Q&A-3.1

Paper 3 Financial, Treasury and Forex Management

Syllabus . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Q&A-3.2

Bird's-Eye View . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Q&A-3.5

Line Chart . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Q&A-3.9

Frequency Table Showing Distribution of Marks . . . . . . . . . . . . . . . . . Q&A-3.10

Frequency Table Showing Marks of Compulsory Questions . . . . . . . . Q&A-3.11

Legends for the Graphs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Q&A-3.12

Study Material Based Contents

1. (Study I) Nature and Scope of Financial Management . . . . . . . Q&A-3.13

2. (Study II) Capital Budgeting Decisions . . . . . . . . . . . . . . . . . . . . Q&A-3.29

3. (Study III) Capital Structure Decision . . . . . . . . . . . . . . . . . . . . . . Q&A-3.98

4. (Study IV) Sources of Finance . . . . . . . . . . . . . . . . . . . . . . . . . . . Q&A-3.173

5. (Study V) Dividend Policy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Q&A-3.194

6. (Study VI) Working Capital Management and Control . . . . . . . . . Q&A-3.218

7. (Study VII) Security Analysis and Portfolio Management . . . . . . . Q&A-3.288

8. (Study VIII) Financial Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . Q&A-3.319

9. (Study IX) Project Planning and Control . . . . . . . . . . . . . . . . . . . . Q&A-3.340

10. (Study X) Derivatives and Commodity Exchanges . . . . . . . . . . . Q&A-3.351

11. (Study XI) Treasury Management . . . . . . . . . . . . . . . . . . . . . . . . . Q&A-3.373

12. (Study XII) Forex Management . . . . . . . . . . . . . . . . . . . . . . . . . . . Q&A-3.381

Question Paper of December, 2011 . . . . . . . . . . . . . . Q&A-3.414

Question Paper of June, 2012 . . . . . . . . . . . . . . . . . . . Q&A-3.417

Question Paper of December, 2012 . . . . . . . . . . . . . . Q&A-3.421

Question Paper of June, 2013 . . . . . . . . . . . . . . . . . . . Q&A-3.425

Q&A-3.2

SyllabusPaper 3 (100 marks)

Financial, Treasury and Forex Management

Level of knowledge: Expert knowledge.

Objectives:

(i) To provide conceptual clarity about the management tools and techniques

used in financial planning, analysis, control and decision making.

(ii) To provide knowledge of derivatives, forex and treasury management to

enable the candidates to tackle practical situation with ease.

Detailed contents:

1. Nature and Scope of Financial Management

Nature, significance, objectives and scope of financial management; risk-return

and value of the firm; financial distress and insolvency; financial sector reforms

and their impact on financial management; functions of finance executive in an

organisation; financial management– recent developments.

2. Capital Budgeting Decisions

Planning and control of capital expenditure; capital budgeting process;

techniques of capital budgeting- discounted and non-discounted cash flow

methods, choice of methods; capital rationing; risk evaluation and sensitivity

analysis, simulation for risk evaluation; linear programming and capital

budgeting decisions.

3. Capital Structure Decisions

Meaning and significance of capital structure; capital structure vis-a-vis

financial structure; capital structure planning and designing; optimal capital

structure; determinants of capital structure; capital structure and valuation -

theoretical analysis; EBIT – EPS analysis; cost of capital; factors affecting cost

of capital, measurement of cost of capital, weighted average cost of capital,

marginal cost of capital; risk and leverage; measures of leverage, leverage

effects on shareholders returns.

4. Sources of Finance

Equity, non-voting preference shares; debentures and bonds; company

deposits; term loans from financial institutions and banks; international finance

and syndication of loans; euro-issues and external commercial borrowings;

FCCB; internal funds as a source of finance; dividend policy and retention of

profits; bonus shares; deferred payment arrangements; corporate taxation and

its impact on corporate financing; financing cost escalation.

Q&A-3.3

5. Dividend Policy

Introduction; types, determinants and constraints of dividend policy; different

dividend theories — Walter’s Model, Gordon’s Model and Modigliani-Miller

Hypothesis of dividend irrelevance; forms of dividend; dividend policy -

practical considerations and legal constraints; corporate dividend practices in

India; statutory framework.

6. Working Capital Management and Control

Working capital - meaning, types, determinants; assessment of working capital

requirements - operating cycle concept and applications of quantitative

techniques; management of working capital - cash, receivables, inventories;

financing of working capital; banking norms and macro aspects of working

capital management.

7. Security Analysis and Portfolio Management

Security analysis - fundamental approach, technical approach and efficient

capital market theory; portfolio management - meaning, objectives; portfolio

theory – traditional approach; modern approach -CAPM model.

8. Financial Services

Meaning, significance and scope of financial services ; types of financial

services – merchant banking, leasing and hire purchase, venture capital,

mutual funds, factoring and forfeiting, securitisation of debt, loan syndication,

custodial and corporate advisory services, credit rating.

9. Project Planning and Control

Project Planning and preparation of project report; project appraisal under

normal, inflationary and deflationary conditions; project appraisal by financial

institutions – lending policies and appraisal norms by financial institutions and

banks; loan documentation and loan syndication, project review and control;

social cost and benefit analysis of project.

10. Derivatives and Commodity Exchanges

Concept of derivatives; financial derivatives and commodity derivatives; types

of derivatives - forward contracts, futures contracts, options; participants in

futures and options market, Index based derivatives and security based

derivatives; derivatives and exposure management, currency forwards,

currency futures, currency options and currency swaps and interest rate risk

management; derivative markets in India; commodity exchanges in India.

Q&A-3.4

11. Treasury Management

Meaning, objectives, significance, functions and scope of treasury

management; relationship between treasury management and financial

management; role and responsibilities of chief finance executive; tools of

treasury management; internal treasury controls; environment for treasury

management; role of information technology in treasury management; liquidity

management, regulation, supervision and control of treasury operations,

implications of treasury on international banking.

12. Forex Management

Nature, significance and scope of forex management; foreign exchange market

and its structure; foreign exchange rates and its determination; exchange rate

quotes; types of exchange rates; forex trading; currency futures and options;

foreign exchange risk exposures and their management; exchange rate

forecasting; risk in foreign exchange business.

13. Recent Developments in Financial, Treasury and Forex Management

14. Practical Problems and Case Studies.

Q&A-3.5

Bird's-Eye View

Paper 3

Financial, Treasury and Forex Management

Question Paper Based Contents of Last Five Examinations

Years Q. No.

Chapter PageNo.

No. Name

2011June

1. (i)(ii)(iii)(iv)(v)

2. (a)(b)

3. (a)(b)

4. (i)(ii)(iii)(iv)(v)

5. (a)(b)(c)

6.7. (i)

(ii)(iii)(iv)(v)

1134523366

121212

377376486

1212

Treasury ManagementCapital Structure DecisionsSources of FinanceDividend PolicyCapital Budgeting DecisionsCapital Structure Decisions" " "Working Capital Management and Control" " "Forex Management" " "" " "Capital Structure DecisionsSecurity Analysis and Portfolio ManagementSecurity Analysis and Portfolio ManagementCapital Structure DecisionsSecurity Analysis and Portfolio ManagementWorking Capital Management and ControlSources of FinanceFinancial ServicesWorking Capital Management and ControlForex Management" " "

379106185199

31158159273273386386386101294312162313275178325220384384

2011Dec.

1. (i)(ii)(iii)(iv)(v)

2. (a)(b)(c)

3. (a)(b)

6241126658

Working Capital Management and ControlCapital Budgeting DecisionsSources of FinanceNature and Scope of Financial Management " " "Capital Budgeting DecisionsWorking Capital Management and Control " " "Dividend PolicyFinancial Services

22532

185242491

277277215337

Q&A-3.6

(c)4. (i)

(ii)(iii)(iv)(v)

5. (a)(b)

6.7. (i)

(ii)(iii)(iv)(v)

1243831736813

108

Forex ManagementSources of FinanceCapital Structure DecisionsFinancial ServicesCapital Structure DecisionsNature and Scope of Financial ManagementSecurity Analysis and Portfolio Management Capital Structure DecisionsWorking Capital Management and ControlFinancial ServicesNature and Scope of Financial ManagementCapital Structure DecisionsDerivatives and Commodity ExchangesFinancial Services

392180101328101

17314163279325

15100355325

2012June

1. (i)(ii)(iii)(iv)(v)

2. (a)(b)(c)(d)

3. (a)(b)(c)

4. (i)(ii)(iii)(iv)(v)

5. (a)(b)(c)

6.7. (i)

(ii)(iii)(iv)(v)

266

1177

12363

10618

1278737649

1034

Capital Budgeting DecisionsWorking Capital Management and Control" " "Treasury ManagementSecurity Analysis and Portfolio Management" " "Forex ManagementCapital Structure DecisionsWorking Capital Management and ControlCapital Structure DecisionsDerivatives and Commodity ExchangesWorking Capital Management and ControlNature and Scope of Financial ManagementFinancial ServicesForex ManagementSecurity Analysis and Portfolio ManagementFinancial ServicesSecurity Analysis and Portfolio ManagementCapital Structure DecisionsSecurity Analysis and Portfolio ManagementWorking Capital Management and ControlSources of FinanceProject Planning and ControlDerivatives and Commodity ExchangesCapital Structure DecisionsSources of Finance

32225225379300315411164281165370282

17328387295328316167317283178343355100178

Q&A-3.7

2012Dec.

1. (i)(ii)(iii)(iv)(v)

2. (a)(b)

3. (a)(b)(c)

4. (i)(ii)(iii)(iv)(v)

5. (a)(b)(c)

6.7. (i)

(ii)(iii)(iv)(v)

456

1112

212

65328984

1010

3296715

Sources of FinanceDividend PolicyWorking Capital Management and ControlTreasury ManagementForex ManagementCapital Budgeting DecisionsForex ManagementWorking Capital Management and ControlDividend PolicyCapital Structure DecisionsCapital Budgeting DecisionsFinancial ServiceProject Planning and ControlFinancial ServiceSources of FinanceDerivatives and Commodity Exchanges" " "Capital Structure DecisionsCapital Budgeting DecisionsProject Planning and ControlWorking Capital Management and ControlSecurity Analysis and Portfolio ManagementNature and Scope of Financial ManagementDividend Policy

185199226379392

93411285216168

31329344329180371371169

95343221293

15195

2013June

1. (i)(ii)(iii)(iv)(v)

2. (a)(b)(c)

3. (a)(b)

4. (i)(ii)(iii)(iv)(v)

5. (a)(b)

12

1138363631

1210

712

510

Nature and Scope of Financial ManagementCapital Budgeting DecisionsTreasury ManagementCapital Structure DecisionsFinancial ServiceCapital Structure DecisionsWorking Capital Management and ControlCapital Structure DecisionsWorking Capital Management and ControlCapital Structure DecisionsNature and Scope of Financial ManagementForex ManagementDerivatives and Commodity ExchangesSecurity Analysis and Portfolio ManagementForex ManagementDividend PolicyDerivatives and Commodity Exchanges

2532

380106334170286171286171

17387360295387217371

Q&A-3.8

(c)6.7. (i)

(ii)(iii)(iv)(v)

1268

1212

94

Forex ManagementWorking Capital Management and ControlFinancial ServicesForex Management" " "Project Planning and ControlSources of Finance

412286326384384343179

Q&A-3.9

Line Chart Page

Q&A-3.12

Legends for the Graphs

Sh

ort

No

tes

Dis

tin

gu

ish

Be

twe

en

De

sc

rip

tiv

e

Pra

cti

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Questions upto Dec. 2008 are from CS Final Gr. II Old Course and from June 2009 onwards are fromCS Professional Programme New Course

Q&A-3.13

Star Rating

On the basis of Maximum marks from a chapter Nil

On the basis of Questions included every year from a chapter jOn the basis of Compulsory questions from a chapter jjjjj

1 Nature and Scope of

Financial Management

This Chapter Includes: Nature, Significance, Objectives and scope of financial

management; Risk-return and value of the firm; Financial distress and insolvency;

Financial sector reforms and their impact on financial management; Functions of

finance executive in an organisation; Financial management recent developments.

Marks of Short Notes, Distinguish Between, Descriptive & Practical Questions

SHORT NOTES

2003 - June [7] Write short notes on the following:

(iv) Profit maximisation vs. wealth maximisation (5 marks)

Q&A-3.14 O Solved Scanner CS Prof. Prog. M-II Paper 3

Answer:

Profit maximisation:-

Profit maximisation is one of the objective of financial management since profit acts as

a reward for taking risk and is also an icon of business performance.

Evaluation of profit maximisation as one of the objectives of financial management:-

Advantages of Profit Maximisation:

Y The ultimate objective of each business is profit maximisation.

Y Profit acts as a reward for taking risk.

Y It helps to counteract with the future uncertainties.

Y Profit is also an icon of business performance.

Y Last but not the least, profit is the measuring rod which measures the financial

soundness of any organisation.

Disadvantages of profit Maximisation:

Reasons as to why profit maximisation is not an objective of financial management:-

Y Profit maximisation is a narrow approach.

Y Profit is a vague term since different persons have different perspective for the very

same term.

Y It ignores the timing of return.

Y Does not take into account the risk factor.

Y Lastly, it is a short term concept only.

Wealth Maximisation:

It is a long term objectives of financial management whereby the business strives to

increase the wealth of the shareholders i.e. the stockholding of individual shareholder

by maximising the market price per share.

Advantages of Wealth Maximisation:

Y As against the profit maximisation, the approach of wealth maximisation is long

term in nature.

Y It does consider the timing impact.

Y It takes into account the concept of risk and uncertainty.

Disadvantages of Wealth Maximisation:

Y Lack of direct relationship between financial decisions and prices of shares.

Y Merely an increase in shareholder’s wealth does not lead to wealth maximisation

since there exist a large number of other stake holders also.

2006 - Dec [7] Write notes the following:

(v) Economic value added (EVA) and wealth-maximisation. (5 marks)

Answer:

• EVA is short for Economic Value Added.

• EVA stands for cash flow after tax of a business less the cost of capital.

• Now a days EVA is used in determining the value of a firm since it is a true

indicator as against earnings

Solved Scanner CS ProfessionalProgramme Financial, Treasury and

Forex Management Paper 3 Dec 2013

Publisher : Shuchita Prakashan ISBN : 9789350346013Author : Dr. Arun Kumarand CA Ankur Garg, CAAnkit Garg

Type the URL : http://www.kopykitab.com/product/1644

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