with Maturity Mismatch

96
 AIWMI CCRA Exam

D.
Riding the yield curve

Answer: D
Reference:
https://books.google.com.pk/books?
id=WTvNAgAAQBAJ&pg=PA276&lpg=PA276&dq=Strategy+c
onsists+of+buying+a+bond+with+maturity+longer+than+the+investment+horizon+
(for+investor)+o
r+buying+a+long-maturity+bond+with+short-
term+funding+through+repo&source=bl&ots=cdWVJkURVE&sig=zdiI1Gm3sNJnB6zDJ82O-
kMAAtk&hl=en&sa=X&ved=2ahUKEwiYoNDOwt7eAhUFDsAKHWG8BvcQ6AEwAHoECAkQAQ#
v=onepage&q=Strategy%20consists%20of%20buying%20a%20bond%20with%20maturity%20lon
ger%20than%20the%20investment%20horizon%20(for%20investor)%20or%20buying%20a%20lo
ng-maturity%20bond%20with%20short-term%20funding%20through%20repo&f=false
97