Wall Street Club

BITS Pilani
Recruitment Test
Instructions:
1. Please mention your name, identification number and current mobile
number at the top of the answer sheet.
2. Please answer all the questions in the answer sheets provided.
3. All questions are not compulsory and we dont expect you to answer all of
them; however we recommend you attempt as many as you can since it
would give us a better idea of your knowledge.
4. Please ensure that your answers are logical, to the point and pertain to the
question being answered. Please back up your answers with sound reason;
any redundancy or random facts will not work in your favour.
5. You have 1 hour to answer the test and are free to ask the full form of any
term you are unfamiliar with.

Q 1. i) Oil prices have dropped below $44 a barrel for the first time since 2009 after
hovering over $100 for most of 2014. How could a limited and precious resource
like crude oil witness such an unprecedented decline?
ii) Such low prices of oil bring heavy losses to all oil producers especially those
without strong financial backing like Russia, Venezuela, and Kazakhstan etc. In
past
whenever oil prices have shown such a rapid decline, OPEC led by Saudi
Arabia has
always intervened and stabilized the oil prices either by declining
production or
increasing it, but not this time and show no intention of doing so in
future
whatsoever (this despite strong resent from Iran and recent visit by
Obama to Saudi Arabia). So, why does OPEC not decrease oil production despite
facing huge losses
itself?
iii) Which industry would benefit and which would lose the most as a result of falling
oil prices?
Q 2. Recently, RBI cut repo rate by 25 bps after a long period of 20 months. RBI has also
indicated that more rate cuts will follow later this year. How does the RBI try to control
various macroeconomic factors like inflation and growth by manipulating interest rates?
Also, Why do you think Raghuram Rajan was so reluctant to go for rate cuts even after
consistent pressure by the newly formed government?
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Q. 3. Keeping inflation rate under check has been one of the top most priorities of Indian
economic policy. On the other hand, some European countries like Greece had to endure
a long and painful struggle against deflation where the inflation rate was recorded at
-2.60 percent in December of 2014 and this despite having received bailout worth
billions of euros from european Union.
Such was the concern about deflation that the European Central Bank in November
unexpectedly cut the cash rate to a fresh record low of 0.25%, in a bid to get prices to
inflation at closer to its 2% target.
Though adverse effects of inflation are well understood, why is deflation a problem?
Q 4. The art of guessing: A lot of people aren't comfortable in visualizing or discussing
abstract things, especially numbers, when they become big. Calculate the number of
luxury watches sold in India (priced above Rs. 50,000). Remember, it is the way you
approach and solve the problem that matters, not the final answer that you give out.
Q 5. The stock markets in India are synonymous with the terms SENSEX and NIFTY.
You must have read about the NIFTY and SENSEX reaching new highs in the past couple
of months. What do these terms mean and what does their value indicate?
Q6. Keynes argued that governments can smooth the rough edges of capitalism, by
cooling down an overheated economy (by fighting inflation with a higher interest rate)
and firing up an economy during recession (by spending more money, creating a positive
cycle of more firm profits, more employment, more consumption, even more
profits/employment/consumption etc.)
Friedman would argue that whatever benefit a government intervention may have, it
results in a net loss to the economy. When a government tries to spend more to stimulate
a slow economy it takes away people's freedom to spend their own money, and instead
decides what to buy for them. People nearly always know better what they want and need
than a government official, so the more free choice the better. When governments
intervene in the economy they distort price signals (for example a price cap on house
rents makes firms think that houses are in lower demand then they actually are). Price
signals are the lifeblood of the economy. They're the only way firms, workers and
consumers get information on what best to buy and sell.
Does government intervention in the economy do more harm than good?
Q 7. A stock is seen a gradual increase in its market price on account of good
performance of the company. It then experiences a fast rise on account of bright
predictions for the company and the industry. On account of anticipation of further rises,
the stock experiences great demand and its prices soar dramatically. This pattern is also
seen in other companies in the same industry. What do you think would happen
eventually? Explain. (Which economic scenario does it remind you of?)

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Q 9. If you have been spending too much time on Facebook, then we are afraid that you
might have been exposed to some intellectual crap (remember Indias national anthem
being voted number one in world?). One of many such posts claimed that if Indians
started boycotting all foreign made goods in favour of Indian goods, then Indian
currency will get a big boost. Explain how it is nothing more than a hoax?
Q 10. A and B are playing a game. A tosses a coin till head appears. If heads appears at
the Nth toss, A pays B 2^n rupees and the game stops. So after the first toss B gets 2
bucks, after second if its heads B get 4 bucks and so on.
(a) What is B's expected return for playing such a game?
(b) What do you conclude from your answer ?
(c) Keeping all the maths aside how much would you pay for this game ?

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