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Examination Paper: Sales Management
IIBM Institute of Business Management 1
IIBM Institute of Business Management
Examination Paper MM.100
Sales and Distribution Management
Section A: Objective Type (30 marks)
•This section consists of Multiple Choice questions & short notes type questions.
•Answer all the questions.
•Part one questions carry 1 mark each & Part Two questions carry 5 marks each.
Part One:
Multiple Choices:
1. Out of the following which gap arise when the sales force does not have the required knowledge,
skills or capabilities to become successful on the Job.
a. Knowledge gap
b. Capability gap
c. Methods gap
d. Training gap
2. This method is used by the trainers to present more information in a short time to a large number
of participants.
a. Lecture
b. Demonstration
c. Group discussion
d. None of the above
3. It improves on traditional computer based training by making the information available to the
salesperson immediately and in a personalized manner.
a. Distance Learning
b. Interactive Multimedia Training
c. Mentoring
d. Electronic Performance Support System
4. These are preprogrammed computer packages, and are based on reality:
a. Role Playing
b. Case Studies
c. Simulation Games
d. Job Rotation
5. The responsibility which include dealing with stakeholders with fairness impartiality and equality
is known as:
a. Ethical Responsibilities
b. Legal Responsibilities
c. Economic Responsibilities
d. Voluntary Responsibilities
Examination Paper: Sales Management
IIBM Institute of Business Management 2
6. They are the shopkeepers who set up shops in the market place to cater to the needs of hundreds
of consumers.
a. Distributors
b. Wholesalers
c. Agents
d. Retailers
7. This strategy is to make sure that the product is made available in as many outlets as possible so
that anywhere the consumer go, he or she should be able to get the product of his choice.
a. Exclusive Distribution
b. Selective Distribution
c. Intensive Distribution
d. Distribution Channel
8. This is the stage of the birth of multiple retail formats to please the customer.
a. Stage of Infancy (Child hood)
b. Meeting Customer Expectations (Youth)
c. Shift in the power equation (Adulthood)
d. Consolidation (Maturity)
9. It is the identity that the store develops for itself in terms of what it has to offer the customers.
a. Positioning Strategy
b. Product Differentiation Strategy
c. Operational Strategy
d. Targeting
10. It is the most convenient size of the product that the customer can buy at a time.
a. Lot Size
b. Waiting Time
c. Choice to the consumer
d. Place Utility
Part Two:
1. What is Channel Conflict?
2. What is an Information System? What is the purpose of Information Systems?
3. State the different categories of Inventory.
4. What is Electronic Data Interchange?
END OF SECTION A
Examination Paper: Sales Management
IIBM Institute of Business Management 3
Section B: Caselets (40 Marks)
•This section consists of Caselets.
•Answer all the questions.
•Each Caselet carries 20 marks.
•Detailed information should form the part of your answer (Word limit 150 to 200 words).
Swish flow Ltd. - Hiring Salespeople
“Why two out of five salesperson have resigned within six months of joining the company/” asked
marketing director to the sales manager, Sunil Kumar of Swish flow Ltd. “I think, there is
something wrong with our staffing process, “responded Sunil Kumar, without knowing the real reasons
for the turnover of salespeople.
Swish flow Ltd started manufacturing and marketing consumer durables like fans and water purifiers for
household consumer’s commercial firms in 1993. The sales and marketing office was located in Mumbai,
the commercial capital of India. Swish flow was a newly established company and for its first year of
operations, the company decided to recruit five salesperson to cover major metros and cities of
Maharashtra. The staffing process included the sales manager deciding the job qualifications salespersons
based on what he learnt in the MBA programme. The administration manger was asked to place the
advertisement in the local newspapers. The resumes of applicants were forwarded to Sunil Kumar, who
screened the same and sent interview calls to about ten applicants. The interviews were conducted by
Sunil Kumar and the marketing director and the selected candidates were given the appointment letters.
Some of the candidates had a problem of finding suitable residence, but the company policy did not
provide any consideration for he3 same. Sunil Kumar conducted one-week training programme and
generally guided the new salesperson, who reported to him directly. There was a delay in the receipt of
the fans from the factory, located at Baroda in Gujarat. During this period of three months, Sunil Kumar
was asked to conduct market surveys and look after advertising function of the entire group. He asked the
salespersons to collect market information on various other products like water purifiers, power tillers,
and so on in which the group was interested to diversify. During this period, two salespersons suddenly
stopped coming to work, after collecting their salaries of the previous working month.
Questions:
1. What improvements do you suggest in the staffing process followed by the company?
2. Was Sunil Kumar right in getting market surveys done by the new salesperson?
Caselet 2
Snow White Paper Company is located in an agricultural belt about 300 kilometers from a metro city.
The company is into writing and printing papers. Its primary raw material is wheat straw. Last year,
the company had a turnover of Rs. 134 crore on a volume of 45,000 tons of paper. While preparing
the business plan for the current year, the top management was concerned with the following
distribution issue that they want you to help resolve:
PROBLEM: FINISHED GOODS DISTRIBUTION
The paper industry is dominated by selling agents who bring the manufacturer like Snow White and
the buyer like printing/publishing companies, and note book makers, together. They make a
commission of about 2 percent on all transactions. Some other points:
Examination Paper: Sales Management
IIBM Institute of Business Management 4
•Snow White depends on about 110 agents to canvass business for it from the users.
•The Company sells about 23 percent of its paper directly to some government organizations.
•The agent arranges for the buyer to pay the company for its produce by a advance demand
draft. It is expected that the agent provides the credit support to the buyer.
•Agents are not exclusive for Snow White and work for other paper mills also and normally
play the mills against each other. They have a grip on the business and are reluctant to put the
mill directly in touch with the buyers.
•There is always an uncertainty on the orders and the price, which would be obtained on the
orders- the company cannot plan its profits properly nor offer the best service to end users so
that they always ask for Snow white.
Question:
1. How can you help Snow White become less dependent on the selling agents and plan its sales and
profitability better? How can they plan their customer service efforts?
Section C: Applied Theory (30 Marks)
•This section consists of Applied Theory Questions.
•Answer all the questions.
•Each question carries 10 marks.
•Detailed information should from the part of your answer (Word limit 200 to 250 words).
1. Explain in detail the Role of Retailers.
2. How does the availability of the Internet impact on International sales?
3. What are the basic concepts of Sales Organization? Explain any one of those concepts.
END OF SECTION C
END OF SECTION B
Examination Paper: Sales Management
IIBM Institute of Business Management 5

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Examination Paper of Semester IV
1
IIBM Institute of Business Management
IIBM Institute of Business Management
Semester-IV Examination Paper MM.100
Sales Management
Section A: Objective Type (30 marks)
This section consists of Multiple Choice questions & Short Answer type questions.
Answer all the questions.
Part one questions carry 1 mark each & Part Two questions carry 5 marks each.
Part One:
Multiple Choices:
1. Sales executives have responsibilities for coordination which involves
a. Individual
b. The organization
c. The company
d. None of the above
2. Who researched buyer-seller Dyads in the Life Insurance business
a. Hanri Tosi
b. McMurry
c. Arnold
d. Franklin Evans
3. Formula for calculating Gross Margin is
a. Sales – Cost of sales
b. Gross profit – Cost of sales
c. Sales – Expenses
d. None of the above
4. Coach- and – pupil method is
a. Company Information
b. Sales Technique
c. On – the – just Training
d. Both (a) & (c)
5. Term in which ratio measures the effectiveness of sales personnel in securing order
a. “Lowering Average”
b. “Batting Average”
c. “Multiple Average”
d. None of the average
Examination Paper of Semester IV
2
IIBM Institute of Business Management
6. District sales manager and planning report is called
a. Manager plan
b. District plan
c. District sales plan
d. None of the above
7. Numerical expression indicating the degree to which one or more factor associated with a given
products demand is
a. Sales Index
b. Product Index
c. Market Index
d. Company Index
8. Event that strengthens the buyers tendency to make a particular response is called
a. Reinforcement
b. Cue
c. Drives
d. Both (a) & (b)
9. 2 Types of drive in learning process are
a. Innate and learned drive
b. Mutual and learned drive
c. Innate and mutual drive
d. None of the above
10. The weak stimuli which determine when the buyer will respond
a. Cue
b. Response
c. Drive
d. None of the above
Part Two:
1. Write a short note on “Sales Resistance”?
2. What is “Controlling Selling Expenses”?
3. Write short note on “Product Line Policy”?
4. What do you understand by “Straight-Commission Plan”?
END OF SECTION A
Examination Paper of Semester IV
3
IIBM Institute of Business Management
Section B: Caselets (40 marks)
This section consists of Caselets.
Answer all the questions.
Each caselet carries 20 marks.
Detailed information should form the part of your answer (Word limit 200 to 250 words).
Caselet 1
Allen Specialty Company, located in Detroit, Michigan, manufactured a line of Ballpoint pens, and
mechanical pencils and, in the past five years, had added a line of stationary. Allen products were sold to
stationary and office supply wholesalers and retailers, as well as to department stores, discount houses,
drugstores, variety stores, and supermarkets. A field sales force of eighty-two persons operated out of six
district sales offices. Allen management believed that a critical factor in the company’s sales success was
the coordination of its national advertising and the activities of Allen salespeople and dealers.
The sales promotion program was the responsibility of the sales promotion manager, Jack Biggerstaff,
and his staff, in conjunction with the sales planning committee at Allen headquarters in Detroit. The sales
planning committee consisted of the managers of merchandising, advertising, and marketing research.
The sales promotion plan, for both new and existing products, described objectives; roles of salespersons
and dealers; anticipated sales; the national, local, and trade advertising; and point-of-purchase displays,
deals, premiums, and contest offers.
With approval of the sales promotion plan by the sales planning committee and the sales promotion
manager, Jack Biggerstaff, the sales promotion department prepared sales promotion kits for the Allen
sales staff. The kit included advertising proofs, products samples, illustrations of the point-of-purchase
displays, samples of premiums offered, and a description of the special deal or context featured in the
promotion.
The sales promotion department prepared a timetable for each promotion plan, showing the date when
each advertisement appeared in various media. The timetable was distributed to the sales force and
dealers to enable them to time their sale and advertising to coincide with the national advertising, thereby
achieving full impact from the advertising.
When the sales promotion plan was approved by headquarters, it was presented to Allen sales personnel
at meetings in each of the six district sales offices. The sales promotion manager and the field sales
promotion manager, who reported to the former and whose job was to work with Allen salespeople and
dealers on sales promotion projects, made the presentation. Following the meetings, the field sales
promotion manager trained the salespeople in proper presentation of the promotion and called on key
dealers to enlist their support.
The sales promotion program used with a recent new product introduction was typical of Allen’s efforts.
In addition to the objectives and timetables, the sales promotion program included(1) selling tools for
Allen sales people- circular letters describing the promotion, a visual presentation portfolio for making
promotion presentations, product samples, reprints of consumer advertisements; (2) selling tools for Alen
dealers- presentation kits for selling the new product to consumers , mail circulars for delears to send to
consumers, mailing folders for use by dealers, sample folders, and a considerable amount of prize money
Examination Paper of Semester IV
4
IIBM Institute of Business Management
for dealers sales personnel; and (3) advertising support for Allen dealers- advertising in national media
and sample folders to be sent to consumers who responded to a coupon offer.
The sales promotion programs were presented one each week in the district offices in late November and
December. When the schedule was announced, Mike Halloran, assistant sales manager in charge of the
Pacific Northwest district called Jack Biggerstaff to complain that the sales promotion orientation session
in his district had been scheduled for December 27 during the quiet week when many of his salespeople
had found extra time to spend with their families and when several had customarily taken short skiing
vacations, Biggerstaff explained that the promotion plan would not be completed by home office
personnel in the six sales regions, it was not possible to schedule more than one a week. It was tough, but
Halloran’s district had drawn the bad week this year.
Halloran responded that he thought the sales promotion sessions were a waste of time anyhow. His
salespeople lost two productive days in these sessions, and, in his opinion, knowledge of details of the
Allen Company’s advertising and promotion plans didn’t make the sales rep’s job of selling to
wholesalers and retailers any easier. Anyhow, it was the responsibility of the field sale promotion
manager to work with the individual salespeople and call on key dealers. He also complained that when
these sessions were scheduled in mid-November, they interfered with sales productivity in the busiest
season of the year.
1. Evaluate the Allen Specialty Company’s organization and plan for coordinating sales and
advertising?
2. How should Biggerstaff answer Halloram’s complaint?
Caselet 2
Holden Electrical Supplies Company
Manufacturer of Electrical Equipment – Recruiting Sales Personnel
Holden Electrical Supplies Company, Cincinnati, Ohio, manufactured a wide line of electrical
equipment used in both home and industry. The sales force called on both electrical wholesalers and
industrial buyers with the greater part of their efforts concentrated o industry buyers. The industrial
products required considerable technical expertise upon the part of sales people. Sales offices situated
in twenty cities spread over the country had two hundred sales personnel operating out of them. In the
past eight years sales volume increased by more than 50 percent, to a level of nearly $150,000,000.
The fast rise in sales volume and the accompanying plant expansion created a problem in that more
sales personnel were needed to keep up with the new accounts and to make sure the additional plant
capacity was used profitably.
In addition, Holden’s sales recruiting problem was compounded by a noticeable decline in the
number of college seniors wanting a selling career. Holden recruiters had observed this at colleges
and universities where they went searching for prospective salespeople. Another indication of the
increased difficulty in attracting good young people into selling was aggressive recruiting by more
and more companies. These factors combined to make the personnel recruiting problem serious for
Holden; consequently, management ordered an evaluation of recruiting methods.
Virtually all Holden salespeople were recruited from twenty-five engineer- ing colleges by
district sales managers. Typically, Holden recruiters screened two hundred college seniors to hire ten
qualified sales engineers. It was estimated to cost Holden $600 to recruit a candidate. Management
believed the college recruiting program was deficient in light of the high cost and the fact that only 5
percent of the candidates interviewed accepted employment with Holden.
Examination Paper of Semester IV
5
IIBM Institute of Business Management
Evaluation of the college recruiting program began with the College Recruiting Division of the
company asking district sales managers for their appraisals. Some district managers felt that Holden
should discontinue college recruiting for various reasons, including the time required for recruiting,
the intense competition, and the candidates’ lack of experience. Other district managers, however, felt
the program should continue with a few modifications, such as recruiting college juniors for summer
employment more or less on a trial basis, concentrating on fewer schools, and getting on friendly
terms with placement directors and professors.
Holden’s general sales manager favored abandoning the college recruiting program and believed
the company should adopt an active recruiting program utilizing other sources. He reasoned that,
while engineering graduates had a fine technical background, their lack of maturity, inability to cope
with business-type problems, and their lack of experience precluded an effective contribution to the
Holden selling operation.
The general sales manager felt that the two hundred sales engineers currently working for Holden
were an excellent source of new recruits. They knew the requirements for selling the Holden line and
were in continual contact with other salespeople. By enlisting the support of the sales force, the
general manager foresaw an end to Holden’s difficulty in obtaining sales engineers.
The president preferred internal recruiting from the non-selling division, such as engineering,
design, and manufacturing. He claimed that their familiarity with Holden and their proven abilities
were important indicators of potential success as sales engineers.
A complete analysis of Holden’s entire personnel recruiting program was in order, and, regardless
of the approach finally decided upon, it was paramount that the company have a continuous program
to attract satisfactory people to the sales organization.
1. Evaluate Holden’s recruiting program, suggesting whether or not the company should have
continued its college recruiting of sales engineers?
2. What criteria should a good sales engineer should implement to uplift the company sales?
END OF SECTION B
Section C: Applied Theory (30 marks)
This section consists of Long Questions.
Answer all the questions.
Each question carries 15 marks.
Detailed information should form the part of your answer (Word limit 150 to 200 words).
1. Write in brief about motivation of sales personnel?
2. Write in brief about setting up a sales organization?
END OF SECTION C
---------------------------------------------------------------- ***- --------------------------------------------------------

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IIBM Institute of Business Management
Examination Paper MM.100
Management of a Sales Force
Section A: Objective Type (30 marks)
•This section consists of Multiple Choice questions & short notes type questions.
•Answer all the questions.
•Part one questions carry 1 mark each & Part Two questions carry 5 marks each.
Part One:
Multiple Choices:
1. ____________ is the stage in which the salesperson must discover, clarify and understand the
buyer’s needs.
a. Customer Research
b. Approach
c. Need Assessment
d. Planning
2. This outcome equates to how much information was absorbed and usually involves in giving the
trainee some type of test.
a. Reactions
b. Leaving
c. Behavior
d. Results
3. A salesperson’s ______________ is calculated by dividing the number of orders received by the
number of calls made (O/C).
a. Batting Average
b. Call Rate
c. Size of Orders
d. Direct Selling Expense
4. Such costs are incurred in connection with a single unit of sales operations.
a. Direct Costs
b. Indirect Costs
c. Overhead Costs
d. Fixed Costs
5. These are the activities that people must perform in orders to carry out the strategy.
a. Objectives
b. Strategies
Examination Paper: Sales Management
IIBM Institute of Business Management 6
c. Tactics
d. Goals
6. The highest executives in sales management is most often called:
a. Vice President of Sales
b. Branch Manager
c. Team Leader
d. District Sales Manager
7. A ____________ is someone with knowledge, experience, rank, or power that provides personal
counseling & career guidance for younger employees.
a. Mentor
b. Leader
c. Supervisor
d. Peer
8. The most widely used method of expense control in which the company reimburses sales
representatives for all legitimate business & travel costs they incur while on company business is
known as:
a. Clarity
b. Payment Plans
c. Limited Payment Plans
d. Unlimited Payment Plans
9. It is a direct monetary reward paid for performing certain duties over a period of time.
a. Salary
b. Incentives
c. Bonus
d. Pension
10. This is a performance goal assigned to a marketing unit for a specific period of time.
a. Salary Plus Bonus
b. Salary plus Commission
c. Salary Plus Commission & Bonus
d. Sales Quota
Part Two:
1. Write a short note on ‘Strategic Account Management’.
2. Why there is a need of a detailed data in sales?
3. Briefly explain the nature & benefits of Territories.
4. What is Market Specialization?
END OF SECTION A
Examination Paper: Sales Management
IIBM Institute of Business Management 7
Section B: Caselets (40 Marks)
•This section consists of Caselets.
•Answer all the questions.
•Each Caselet carries 20 marks.
•Detailed information should form the part of your answer (Word limit 150 to 200 words).
Caselet 1
MAJESTIC PLASTICS COMPANY
Reps Selling Too Many Low-Profit Products
Over the past several days the top executives in the Majestic Plastic Company had been conducting their
annual performance review of the company’s operations. The company president, Boyd Russell, sat in on
most of these sessions and periodically became quite involved in some of the departmental reviews. The
sales department was the one currently under discussion, and Clyde Brion, the general sales manager, was
the focus of attention. Overall, the sales and profit results were satisfactory, but the executives noted what
they thought was a problem in two Louise Shannon was the rep, and the other was in Chicago, which was
Henry Sadowski’s territory.
In each of these territories, the sales reps total sales volume was satisfactory. The problem was that the
bulk of their sales volume was in low profit products- that is, products whose gross margin was well
below the company’s desired average. Then the chief financial officer, Oliver Twombly, recalled that this
same situation had been brought up at last year’s performance review. Clyde Brion realized he was on the
spot with his fellow executives, including the president.
..brushfires
to put out. Now he was convinced that he had better do something-and do it quickly.
Question:
1. What should Clyde Brion do to remedy the imbalanced sales performance of Louise Shannon and
Henry Sadowski?
Examination Paper: Sales Management
IIBM Institute of Business Management 8
Caselet 2
SUNRISE CLEANERS
To Train or Not to Train
Sunrise Cleaner Company’s sales have been expanding rapidly in the past several years and are expected
to continue increasing throughout the next decade. In order to meet this demand, Mickie Parsons,
Sunrise’s sales manager, has hired a number of sales representatives and expects to hire 6 to 10
salespeople in the coming year and more the following year. In the past, Sunrise hired only experienced
reps, but lately the company has been hiring recent marketing graduates. While the new grades don’t have
experience, they often are a high level of motivation and a good understanding of overall marketing
planning. However, the less experience reps need more training-both on company policies and sales
procedures-before they are effective in making sales calls. Parson is trying to design a training program
that will provide the necessary training at the lowest possible cost.
..Examination Paper: Sales Management
IIBM Institute of Business Management 9
Question:
1. What type of training program should Mickie Parsons recommend to Keat Markley? What’s your
reasoning for your recommendation?
Section C: Applied Theory (30 Marks)
•This section consists of Applied Theory Questions.
•Answer all the questions.
•Each question carries 10 marks.
•Detailed information should from the part of your answer (Word limit 200 to 250 words).
1. ‘Sales Forecasting is a very difficult task’ Comment on the statement and also suggest some
guidelines for the manager that can enhance the accuracy of the states forecast.
2. Certain Leadership & Supervisory problems are commonly encountered when managing sales
people. State those problems which are encountered in leadership.
3. What is Training Assessment? What are the Training Program objectives?
S-2-210311
END OF SECTION B
END OF SECTION C

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Examination Paper: Risk Management
IIBM Institute of Business Management 1
IIBM Institute of Business Management
Examination Paper MM.100
Risk Management
Section A: Objective Type (30 Marks)
•This section consists of Multiple Choice questions & short notes type questions.
•Answer all the questions.
•Part one questions carry 1 mark each & Part Two questions carry 5 marks each.
Part One:
Multiple Choices:
1. It represents the owner’s stake in the bank & it serves as a cushion for depositors & creditors to
fall back in case of losses.
a. Capital
b. Reserve & Surplus
c. Deposits
d. Borrowings
2. This involves evaluating whether a bank has sufficient liquidity depends in large measure on
the behavior of cash flows under the different conditions.
a. The maturity ladder
b. Alternative Scenarios
c. Measuring liquidity over the chosen time frame
d. Assumptions used in determining cash flows
3. This is the risk of adverse deviations of the mark-to-market value of the trading portfolio, due
to market movements; during the period required to liquidate the transactions.
a. Market Risk
b. Liquidation Risk
c. Market liquidity Risk
d. Credit & counterparty Risk
4.__________ is buying or selling an asset only for the purpose of making profit from movement
of the asset price over a period of time.
a. Arbitrage
b. Derivatives
c. D-mat account
d. Speculation
5. A combination of spot & forward transactions is called a ___________
a. Advances
b. Foreign bills
c. Swap
d. Loans
Examination Paper: Risk Management
IIBM Institute of Business Management 2
6.__________ Money refers to placement of funds beyond overnight for periods not exceeding 14
days.
a. Call money
b. Notice money
c. Term money
d. None
7. A short-term debt market paper issued by corporate, with a maximum maturity of 1 year.
a. Treasury Bills
b. Certificates of deposit
c. Repo
d. Commercial paper
8. It refers to the ability of a business concern to borrow or build up assets, on the basis of a given
capital.
a. Leverages
b. Confirmation
c. DVP
d. Volatility
9.__________ Limits are kept in place to protect the bank from credit risk.
a. Exposure ceiling
b. Stop-loss
c. Organizational controls
d. Limits on trading positions
10. RAROC stands for _____________________.
Part Two:
1. Differentiate between options & Forward contract.
2. Write down the steps which are taken by RBI to encourage the derivative market.
3. What is Basic indicator Approach (BIA)?
4. Write a short note on profitability in Indian Banks.
END OF SECTION A
Examination Paper: Risk Management
IIBM Institute of Business Management 3
Section B: Caselets (40 Marks)
•This section consists of Caselets.
•Answer all the questions.
•Each caselet carries 20 marks.
•Detailed information should form the part of your answer (Word limit 150 to 200 words).
Caselet 1
Everybody Bank was set up with a registered office at Gwalior in 1995-96 by a leading financial
organization, when the government liberalized its policies and allowed private sector banks to
operate. The branch at Gwalior was established on November 13, 1995. Everybody bank was the
first private sector bank to commerce its operations at Gwalior. The bank had the advantage of
being the first and got good business. Subsequently, other private sector banks also opened their
branches in Gwalior. Dinesh joined the branch as branch head in june-1998. His focus was to
retain the leadership of the bank with improved profitability. He adopted a multi-programmed
strategy which yielded good results during the three years of working. The bank not only
continued to be a leader in private sector banks but also established nationalized banks. In 2001, it
stood to the State Bank of India. Profitability also improved during these years.
Dinesh had joined Everybody Bank in 1997, after serving more than 20 years in a leading
nationalized bank. After serving for 1.5 years in other branches, he was posted at the Gwalior’s
branch as the Branch head in June 1998. The new generation of banks was setup with a clear
focus on the corporate sector during its initial phases. The Gwalior branch of everybody bank also
had the same focus with 85 percent of total advances in the corporate sector and a residual 15
percent in the retail sector. Gradual opening up of the economy, and increasing competition,
forced the corporate sector to improve the quality of services and to reduce the cost. In its search,
the interest component gained focus and the corporate started looking for avenues to mobilize low
cost funds. RBI also gradually reduced the bank rate resulting in reduction of the margin of profit,
in the banks.
The deposits of the Gwalior branch consisted of high cost funds, namely, certificate of deposits at
the rate of 13-14 percent. The need of the hour was to collect the resources; therefore, all
resources were tapped irrespective of their costs. Considering the reduction in the margin of
corporate sector, the bank changed its focus from the corporate to the retail segment. It came up
with the portfolio of schemes in the housing loans, car loans, educational loans, loan against
demat shares and personal loans. It resulted in the increases of the share of retail segment from 15
percent to 50 percent and corresponding reduction in the corporate segment from 85 percent to 15
percent. The strategy resulted in the improvement of the margin of the bank to a level of 3-4 per
cent.
Another strategy adopted by the bank, with a view to reduce the cost of resources, was to
concentrate on saving bank account and current account. With a view to tap the low cost funds,
the strategy adopted was to setup a network of branches in various cities. In 1998, there was only
one branch in the city and by the end of 2001 the number of ATMs across the city. The number of
ATMs increased from one to five by 2001. They also came up with services like mobile banking,
internet banking etc.
Another important step taken by Dinesh in this direction was established high service standards.
The complaints from the customers were taken up seriously. Also, schemes of performance
Examination Paper: Risk Management
IIBM Institute of Business Management 4
linked increment/bonus were adopted. The performance expectations of the management were
high. The bank also focused on all the areas of administrative cost very reduction. In this
direction the staff requirement was reviewed and the class four positions were reduced. The
arrangements with taxi operators: courier service companies were renegotiated for reducing the
cost. For example, the courier cost per package was reduced from Rs. 30 to Rs. 15. The
executives voluntarily decided to travel in the economy class and do not during the night, so as to
avoid overnight stay charges. Although the not, the overtime allowances was permissible, but in
order to reduce the cost, the practice of payment of overtime was stopped. These strategies
resulted in saving of the bank, from Rs. 4.2 crores in 1998, to cover Rs 20 crores in 2001. total
deposits increased during these three years from Rs. 112 crores to 200 crores.
The assets of the bank had increased from 100 crore in 1998 to 267 crore in 2001. in addition to
this, 65 crores were sanctioned in a non-fund limit. Dinesh also concentrated on improving the
quality of assets. The proactive approach of Dinesh resulted in the leading position of the branch
during his tenure of three years as the bank, i.e. , business per employee was the highest amongst
all the 65 branches of the bank and on the basis of profit per employee, the branch was ranked
third. Achievements of Dinesh were appreciated by the management in the meeting. After
returning to his headquarters, sitting in his chamber he has wondering as to what should be his
future plan of action for further growth.
Questions:
1. Critically analyze the strategies adopted by Dinesh to retain the leading position.
2. What additional steps Dinesh could have taken to improve the profitability?
Caselet 2
Established in 1950 Ramakrishna Motors Ltd.is one of the India’s pioneers in vehicle
Manufacturing with a total investment of Rs.500 crore and currently has a gross capital Employed
of Rs 906 crores (Annexure I).Over the years, Ramakrishna Motors Ltd, has Established a
reputation as a quality-conscious company with a unique corporate culture. The company had
collaboration with Tshi Mishu, Japan Ramakrishna Motors Ltd. Was Recognized internationally
for its expertise in design and manufacture of a wide range of Products from general purpose
engines to specialty, technology and processes. Ramakrishna Motors had a single product in the
car segment named Amanda. Ramakrishna Motors Ltd. Is a part of Ramakrishna group, which
besides automobile manufacturing also had an Export company? The company had enjoyed a
monopoly in the passenger car segment for 50 years. However it had failed to diversify into other
related products or introduce cars; in different segments. It had started its operations throughout
the country and had plants located at Rajkot, Nagpur, Bangalore and Agra.
AGRA PLANT
The Agra plant was established in April, 1989 with an investment of Rs 150 crores. The project
was an ambitious venture started with the intention of converting Agra into the Detroit of India.
The required investment of Rs.150 crores was funded by the promoter as Well as various
financial institutions such as International Financial Corporation (IFC), Asian Development
Bank, IDBI, IFCI and ICICI. The institutions provided the funds on The basis of the future
projections of the Agra plant. The plant was able to acquire funds at The rate of 6.25% from
foreign financial institution namely, IFCI and Asian Development Back whereas, the loan from
the Indian financial institutions namely, IDBI, ICICI and IFCI was obtained at 16%. The plant
Examination Paper: Risk Management
IIBM Institute of Business Management 5
was set up on 40 acres of land which was leased from the Uttar Pradesh State Government for 99
years at the low rate of 0.05 paisa per square metre. The plant employed a total of 1,000 persons
consisting of both skilled and unskilled personnel to man the unit. The Agra plant had two units
namely, the gear box unit and engine unit. The machinery installed in the plant was state-of-theart
technology and imported mainly from Japan. The total investment in plant and machinery was
Rs. 120 crores which was depreciated under Schedule 14 of the Companies Act, 1956 at the rate
of 4.75% for single shift and at the rate of 8.25% for the double shift for the purpose of Income
Tax Act. The plant was initially hoping to come out with a car in the small car segment called
Libra. The car was expected to capture a large market segment due to its high quality, cost
competitiveness and few players in the market. However, the company failed to obtain the license
for the manufacture of the vehicle due to the government requirement of foreign currency which
resulted in the license going to Maruti Udyog Limited which was a foreign collaboration of
Government of Government of India with Suzuki, Japan. It was therefore, decided that the Agra
plant would act as a feeder plant for the Bangalore plant, which manufactured the model Amanda.
The Agra plant hoped to supply 30,000 units and thereby, achieve 100% installed capacity
utilization.
In the early nineties the process of liberalization and globalization was ushered into Indian
economy. This process of liberalization saw the end of the license raj and a number of new
players in the car manufacturing segment entered the market. Due to this, the company’s product
faced stiff competition and there was a steady decline in the sales of Amanda. This resulted in a
decline in demand of the parent plant for the products manufactured at Agra. The parent company
which had a total workforce of 16,000 began downsizing and retrenched 10,000 of its employees.
The Agra plant which had 1,000 employee strength downsized itself to a total of 500 employees.
This plant which was set up anticipating 100% capacity utilization saw itself facing a problem of
under utilization of production capacity as only 40% of the capacity could be utilized. The Agra
plant being a feeder plant found itself in a loss making situation where it became difficult to
recover its fixed overheads. At around this time, the Indian economy too was hit by a
recessionary phase and there was an overall decline in demand in the passenger car segment. The
Agra plant started considering ways to get itself out of the loss making situation.
The plant has been recording a loss and although it has paid back the IFC loan, it has been unable
to pay back the Indian financial institutions as a result of which it was unable to get any further
funding from them. In 1999, one of its competitors Ford Company Ltd. Approach the plant with a
proposal for using the unutilized capacity. The proposal was that the five C’s namely, cylinder
block, cylinder head, crank shaft, cam shaft and connecting rod which the plant was making for
its parent company, would be modified and homolocated for the Ford company cars. This would
involve an expense of approximately Rs. 2 crores in terms of general equipment. However,
specific equipment and tools would be invested by the Ford Company. In case the arrangement
was discontinued at a later date, the Ford Company would take away its equipment. The
arrangement would increase capacity utilization of the Agra plant to the extent of 5%. The
finance manager was seriously considering this proposal and was analyzing the investment
decision on the basis of Accounting Rate of Return.
Questions:
1. Evaluate the company’s investment decision with specific reference to the Agra plant.
2. Had you been the finance manager, would you accept Ford Motors proposal? Why?
Examination Paper: Risk Management
IIBM Institute of Business Management 6
3. Do you think the finance manager needs to be concerned about the low depreciation
provision? Why?
4. What according to you is the source of finance available to Ramakrishna Motors Ltd in
case it is required to finance the Ford proposal for the Agra plant?
Section C: Applied Theory (30 Marks)
•This section consists of Applied Theory Questions.
•Answer all the questions.
•Each question carries 15 marks.
•Detailed information should from the part of your Answer (Word limit 200 to 250 words)
1. “When a steel company goes bankrupt, other companies in the same industry benefit
because they have one less competitor. But when a bank goes bankrupt, other banks do
not necessarily benefit.” Explain this statement.
2. “The existence of deposit insurance makes it particularly important for there to be
regulations on the amount of capital banks hold.” Explain this statement.
END OF SECTION B
END OF SECTION C

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Risk Management –  Practical Problem
1. In the 1980s, Bankers Trust developed index currency option notes (ICONs). These are bonds in which the amount received by the holder at maturity varies with a foreign exchange rate. One example was its trade at maturity varies with a foreign exchange rate. One example was its trade with the Long Term Credit Bank of Japan. The ICON specified that if the yen/US dollar exchange rate, ST , is greater than 169 yen per dollar at maturity (in 1995), the holder of the bond receives $1,000. If it is less than 169 yen per dollar, the amount received by the holder of the bond is
1,000- max[0, 1,000((169/(ST )- 1)
When the exchange rate is below 84.5, nothing is received by the holder at maturity. Show that this ICON is a combination of a regular bond and two options.
2.  Suppose that the economic capital estimates for two business units are as follows:
     Business units
     Unit 1    Unit 2
Market Risk    10    50
Credit Risk    30    30
Operational Risk    50    10
         

The correlation between market risk and credit risk in the same business unit is 0.3. the correlation between credit risk in one business unit and credit risk in another is 0.7. the correlation between market risk in one business unit and market risk in the other is 0.2. All other correlations are zero. Calculate the total economic capital. How much should be allocated to each business unit?

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Examination Paper: Insurance Management
7
IIBM Institute of Business Management
IIBM Institute of Business Management
Examination Paper MM.100
Risk Management and Insurance
Section A: Objective Type (30 marks)
•This section consists of Multiple choices questions and Short Answer type questions.
•Answer all the questions.
•Part One questions carry 1 mark each & Part Two questions carry 5 marks each.
Part One:
Multiple Choices:
1. HMOs charge employers a monthly fee called:
a. A coverage fee
b. The pro rata plan fee
c. The subrogation payment
d. The capitation payment
2. Which of the following alternatives is not a typical dividend option?
a. Cash
b. A lifetime income annuity
c. Reduction of the next premium
d. Accumulation of the next premium
3. Choose the True statement about industrial life insurance.
a. It is less expensive than ordinary life insurance
b. It is more expensive than ordinary life insurance
c. It is also called discount life insurance
d. It is widely used in estate plans
4. Replacement cost at the time of loss less depreciation is the definition of:
a. Actual cash value
b. Fair market value
c. The maximum covered loss
d. The maximum replacement of loss
5. Assets that are readily available to pay claims are called:
a. Admitted assets
b. Accepted assets
c. Real assets
d. Standard operating assets
Examination Paper: Insurance Management
8
IIBM Institute of Business Management
6. Stare demises means:
a. All things considered
b. Innocent parties prevail
c. It is impolite to stare
d. To stand by decisions
7. In most states the insurance commission is:
a. Impeached
b. Elected
c. Appointed by the government
d. Appointed by the governor
8. The federal law that promotes a safe working environment for workers is:
a. OSHA
b. CERCLA
c. Equal Opportunities Act
d. Superfund
9. The organization that collects data on insurance applicants is the:
a. CBS
b. MIB
c. CIA
d. FCAS
10. The percent of uninsured Americans in 2001 was about:
a. 14 percent
b. 2 percent
c. 4 percent
d. 10 percent
Part Two:
1. What are Moral and Morale hazards?
2. What do you understand by ‘Subsidization’?
3. What are ‘Waiver’ & ‘Estoppel’?
4. Write a short note on ‘Patient’s bill of rights.
END OF SECTION A
Examination Paper: Insurance Management
9
IIBM Institute of Business Management
Section B: Caselets (40 marks)
•This section consists of Caselets.
•Answer all the questions.
•Each Caselet carries 20 marks.
•Detailed information should form the part of your answer (Word limit 150 to 200 words).
Caselet 1
Vacancy Clause
The Roberts family owned a house in Alabama. It was insured with a fire insurance policy issued by
the Sparkler Mutual Insurance Company. On April 1, the Roberts moved to Tennessee. Their son,
Bob, remained in the Alabama home for an additional month. Thereafter, the home was rented to a
tenant who lived in the home for the month of May. Mr. Roberts returned to the home irregularly,
remaining overnight on July 4 and on a few other occasions. A few pieces of furniture remained in the
home until August. On or about August 4, the home and its contents were destroyed by fire.
Questions:
1. Do you think that Sparkler Mutual should pay for the loss? Explain your reasons.
2. Did the family’s absence affect the chance of loss in this case?
Caselet 2
Case for Discussion
Ed “Bonzo” Jones was a college student. He played outfielder on his fraternity’s softball team. A
home run was hit, and the ball went into an area of electrical transformers operated by the local
utility, Total Power and Light Company. The electrical transformers were surrounded by a 5-foot
wire fence that Jones claimed to retrieve the ball. Warnings signs were posted by the utility indicating
the area was dangerous. It was later determined the gate to the area was left unlocked, although Jones
did not use it to gain access. In retrieving the ball, Jones made contact with some equipment and was
severely burned by the electrically. He was hospitalized for three months and suffered permanent
disfigurement. His medical bills amounted to $300,000.
Questions:
1. What arguments would you make if you were planning the legal defense of Total Power and
Light Company?
2. If you were on the jury in this case, would you award a judgment for damages to Jones? Explain
your reasons.
END OF SECTION B
Examination Paper: Insurance Management
10
IIBM Institute of Business Management
Section C: Applied Theory (30 marks)
•This section consists of Applied Theory Questions.
•Answer all the questions.
•Each question carries 15 marks.
•Detailed information should form the part of your answer (Word limit 200 to 250 words).
1. If you were a large business with $ 10 million of property, would you want your primary
insurer to purchase reinsurance? Explain your reasons. Would you prefer to deal with a small
primary insurer who reinsured your risk or a large primary unsurer who did not purchase
reinsurance?
2. Do you think a college education is necessary to perform the following occupations
effectively?
a. Life insurance agent
b. Loss adjuster
c. Property insurance underwriter
d. Actuary
END OF SECTION C
S-2-210311

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Examination Paper: Risk Management
IIBM Institute of Business Management 7
IIBM Institute of Business Management
Examination Paper MM.100
Risk Management and Financial Institutions
Section A: Objective Type (30 marks)
•This section consists of multiple choice questions & Short Notes type questions.
•Answer all the questions.
•Part one Question carries 1 mark each & Part Two question carry 4 Marks each.
Part One:
Multiple Choices:
1. The options that come into existence or disappear when the price of the underlying asset
reaches a certain barrier.
a. Asian Options
b. Barrier options
c. Basket Options
d. Binary Options
2. The volatility of this model is changes with the passage of time:
a. EMWA Model
b. GAMMA Model
c. VEGA Model
d. GARCH Model
3. The office which consists of risk managers who are monitoring the risks being is taken is called
a. Front Office
b. Middle Office
c. Back Office
d. None of the above
4. A separate issue from the number of exceptions is:
a. Bunching
b. Grouping
c. Stress testing
d. None
5. This simulation is a very popular approach for estimating VaR:
a. Historical Simulation
b. Accuracy
c. Extensions
d. None of the above
Examination Paper: Risk Management
IIBM Institute of Business Management 8
6. Out of the following which rate is defined as the square of the volatility?
a. Standard Deviation
b. Variance
c. Mean
d. Median
7. Risk measures satisfying all four conditions are referred to as:
a. Time Horizon
b. Auto Correlation
c. Confidence level
d. Coherent
8. Only bonds with ratings of Baa or above are considered to be:
a. Investment grade
b. Internal Credit Ratings
c. Altman’s Z- Score
d. None of the above
9. The by- product of any program to measure & understand operational risk is likely to be the
development of:
a. Risk & Control self assessment
b. Key Risk Indicators
c. Operational risk Capital
d. Casual Relationship
10. The Securities that are subject to a discount are known as a:
a. Collateralization
b. Downgrade Trigger
c. Haircut
d. None of the above
Part Two:
1. Explain ‘Collateralization’.
2. Briefly explain the ‘Linear Model’.
3. Explain the ‘GARCH-MODEL’.
4. Explain the Concept of ‘Exchange-Traded Markets’.
5. Differentiate between the Systematic vs. Nonsystematic Risk.
END OF SECTION A
Examination Paper: Risk Management
IIBM Institute of Business Management 9
Section B: Practical Problems (40 Marks)
•This section consists of Practical Problems.
•Answer all the questions.
•Each Question carries 10 marks.
1. In the 1980s, Bankers Trust developed index currency option notes (ICONs). These are
bonds in which the amount received by the holder at maturity varies with a foreign
exchange rate. One example was its trade at maturity varies with a foreign exchange rate.
One example was its trade with the Long Term Credit Bank of Japan. The ICON
specified that if the yen/US dollar exchange rate, ST , is greater than 169 yen per dollar at
maturity (in 1995), the holder of the bond receives $1,000. If it is less than 169 yen per
dollar, the amount received by the holder of the bond is
1,000- max [0, 1,000 (169 - 1)
ST
When the exchange rate is below 84.5, nothing is received by the holder at maturity.
Show that this ICON is a combination of a regular bond and two options.
2. Suppose that the risk-free zero curves is flat at 7% per annum with continuous
compounding and that defaults can occur halfway through each year in a new 5- year
credit default swap. Suppose that the recovery rate is 30% and the default probabilities
each year conditional on no earlier default are 3%. Estimate the credit default swap
spread. Assume payments are made annually.
3. Suppose that 6- month, 12-month, 18-month, 24-month, and 30-month zero rates are 4%,
4.2%, 4.4%, 4.6%, and 4.8% per annum, respectively, with continuous compounding.
Estimate the cash price of a bond with a face value of 100 that will mature in 30 months
and pays a coupon of 4% per annum semiannually.
4. Suppose that the economic capital estimates for two business units are as follows:
Business Unit
1 2
Market risk 10 50
Credit risk 30 30
Operational risk 50 10
The correlation between market risk and credit risk in the same business unit is 0.3. the
correlation between credit risk in one business unit and credit risk in another is 0.7. the
correlation between market risk in one business unit and market risk in the other is 0.2.
All other correlations are zero. Calculate the total economic capital. How much should be
allocated to each business unit?
END OF SECTION B
Examination Paper: Risk Management
IIBM Institute of Business Management 10
Section C: Applied Theory (30 marks)
•This section consists of Applied Theory Questions.
•Answer all the questions.
•Each question carries 10 marks.
•Detailed information should from the part of your answer (Word limit 200 to 250 words).
1. A Bank is considering expanding its asset management operations. The main risk is
operational risk. It estimates that the expected operational risk loss from the new venture
in one year is $2 million and the 99.97% worst-case loss (arising from a large investor
law suit) is $40 million. The expected fees it will receive from investors for the funds
under administration are $12 million per year and administrative costs are expected to be
$5 million per year. Estimate the before-tax RAROC? Also explain the two different
ways in which RAROC can be used?
2. Why is there an add-on amount in Basel I for derivatives transactions? “Basel I could be
improved if the add-on amount for a derivatives transaction depended on the value of the
transaction.” How would you argue this viewpoint?
3. “A long forward contract subject to credit risk is a combination of a short position in a
no-default put and a long position in a call subject to credit risk.” Explain this statement.
S-2-210311
END OF SECTION C