Description

Financial Institutions and Markets

Sep 2025 Examination

 

 

Q1. You are working as a junior financial advisor in a corporate treasury department of a mid-sized manufacturing company. The company is experiencing a temporary cash surplus due to delayed capital expenditure. The CFO has asked you to suggest suitable short-term investment instruments to earn returns while ensuring high liquidity and low risk. Using your understanding of the Indian money market, apply your knowledge to identify at least two    appropriate money market instruments the company can invest in. Justify your recommendations based on the features, maturity period, and risk profile of these instruments. (10 Marks)

Ans 1.

Introduction

In the dynamic environment of corporate finance, managing surplus liquidity efficiently is critical to maximize returns while minimizing risks. Temporary cash surpluses, such as those arising from deferred capital expenditures, present an opportunity for companies to invest in low-risk, high-liquidity instruments. In such cases, the Indian money market offers a spectrum of short-term instruments that serve this exact purpose. The money market, being a part of the financial system, facilitates short-term borrowing and lending, generally for maturities up to one year. As a junior financial advisor, it is important to recommend instruments that provide safety of principal, reasonable returns, and quick convertibility. Two highly suitable options for such scenarios are Treasury Bills (T-Bills) and Certificates of

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Q2. You are working as a personal financial advisor at a reputed financial services firm. A 40-year-old client with two school-going children and a non-working spouse seeks your help in choosing the most appropriate life insurance policy. He is confused between term insurance, endowment policy, and unit-linked insurance plans (ULIPs). His primary goal is to secure his family’s financial future in case of his untimely death, but he is also interested in saving for his children’s education.Evaluate the suitability of the three types of life insurance policies in relation to the client’s needs. Based on your evaluation, recommend the most appropriate life insurance plan and justify your choice with relevant reason. (10 Marks)

Ans 2.

Introduction

Life insurance plays a vital role in personal financial planning, particularly for individuals with family responsibilities. A 40-year-old individual with dependent children and a non-working spouse must prioritize both risk protection and long-term savings. The client is currently considering Term Insurance, Endowment Policies, and Unit-Linked Insurance Plans (ULIPs), each of which serves distinct financial purposes. While his primary objective is to ensure his family’s financial security in case of an untimely death, he is also focused on accumulating funds for his children’s future education. This situation calls for a thorough

 

 

Q3 (A). You are interning at a wealth management firm that serves high-net-worth individuals (HNWIs). One of the clients is looking to diversify their investment portfolio with long-term financial instruments available in the Indian capital market. The client wants to understand the options that provide capital appreciation, regular income, or hybrid benefits over the medium to long term.

As a capital market intern, create a diversified investment proposal by selecting any three different types of capital market instruments. For each instrument, explain Its nature and features, Expected return and risk profile and Why is it suitable for long- term wealth creation . Ensure that your proposal is client-friendly and demonstrates your understanding of capital market instruments. (5 Marks)

Ans 3a.

Introduction

As an intern at a wealth management firm, it is essential to understand the financial aspirations of high-net-worth individuals (HNWIs), who generally aim for a mix of capital appreciation, regular income, and long-term stability. The Indian capital market offers a range of instruments tailored to these objectives. A diversified approach ensures risk mitigation while meeting long-term goals. For this purpose, three appropriate instruments are Equity Shares, Tax-Free Bonds, and Hybrid Mutual Funds, each offering a unique blend of

 

 

Q3(B) You have recently joined a financial consultancy firm as a junior market analyst. One of your corporate clients is planning to raise funds for expansion and is also exploring avenues  for  portfolio  diversification.  The  management  seeks  your  help  in understanding how they can leverage the capital market effectively. Create a detailed financial plan for the client that explains how the primary market can be strategically used for raising fresh capital, managing liquidity, and ensuring stable income through investments.          Your plan should describe each market type, its key functions, and recommend specific instruments or strategies suitable for the client’s objective  (5 Marks)

Ans 3b.

Introduction

The capital market plays a critical role in mobilizing funds for corporate growth and offering diverse investment avenues. As a junior market analyst at a financial consultancy, it is essential to advise corporate clients on leveraging the primary market effectively. For a company aiming to raise funds for expansion and explore investment diversification, strategic planning across market segments becomes vital. The primary market facilitates fresh capital infusion, while structured investments help in managing liquidity and ensuring long-term