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Exam Papers for Financial Markets and Institutions in BBA
(With Answers)
PAPER # 1

**Time: 2 hours**
**Instructions:**
- Answer all questions
...

- Write your answers in the space provided
...


**Part A: Multiple Choice Questions (1 point each)**
Choose the correct option for each of the following questions
...
Which of the following is not a money market instrument?
a) Treasury bills
b) Corporate bonds
c) Commercial paper
d) Certificates of deposit

Answer: b) Corporate bonds

2
...
What is the primary function of an investment bank?
a) Providing retail banking services
b) Managing insurance products
c) Facilitating the issuance of securities
d) Regulating financial markets

Answer: c) Facilitating the issuance of securities

4
...
What is the role of a stock exchange in financial markets?
a) Raising capital for companies
b) Providing loans to individuals
c) Regulating the banking sector
d) Facilitating the trading of stocks and securities

Answer: d) Facilitating the trading of stocks and securities

**Part B: Short Answer Questions (10 points each)**

6
...


Answer: Moral hazard refers to the risk that a party may take because it does not
have to bear the full consequences of its actions
...
This can lead to reckless behavior and poor decision-making, as the party taking
risks is not fully accountable for the negative outcomes
...
Describe the key functions of a central bank in a country's financial system
...

- Banking supervision: Regulating and supervising commercial banks to ensure their
soundness and stability
...

- Foreign exchange management: Managing foreign exchange reserves and
stabilizing exchange rates
...


**Part C: Essay Question (20 points)**

8
...
Provide examples and explain how these advancements have influenced
the industry
...
Technology has transformed the way financial services
are delivered, traded, and managed
...
High-frequency trading (HFT) algorithms have increased the speed
and efficiency of market transactions
...
Blockchain technology and cryptocurrencies have
introduced new forms of digital assets and payment systems
...


**Answers to Part B and Part C will vary based on the knowledge and understanding of
the student
...

1
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Which of the following is NOT a type of financial market?
(a) Money market (b) Capital market (c) Derivative market (d) Primary market
Answer: (d)
3
...
(b) Primary markets are for institutional investors
only, while secondary markets are for retail investors only
...
(d) All of the above
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What is the role of financial intermediaries?
(a) To channel funds from savers to borrowers (b) To reduce information asymmetry
and transaction costs (c) To provide diversification and liquidity to investors (d) All of the
above
Answer: (d)
5
...

1
...
Debt instruments represent a loan to a borrower, while equity instruments
represent ownership in a company
...
Some common types of equity instruments include stocks,
shares, and options
...
What are the main functions of financial markets?
Answer: Financial markets serve a number of important functions, including:
 Providing a forum for businesses to raise capital


Allowing investors to trade financial assets



Facilitating the transfer of wealth between savers and borrowers



Hedging against risk



Promoting economic growth and development

3
...
Discuss the role of financial markets in the economy
...
Explain the different types of financial instruments and their characteristics
...
Evaluate the importance of financial intermediaries in the financial system
...

Financial markets play a vital role in the economy by facilitating the flow of funds from
savers to borrowers
...

Financial markets also help to promote economic efficiency by allocating resources to
their most productive uses
...
This information helps businesses to make better
investment decisions, which ultimately benefits the economy as a whole
...
This liquidity is important for businesses and
individuals alike, as it allows them to meet their financial obligations and take advantage
of new opportunities
...

Answers:





7

Section A: (a), (b), (c), (d), (d)
Section B: 1
...
2
...
3
...

Section C: The essay should discuss the role of financial markets in facilitating
the flow of funds from savers to borrowers, promoting economic efficiency, and
providing liquidity to investors
...


PAPER # 3
Section A: Multiple Choice Questions (50 marks)
1
...
To provide a forum for buying and selling financial assets

o

B
...
To price financial assets

o

D
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Which of the following is NOT a type of financial market?
o

A
...
Capital market

o

C
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Derivatives market

Answer: None of the above
3
...
The money market deals with short-term securities, while the capital
market deals with long-term securities
...
The money market is for investors, while the capital market is for
businesses
...
The money market is more risky than the capital market
...
The money market is less liquid than the capital market
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What is the purpose of a stock exchange?

8

o

A
...
To set the prices of stocks

o

C
...
All of the above

Answer: D
5
...
A market where new securities are sold for the first time

o

B
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A market where securities are traded over the counter

o

D
...
Explain the different types of financial markets
...
Discuss the functions of financial markets
...
Describe the different types of financial institutions
...
Explain the role of financial intermediaries in the financial system
...
Discuss the importance of financial markets and institutions in the economy
...
Explain the different types of financial markets
...





9

Money markets: Money markets are for short-term securities, such as Treasury
bills, commercial paper, and certificates of deposit
...

Capital markets: Capital markets are for long-term securities, such as stocks,
bonds, and mutual funds
...

In addition to the two main types of financial markets, there are also a number of
specialized financial markets, such as the foreign exchange market, the derivatives
market, and the insurance market
...
Discuss the functions of financial markets
...
These
functions include:


Mobilizing savings and investment: Financial markets provide a way for
businesses and investors to connect with each other
...




Pricing financial assets: Financial markets provide a mechanism for setting the
prices of financial assets
...




Providing hedging and speculation opportunities: Financial markets allow
businesses and investors to hedge against risk and speculate on future price
movements
...

3
...

There are two main types of financial institutions: depository institutions and nondepository institutions
...
These institutions include commercial banks, savings
banks, and credit unions
...

Non-depository institutions: Non-depository institutions are financial institutions

that do not accept deposits from the public
...
Non-depository
institutions raise funds by issuing securities or borrowing from banks
...
Explain the role of financial intermediaries in the financial system
...
Financial intermediaries also help to reduce risk and improve
efficiency in the financial system
...
Discuss the importance of financial markets and institutions in the economy
...
Financial markets and institutions also help to promote economic growth
and stability
...
Which of the following is NOT a function of financial markets?
o

a) To provide a means for businesses to raise capital

o

b) To facilitate the transfer of risk

o

c) To provide information about the value of assets

o

d) To determine the cost of capital

Answer: d
2
...
Which of the following is a type of indirect financial intermediary?

11

o

a) Commercial bank

o

b) Investment bank

o

c) Mutual fund

o

d) Insurance company

Answer: c
4
...
Which of the following is a factor that affects the yield on a bond?
o

a) Term to maturity

o

b) Credit risk

o

c) Liquidity

o

d) All of the above

Answer: d
Section B: Short Answer (5 marks each)
1
...

Answer:
Primary markets are where new securities are issued and sold for the first time
...

2
...
Direct
financial intermediaries, such as commercial banks, lend money directly to borrowers
...

3
...
What are the different types of financial instruments?
Answer:
Financial instruments can be classified into two main types: debt and equity
...
Equity instruments, such as
shares, represent ownership in the issuer
...
What are the factors that affect the yield on a bond?
Answer:
The yield on a bond is affected by a number of factors, including:


Term to maturity: Longer-term bonds generally have higher yields than shorterterm bonds
...




Liquidity: Bonds that are more liquid, meaning that they can be easily traded,
generally have lower yields than bonds that are less liquid
...
Discuss the role of financial markets and institutions in the economy
...


13

Without financial markets, businesses would have difficulty raising the capital they need
to invest and grow
...
This can help businesses to
reduce their overall risk and become more competitive
...
This information is
essential for investors who are making decisions about where to allocate their savings
...
This is
important because the cost of capital is a key factor in business investment decisions
...


PAPER # 5
**Multiple Choice Questions (1 point each)**

1
...
What is the primary function of a central bank in a country's financial system?
a) Regulating stock markets
b) Facilitating mergers and acquisitions
c) Controlling the money supply
d) Providing loans to consumers

**Answer: c) Controlling the money supply**

14

3
...
What is the main role of the Securities and Exchange Commission (SEC) in the
United States?
a) Regulating commercial banks
b) Overseeing insurance companies
c) Regulating securities markets
d) Managing monetary policy

**Answer: c) Regulating securities markets**

**Short Answer Questions (5 points each)**

5
...
Provide
an example of each
...
Examples include initial public
offerings (IPOs)
...
**

6
...


**Answer: Diversification is the practice of spreading investments across different
asset classes or securities to reduce risk
...

Diversification can enhance returns while reducing overall risk
...
Discuss the role of commercial banks in the financial system, including their primary
functions, and how they differ from investment banks
...
They facilitate payments, offer
savings and checking accounts, and play a crucial role in the payment system
...
They do not
generally accept deposits or provide traditional banking services
...
Analyze the impact of the 2008 financial crisis on the financial markets and
institutions
...


**Answer: The 2008 financial crisis had a profound impact on financial markets and
institutions
...
It led to a credit crunch, bank failures, and a severe
economic downturn
...
**

PAPER # 6
Instructions: Answer all questions
...
Which of the following is NOT a function of financial markets?
o

A
...
To facilitate the transfer of risk

o

C
...
To create money

2
...
Money market

o

B
...
Foreign exchange market

o

D
...
Which of the following is NOT a type of financial institution?
o

A
...
Investment banks

o

C
...
Investment funds

4
...
To provide financial services to individuals and businesses

o

B
...
To manage risk

o

D
...
Which of the following is NOT a type of debt security?
o

A
...
Commercial paper

o

C
...
Stocks

Section B: Short Answer (5 marks each)
1
...

2
...

3
...

4
...

5
...


17

Section C: Essay (10 marks)
1
...

Answers:
Multiple Choice
1
...
D
3
...
D
5
...
Primary financial markets are where new securities are issued and sold for the
first time
...

2
...
They
provide a variety of services to individuals and businesses, including deposit
accounts, loans, and investment services
...
Insurance
companies provide insurance to individuals and businesses to protect them from
financial losses
...

3
...
The
borrower agrees to repay the loan with interest over a specified period of time
...
Commercial
paper is a type of short-term debt security issued by corporations
...

4
...
Equity holders are entitled
to a share of the company's profits and losses
...

5
...

Essay

18

Financial markets and institutions play an important role in the economy by facilitating
the flow of funds between borrowers and lenders
...
Financial markets also provide a platform for investors to buy
and sell assets, which helps to create wealth and liquidity
...
These services help people to save money, borrow money,
and invest their money
...




Financial markets help governments to finance their budget deficits and invest in
public infrastructure
...




Financial institutions provide investment services to help individuals and
businesses save for retirement and other financial goals
...


19

PAPER # 7
Section A: Multiple Choice Questions (1 mark each)
1
...
What is the primary role of a central bank in a country's financial system?
a) Regulating stock markets
b) Issuing currency
c) Providing insurance services
d) Conducting monetary policy

3
...
Which of the following is an example of a money market instrument?
a) Corporate bond
b) Treasury bill
c) Common stock

20

d) Residential mortgage

5
...
Explain the role of commercial banks in the financial system and provide an example
of a service they offer
...
Define "monetary policy" and discuss how the central bank uses it to influence the
economy
...
Describe the difference between primary and secondary financial markets
...


9
...


21

Section C: Essay Questions (15 marks each)

10
...
What regulatory
changes were implemented in response to this crisis?

11
...
Provide examples
of strategies that banks use to manage risk effectively
...
b) Commercial bank
2
...
b) Enforcing accounting standards
4
...
a) The ease of converting an asset into cash without loss of value
Section B:
6
...
For example, a commercial bank may offer services such as savings
accounts, checking accounts, personal loans, business loans, and mortgage loans
...
Monetary policy refers to the management of the money supply and interest rates by
the central bank to achieve specific economic objectives
...


8
...
Examples include the issuance of shares
by a company during its IPO
...


9
...
They
offer services such as underwriting securities, providing mergers and acquisitions
advice, and facilitating the trading of financial instruments like stocks and bonds
...
The 2008 financial crisis was primarily caused by the bursting of the housing bubble,
excessive risk-taking by financial institutions, and the proliferation of complex financial
products
...
Regulatory changes included the Dodd-Frank Wall Street Reform
and Consumer Protection Act, which aimed to strengthen financial regulations and
consumer protection
...
Risk management in financial institutions involves identifying, assessing, and
mitigating various risks, including credit risk, market risk, and operational risk
...
For example, a bank might use credit
risk models to assess the likelihood of borrower defaults and then make decisions on
loan approvals based on those assessments
...
BBA Exam Papers
2
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BBA Study Materials
4
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Financial Markets Practice Papers
6
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Answered Exam Papers
8
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Financial Markets Questions
10
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Financial Institutions Exams
12
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Finance and Banking Exams
14
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Finance Study Resources
16
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Financial Markets MCQs
18
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Financial Markets and Institutions Notes
20
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Financial Markets Quizzes
22
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Financial Markets Test Bank
24

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