NABARD Manager Grade B · India · National Bank for Agriculture and Rural Development
Original practice questions written to the published syllabus · not past papersRaising and using money in an agribusiness: investment appraisal, cost of capital, capital structure, dividends, working capital and microfinance models.
In the exams: agribusiness management PhD entrance and fellowship examinations, financial management (heavy); agricultural scientist eligibility tests (heavy)
How our questions for NABARD Manager Grade B spread across the units of Financial Management in Agribusiness. Difficulty: 11 easy, 16 medium, 7 hard.
| Receivables and the cash budget | 4 | |
| Microfinance models: SHG, JLG, Grameen, credit union, cooperative, village banking | 4 | |
| Money and capital markets | 3 | |
| Capital budgeting techniques | 3 | |
| Leverage | 3 | |
| Dividend policy | 3 | |
| Finance functions | 2 | |
| Risk and return | 2 | |
| Financial institutions | 2 | |
| International financial management | 2 | |
| Cost of capital | 2 | |
| Working capital management | 2 | |
| Venture capital and its stages | 1 | |
| Capital structure theories | 1 |
Choose an answer, then open the working. Each explanation says why the right answer is right and why the others are not.
Treasury bills are normally issued in which way?
D. At a discount to face value and redeemed at face value
Treasury bills are short-term government debt issued at a discount; the investor's return is the difference between the issue price and the face value paid at maturity. They carry no coupon and have fixed short maturities.
A 91-day treasury bill with face value 100 is bought at 98.20. What is its annualised yield on the price paid (365-day year, simple)?
B. 7.35%
Yield = (100 - 98.20)/98.20 x 365/91 = 0.01833 x 4.011 = 7.35%. Using face value as the base gives the discount rate (7.22%), not the yield; 1.83% is not annualised; 7.25% uses a 360-day year, contrary to the question.
Which activity is a development finance institution for agriculture typically set up to perform?
B. Provide long-term or refinance funding to sectors commercial lenders under-serve
Development finance institutions supply long-term, often concessional or refinance funds for sectors such as agriculture and rural infrastructure. Setting policy rates and issuing currency are central-bank functions.
An exporter will receive 100,000 dollars in 6 months. The spot rate is 80 HC per dollar; annual interest rates are 4% on dollars and 8% on HC. Using a money market hedge (borrow dollars now, convert, invest in HC), how much HC will the exporter have in 6 months?
C. 8,156,863
Borrow the PV of the receipt: 100,000/1.02 = 98,039.22 dollars (6-month rate = 4%/2). Convert at spot: x 80 = 7,843,137 HC. Invest at 4% for 6 months (8%/2): x 1.04 = 8,156,863 HC. The dollar receipt repays the loan. Using full annual rates for a half-year gives 8,307,692; 8,000,000 simply converts at today's spot.
A sugar company is financed 40% by debt at 10% before tax and 60% by equity costing 15%. The tax rate is 30%. What is its WACC?
A. 11.8%
WACC = 0.4 x 10% x (1 - 0.3) + 0.6 x 15% = 2.8% + 9.0% = 11.8%. 13.0% forgets the tax shield on debt; 12.5% is a simple average ignoring weights; 10.2% multiplies by t instead of (1 - t).
Modigliani and Miller's (1961) dividend irrelevance result assumes, among other things:
C. Perfect capital markets with no taxes or flotation costs, and a fixed investment policy
MM assume perfect markets, rational investors, no taxes or transaction costs and a given investment policy. Preference for dividends is Gordon's bird-in-the-hand argument; financing only from retained earnings is Walter's assumption.
A milk-processing company follows a residual dividend policy. It earns 50 million, plans capital expenditure of 60 million and keeps a target structure of 60% equity. How much will it pay as dividends?
A. 14 million
Equity needed = 60 x 0.6 = 36 million, funded first from earnings; the residual 50 - 36 = 14 million is paid out. Paying nothing (0) because capex exceeds earnings ignores that 40% of capex is debt-financed. 30 million simply pays out 60% of earnings.
A multi-state marketing cooperative distributes its surplus mainly as:
B. Patronage refunds in proportion to each member's business with the cooperative
Cooperative principles allocate surplus to members in proportion to their transactions (patronage), with only limited interest on share capital; the exact rules depend on each country's cooperative law.
A spice exporter's cost of goods sold is 730 million and its average inventory is 60 million. What are its days of inventory (365-day year)?
B. 30.0 days
Inventory turnover = 730/60 = 12.17 times; days of inventory = 365/12.17 = 30 days. 12.2 is the turnover ratio, not days. 6.1 divides 365 by the inventory figure (365/60), and 8.2 is inventory as a percentage of cost of goods sold.
A cooperative starts March with cash of 40, expects receipts of 155 and payments of 180, and wants a minimum closing balance of 25. How much must it borrow?
A. 10
Closing balance before financing = 40 + 155 - 180 = 15. To reach the minimum of 25 it must borrow 25 - 15 = 10. 15 is the unfinanced closing balance; 25 is the minimum itself. 0 assumes the opening cash of 40 is enough, ignoring the month's net outflow.
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