TREASURY PRODUCTS

TREASURY PRODUCTS
1) Which of the following currency is not fully convertible?
a) USD b) EURO c) INR d) GBP
2) What are the Spot Trades?
a) It is the process of settlement where payment and receipts of funds are settled in respective currencies.
b) The settlement takes place within 2 working days from the trade date.
c) Currency may be bought or sold with settlement on the same date i.e. To day (TOD)
d) The settlement can be on the -next day he. Tomorrow (TOM)
3) Which of the following is significant about spot trade?
a) All rates quoted on the screen are for spot trade unless otherwise mentioned
b) TOD and TOM rates are generally quoted at a discount to the spot rate.
c) TOD and TOM rates are less favourable to buyer d) All these
4) What is forward contract?
a) It is a contract for purchase and sale of currency at a future date.
b) The exchange rate for a future contract is quoted on the day of contract.
c) The contract between buyer and seller is called forward contract.
d) All the above
5) Which of the following is true regarding a forward contract?
a) Treasury may have forward contracts with customers or Banks as counterparties.
b) Customers cover currency risk through forward contract.
c) Treasury may cover its customer exposure by taking reverse position in Inter-Bank market.
d) All the above
6) The features of forward rates are:
a) They are not projected on the basis of exchange rate movement in the market
b) Forward rates are decided on the basis of interest rate differential of two currencies.
c) The interest rate differential is added to the spot rate for low interest yielding currency and deducted
from the spot rate for high interest yielding currency
d) All the above
7) Which of the following are True?
a) Forward rate reflects interest rate differential only in prefect markets.
b) Perfect markets are where currency is fully convertible and highly liquid.
c) When currency is not fully convertible the demand for forward contract influences
the forward exchange rate d) All these
8) The features of a swap are:
a) A combination of spot and forward transactions is called a swap.
b) Buying in the spot market and selling same amount in forward market or vice-versa is swap.
c) Swap is mainly used for funding requirements_ d) All these
9) A Bank may have foreign exchange surpluses from the following sources:
a) Profit from overseas Branch operations
b) Forex Borrowing in foreign domestic market
c) Foreign currency and convertible rupee deposits with branches
d) All the above

10) A Treasury may have surplus forex from the following sources:
a) Surpluses net of Bank's -lending in foreign currency
b) Floating funds on account of customer transactions
c) EEFC funds maintained in current account d) All these
11) The surplus forex can be invested by a Treasury in:
a) Inter-Bank loans b) Short term investments c) Nostro Account
d) Any or all of these
12) Which of the followings are the sources for short-term investments?
a) Treasury Bills issued by foreign governments
b) Commercial paper
c) Other debt instruments issued by multi lateral institutions
d) All the above
13) What is a Nostro Account?
a) This is a current account denominated in foreign currency maintained by a Bank with the correspondent Bank in the
home country of the currency.
b) Nostro Account does not attract any interest.
c) Many correspondent Banks provide automatic investment facility for funds held
overnight which earn nominal interest. d) All these
14)What is Money Market?
a) It is place for raising and deploying short term resources where maturity does not exceed one year.
b) Inter-Bank market is divided as call money and term money.
c) Call money market is also overnight market where borrowed funds are repaid on the next working day.
d) Notice money market is where funds are placed beyond overnight and upto 14 days.
15) The participants in call/notice money market are:
a) The major players are Banks and primary dealers.
b) Non-Banking financial companies can only lend the surplus funds upto specified limit_
c) NBFC can not participate in this market d) Both (a) and (c)
16) Which of the followings are the features to Treasury Bills?
a) The T-Bills are issued by the RBI on behalf of central govt. for pre-determined amount.
b) The interest is by way of discount.
c) The price is determined through an auction process d) All these
17) The maturity period of T-Bills is:
a) 91 days b) 364 days c) (a) and (b) both d) None of these
18) Which of the followings is relevant to T-Bills?
a) Each issue of 91 days T-Bill is for Rs_ 500 crore and auction is conducted weekly onWednesday.
b) Each issue of 364 days is for Rs. 1000 crore and it is auctioned fortnightly
c) The Banks park short term funds in T-Bills d) All these
19) The Benefits of T-Bills are:
a) It is Risk free investment
b) It yields interest higher than the call money market.
c) It is possible to trade T-Bill in secondary market d) All these
20) Which of the followings is correct regarding T-Bill?
a) It is in the Electronic form and held in SGL Account maintained by Banks with RBI.
b) Depository participants can also operate through SGL Account.
c) The settlement of T-Bills is through Clearing Corporation of India d) All these
21) If a T-Bill is of 91 days is priced at 99.26, what does it signify?
a) It will yield interest at 2.99%
b) This is known as implicit yield.
c) (a) and (b) both d) None of these
22) The_ features of the commercial paper are:
a) It is an unsecured money market instrument issued in the form of promissory note.
b) The highly rated corporate Borrowers can raise short term funds through this instrument.
c) It is an additional instrument to the investing community d) All these
23) -The time limit for issuing a CP is:
a) Minimum maturity 7 days b) Maximum maturity one year
c) (a) and (b) both d) None of these
24) The requirements for issuing a commercial paper are:

a) The company issuing CP should have minimum credit rating of P2.
b) Banks can invest in CP only if it is issued in D-mat form
c) The minimum amount of CP is Rs. 5 lac d) All these
25) Who issues guidelines for issue of CP?
a) RBI
b) Market practices prescribed by FIMMDA (Fixed Income and Money Market and Derivatives Association of India) c) (a)
and (b) both d) None of these
26) A company issuing CP must satisfy the conditions:
a) Tangible Net worth of the company should not be less than Rs. 4 crore
b) The company should be enjoying working capital limit with Bank/financial institution
c) The Borrowal Account should be classified as standard Asset d) All these
27) How does Tangible Net Worth is arrived at?
a) Capital b) Free Reserves c) (a) + (b) — Intangible Assets if any
d) None of these
28) Which of the following is relevant about commercial paper?
a) It is issued for discounted amount i.e. less than face value
b) The price is quoted for face value
c) It is negotiable instrument d) All these
29) Which of the following statements regarding commercial paper is
not correct?
a) CP is a substitute to working capital
b) Interest rates are at par with PLR
c) It should be compulsory in D-mat form
d) Purchase and sale of CP is effected through the depository participants
30) Banks prefer to invest in CP through Treasury because :
a) Credit Risk is relatively low.
b) Yield on CP is higher than inter-bank money market.
c) There is no liquidity risk d) All these
31) Which of the following- Credit Rating Agencies have been authorized by RBI for
Rating?
a) ICRA b) CRISIL c) CARE and FITCH Ratings India Ltd. d) All these
32) The provisions for issue of commercial paper are:
a) Maximum period for subscription to an issue of CP is two weeks from the date of opening of issue.
b) CPs can be issued on a single date or in parts on different dates.
c) The same issue of CP should have the same date of maturity d) All these
33) The process of issue a CP involves:
a) The Bank is appointed as issuing and paying agent.
b) The Bank would assess the requirement and the extent to which the CP issue is linked with credit limit.
c) The potential investors are given a copy of IPA certificates d) All these
34) The features of certificate of Deposit are:
a) It is a debt instrument issued-by Bank against deposit of funds
b) It is a negotiable instrument
c) It bears interest rate higher than regular deposits of the Bank. d) All these
35) The requirements of certificate of Deposit are:
a) Minimum amount of deposit is Rs. 1 lac
b)_ The maturity period may range from 7 days to one year
c) It is an additional source for investment to Banks and corporates d) All these
36) What is a Reverse Repo?
a) It is a contract to buy securities and then to sell them back at an agreed future date and price.
b) It provides opportunity for short term investments of surplus funds
c) (a) and (b) both d) None of these
37) What is Repo?
a) It is an instrument of borrowing funds for a short period.
b) It involves selling a security and simultaneously agreeing to repurchase it at a future date for a slightly higher price.
c) The price difference is called interest d) All these
38) The significance of Repo is:
a) It is a tool used by RBI for open market operations.

b) It affects liquidity in the system.
c) None of these d) Both (a) and (b)
39) The commercial Banks participate in Repo transactions because of:
a) To meet short fall of CRR --
b) To meet short fall in SLR
e) The interest on Repo is lower than call market d) All these
40) Repo transactions are regulated by:
a) RBI b) Securities Contracts Regulations Act c) (a) and (b) both d) None
41) Which of the following statements is correct?
a) Repo is a short term money market instrument
b) The Repo Rate and period is announced by RBI,c) (a) and (b) both d) None of these
42) What is the Repo Rate with effect from 16th Sept 2010?
a) 5% b) 5.25% C) 5.75% d) 6% e) None of these
43) What is the Reverse Repo Rate with effect from lSept 2010?
a) 4% b) 4.25% c) 4.75% d) 5% e) None of these
44) The process of Repo transaction is:
a) A Bank may sell securities to the counterparty with an agreement to repurchase the same securities after a certain
period at pre determined price.
b) The bank gets cash in exchange of securities and pays back the cash after a certain period and get back the securities.
c) The difference between sale price and repurchase price is interest d) All these
45) The advantage to the counterparty under a Repo transaction is:
a) It earns interest on secured [ending.
b) It holds securities which serves the purpose of meeting SLR requirements.
c) The value of securities is higher by a margin to cover price Risk. d) All these
46) Which of the following statements is correct? .
a) The margin maintained on Repo securities is called hair cut as principal amount exchanged against
securities is lower than the market value of securities
b) RBI uses Repo to control liquidity
c) Banks and primary dealers sell govt. securities to RBI and avail liquidity d) All these
47) Which of the following statements is not correct?
a) RBI uses Repo Transactions under liquidity adjustment facility
b) Liquidity is not affected through lending to Banks under a Repo Transaction.
c) Absorption of liquidity is done by accepting deposits from Banks.
d) Absorption of liquidity by accepting deposits from Banks is known as Reverse Repo.
48) Which of the following statements is correct?
a) RBI has commercial repo auctions on overnight basis.
b) Repo and Reverse Repo Rates have been pre-fixed.
c) RBI has full discretion to change the frequency of auction. d) All these
49) The process of Bill Re-discounting is:
a) Treasury will discount Bill of Exchange of short term nature which are already discounted with the banks.
b) Rediscounting is done at money market rates.
c) The rediscounting rates are negotiable between the lending Bank and borrowing Bank. d) All the above
50) The advantage to the lending Bank is:
a) The surplus funds are invested at term money rate
b) Credit Risk is low as lending Bank has recourse to the discounting Bank
c) (a) and (b) both d) None of these
51) The benefits to borrowing Bank is :
a) It is able to infuse liquidity from out of existing Assets
b) Its capital adequacy ratio is improved or rediscounted bills are added to Inter-Bank liability c) (a) and (b) both
d) All these
52) Which of the followings is significant regarding government securities?
a) They are issued by Public Debt Office of RBI.
b) State govts. Issue state development Bonds.
c) Govt. securities are sold through auction conducted by RBI d) All these
53) Which of the followings is correct?
a) Interest is paid on face value of the bond at coupon rate.
b) RBI arrives at a cut off price based on bids submitted by Banks and primary dealers.


c) The price may be higher or lower than the face value d) All these
54) Price movement of Bond depends on:
a) Demand of the Bond which depends on liquidity in the system.
b) The yield on Bond is different from coupon rate.
c) (a) and (b) both d) None of these
55) If 10 years G. sec. at 7.37 per cent is priced at 104.80, what would be the yield'
a) 6.67% b) 5.42% c) 6.15% d) None of these
56) The interest rates in the economy depends on:
a) Rate of inflation b) GDP growth c) Other economic indicators
d) A combination of all these
57) The variety of Bonds may include: a) Step up coupons b) Coupons linked to inflation c) Floating rate coupons
d) Any of these
58) What is STRIPS:
a) Separately registered interest and principal securities
b) Under this process principal and interest are treated as separate zero coupon securities c) (a) and (b) both
d) None of these
59) What is corporate debt paper?
a) It includes medium and long term bonds and debentures issued by corporates and financial institutions
b) Yield on Bonds is higher than the govt. securities
c) They are called non-SLR securities where banks can invest d) All these
60) Which of the following statements is not correct?
a) Tier-2 capital Bonds issued by Banks fall under the category of corporate debt paper.
b) Bonds issued by corporates are not that liquid_
c) The bonds are issued in D-mat form.
d) Bank Treasury finds an attractive investment in corporate debt paper.
61) Which of the following statements is correct regarding corporate debt paper?
a) Higher the credit risk higher is the yield.
b) Global ratings are necessary if the debt paper is issued in International market.
c) Treasury can invest FCNR deposit funds and other forex surpluses in global debt paper. d) All the above
62) Which of the followings is correct?
a) Debentures are issued by private companies.
b) Bonds mainly issued by public sector companies.
c) Government does not provide guaranter on PSU Bonds d) All these
63) The material difference between debentures and bonds is:
a) Debentures are governed by relevant provisions of company law.
b) Debentures are transferable on registration
c) Bonds are negotiable instrument governed by Law of Contract. d) All these
64) The Bond can be : a) Zero Coupon Bond b) Floating Rate Bond c) Deep Discount Bond
d) Any of these
65) Which of the followings is not correct?
a) Debenture and Bonds can be issued with redemption in instruments over a period.
b) They can be issued with a premium or redemption.
c) There are no Bonds with put and call option
d) Bonds secured by stocks or other collateral are called collaterised obligations
66) Which of the followings is relevant regarding issue of Bonds and debentures?
a) The holders have prior legal claim over the equity and preference stock holders.
b) The Trustee appointed by issuing company protects the rights of debenture holders.
c) The Trustee can initiate legal action against the company in case of any default.
d) All of the above
67) Companies i s suing unsecured debentures and bonds have to compl y wi th the
provision of :
a) Companies Acceptance of Deposit Rules 1975 b) SEBI
c) (a) and (b) both d) None of these
68) What is a convertible Bond?
a) It is a mix of Debt and Equity.
b) Bond holder has an option to convert debt into equity on a fixed date.


c) The conversion price is pre-determined d) All these
69) The advantages of convertible Bonds are:
a) If the stock price is higher than prefixed conversion price, the investor would convert debt into Equity.
b) Company will have no debt repayment
c) The Equity of the company will be strengthened d) All these
70) Which of the followings are derivative products treated on stock exchange?
a) Index features b) Index options c) Stock futures and options d) All these
71) Provisions to invest in Equities are:
a) Banks can invest in Equities upto 20% of their net owned funds
b) Stock prices are highly volatile
c) Banks prefer low risk investments d) All these
72) The provision on Fll investments are:
a) Foreign currency funds are converted into rupee for portfolio investors.
b) Rupee funds with profits are converted into foreign currency for repatriation
c) Flls are allowed to invest in debt market d) All these
73) What is External Commercial Borrowings?
a) Indian companies can borrow on global market through Bank loan or issue of debt paper.
b) The debt can be repaid by reconversion of rupee funds into foreign currency
c) (a) and. (b) both d) None of these
74) The guidelines for investment of foreign currency funds of Banks are?
a) FCNR deposits can be invested in overseas market and for domestic lending :n foreign currency.
b) Banks are permitted to borrow/invest in overseas market 50% of Tier-I Capital.
c) (a) and (b) both d) None of these
75) What is Export Earners Foreign Currency Account?
a) Exporters are allowed to hold 100% export proceeds in a Current Account. wtth
b) No interest is paid on such deposits
c) (a) and (b) both d) None of these
76) What is Gilts?
a) Securities issued by government or Treasuries.
b) They do not have any credit Risk, c) (a) and (b) both d) None of these
77) SGL Account is:
a) Subsidiary General Ledger
b) It is maintained by public debt office of RBI
c) Banks maintain exclusively government Securities Accounts d) All of these
78) Which of the followings is correct?
a) Counterparty is the other party to a Transaction
b) Yield is internal rate of return where interest is also reinvested at original coupon rate.
c) Foreign currency deposits are denominated in foreign currency d) All of these
79) The features of FCNR deposit are:
a) They are denominated either in USD, GBP, JPY or EURO, Can- Dollar and Aus Dollar.
b) The deposits are maintained by non-resident Indians.
c) Interest on FCNR deposits is regulated by RBI d) All of these
80) Broad money or M3 consists of :
a) Currency in circulation b) Demand and time deposits with Banks
c) Deposits of Banks and other deposits with RBI d) All of these
81) Monetary policy of RBI aims at:
a) Controlling rate of inflation b) Ensuring stability of financial market
c) Regulating money supply d) All of these
82) The tools in the hands of RBI for direct control of money supply are:
a) CRR b) SLR c) (a)-and (b) both d) None of these
83) CRR is calculated on net Demand and Time liabilities which contain:
a) Demand deposits and Time deposits
b) Overseas Borrowings
c) Foreign outward remittances and other demand and time liabilities d) All of these
84) The Demand deposits include:
a) Current and Savings Deposits b) Margin Money for Letter of Credits
c) Overdue Fixed Deposits d) All these
85) Other Demand and Time Liabilities include:
ayAccrued Interest b) Credit Balance in Suspense Account
c) Any other liability d) All these
86) In which of the following categories only 3% minimum CRR is required to be
maintained?
a) Net Inter-Bank call borrowing/deposits where maturity does not exceed 14 days,
b) Credit Balance in ACU (Asian Currency Unit) Accounts
c) Demand and Time liabilities in respect of off shore Banking units d) None of these
87) Banks need not maintain CRR on :
a) Paid up capital, reserves, retained profits, refinance from apex institutions.
b) Excess provision for Income tax .
c) Claims received from DICGC/ECGC d) All these
88) Which of the followings is correct?
a) CRR need not be maintained on Inter-Bank term deposits of original maturity upto one year
b) RBI does not pay interest on CRR Balance
c) The Demand and Time l iabil i ties as on the report ing Friday of second previous
fortnight will be basis for CRR calculation d) All these
89) SLR can be maintained in the form of following Assets:
a) Cash Balance in excess of CRR requirements
b) ,Gold at current market price
c) Approved securities valued as per RBI norms d) All these
90) What is Liquidity Adjustment Facility?
a) It is the mechanism whereby RBI lends funds to Banking sector through repo instrument
b) This is used to monitor day to day market liquidity
c) This is exclusively applicable to repo and reverse repo transactions with RBI
d) All these
91) The features of Negotiated Dealing System are:
a) This is a system where securities clearing against assured payment is handed by Clearing Corporation of India.
b) Physical delivery of cheques are not required.
c) All Inter-Bank Money Market deals are done through Negotiated Dealing System
d) All the above
92) The feature of Real Time Gross Settlement System are:
a) All Inter-Bank payments are settled instantly.
b) Banks' Accounts with all the Branch offices of RBI are also integrated.
c) Since it is instant payment system, Banks need to maintain adequate funds
throughout the day.
d) All the above
93) Which of the following is correct?
a) Asian currency unit is a mechanism for payment to/from members of Asian clearing union.
b) Off shore Banking units render special Banking services only to overseas customers.
c) SWIFT is a secure worldwide financial messaging system exclusive to Banks.
d) All the above
94) What is DVP?
a) Delivery vesus Payment system where one account is debited and another account is credit at the same time.
b) In case of securities purchase funding account is debited and securities account is credited.
c) This facilitates prompt settlement of security transactions. d) All these


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TREASURY MANAGEMENT CAIIB BFM

TREASURY MANAGEMENT ::

1. RBI pays interest on the cash balances in excess of which of the following to bank, of their
NDTL?
a) 2%
b) 3%
c) 5%
d) 6%
ans: b
2. while the exposure limits are generally left to the banks discretion. RBI has imposed
which ceiling of total business in a year with individual brokers.
a) 2%
b) 5%
c) 10%
d) 15%
ans : b
3. Ability of a business concern to borrow or build up assets on the basis of a given capital
is called.
a) debt service coverage ratio
b) good will
c) reputation
d) Leverage
ans: D
4. Protection of risk in a transaction usually through derevatives product is called.
a) insurance
b) swap
c) hedge
d) arbitrage
ans: c
5. For the organization point of view treasury is considered to be
a) Investment centre
b) Fund management department
c) service centre
d) commercial bank
e) Non of these

ans: c
6. A treasury transaction with a customer is known as…..
a) Marchant banking business
b) Trading business
c) investment business
d) commercial banking
e) Retail banking
Ans: a
7. Which act relating to foreign exchange has replace earlier one?
a) Foreign Exchange Management Act
b) Foreign Exchange Regulation Act
c) Both the above
d) none of these
ans :a
8. RBI has permitted banks to borrow and invest through their overseas correspondents
in foreign currency subject to which of the following ceilings.
a 25% of there Tier-I Capital
b 25% of there Tier-I Capital or USD 10 million
c 25% of there Tier-I Capital or USD 10 million whichever Is higher.
d 25% of there Tier-I Capital or USD 10 million whichever Is lower
ans-: c
9. The treasury is run by a few specialist staff engaged in high value transaction per trn size
generally not being below:
a Rs 10 million
b Rs 20 “
c Rs 50 “
d None of these
Ans : c
10 Treasury has open position which is also known as
a Trading position
b Open position
c Proprietary position
d) a & C both
e) a
ans : d

11. Security dealars deals with of the following market.
A primary mkt
B secondary mkt
C Open mkt
D OTC
E all of these
Ans: b
12. What is the minimum marketable investment in treasury…….
A Rs 5 crore
B Rs 10 “
C Rs 20 “
D Rs 50 “
E non of these
Ans ; A
13. which of the following is not a free currency in the foreign exchange market ?
A USD
B Rupee
C EUR
D All of these
Ans : b
14. which of following statement is not correct relating to TOD and TOM
A Rates are generally quoted at discount to the spot rate
B Rates are less favorable to the buyer of the currency
C Rates are generally quated at a premium to the spot rate
D Non of these
Ans : c
15 The interest rate differential is added to the spote rate of
A Low interest yielding currency
B high interest yielding currency
C Both
D non of these
Ans A
16. Buying of USD (with Rupees) in the market and selling same in forward market or vice
versa is called
A spot trn

B Forward tsn
C swap tsn
D convertible tsn
Ans: c
17 Call money refers to placement of fund……..
A same day
B overnight
C next day
D Two days
E Non of these
Ans: b
18. Notice money refers to placement of funds for period not exceeding……
A over night
B two days
C 7 days
D 10 days
E 14 days
Ans : e
19. Term money refers to placement of funds for period not exceeding…
A 01 yr
B 02 yr
C 03 yr
D 05 yr
 Ans ;A
20. Treasury Bills are issued by whom
A RBI
B State PSUs
C GOI
D IMF
E IRDA
Ans :C
21 treasury bill is issued for 91 days to 364 days by GOI 91 days t bill is auction on
weekly basis for amount Rs………….crore.
A 100

B 200
C 500
D 1000
Ans : c read qtn carefully total three qtns aare there..
22. 364 t bill is auction on fourthnightly basis for amt of RS ……….crore by GOI
A 500
B 1000
C 1500
D 2000
Ans : c
23. A commercial paper carried credit risk , issued for period of 14 days to 01 yr for
minimum amt of 05 lakh and face value of Rs 100 only by………………….and it
should be in D mat form. ( Read QTN care fully)
A RBI
B corporate
C commercial bank
D central govt
Ans : b
24. ECB( external commercial borrowings) indian companies can borrow ................without
approval of RBI
a. usd 500 mn up to minimum period of 5 yrs
b. usd 20 mn upto minimum period of 3 yrs
c. both a and b are correct
d. without RBI approval they cannot borrow at all
ans C
.page no 333 bfm
25individuals are now permitted to remit overseas freely without rbi approval upto
a. 100000 usd/year
b. 200000 usd/yr
c. 300000 usd/yr
d. not possible without rbi approval
 ans : b page 334 b pe
26. certificate of deposit is a negotiable debt instrument has maturity period of 07 to 1 yr
and minimum amt is Rs 01 lakh basically issued by……….
A RBI
B Banks
C Treasury
D Corporate
E None

Ans : b
27 the difference between buying and selling rate is called
a) spread
b) profit
c) a only
d) a& b
Ans:d
28 placement of funds for overnight is called
a) notice money
b) call money
c) term money
d) all the above
Ans : b
29. Treasury discount bills of exchange, of short term nature with a tenure of
A 1 to 3 month
B 3 to 6 m
C 6 to 9 m
D 9 to 12 m
Ans : b
30. govt security are issued by..
A central finance ministry
B ministry of commerce
C central govt
D RBI
Ans : d
31. The basis point value is associated with
A risk pricing
B risk measurement
C risk mitigation
D risk control
 Ans: b
32. Deventures are governed by
A Law of contract
B Company Law
C Negotiable instrument
D non of these
Ans: b
33. all exposure limit are reviewed ….
A once in a qtr
B once in half yr
C once in a yr
D no limit
Ans: c

34 interest cost of funds locked in a trading position is called
A swap
B pre-settlement
C carry
D speculation
E options
Ans:c
35. A situation where the depoiter of abank lose confidence in the bank and withdraw therir
balances immediately, is called
A liquidation of the bank
B falilue of bank
C run on the bank
D out of the money
Ans: c
36. The capacity of abank oa business organization to absorb losses on account of market
risk.
 A risk absorption capacity
B risk aversion capacity
C risk taking capacity
D risk appetite
Ans:d

Risk management CAIIB BFM

Risk management::

1. Risk is defined as uncertainties resulting in:
a) Adverse outcome, adverse in relation to planned objectives or expectations
b) Adverse variation of profitability or outright losses (financial risk)
c) Both (a) & (b) d) None of these
2. Financial Risk is defined as
a) Uncertainties in cash flow b) Variations in net cash flow
c) Uncertainties resulting in outright losses
d) Uncertainties resulting in adverse variation of profitability e) Both (c) & (d)
3. Uncertainties in cash inflows and / or outflows create uncertainties in:
a) net cash flow b) profits c) Both (a) & (b) d) none of these
4_ Which of the following is not correct?
a) Lower risk implies lower variability in net cash flow
b) Higher variability in net cash flow may result in higher profits or higher losses
c) Higher risk would imply higher upside and downside potential
d) Zero risk would imply no variation in net cash flow e) None of these
5. Return on zero risk investment would be ----as compared to other opportunities
available in the market ; a) high ,b) low c) medium d) higher or low depending upon type of investment Strategic risk is a type
of : a) exchange risk b) liquidity risk c) interest rate risk d) operational risk e) none of these
6. Investment in RBI bonds at 6.5% interest rate with a maturity of 5 years is investment.
a) zero risk b) lower risk c) medium risk d) high risk
7. The capital requirement of a business would be lower when there is :
a) lower variation in net cash flow b) lower risk
c) lower possibility of loss d) all of these e) none of these
8. The key driver in managing a business is seeking enhancement in
a) Return on investment b) Risk Management capability
c) risk adjusted return on capital d) all of these e) None of these
9. Risk adjusted return on investment is:
a) Netting risk in a business or investment against the return from this
b) Managing risk on investments
c) Managing-return on investment through risk management
d) Adjusting return on investment against the risk

11.An investment will be more preferred and higher will be the reward to investors when:
a) RAROC is higher b) RAROC is lower c) RAROC is one d) none of these
12.The banking book is generally not exposed to : a) liquidity risk b) interest rate risk c) credit risk
d) operational risk e) None of these
13.Which of the following is / are characteristics of the assets held in Trading Book?
a) They are normally not held until maturity
b) They are normally held until maturity and accrual system of accounting is applied
c) Mark to market system is followed d) Both (a) & (c) e) Both (b) & (c)
14.Trading book is mainly exposed to
a) Market Risk b) Market Liquidity Risk c) Credit Risk
d) Operational Risk e) All of these
15.The transactions relating to guarantees, letters of credit, committed or back up credit lines form part of a) Banking Book b) Trading
Book, c) Off Balance Sheet Exposures d) All of these
16.The liquidity risk of banks arises from :
a) Funding of long term assets by short term liabilities
b) Funding of short term assets by long term liabilities
c) Funding of long term liabilities by short term assets
d) None of these
17. Funding liquidity risk is defined as:
a) Excess of liabilities over assets
b) Excess of long term liabilities over long term assets
c) Excess of short term liabilities over short term assets
d) Inability to obtain funds to meet cash flow obligations
18. Liquidity risk in banks manifest in different dimensions. Which of the
a) Funding risk arises from the need to replace net outflows withdrawal / non renewal of deposits
b) Time risk arises from the need to compensate for non receipt funds e.g. NPA
c) Call risk arises due to crystallization of contingent liabilities
d) Both (a) & (b) e) None of these
19.Where an asset maturing in two years at a fixed by a liability
risk will be: a) Basis risk b) Yield curve riskc) Gap risk d) embedded option Risk
20.The risk of adverse variance of the mark to market value of change in market prices of interest rate instruments, equities, is called: a)
Price Risk b) Market Risk c) Translation Risk d) Both a & b
21.ln the financial market bond prices and yields are
a) inversely related b) directly related ,
c) inversely or directly related depending on type of bond d) none of these
22.When a bank is unable to conclude a large transaction in a particular instrument near the current market price, it is called as a)
Market risk b) Market Liquidity risk c) Default risk d) counter party risk
23.Potential of a bank borrower or counterparty to fail to meet its obligations according to agreed terms is called: a) credit risk b)
default risk c) market liquidity d) market risk e) either (a) or (b)
24.The risk related to non performance of the trading partners due to counter party's refusal
and or inability to perform is called ------risk : a) Liquidity, b) Operational , c) Counter Party , d) None
25. Country risk is an example of
a) Market risk b) Credit risk c) Operational risk d) Liquidity risk
The risk of loss resulting from inadequate or failed internal processes, people and systems or from external events is called as
risk
a) legal b) compliance c) Fraud d) Operational
26. Which of the following is not a operational risk?
a) Compliance risk b) Transaction risk c) Legal Risk
d) Counter party risk e) System risk
27. Strategic Risk and Reputation Risk fall in the category of
a) Market risk b) credit risk c) Operational risk d) none of these
Risk arising from fraud, failed business processes and inability to maintain business continuity : a) Transaction risk b)
compliance risk c) credit risk d) none of these
28. Risk of legal or regulatory sanction, financial loss or reputation loss that a bank may suffer as a result of its failure
to comply with any or all of the applicable laws, regulations etc. is called as:
a) Transaction risk b) Compliance risk, c) legal risk d) Systems risk
Compiled by Sanjay Kumar Trivedy, ChiefManager, Canara Bank, Shrigonda,Ahmed Nagar, Maharashtra 52 | P a g e
31.Risk arising from adverse business decisions, improper implementation of decisions, or lack of responsiveness to industry changes is
called:
a) Reputation risk b) Strategic risk c) Operational risk d) Management risk
32. Reputation Risk which arises from negative public opinion may result in:
a) exposing an institution to litigation b) financial loss
c) decline in customer base d) all of these e) none of these
33.Risk associated with a portfolio is always less than the weighted average of risks of individual items in the portfolio due to
a) Diversification of risks
b) The fact that all accounts in a portfolio will not behave in unidirectional manner
c) The fact that risks in all the accounts in a portfolio will not materialize simultaneously,
d) Both (a) & (b) only e) All of these
34.Aggregated risk of the organizations as a whole is called:
a) Transaction risk b) Portfolio risk c) Total risk d) None of these

ANSWER ::
1 A 2 E 3 C 4 E 5 B 6 E 7 A 8 D 9 C
11 A 12 E 13 D 14 E 15 C 16 A 17 D 18 E 19 C 20 D
21 A 22 B 23 E 24 C 25 B 26 D 27 D 28 D 29 A 30 B
31 B 32 D 33 E 34 B

Off-balance sheet items

Off-balance sheet items
Off-balance sheet items have been bifurcated as follows:
(iii) Non-market related off-balance sheet items
(iv) Market related off-balance sheet items
There is two-step process for the purpose of calculating risk weighted assets in respect of
off-balance sheet items:
BI. The notional amount of the transaction is converted into a credit equivalent factor by
multiplying the amount by the specified Credit Conversion Factor (CCF)
The resulting credit equivalent amount is then multiplied by the risk weight
applicable to the counter party or to the purpose for which the bank has extended
finance or the type of asset whichever is higher. Where the off-balance sheet item is secured by eligible collateral or guarantee, the credit
risk mitigation guidelines will be applied. Non-market related off-balance sheet items:
Off balance sheet items like direct credit substitutes, trade and performance related
contingent items and commitments with certain draw downs are classified under Non- market related off-balance sheet items. The credit equivalent amount is determined by
multiplying the contracted amount of that particular transaction by the relevant CCF. Non-market related off-balance sheet items also include undrawn or partially
undrawn fund based and non-fund based facilities, which are not unconditionally
cancellable. The amount of undrawn commitment is to be included in calculating the off balance sheet items. Non-market related exposure is the maximum unused portion of the
commitment that could be drawn during the remaining period of maturity. In case of term
loan with respect to large project to be drawn in stages, undrawn portion shall be calculated
with respect of the running stage only. RBI guidelines on CCF (Credit Conversion Factor)
Direct Credit Substitutes CCF
General Guarantees (including Standby LCs), 100%
Acceptances
Transaction related contingent items (Performance 50%
bonds, Bid bonds, Warranties, Indemnities, Standby
LC relating to particular transaction
Short Term LC (Documentary) for Issuing bank as well 20%
as confirming bank

Principles for Sound Liquidity Risk Management:

 Principles for Sound Liquidity Risk Management:

After the global financial crisis, in recognition of the need for banks to improve their liquidity risk
management, the Basel Committee on Banking Supervision (BCBS) published “Principles for Sound
Liquidity Risk Management and Supervision” in September 2008. The broad principles for sound liquidity
risk management by banks as envisaged by BCBS are as under:
Fundamental principle for the management and supervision of liquidity risk
Principle 1 A bank is responsible for the sound management of liquidity risk. A bank should
establish a robust liquidity risk management framework that ensures it maintains
sufficient liquidity, including a cushion of unencumbered, high quality liquid assets, to
withstand a range of stress events, including those involving the loss or impairment of
both unsecured and secured funding sources. Supervisors should assess the
adequacy of both a bank’s liquidity risk management framework and its liquidity
position and should take prompt action if a bank is deficient in either area in order to
protect depositors and to limit potential damage to the financial system. Governance of liquidity risk management
Principle 2 A bank should clearly articulate a liquidity risk tolerance that is appropriate for its
business strategy and its role in the financial system. Principle 3 Senior management should develop a strategy, policies and practices to manage
liquidity risk in accordance with the risk tolerance and to ensure that the bank
maintains sufficient liquidity. Senior management should continuously review
information on the bank’s liquidity developments and report to the board of directors
on a regular basis. A bank’s board of directors should review and approve the
strategy, policies and practices related to the management of liquidity at least annually
and ensure that senior management manages liquidity risk effectively. Principle 4 A bank should incorporate liquidity costs, benefits and risks in the internal pricing, performance measurement and new product approval process for all significant
business activities (both on- and off-balance sheet), thereby aligning the risk-taking
incentives of individual business lines with the liquidity risk exposures their activities
create for the bank as a whole. Measurement and management of liquidity risk
Principle 5 A bank should have a sound process for identifying, measuring, monitoring and
controlling liquidity risk. This process should include a robust framework for
comprehensively projecting cash flows arising from assets, liabilities and off-balance
sheet items over an appropriate set of time horizons. Principle 6 A bank should actively monitor and control liquidity risk exposures and funding needs
within and across legal entities, business lines and currencies, taking into account
legal, regulatory and operational limitations to the transferability of liquidity. Principle 7 A bank should establish a funding strategy that provides effective diversification in the
sources and tenor of funding. It should maintain an ongoing presence in its chosen
funding markets and strong relationships with funds providers to promote effective
diversification of funding sources. A bank should regularly gauge its capacity to raise
funds quickly from each source. It should identify the main factors that affect its ability
to raise funds and monitor those factors closely to ensure that estimates of fund
raising capacity remain valid. Principle 8 A bank should actively manage its intraday liquidity positions and risks to meet
payment and settlement obligations on a timely basis under both normal and stressed
conditions and thus contribute to the smooth functioning of payment and settlement
systems. Principle 9 A bank should actively manage its collateral positions, differentiating between
encumbered and unencumbered assets. A bank should monitor the legal entity and
physical location where collateral is held and how it may be mobilised in a timely
manner. Principle 10 A bank should conduct stress tests on a regular basis for a variety of short-term and
protracted institution-specific and market-wide stress scenarios (individually and in
combination) to identify sources of potential liquidity strain and to ensure that current
exposures remain in accordance with a bank’s established liquidity risk tolerance. A
bank should use stress test outcomes to adjust its liquidity risk management

strategies, policies, and positions and to develop effective contingency plans. Principle 11 A bank should have a formal contingency funding plan (CFP) that clearly sets out the
strategies for addressing liquidity shortfalls in emergency situations. A CFP should
outline policies to manage a range of stress environments, establish clear lines of
responsibility, include clear invocation and escalation procedures and be regularly
tested and updated to ensure that it is operationally robust. Principle 12 A bank should maintain a cushion of unencumbered, high quality liquid assets to be
held as insurance against a range of liquidity stress scenarios, including those that
involve the loss or impairment of unsecured and typically available secured funding
sources. There should be no legal, regulatory or operational impediment to using
these assets to obtain funding. Public disclosure
Principle 13 A bank should publicly disclose information on a regular basis that enables market
participants to make an informed judgment about the soundness of its liquidity risk
management framework and liquidity position. Thus, a sound liquidity risk management system would envisage that:
i) A bank should establish a robust liquidity risk management framework.
ii) The Board of Directors (BoD) of a bank should be responsible for sound management of liquidity risk
and should clearly articulate a liquidity risk tolerance appropriate for its business strategy and its role in
the financial system.
iii) The BoD should develop strategy, policies and practices to manage liquidity risk in accordance with
the risk tolerance and ensure that the bank maintains sufficient liquidity. The BoD should review the
strategy, policies and practices at least annually.
iv) Top management/ALCO should continuously review information on bank’s liquidity developments and
report to the BoD on a regular basis. v) A bank should have a sound process for identifying, measuring, monitoring and controlling liquidity risk,
including a robust framework for comprehensively projecting cash flows arising from assets, liabilities and
off-balance sheet items over an appropriate time horizon. vi) A bank’s liquidity management process should be sufficient to meet its funding needs and cover both
expected and unexpected deviations from normal operations. vii) A bank should incorporate liquidity costs, benefits and risks in internal pricing, performance
measurement and new product approval process for all significant business activities. viii) A bank should actively monitor and manage liquidity risk exposure and funding needs within and
across legal entities, business lines and currencies, taking into account legal, regulatory and operational
limitations to transferability of liquidity.
ix) A bank should establish a funding strategy that provides effective diversification in the source and
tenor of funding, and maintain ongoing presence in its chosen funding markets and counterparties, and
address inhibiting factors in this regard. x) Senior management should ensure that market access is being actively managed, monitored, and
tested by the appropriate staff. xi) A bank should identify alternate sources of funding that strengthen its capacity to withstand a variety of
severe bank specific and market-wide liquidity shocks. xii) A bank should actively manage its intra-day liquidity positions and risks. xiii) A bank should actively manage its collateral positions. xiv) A bank should conduct stress tests on a regular basis for short-term and protracted institution-specific
and market-wide stress scenarios and use stress test outcomes to adjust its liquidity risk management
strategies, policies and position and develop effective contingency plans. xv) Senior management of banks should monitor for potential liquidity stress events by using early
warning indicators and event triggers. Early warning signals may include, but are not limited to, negative
publicity concerning an asset class owned by the bank, increased potential for deterioration in the bank’s
financial condition, widening debt or credit default swap spreads, and increased concerns over the
funding of off- balance sheet items. xvi) To mitigate the potential for reputation contagion, a bank should have a system of effective
communication with counterparties, credit rating agencies, and other stakeholders when liquidity
problems arise. xvii) A bank should have a formal contingency funding plan (CFP) that clearly sets out the strategies for
addressing liquidity shortfalls in emergency situations. A CFP should delineate policies to manage a
range of stress environments, establish clear lines of responsibility, and articulate clear implementation
and escalation procedures. xviii) A bank should maintain a cushion of unencumbered, high quality liquid assets to be held as
insurance against a range of liquidity stress scenarios. xix) A bank should publicly disclose its liquidity information on a regular basis that enables market
participants to make an informed judgment about the soundness of its liquidity risk management
framework and liquidity position. 5. Governance of Liquidity Risk Management:
The Reserve Bank had issued guidelines on Asset Liability Management (ALM) system, covering inter
alia liquidity risk management system, in February 1999 and October 2007. Successful implementation of
any risk management process has to emanate from the top management in the bank with the
demonstration of its strong commitment to integrate basic operations and strategic decision making with
risk management. Ideally, the organisational set up for liquidity risk management should be as under:
A. The Board of Directors (BoD):
The BoD should have the overall responsibility for management of liquidity risk. The Board should decide
the strategy, policies and procedures of the bank to manage liquidity risk in accordance with the liquidity
risk tolerance/limits as detailed in paragraph 14. The risk tolerance should be clearly understood at all
levels of management. The Board should also ensure that it understands the nature of the liquidity risk of
the bank including liquidity risk profile of all branches, subsidiaries and associates (both domestic and
overseas), periodically reviews information necessary to maintain this understanding, establishes
executive-level lines of authority and responsibility for managing the bank’s liquidity risk, enforces
management’s duties to identify, measure, monitor, and manage liquidity risk and formulates/reviews the
contingent funding plan. B. The Risk Management Committee:
The Risk Management Committee, which reports to the Board, consisting of Chief Executive Officer
(CEO)/Chairman and Managing Director (CMD) and heads of credit, market and operational risk
management committee should be responsible for evaluating the overall risks faced by the bank including
liquidity risk. The potential interaction of liquidity risk with other risks should also be included in the risks
addressed by the risk management committee. C. The Asset-Liability Management Committee (ALCO):
The Asset-Liability Management Committee (ALCO) consisting of the bank’s top management should be
responsible for ensuring adherence to the risk tolerance/limits set by the Board as well as implementing
the liquidity risk management strategy of the bank in line with bank’s decided risk management objectives
and risk tolerance. D. The Asset Liability Management (ALM) Support Group:
The ALM Support Group consisting of operating staff should be responsible for analysing, monitoring and
reporting the liquidity risk profile to the ALCO. The group should also prepare forecasts (simulations)
showing the effect of various possible changes in market conditions on the bank’s liquidity position and
recommend action needed to be taken to maintain the liquidity position/adhere to bank’s internal limits. 6. Liquidity Risk Management Policy, Strategies and Practices:
The first step towards liquidity management is to put in place an effective liquidity risk management policy, which inter alia, should spell out the liquidity risk tolerance, funding strategies, prudential limits, system for
measuring, assessing and reporting / reviewing liquidity, framework for stress testing, liquidity planning
under alternative scenarios/formal contingent funding plan, nature and frequency of management
reporting, periodical review of assumptions used in liquidity projection, etc. The policy should also
address liquidity separately for individual currencies, legal entities like subsidiaries, joint ventures and
associates, and business lines, when appropriate and material, and should place limits on transfer of
liquidity keeping in view the regulatory, legal and operational constraints. The BoD or its delegated committee of board members should oversee the establishment and approval of
policies, strategies and procedures to manage liquidity risk, and review them at least annually. 6.1 Liquidity Risk Tolerance:

Banks should have an explicit liquidity risk tolerance set by the Board of Directors. The risk tolerance
should define the level of liquidity risk that the bank is willing to assume, and should reflect the bank’s
financial condition and funding capacity. The tolerance should ensure that the bank manages its liquidity
in normal times in such a way that it is able to withstand a prolonged period of, both institution specific
and market wide stress events. The risk tolerance articulation by a bank should be explicit, comprehensive and appropriate as per its complexity, business mix, liquidity risk profile and systemic
significance. They may also be subject to sensitivity analysis. The risk tolerance could be specified by
way of fixing the tolerance levels for various maturities under flow approach depending upon the bank’s
liquidity risk profile as also for various ratios under stock approach. Risk tolerance may also be expressed
in terms of minimum survival horizons (without Central Bank or Government intervention) under a range
of severe but plausible stress scenarios, chosen to reflect the particular vulnerabilities of the bank. The
key assumptions may be subject to a periodic review by the Board. 6.2 Strategy for Managing Liquidity Risk:
The strategy for managing liquidity risk should be appropriate for the nature, scale and complexity of a
bank’s activities. In formulating the strategy, banks/banking groups should take into consideration its legal
structures, key business lines, the breadth and diversity of markets, products, jurisdictions in which they
operate and home and host country regulatory requirements, etc. Strategies should identify primary
sources of funding for meeting daily operating cash outflows, as well as expected and unexpected cash
flow fluctuations. 7. Management of Liquidity Risk:
A bank should have a sound process for identifying, measuring, monitoring and mitigating liquidity risk as
enumerated below:
8.1 Identification:
A bank should define and identify the liquidity risk to which it is exposed for each major on and off- balance sheet position, including the effect of embedded options and other contingent exposures that
may affect the bank’s sources and uses of funds and for all currencies in which a bank is active. 8.2 Measurement of Liquidity Risk:
There are two simple ways of measuring liquidity; one is the stock approach and the other, flow approach. The stock approach is the first step in evaluating liquidity. Under this method, certain ratios, like liquid
assets to short term total liabilities, purchased funds to total assets, core deposits to total assets, loan to
deposit ratio, etc. are calculated and compared to the benchmarks that a bank has set for itself. While the
stock approach helps up in looking at liquidity from one angle, it does not reveal the intrinsic liquidity
profile of a bank. The flow approach, on the other hand, forecasts liquidity at different points of time. It looks at the liquidity
requirements of today, tomorrow, the day thereafter, in the next seven to 14 days and so on. The maturity
ladder, thus, constructed helps in tracking the cash flow mismatches over a series of specified time
periods. The liquidity controls, apart from being fixed maturity-bucket wise, should also encompass
maximum cumulative mismatches across the various time bands. 8. Ratios in respect of Liquidity Risk Management:
Certain critical ratios in respect of liquidity risk management and their significance for banks are given
below. Banks may monitor these ratios by putting in place an internally defined limit approved by the
Board for these ratios. The industry averages for these ratios are given for information of banks. They
may fix their own limits, based on their liquidity risk management capabilities, experience and profile. The
stock ratios are meant for monitoring the liquidity risk at the solo bank level. Banks may also apply these
ratios for monitoring liquidity risk in major currencies, viz. US Dollar, Pound Sterling, Euro and Japanese
Yen at the solo bank level.

No. Average
(in %)
1. (Volatile liabilities – Temporary Assets)
/(Earning Assets – Temporary Assets)
Measures the extent to which volatile money supports
bank’s basic earning assets. Since the numerator
represents short-term, interest sensitive funds, a high
and positive number implies some risk of illiquidity. 40
2. Core deposits/Total Assets Measures the extent to which assets are funded
through stable deposit base. 50
3. (Loans + mandatory SLR +
mandatory CRR + Fixed
Assets)/Total Assets
Loans including mandatory cash reserves and
statutory liquidity investments are least liquid and
hence a high ratio signifies the degree of ‘illiquidity’ embedded in the balance sheet. 80
4. (Loans + mandatory SLR +
mandatory CRR + Fixed
Assets) / Core Deposits
Measure the extent to which illiquid assets are
financed out of core deposits. 150
5. Temporary Assets/Total
Assets
Measures the extent of available liquid assets. A
higher ratio could impinge on the asset utilisation of
banking system in terms of opportunity cost of holding
liquidity. 40
6. Temporary Assets/ Volatile
Liabilities
Measures the cover of liquid investments relative to
volatile liabilities. A ratio of less than 1 indicates the
possibility of a liquidity problem. 60
7. Volatile Liabilities/Total
Assets
Measures the extent to which volatile liabilities fund the
balance sheet. 60
Volatile Liabilities: (Deposits + borrowings and bills payable up to 1 year). Letters of credit – full
outstanding. Component-wise CCF of other contingent credit and commitments. Swap funds (buy/ sell)
up to one year. Current deposits (CA) and Savings deposits (SA) i.e. (CASA) deposits reported by the
banks as payable within one year (as reported in structural liquidity statement) are included under volatile
liabilities. Borrowings include from RBI, call, other institutions and refinance. Temporary assets =Cash + Excess CRR balances with RBI + Balances with banks + Bills
purchased/discounted up to 1 year + Investments up to one year + Swap funds (sell/ buy) up to one year. Earning Assets = Total assets – (Fixed assets + Balances in current accounts with other banks + Other
assets excluding leasing + Intangible assets)
Core deposits = All deposits (including CASA) above 1 year (as reported in structural liquidity
statement)+ net worth
The above stock ratios are only illustrative and banks could also use other measures / ratios. For
example to identify unstable liabilities and liquid asset coverage ratios banks may include ratios of
wholesale funding to total liabilities, potentially volatile retail (e.g. high cost or out of market) deposits to
total deposits, and other liability dependency measures, such as short term borrowings

Risk management ::

Risk management ::

Risk management is the process of identifying, assessing and controlling threats to an organization's capital and earnings. These threats, or risks, could stem from a wide variety of sources, including financial uncertainty, legal liabilities, strategic management errors, accidents and natural disasters. IT security threats and data-related risks, and the risk management strategies to alleviate them, have become a top priority for digitized companies. As a result, a risk management plan increasingly includes companies' processes for identifying and controlling threats to its digital assets, including proprietary corporate data, a customer's personally identifiable information and intellectual property

Risk management standards

Since the early 2000s, several industry and government bodies have expanded regulatory compliance rules that scrutinize companies' risk management plans, policies and procedures. In an increasing number of industries, boards of directors are required to review and report on the adequacy of enterprise risk management processes. As a result, risk analysis, internal audits and other means of risk assessment have become major components of business strategy.

Risk management standards have been developed by several organizations, including the National Institute of Standards and Technology and the ISO. These standards are designed to help organizations identify specific threats, assess unique vulnerabilities to determine their risk, identify ways to reduce these risks and then implement risk reduction efforts according to organizational strategy.

The ISO 31000 principles, for example, provide frameworks for risk management process improvements that can be used by companies, regardless of the organization's size or target sector. The ISO 31000 is designed to "increase the likelihood of achieving objectives, improve the identification of opportunities and threats, and effectively allocate and use resources for risk treatment," according to the ISO website. Although ISO 31000 cannot be used for certification purposes, it can help provide guidance for internal or external risk audit, and it allows organizations to compare their risk management practices with the internationally recognized benchmarks.

The ISO recommended the following target areas, or principles, should be part of the overall risk management process:

The process should create value for the organization.

It should be an integral part of the overall organizational process.

It should factor into the company's overall decision-making process.

It must explicitly address any uncertainty.

It should be systematic and structured.

It should be based on the best available information.

It should be tailored to the project.

It must take into account human factors, including potential errors.

It should be transparent and all-inclusive.

It should be adaptable to change.

It should be continuously monitored and improved upon.

The ISO standards and others like it have been developed worldwide to help organizations systematically implement risk management best practices. The ultimate goal for these standards is to establish common frameworks and processes to effectively implement risk management strategies.

These standards are often recognized by international regulatory bodies, or by target industry groups. They are also regularly supplemented and updated to reflect rapidly changing sources of business risk. Although following these standards is usually voluntary, adherence may be required by industry regulators or through business contracts.

Risk management strategies and processes

All risk management plans follow the same steps that combine to make up the overall risk management process:

Risk identification. The company identifies and defines potential risks that may negatively influence a specific company process or project.

Risk analysis. Once specific types of risk are identified, the company then determines the odds of it occurring, as well as its consequences. The goal of the analysis is to further understand each specific instance of risk, and how it could influence the company's projects and objectives.

Risk assessment and evaluation. The risk is then further evaluated after determining the risk's overall likelihood of occurrence combined with its overall consequence. The company can then make decisions on whether the risk is acceptable and whether the company is willing to take it on based on its risk appetite.

Risk mitigation. During this step, companies assess their highest-ranked risks and develop a plan to alleviate them using specific risk controls. These plans include risk mitigation processes, risk prevention tactics and contingency plans in the event the risk comes to fruition.

Risk monitoring. Part of the mitigation plan includes following up on both the risks and the overall plan to continuously monitor and track new and existing risks. The overall risk management process should also be reviewed and updated accordingly.

Risk management approaches

After the company's specific risks are identified and the risk management process has been implemented, there are several different strategies companies can take in regard to different types of risk:

Risk avoidance. While the complete elimination of all risk is rarely possible, a risk avoidance strategy is designed to deflect as many threats as possible in order to avoid the costly and disruptive consequences of a damaging event.

Risk reduction. Companies are sometimes able to reduce the amount of effect certain risks can have on company processes. This is achieved by adjusting certain aspects of an overall project plan or company process, or by reducing its scope.

Risk sharing. Sometimes, the consequences of a risk is shared, or distributed among several of the project's participants or business departments. The risk could also be shared with a third party, such as a vendor or business partner.

Risk retaining. Sometimes, companies decide a risk is worth it from a business standpoint, and decide to retain the risk and deal with any potential fallout. Companies will often retain a certain level of risk a project's anticipated profit is greater than the costs of its potential risk.

https://iibfadda.blogspot.com/2018/09/risk-management.html?m=1

Forex Facilities for Residents (Individuals):::::

Forex Facilities for Residents
(Individuals):::::

Introduction

The legal framework for administration of exchange control in India is provided by the Foreign Exchange Management Act, 1999. Under the Act, freedom has been granted for buying and selling of foreign exchange for undertaking current account transactions. However, the Central Government has been vested with powers in consultation with Reserve Bank to impose reasonable restrictions on current account transactions. Accordingly, the Government has issued Notifications GSR.381(E) dated May 3, 2000, and S.O. 301(E) dated March 30, 2001, imposing certain restrictions on current account transactions in public interest.

These details are available on the Bank’s website besides with the authorised dealers and regional offices of the Foreign Exchange Department. Our experience so far has been that the residents like to get information on several matters relating to various current account transactions and other incidental issues. This pamphlet attempts to answer to all such questions in simple language. While preparing replies to questions, special care has been taken to ensure that the replies are drafted in simple words and reference to technical details are avoided.

 The Foreign Exchange Management Act,1999 (FEMA), has come into force with effect from June 1, 2000. With introduction of the new Act (in place of FERA), certain structural changes have been introduced and

Current Affairs on 05.12.2018

Today's Headlines from www:

*Economic Times*

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📝 SBI raises Rs 2,000 crore via NSE's electronic bidding platform

📝 S&P cuts Tata Motors credit rating on JLR weakness

📝 Residential real estate demand may rise in medium-term: Report

📝 Amway India to invest up to Rs 30 crore to ramp up its digital platform

📝 Government notifies dual fuel usage for agriculture, construction vehicles

*Business Standard*

📝 Soon, filing income tax returns may get easier with pre-filled forms

📝 IndiGo set to become the first Indian carrier to have 200 aircraft

📝 Kesoram, the flagship of B K Birla Group, to hive off tyre division

📝 Amazon invests fresh funds of Rs 22 billion in India marketplace

📝 I-T returns filed in April-Nov up 50% y-o-y owing to demonetisation: CBDT

📝 Apple resorts to promo deals, trade-ins to boost declining iPhone sales

📝 NREGA spend to exceed budgeted amount by Rs 50 billion this year: Jaitley

📝 Centre to move policy to promote hydro power with units of 10 Gw capacity

*Financial Express*

📝 India to allow business visa extension for up to 15 years

📝 Fusion Microfinance raises Rs 520-cr funding from Warburg Pincus, others

📝 PNB-led consortium seeks bids for Oliver Engineering

📝 RBI to inject Rs 10,000 cr through open market operations on Thursday

📝 Number of patents granted by India shot up by 50% in 2017, reports UN

📝 App-based US copter rides firm Blade to launch India service in March

📝 Telecom outlook for next year bleak: Icra

📝 Warburg Pincus forays into Indian microfinance space

*Mint*

📝 Tata Motors plans large-scale overhaul of its sales network

📝 Sebi panel bats for overseas listing of firms

📝 Xiaomi eyes India’s rural market to fuel growth

📝 I Squared Capital to set up renewable energy platform

📝 Airtel reworks broadband strategy to take on Jio GigaFiber

📝 Concerns on credit supply to small businesses a myth: SBI report

📝 Oil gives up ground as Saudis say OPEC+ cut still up in the air.

BFM Treasury Management

Points BFM / Treasury Management ★☆★

1. Swap generally used for interest arbitrage when one currency is not fully convertible.

2.TOD & TOM rates are generally quoted at discount to the rate of spot rate.

3. CBLO is a money market instrument launched by CCIL. It is generally a repo instrument.

4. The money in circulation is calculated by Broad money or M3.

5. C → 1 days

     N→ <= 14 days

     T → >14 days but < 1 yr

Here C is call money, N is Notice money & T is Term money

6. LAF is used measure to day to day liquidity in the market.

7. Treasury is proned with market risk.

8. CBLO→ Collatrised Borrowing Lending obligation

9. VaR measure can be used to assess the currency risk , interest risk and price risk.

10. Yield and price of bond move inversely.

11. The option is said to be ITM if strike price is less than the forward rate in case of a call option or if strike price is greater in a ut option.

12. Money market is measured by VaR and duration.

13. IRS( Interest rate swap ) is OTC instrument issued by banks.

14. OTC ( over the counter ) refers to the derivative products sold by banks to meet specific requirements of clients.

15. RBI has permitted banks to borrow and invest through their overseas correspondent in forigen currency subject to a ceiling of 50% of Tier I capital or USD 10 millions.

16. Spot and forward transaction are the primary product of forex market.

17. Treasury is also responsible for balance sheet management.

18. NDS(Negotiated dealing system is an electronic platform for faciliating dealing in gov. Sec.

19. LAF refers to RBI lending funds to banking thtough repo rate.

20. VaR is used to measure potential loss or wrost case scenario while holding a trading position.

21. VaR is a statistical measure indicating worst possible movement of market rate over a given period of time under normal market condition at defined confidence level.

22. Options refers to contracts where the buyer of an option has a right but no obligation to exercise the contract.

23. Options are either call option or put option.

24. Derivatives are basically of three kinds→ forward contracts, optional & swap.

25. Options are primarily used as hedge against price fluctuations , it is similar to insurance against adverse movement of price.

26. Transfer pricing refers to fixing the cost of resources and return an assets of the bank in a rational manner.

27. Transfer pricing is an integral function of ALM.

28. Futures are forward contracts traded in future exchange.

29. FRA(Forward Rate agreement) closely linked with IRS, where the interest payable for future period is commited under the agreement.

30. The difference between sources and uses of funds in specific time band is known as liquidity gap.

31. Derivaties can be used to hedge high value transactions or aggregrate risks as reflected in asset-liability mismatches.

32. For the purpose of ALM ,all assets and liabilities are placed in time buckets is measured as a gap b/w rate sensitive assets and rate sensitive liabilities.

33. CD ( Credit Derivatives) help the issuer diversify the credit risk and use the capital more efficiently.

34. Roles of Treasury → Liquidity management, propritery positions , Risk management.

35. Forwad refers to purchase or sale of currency on a future date. The exchange rate for forward sale or purchase are quoted today, hence such transaction are referred to as forward contracts b/w buyer & seller.

Current Affairs on 03.12.2018

Today's Headlines from www:

*Economic Times*

📝 EaseMyTrip eyes sales worth Rs 7,800 crore in FY20

📝 Government brings in three think tanks to strategise for RCEP talks

📝 Nexstar clinches $4.1 bn deal to acquire Tribune Media: Sources

📝 Steel cos may go for expansion through brownfield route

📝 RBI's relaxation in securitisation guideline may release Rs 60,000 crore

📝 Hero Realty forays into NCR; to invest Rs 900 crore in housing project on Dwarka Expressway

📝 Barista eyes doubling India store count to 500 in 3 years

📝 SmartE aims to raise up to $20 million to fund next round of expansion

*Business Standard*

📝 Govt confident of meeting fiscal deficit target despite GST shortfall

📝 Carmakers run out of speed in urban markets; rural demand grows

📝 Philips banks on Taiwanese partner TPV Technology to woo TV buyers in India

📝 Realty developers with rental assets to profit from boom in office space

📝 FIIs invested nearly Rs 64 billion in November, the highest since March

📝 Govt to revamp SEZ incentives policy, focus on employment over exports

📝 FPI inflows hit 10-month high of Rs 122.6 bn on softer crude, rupee gains

📝 Axis Bank staff face I-T probe for 'helping' Mumbai jewellers in benami deals

*Financial Express*

📝 China rejects India proposal for trade in local currencies

📝 RBI may cut inflation outlook yet again

📝 WPP merges JWT and Wunderman

📝 A strong balance sheet essential for independence, credibility of RBI, says Fitch Ratings

📝 National Waterways 1: Rs 5369 cr project aims to smoother navigation over river Ganges

📝 Nasscom raises concerns over US government latest proposal on H1-B visas

📝 After Samsung, Microsoft tipped to launch foldable smartphone

*Mint*

📝 US, China finally agree to halt levy of new tariffs for 90 days

📝 Bad loans: SBI to auction 3 NPA accounts to recover Rs2,111 crore dues

📝 Standard Chartered to cut Dubai, Singapore jobs

📝 WhatsApp seeks RBI nod to expand payment services to all users

📝 Theresa May threatened with vote to bring down govt over Brexit.

Different Types of LC

Different Types of LC

1. Irrevocable LC. This LC cannot be cancelled or modified without consent of the beneficiary (Seller). This LC reflects absolute liability of the Bank (issuer) to the other party.

2. Revocable LC. This LC type can be cancelled or modified by the Bank (issuer) at the customer's instructions without prior agreement of the beneficiary (Seller). The Bank will not have any liabilities to the beneficiary after revocation of the LC.

3. Stand-by LC. This LC is closer to the bank guarantee and gives more flexible collaboration opportunity to Seller and Buyer. The Bank will honour the LC when the Buyer fails to fulfill payment liabilities to Seller.

4. Confirmed LC. In addition to the Bank guarantee of the LC issuer, this LC type is confirmed by the Seller's bank or any other bank. Irrespective to the payment by the Bank issuing the LC (issuer), the Bank confirming the LC is liable for performance of obligations.

5. Unconfirmed LC. Only the Bank issuing the LC will be liable for payment of this LC.

6. Transferable LC. This LC enables the Seller to assign part of the letter of credit to other party(ies). This LC is especially beneficial in those cases when the Seller is not a sole manufacturer of the goods and purchases some parts from other parties, as it eliminates the necessity of opening several LC's for other parties.

7. Back-to-Back LC. This LC type considers issuing the second LC on the basis of the first letter of credit. LC is opened in favor of intermediary as per the Buyer's instructions and on the basis of this LC and instructions of the intermediary a new LC is opened in favor of Seller of the goods.

8. Payment at Sight LC. According to this LC, payment is made to the seller immediately (maximum within 7 days) after the required documents have been submitted.

9. Deferred Payment LC. According to this LC the payment to the seller is not made when the documents are submitted, but instead at a later period defined in the letter of credit. In most cases the payment in favor of Seller under this LC is made upon receipt of goods by the Buyer.

10. Red Clause LC. The seller can request an advance for an agreed amount of the LC before shipment of goods and submittal of required documents. This red clause is so termed because it is usually printed in red on the document to draw attention to "advance payment" term of the credit.

Gist of Important FEDAI Rules

Gist of Important FEDAI Rules
Rule 1: Hours of Business
1.1 The exchange trading hours for Inter-bank forex market in India would be from
9.00 a.m. to 5.00 p.m. No customer transaction should be undertaken by the
Authorised Dealers after 4.30 p.m. on any working day. 1.2 Cut-off time limit of 05.00 p.m. is not applicable for cross- currency transactions.
In terms of paragraph 7.1 of Internal Control Guidelines over Foreign Exchange
Business of Reserve Bank of India (February 2011), Authorised Dealers are
permitted to undertake cross-currency transactions during extended hours, provided
the Managements lay down the extended dealing hours. 1.3 For the purpose of Foreign Exchange business, Saturday will not be treated as
a working day. 1.4 “Known holiday” is one which is known at least 4 working days before the date. A holiday that is not a “known holiday” is defined as a “suddenly declared holiday”. Rule 2: Export Transactions
2.1. Post-shipment Credit in Rupees
(c) Application of exchange rate: Foreign Currency bills will be
purchased/discounted/ negotiated at the Authorised Dealer’s current bill buying rate
or contracted rate. Interest for the normal transit period and/or usance period shall
be recovered upfront simultaneously. (d) Crystallization and Recovery:
(ii) Authorized Dealers should formulate own policy for crystallization of foreign
currency liability into rupee liability, in case of non-payment of bills on the due
date. (iii) The policy in this regard should be transparently available to the customers. (iv) For crystallization into Rupee liability, the Authorised Dealer shall apply its TT
selling rate of exchange. The amount recoverable, thereafter, shall be the
crystallized Rupee amount along with interest and charges, if any.

(v) Interest shall be recovered on the date of crystallization for the overdue period
at the appropriate rate; and thereafter till the date of recovery of the
crystallized amount. (vi) Export bills payable in countries with externalization issues shall also be
crystallized as per the policy of the authorised dealer, notwithstanding receipt
of advice of payment in local currency. (d) Realization of Bills after crystallization: After receipt of advice of realization,
the authorised dealer will apply TT buying rate or contracted rate (if any) to convert
foreign currency proceeds. (e) Dishonor of bills: In case of dishonor of a bill before crystallization, the bank
shall recover:
(ii) Rupee equivalent amount of the bill and foreign currency charges at TT selling rate. (iii) Appropriate interest and rupee denominated charges. 2.2. Application of Interest
(c) Rate of interest applicable to all export transactions shall be as per the
guidelines of Reserve Bank of India from time to time. (d) Overdue interest shall be recovered from the customer, if payment is not
received within normal transit period in case of demand bills and on/or before
notional due date/actual due date in case of usance bills, as per RBI directive. (e) Early Realization: In case of early realization, interest for the unexpired period
shall be refunded to the customer. The bank shall also pay or recover notional swap
cost as in the case of early delivery under a forward contract. 2.3. Normal Transit Period:
Concepts of normal transit period and notional due date are linked to concessional
interest rate on export bills. Normal transit period comprises the average period
normally reckoned from the date of negotiation/purchase/discount till the receipt of
bill proceeds.
It is not to be confused with the time taken for the arrival of the goods at the destination. Normal transit period for different categories of export business are laid down as below:
(c) Fixed Due Date: In the case of export usance bills, where due dates are fixed, or are reckoned from date of shipment or date of bill of exchange etc, the actual due
date is known. Therefore, in such cases, normal transit period is not applicable. (d) Bills in Foreign Currencies – 25 days
(e) Exports to Iraq under United Nations Guidelines – Max. 120 days
(g) Bills drawn in Rupees under Letters of Credit (L/C)
(i) Reimbursement provided at centre of negotiation - 3 days
(ii) Reimbursement provided in India at centre different from centre of
negotiation - 7 days
(iii) Reimbursement provided by banks outside India - 20 days
(iv) Exports to Russia under L/C where reimbursement is provided by RBI - 20 days. (h) Bills in Rupees not under Letter of Credit - 20 days
(i) TT reimbursement under Letters of Credit (L/C)
(i) Where L/C provides for reimbursement by electronic means - 5 days
(ii) Where L/C provides reimbursement claim after certain number of days
from the date of negotiation - 5 days + this additional period. 2.4. Substitution/Change in Tenor:
(o) In case of change in the usance of a bill, interest on post-shipment credit shall
be charged to the customer, as per RBI guidelines. In addition, the bank shall
charge or pay notional swap difference. Interest on outlay of funds for such
swaps shall also be recovered from the customer at rate not below base rate
of the bank concerned. (p) It is optional for banks to accept delivery of bills under a contract made for
purchase of a clean TT. In such cases, the bank shall recover/pay notional
swap difference for the relative cover. Interest at the rate not below base rate
of the bank would be charged on the outlay of funds. 2.5. Export Bills sent for collection:
(a) Application of exchange rates: The conversion of foreign currency proceeds of
export bills sent for collection or of goods sent on consignment basis shall be
done at prevailing TT buying rate or the forward contract rate, as the case
may be. The conversion to Rupee equivalent shall be made only after the
foreign currency amount is credited to the nostro account of the bank. (b) On receipt of credit advice/statement of nostro account and compliances of
guidelines, requirements of the Bank and FEMA, the Bank shall transfer funds
for the credit of exporter’s account within two working days. (c) If the above stipulated time limit is not observed, the Bank shall pay
compensation for the delayed period at the minimum interest rate charged on
export credit. Compensation for adverse movement of exchange rate, if any, shall also be paid as per the compensation policy of the bank.

Rule 3: Import Transactions
3.1 Application of exchange rate:
(a) Retirement of import bills - Exchange rate as per forward sale contract, if
forward contract is in place. Prevailing Bills selling rate, in case there is no
forward contract. (b) Crystallization of Import - same as above bill (vide para 3.3 below)
(c) For determination of stamp - As per exchange rate provided by the duty on
import bills authority concerned. 3.2. Application of Interest:
(a) Bills negotiated under import letters of credit shall carry commercial rate of
interest as applicable to banks’ domestic advances from time to time. (b) Interest remittable on interest bearing bills shall be subject to the directive of
Reserve Bank of India in this regard. 3.3. Crystallization of Import Bill under Letters of Credit. Unpaid foreign currency import bills drawn under letters of credit shall be
crystallized as per the stated policy of the bank in this respect. Rule 4 Clean Instruments:
4.1. Outward Remittance: Outward remittance shall be effected at TT selling rate of
the bank ruling on that date or at the forward contract rate. 4.2. Encashment of foreign currency notes and instruments, Foreign currency
travelers’ cheques, currency notes, foreign currency in prepaid card, debit/credit
card will be encashed at Authorised Dealer’s option at the appropriate buying rate
ruling on the date of encashment. 4. 3. Payment of foreign inward remittance, Foreign currency remittance up to an
equivalent of USD 10,000/- shall be immediately converted into Indian Rupees. Remittance in excess of equivalent of USD 10,000 shall be executed in foreign
currency. The beneficiary has the option of presenting the related instrument for
payment to the executing bank within the period prescribed under FEMA. 4.4. The applicable exchange rate for conversion of the foreign currency inward
remittance shall be TT buying rate or the contracted rate as the case may be. 4.5. Compensation for delayed payment: Authorised Dealers shall pay or send
intimation, as the case may be, to the beneficiary in two working days from the date
of receipt of credit advice / nostro statement. In case of delay, the bank shall pay
the beneficiary interest @ 2 % over its savings bank interest rate. The bank shall
also pay compensation for adverse movement of exchange rate, if any, as per its
compensation policy

Rule 5 Foreign Exchange Contracts:
5.1. Contract amounts: Exchange contracts shall be for definite amounts and
periods. When a bill contract mentions more than one rate for bills of different
deliveries, the contract must state the amount and delivery against each such rate. 5.2. Option period of delivery: Unless the date of delivery is fixed and indicated in
the contract, the option period may be specified at the discretion of the customer
subject to the condition that such option period of delivery shall not extend beyond
one month. If the fixed date of delivery or the last date of delivery option is a known
holiday, the last date for delivery shall be the preceding working day. In case of
suddenly declared holidays, the contract shall be deliverable on the next working
day. Contracts permitting option of delivery must state the first and last dates of
delivery. For Example: 18th January to 17th February, 31st January to 29th Feb. 2012. “Ready” or “Cash” merchant contract shall be deliverable on the same day. “Value next day” contract shall be deliverable on the working day immediately
succeeding the contract date. A spot contract shall be deliverable on second
succeeding working day following the contract date. A forward contract is a contract
deliverable at a future date, duration of the contract being computed from spot value
date at the time of transaction”. 5. 3. Place of delivery: All contracts shall be understood to read “to be delivered or
paid for at the Bank” and “at the named place”. 5.4. Date of delivery: Date of delivery under forward contracts shall be:
(i) In case of bills/documents negotiated, purchased or discounted - the date of
negotiation/purchase/ discount and payment of Rupees to the customer. However, in case the documents are submitted earlier than, or later than the
original delivery date, or for a different usance, the bank may treat it as proper
delivery, provided there is no change in the expected date of realization of
foreign currency calculated at the time of booking of the contract. No early
realization or late delivery charges shall be recovered in such cases. (ii) In case of export bills/documents sent for collection - Date of payment of
Rupees to the customer on realization of the bills. (iii) In case of retirement/crystallization of import bills/documents - the date of
retirement/ crystallization of liability, whichever is earlier?
5.5. Option of delivery: In all forward merchant contracts, the merchant, whether a
buyer or a seller will have the option of delivery. 5.6. Option of usance: The merchant purchase contract should state the tenor of
the bills/documents. Acceptance of delivery of bills/documents drawn for a different
tenor will be at the discretion of the bank

5.7. Merchant quotations: The exchange rate shall be quoted in direct terms i.e. so many Rupees and Paise for 1 unit or 100 units of foreign currency. 5.8. Rounding off: Rupee equivalent of the foreign currency Settlement of all
merchant transactions shall be effected on the principle of rounding off the Rupee
amounts to the nearest whole Rupee i.e. without paise. RULE 6 Early Delivery, Extension and Cancellation of Foreign Exchange
Contracts
6.1. General
(i) At the request of a customer, unless stated to the contrary in the provisions of
FEMA, 1999, it is optional for a bank to: (a). Accept or give early delivery; or
(b). Extend the contract. (ii) It is the responsibility of a customer to effect delivery or request the bank for
extension / cancellation as the case may be, on or before the maturity date of
the contract. 6.2. Early delivery: If a bank accepts or gives early delivery, the bank shall
recover/pay swap difference, if any. 6.3. Extension: Foreign exchange contracts where extension is sought by the
customers shall be cancelled (at an appropriate selling or buying rate as on the date
of cancellation) and rebooked simultaneously only at the current rate of exchange. The difference between the contracted rate, and the rate at which the contract is
cancelled, shall be recovered from/paid to the customer at the time of extension. Such request for extension shall be made on or before the maturity date of the
contract. 6.4. Cancellation
(i) In case of cancellation of a contract at the request of a customer, (the request
shall be made on or before the maturity date) the Authorised Dealer shall
recover/ pay, as the case may be, the difference between the contracted rate
and the rate at which the cancellation is effected. The recovery/payment of
exchange difference on cancellation of forward contracts before the maturity
date may be either upfront or back-ended at the discretion of banks. (ii) Rate at which cancellation is to be effected:
(a) Purchase contracts shall be cancelled at T.T. selling rate of the
contracting Authorised Dealer
(b) Sale contracts shall be cancelled at T.T. buying rate of the contracting
Authorised Dealer

(c) Where the contract is cancelled before maturity, the appropriate forward
T.T. rate shall be applied. (bi) Notwithstanding the fact that the exchange contract between the customer
and the bank becomes impossible of performance, for whatever reason,
including Government prohibitory orders, the exchange contract shall not be
deemed to have become void and the customer shall forthwith apply to the
Authorised Dealer for cancellation, as per the provisions of paragraph 6.4.(i)
and (ii) above. (iv)
(d) In the absence of any instructions from the customer, vide para 6.1(ii), a
contract which has matured shall be cancelled by the bank on the 7th working
day after the maturity date. (e) Swap cost, if any, shall be recovered from the customer under advice to him. © When a contract is cancelled after the maturity date, the customer shall not be entitled
to the exchange difference, if any, in his favour, since the contract is cancelled on
account of his default. He shall, however, be liable to pay the exchange difference
against him. 6.5. Swap cost/gain:
(ii) In all cases of early delivery of a contract, swap cost shall be recovered from
the customer, irrespective of whether an actual swap is made or not. Such
recoveries should be made either back-ended or upfront at discretion of the
bank. (iii) Payment of swap gain to a customer shall be made at the end of the swap period. 6.6. Outlay and Inflow of funds:
Authorised Dealer shall recover interest on outlay of funds for the purpose of
arranging the swap, in addition to the swap cost in case of early delivery of a
contract.
If such a swap leads to inflow of funds, interest shall be paid to the customer. Funds
outlay / inflow shall be arrived at by taking the difference between the original
contract rate and the rate at which the swap could be arranged. The rate of interest
to be recovered / paid should be determined by banks as per their policy in this
regard.

CAIIB BFM strategy

BFM::;;

The strategy for the study of Bank Financial Management which many people finds difficult to clear. If you study properly, it is easy to clear the BFM. This subject also contains 4 modules, they are;

-International Banking

-Risk Management

-Treasury Management

-Balance Sheet Management

Many people do not correlate the syllabus of the subject with day to day banking activity. So they find it difficult to score and understand this subject. But this not true, this subject is very much important which will increase your knowledge regarding top management & middle management functioning of your bank as well as banking as a whole industry.

All the modules are equally important, but you may clear the paper with three modules study also. Module A & B are relatively easy and scoring as well. Let us discuss strategy for each module.

Module A-International Banking

Important topics are Exchange Rates and Forex Business, Basics for Forex Derivatives, Documentary LC, and Facilities for Exporters & Importers

Rapid reading or bullet point reading is quite useful for this module. Practice numerical again and again.

Many numerical/case studies are asked from this module which are quite easy as compared to Module B & Module D case studies. Refer the case studies from McMillan given at the end of the topic. Also N.S.Toor book has many numerical and case studies. Questions are asked on Exchange rates, Shipment Finance etc.

Module B-Risk Management

All chapters are equally important as they are interlinked to each other. Again focus more on case studies/numericals given in Apendix at the end of chapter. Maximum case studies are asked from this module. Though short notes are useful for this module I would suggest McMillan reading for this module because some questions are twisted type for which you require details of the concept which is hard to get from short notes. RBI website contains FAQs which are quite useful for this modules, you should read them at least once.

Module C- Treasury Management

Important topics are Introduction, Types of treasury products, Treasury Risk Management, Treasury and Asset-Liability Management.

Mostly questions asked on this module are theoretical type, so through reading of McMillan is important. If you don’t get time then you can skip this module or read short notes since the weighted of this module for exam point of view is low according to me as compared to Module A&B. But those who wish to make carrier or work in treasury department, this is the best module to learn.

Module-D Balance Sheet Management

Important chapters are Components of ALM in Bank’s Balance Sheet, Capital and banking Regulation,, Capital Adequacy, Asset Classification and Provisioning Norms, Interest rate Risk management.

Though McMillan book contain sufficient material but I would suggest you to refer RBI website for this module. In this module focus more on Case Studies as compared to theoretical questions. Do not skip this module as it is much important for exam as well as knowledge point of view. No need to read McMillan line by line.

Overall you have to keep balance between theoretical reading as well as case studies/numerical since the paper would contain 40-45% case studies. N.S.Toor book contains good case studies and MCQs. Also there are many resources available on the internet from where you will get case studies for this module. After giving this paper you will realized that BFM is easier as compared to ABM and no need to worry for BFM.

CAIIB ABM Today's Recollected questions (02.12.2018)

CAIIB ABM Today's Recollected questions (02.12.2018)  Shared by memebers

Today  Paper normal, numerical s were moderate

1.Correlation problem 5 marks
2.Job enlargement
3. Maslow's theory of motivation
4.Job enrichment
5.Motivation theories
6. performance appraisal methods,
7.feedback method
8.Direct formula based theory questions from GDP concept
9.Vroom expectancy mcqs
10.360 & Hallo effect
11. GDP concepts case study
12.Only theory questions on assets
13.Time series a case study consisting of 5 numericals involving coding principle and residual method

14.velocity of money direct formula
15.Simplex method -5marks,
16. linear programming-5m
17.
M1
M2
M3 concept. 5 mark block.

18.Serfaesi act 3 mark

19.Gdp 5-6 mark

20.Sampling mathod 3-4 question

21.Training and leraning 5 mark block

22.Hr 1 block

1. 23.

Simulation, time series ,dscr correlation best fit equation break even point sales probability case studies asked
Some more recollected

Re-collected questions posted by our members
---------------------------------------------------------------

01. Direct agriculture SME 25%
02. Correlation - Case study 5 marks
03. Job Enrichment
04. Maslow's theory of motivation
05. GDP, GNP and GDP factor cost case study 5 marks
06. 360-degree feedback
07. Halo Effect
08. Time series - Case study consisting of 5 numericals involving coding principle and residual method - 5 marks
09. Vroom expectancy MCQs
10. Motivation theories
11. Feedback methods
12. Performance appraisal methods
13. Theory questions on assets
14. Estimation - case study 5 marks
15. Balance sheet - case study 5 marks
16. Money supply 2 year case study 5 mark
17. Full form 'BARS' -Behaviourally Anchored Rating Scale
18. DCSR

Case Studies
Two from Module-A
Two from Module-B
Four from HR (Module-C)
Two from credit (Module-D)

Money supply 5 marks, LPP Simplex method 5 marks, time series 5 marks, balance sheet ratio analysis 10 marks, and some small problems on annuity, bond value, estimation, sampling..

• HR questions and credit management questions were tricky. Under HR, many questions were from motivation theories and performance appraisal techniques

 IS LM curve,
Break even point: case study numerical 😢
Simplex
Time series : reduction method case study
Teir 1 capital
Achievement theory
Vroom
MBO
Hrm case study on Appraisal methods.
Case study on M1,M2
Gdp GNP 3 marks
Bonds numericals and theory 5 marks
Current ratio comparisons
Dscr
Loan documentation
Case study on LPP
Correlation , regression slope
FV/PV calculation
Population , proportion,
Binomial distribution,
Working capital operation cycle method theory.



Johari window is for
Correlation coefficient r=1,-1,0,infinty For which 1was ans.
Job enlargement.
Linear programming 5mark.
M1,M2,.....5marks with coins in question. Based on
Sarfaesia total 3questions, console bond, 2question on differential int rate
Lm curve related 2questions, time series 5mark.
GDP (Y,) based on exp. method but have to form equation with all variables, only export and govt spending numbers others are Y related values, Solve equation and get GDP. If export increases what is the % changed in GDP... Total 5 marks.
Balance sheet given dscr, inventory turnover ratio etc.
2hrm case studies, but all questions are basic knowledge from book.
Appraisal 360degree, BARS.

• cleared ABM 

questions asked where

HRM one case study related to Performance Appraisal
one related to managerial dimensions

LPP one case study
Johari window
DSCR 2 qns
3 bond problems
GDP 3 qns

The central limit theorem assures us that the sampling distribution of the mean
A) Is always normal
B) Is always normal for large sample
C) Approach normality as sample size increases
D) Appears normal only when Necessary is greater than 1000

Finite population multiplier is
A) √(N-1)/(N-n)
B)√(N-n)*(N-1)
C) √(N-n)/(N-1)
D) √(N-n)/(n-1)

PL and b/s one case study
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Current Affairs on 02.12.2018

Today's Headlines from www:

*Economic Times*

📝 Wipro aims to make $150 million from intellectual property this FY

📝 Tata Motors sales declines 3.8% to 52,464 units in November

📝 OMCs reduce jet fuel prices; ATF cost in Delhi down by 11%

📝 GST collection for November drops to Rs 97,637 crore

📝 HDFC raises Rs 9,000-cr in FY19’s biggest bond sale

📝 Tata Capital aims for 25-30% growth despite NBFC woes

📝 TRL Krosaki, Cogent Power to be part of Tata Steel portfolio rejig

📝 BuidSupply raises $3.5 million from Venture Highway in Series A

*Business Standard*

📝 With 9% growth, UPI transactions cross 500-million mark in November

📝 Naspers plans 'significant investments' to make use of $10 bn cash pile

📝 Cotton yield in India to hit three-year low on massive crop damage

📝 Karnataka set to unveil India's first platform for intellectual properties

📝 Sun TV eyes lower double-digit growth in H2 ad revenues this fiscal

📝 As imports swell, Vedanta plans 25% ramp-up in downstream output

📝 HackerEarth eyes aggressive US ops, expects biz to rise from 35% to 60%

📝 With Rs 15-million package, Microsoft top recruiter at IITs on Day 1

*Financial Express*

📝 Bank unions threaten nationwide strike on December 26

📝 Google to shut Hangouts by 2020! Messaging app to stop its functions, says report

📝 Patanjali to join hands with Jharkhand govt to market honey, vegetables

📝 Centre to set up 23 GW solar plants in Leh-Kargil

📝 Mauritius’ SBM gets RBI approval to merge operations with its Indian subsidiary

📝 Rise of online shopping makes warehouses hot property in India

*Mint*

📝 India to buy supersonic missiles in Rs 3000 crore arms spending

📝 Maruti Suzuki domestic sales decline, M&M rise in November

📝 Gold prices decline on weak global cues, low demand.