Money and Financial Markets — DU B.A. (Hons.) Economics Previous Year Question Papers

multiplier in the Indian context. (6) (b) Consider an economy in which the required reserve ratio is 15 percent, and banks voluntarily maintain an additional 5 percent of deposits as excess reserves. Assume that the public holds no currency. If the central bank undertakes an open market purchase of 7500,000,analyze the impact on total banking system deposits and the resulting change in the overall money supply. (8) (c) Discuss the determinants of money supply. (4) 2. (a) While the Second Working Group of the RBI incorporated post office deposits into monetary aggregates, the Third Working Group chose to exclude them. Critically examine the rationale for this shift in methodology. (6) (b) Distinguish between : (6) (i) M2 as defined by the Second Working Group and the Third Working (c) Discuss in brief the recent financial sector reforms in India. (6) (b) Describe the risk-return profile of counterparties in an interest rate swap. (5) (c) Explain the profit and loss profile of a long call option with a table and suitable diagram. (5) (d) Find the current market price of Coca-Cola stock assuming dividends grow at a constant rate of 10.95%, Do = $1.00, and the required return is 4. (a) Distinguish between discount yield and yield to maturity? Which is a better measure and why? Calculate the discount yield and yield to maturity of treasury bills that matures in 365 days with a face value of Rs. 5,000 at the following purchase prices. (b) Explain why an investor who purchases a callable bond requires a call premium. Give two reasons why risky bonds sell at a lower price than default free bonds. (6) 5. (a) In the long-run, an output target is a “quixotic” goal for monetary policy but price level target is achievable. Explain. (6) (b) Differentiate between money supply and interest rate as intermediate targets of the monetary policy. What properties should the variable have to serve as an intermediate target of monetary policy? (6) (c) Briefly discuss the transition of the recent Monetary Policy Framework from Monetary Targeting and Multiple Indicator Approach to Inflation Targeting in India. (6) 6. Write short notes on any three of the following : (6 marks each) (a) Money market and capital market (b) Operating procedures of monetary policy (c) Monetary aggregates and liquidity aggregates (d) Price Earnings Valuation Method (risk-return grofe (5) (be bene [ı {z (yild o maturity) di aa sine z40 (6) te (hib bab be bee be bá ee { Ş{ (Operating procedures) (v {{{{ } a{ {{y (Monetary and liquidity aggregates) ([ {ee f (Price Earnings Valuation Method)