M.Com. DEGREE EXAMINATION, NOVEMBER 2017
First Semester
INSURANCE AND RISK MANAGEMENT
(CBCS 2016 onwards)
Time 3 Hours Maximum 75 Marks
Section A x 3 15)
Answer all questions.
All questions carry equal marks.
1. What are the elements of insurable risk?
2. State the meaning of life and general insurance.
3. Explain the benefits of project and engineering insurance.
4. What do you understand by swaps and derivatives?
5. You have the following investment options. Which one do
you choose? Why?
Investment Mean rate of return Standard deviation
A 24 10
B 22 8
Sub. Code
611701
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Section B x 10 50)
Answer all the questions, choosing either or
All questions carry equal marks.
6. Explain the methods of handling risk.
Or
Discuss the factors that influenced the growth and
spread of insurance in India.
7. Describe the features of life insurance schemes.
What is the procedure for issuing life insurance
policy?
Or
Examine the features and role of rural insurance in
India.
8. Explain in detail health insurance and fire
insurance schemes.
Or
Examine the trends in growth of non-life insurance
and the premia for non -life policies.
9. Outline the risk management strategies for
financial risk.
Or
An investor has developed the following probability
distribution, for stocks. Find the risk and return for
the stocks.
State 1 2 3 4
Probability 0.3 0.2 0.4 0.1
Return 20 25 30 40
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10. What are derivatives? What are various types of
derivative instruments traded at NSE?
Or
On April 1 an investor bought a Nifty 200, Futures
contract that cost him Rs. 500,000 paying an initial
margin of 10% of the contract value. Beheld it till
expiration day. On that day the index closed at
2450. What is her profit?
Section C 10 10)
Compulsory
11. Hedging currency exposures across asset classes-equities,
fixed income, properties. or even commodities has become
necessary with the increase in currency volatility across
markets. The RBI allowed FIIs to hedge their currency
exposures.
The development goals
The goal of market development is defined by ease of
access, cost effectiveness, and market depth. However,
the denial of direct access to the market permitted to
transact through a Category I merchant banker) and high
costs led to the creation of a parallel market for rupeedollar
forwards outside of India.
Given the lack of sufficient depth in the currency futures,
especially for longer dated contracts, the regulator has to
aim at creating enough liquidity across maturities, so
that price discovery is efficient, more transparent, and
transaction costs are minimal.
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The Challenge
To achieve this. RBI has to wean investors away from
offshore rupee NDF (non-deliverable forwards) market.
For this, rules are to be relaxed. However, there is
misdirection in the market development. The focus of
government has been on revenues that accrue to the
government by way of transaction taxes and capital gains
taxes and not on development of efficient markets. We
see the same trend across asset markets, be they equities,
properties or commodities. In the case of land and
property, extraordinarily high stamp duties have
dampened the secondary market. It thereby hindered
efficient price discovery, and led to the creation of a
thriving unreported economy.
Jagannadham Thunuguntla, Head of Assocham's Capital
Markets Committee, based on the study of Assocham on
factors causing shift in India's stock market share to
offshore exchanges observed that the bourse related
issues, include trading hours, transaction costs and
products offered by foreign bourses that arc US dollardenominated.
The differences between Indian and Singapore exchanges
are as shown in Table 1
Table 1 Singapore vs Indian Stock exchanges
Factor Singapore India
Security Transaction
Tax
No 0.125 per cent on value
of all share market
transactions
Interest on margins Payable Not payable
Cross product
margin offset
Available Not available
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Factor Singapore India
Taxes on profits Minimal Significant
Currency risk Dollar. Investors
face only price
risk. No currency
risk. No hedging
costs,
Rupee. Investors face
both price and currency
risk. Incur hedging
costs.
The open interest on Nifty Futures on the SGX at over
Rs. 20,000 crore, now account for about 63 per cent of the
overall open interest on the NSE and SGX combined.
Table-2 compares the trade turnover in the two
exchanges.
Table 2 Trade in Indian and Singapore exchanges
Period Turnover in (Rs. Crore)
SGX Nifty NSE Nifty
2012-13 Q-1 227180 4 60 588
2013-14 Q-2 250750 3 85 061
2013-14 Q-2 284439 3 66 725
Source Assocham study
Measures taken
Despite a deep cut in STT rates the shift has continued
unabated, owing to the ease of transacting in these
exchanges overseas. As long as such an opportunity
exists. RBI may not be successful in its efforts. As such,
RBI has to address the issue of the regulatory and tax
arbitrage between Indian and offshore markets. For this
they have to work in conjunction with SEBI and the
Government and evolve a more holistic approach, which
is the need of the hour.
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Questions
Why investors are preferring investing in offshore
markets especially in Singapore?
Identify the reasons for the failure of RBI in
developing forwards markets for currency.
What measures, in your view, RBI has to take to
achieve market development goals?
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