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2026 Statistics
Key Facts: CA Final AFM Exam
100
Total Marks
ICAI CA Final AFM
3 hrs
Exam Duration
ICAI CA Final AFM
30 marks
Compulsory MCQ Section
ICAI Exam Pattern
15
Syllabus Chapters
ICAI AFM Syllabus
40% / 50%
Paper / Group Pass Marks
ICAI Examination Rules
Group I
CA Final Group
ICAI New Scheme 2023
CA Final Paper 2, Advanced Financial Management (AFM), is a 100-mark, 3-hour ICAI Group I paper under the New Scheme 2023. The paper is roughly 70% descriptive and 30% compulsory MCQ (30 one-mark MCQs, no negative marking). Its 15 official chapters run from Financial Policy and Corporate Strategy through Risk Management, Advanced Capital Budgeting, Security Analysis and Valuation, Portfolio Management, Securitization, Mutual Funds, Derivatives, Foreign Exchange and International Financial Management, Interest Rate Risk, Business Valuation, Mergers and Restructuring, and Startup Finance. Passing requires 40% in the paper and a 50% group aggregate; 60% in a paper earns an exemption.
Sample CA Final AFM Practice Questions
Try these sample questions to test your CA Final AFM exam readiness. Each question includes a detailed explanation. Start the interactive quiz above for the full 100+ question experience with AI tutoring.
1Financial policy of a firm should be aligned with its corporate strategy primarily because:
A.Financing, investment and dividend decisions must support the long-term strategic objectives and create shareholder value
B.Financial policy must independently maximise reported accounting profit each year
C.Corporate strategy is set only by the board and never affects the finance function
D.Tax minimisation is the sole driver of every financial decision
Explanation: Financial policy and corporate strategy are interlinked: investment, financing and dividend decisions must reinforce the firm's strategic direction to maximise long-run shareholder wealth. Short-term accounting profit and tax savings are subordinate to value creation.
2Interface of financial policy with strategic management means that the finance manager must balance the conflicting demands of:
A.Only liquidity and audit compliance
B.Liquidity, profitability and risk while supporting growth strategy
C.Marketing and human resources budgets exclusively
D.Statutory reporting deadlines and printing costs
Explanation: Strategic financial management requires the finance manager to trade off liquidity, profitability and risk simultaneously while funding the firm's growth strategy. Overemphasising any one dimension can damage the others.
3A firm follows a 'high growth, high risk' strategy. Which financing policy is generally most consistent with it?
A.Very high financial leverage combined with operating leverage that is already high
B.Issuing only redeemable preference shares at a fixed high coupon
C.Lower reliance on debt to avoid combining high operating risk with high financial risk
D.Distributing 100% of earnings as dividends every year
Explanation: When business (operating) risk is high, prudent policy keeps financial leverage lower so total risk remains manageable; combining high operating and high financial leverage magnifies the chance of distress. This reflects the linkage between operating and financial risk.
4In strategic financial planning, 'sustainable growth rate' (SGR) of a firm with no new equity issue is best expressed as:
A.Dividend per share divided by market price per share
B.Return on assets divided by the dividend payout ratio
C.Net profit margin multiplied by total assets
D.Return on equity multiplied by the retention ratio
Explanation: The sustainable growth rate equals ROE x retention ratio (b), the maximum rate a firm can grow without issuing new equity while holding leverage constant. It links profitability, retention and growth strategy.
5Which of the following best describes the role of the finance function within the firm's value chain under strategic financial management?
A.It allocates capital, manages risk and measures value creation to enable strategic choices
B.It is a back-office support cost with no strategic input
C.It only prepares statutory financial statements after year-end
D.It is responsible solely for payroll processing
Explanation: Modern finance is a strategic partner: it allocates scarce capital, manages financial risk, and measures whether strategies create value, thereby enabling and constraining strategic decisions. It is far more than back-office reporting.
6Value at Risk (VaR) at a 99% confidence level over one day means there is:
A.A 99% chance the loss will exceed the VaR amount in one day
B.Only a 1% chance the loss will exceed the VaR amount over the one-day horizon
C.A guaranteed maximum loss equal to VaR that can never be breached
D.The expected profit of the portfolio over one day
Explanation: VaR at 99% one-day means there is a 1% probability that the actual loss will exceed the stated VaR over one day. It is a probabilistic loss threshold, not a guaranteed ceiling, and it measures downside, not expected profit.
7Which sequence correctly describes the risk management process?
A.Risk transfer, then risk identification, then ignoring the risk
B.Monitoring first, then identification, with no measurement step
C.Risk identification, risk assessment/measurement, risk response/mitigation, and monitoring
D.Insurance purchase before any identification of exposures
Explanation: The standard risk management cycle is identify, assess/measure, respond (avoid, reduce, transfer or retain), then monitor and review. Skipping identification or measurement undermines the whole process.
8Counterparty risk in an over-the-counter (OTC) derivative transaction primarily refers to:
A.The risk that interest rates move adversely
B.The risk of currency devaluation only
C.The risk that the exchange becomes insolvent
D.The risk that the other party to the contract defaults on its obligations
Explanation: Counterparty (credit) risk is the risk that the other party to an OTC contract fails to honour its obligations. It is more significant in OTC deals because, unlike exchange-traded contracts, there is no clearing house guaranteeing performance.
9A bank computes daily VaR of Rs 50 lakh at 95% confidence. The 10-day VaR, assuming returns are i.i.d., is approximately (using the square-root-of-time rule):
A.Rs 158 lakh
B.Rs 50 lakh
C.Rs 500 lakh
D.Rs 5 lakh
Explanation: Under the square-root-of-time rule, multi-period VaR = daily VaR x sqrt(t) = 50 x sqrt(10) = 50 x 3.162 = Rs 158 lakh approximately. Scaling linearly (x10) would overstate risk by ignoring diversification of independent daily moves.
10Which of the following is an example of a pure (non-financial) operational risk rather than a market risk?
A.Loss from a fall in equity prices held in the trading book
B.Loss from a fraud committed by an employee or a system failure
C.Loss from rising interest rates on a floating-rate liability
D.Loss from depreciation of a foreign currency receivable
Explanation: Operational risk arises from failed internal processes, people, systems or external events, such as fraud or system failure. The other options are market risks driven by movements in prices, rates or exchange rates.
About the CA Final AFM Practice Questions
Verified exam format metadata for CA Final Paper 2: Advanced Financial Management is pending. The practice questions above remain available while official exam length, timing, passing score, fee, and administrator details are reviewed.