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.

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

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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11 D 12 D 13 A 14 A 15 A 16 D 17 C 18 D 19 D 20 D
21 C 22 D 23 C 24 D 25 A 26 D 27 C 28 D 29 B 30 D
31 D 32 D 33 D 34 D 35 D 36 C 37 D 38 D 39 D 40 C
41 C 42 D 43 D 44 D 45 D 46 D 47 B 48 D 49 D 50 C
51 C 52 D 53 D 54 A 55 A 56 D 57 D 58 C 59 D 60 B
61 D 62 D 63 D 64 D 65 C 66 D 67 C 68 B 69 D 70 D
71 D 72 D 73 C 74 D 75 C 76 C 77 D 78 D 79 D 80 D
81 D 82 C 83 D 84 D 85 D 86 D 87 D 88 D 89 D 90 D
91 D 92 D 93 D 94 D

Treasury Management :: (Read nice article)

 Treasury Management ::

 (Read nice article)
Banks not only lend money to customers but also invest in securities such as Bonds and
Debentures of Government as well as Corporates. These instruments are easily tradable
in the capital and money market. The tradability of securities makes investments an
attractive option for banks for deployment of their funds. Further, banks buy securities
not only to trade but also to hold them till maturity to take advantage of the attractive
returns with relatively lower risk. Banks are allowed to invest in shares of companies.
However, the volumes are low due to associated high risk besides regulatory restrictions.
The investment portfolio of the banks broadly divided into three groups viz.,
Trading Book – Securities purchased with the intention of selling them within 90 days
are held in the trading book. Trading opportunities arise in the market on account of
fluctuation in interest rates and arbitrage opportunities.
Available for Sale (AFS) – Securities which are bought with the intention of selling
them but not necessarily within 90 days is considered to be AFS securities. They are also
part of the trading portfolio of the bank but only the time frame is different. Both the
trading and AFS securities have to be “Marked to Market” every quarter while finalization
of quarterly results.
Held to Maturity (HTM) – These securities are meant to be held till their date of
maturity and the purpose investing in them is to earn reasonable steady income. These
securities are carried in the books at cost or purchase price till maturity. Hence, HTM
securities need not be “Marked to Market” as the bank is certain of receiving the
maturity value on the specified date. Banks are not allowed to shift securities freely from
trading and AFS to the HTM book as this may lead to overstating of profit figures.
However, banks can opt for shifting only once in a year to adjust their overall portfolio.
Banks are permitted to exceed the limit of 25% of total investments under HTM category
provided (a) the excess comprises of only of SLR securities and (b) the total SLR
securities held in the HTM category is not more than 23% by March 2014.
Call Money Markets: Call and notice money market refers to the market for short term
funds ranging from overnight funds to funds for a maximum tenor of 14 days. Under Call
money market, funds are transacted on overnight basis where as in case of notice
money market; funds are transacted for the period of 2 days to 14 days.
Coupon Rate: It is a rate at which interest is paid, and is usually represented as a
percentage of the par value of a bond. It refers to the periodic interest payments that
are made by the borrower (who is also the issuer of the bond) to the lender (the
subscriber of the bond) and the coupons are stated upfront either directly specifying the
number (e.g.8%) or indirectly tying with a benchmark rate (e.g. MIBOR+0.5%).
Zero Coupon Bond / Deep Discount Bond: The bond is issued at a discount to its
face value, at which it will be redeemed. When such a bond is issued for a very long
tenor, the issue price is at a steep discount to the redemption value. The effective
interest earned by the buyer is the difference between the face value and the discounted
price at which the bond is bought. The essential feature of this type of bonds is the
absence of intermittent cash flows.
Commercial Paper (CP): It is a short-term instrument to enable non-banking
companies to borrow short-term funds through liquid money market instruments. CPs is
therefore part of the working capital limits as set by the maximum permissible bank
finance (MPBF). CP issues are regulated by RBI Guidelines issued from time to time
stipulating term, eligibility, limits and amount and method of issuance. CP can be issued
for maturities between a minimum of 7 days and a maximum up to one year from the
date of issue. The maturity date of the CP should not go beyond the date up to which the
credit rating of the issuer is valid. CP can be issued in denominations of `5 lakh and
multiples thereof. It is mandatory that CPs should be rated by credit rating agencies. In
a bid to make CPs attractive, the RBI has allowed issuers to buyback these instruments
through the secondary market before maturity. It attracts stamp duty.
Certificates of Deposits (CDs): It is a negotiable money market instrument and
issued in dematerialized form or as a Usance Promissory Note, for funds, deposited at a
bank or other eligible financial institutions to raise short-term resources within the
umbrella limit fixed by RBI. CDs may be issued at a discount on face value. CDs differ
from term deposit as they involve the creation of paper, and hence have the facility for
transfer and multiple ownerships before maturity. Banks use the CDs for borrowing
during a credit pickup, to the extent of shortage in incremental deposits. Minimum
amount of a CD should be one lakh and in multiples thereof. The maturity period of CDs
should be not less than 7 days and not more than one year. However FIs are allowed to
issue CDs not exceeding 3 years from the date of issue. Banks have to maintain the
appropriate reserve requirements (CRR/SLR) on the issue price of the CDs. It attracts
stamp duty. Banks/Fis cannot grant loans against CDs.
Mumbai Inter Bank Offered Rate (MIBOR) - Currently there are two calculating
agents for the benchmark viz., Reuters and the National Stock Exchange (NSE). The NSE
MIBOR benchmark is the more popular of the two and is based on rates polled by NSE
from a representative panel of 31 Banks / Institutions / Primary Dealers. It is used by
different Indian banks either for interbank lending of the surplus funds or for interbank
borrowing for meeting their short term liquidity requirements. MIBOR has been in use as
a reference/benchmark rate by the financial institutions for deciding interest rates for
the different financial instruments like Interest Rate Swaps, Forward Rate Agreements,
Floating Rate Debentures and Term Deposits, Loans of different maturities and
mortgages, etc. It is also the benchmark for the Call Money Market Rates.
Securitization is an effective tool to reduce the mismatches in the maturities of assets
and liabilities. It is a financing technique that involves pooling and re-packing of illiquid
financial assets in to marketable securities. There are six players viz., Borrowers,
Lending Banker (who becomes an originator for the Securitization transaction), Special
Purpose Vehicle (SPV), Credit Rating Agency, Investors and Service Providers. The
process of securitization involves identification of financial assets, rating of these assets
by the rating agency, creation of a SPV for handling the securitization transaction,
assignment of future receivables in favour of the SPV, issuance of marketable securities
based on these underlying financial assets and selling the same to the investors. The
service providers recover the amount periodically and remit to the SPV and who in turn
pass the benefit to the investors.
Asset and Liability Management – RBI Guidelines: Of late, it is observed that PSBs
have been accepting Bulk Deposits/Certificate of Deposits route to increase balance
sheet size at very high interest rates, adversely affecting the profitability besides
exposing the banks to ALM Risk. RBI directed banks not to accept Bulk Deposits beyond
10% of the total deposits and the total of Bulk Deposits & Certificates of Deposits should
not exceed 15% of total deposits of the bank at any given point of time. An appropriate
time-bound strategy for reduction of such existing bulk deposits should be put in place.
Adjusted Net Bank Credit (ANBC) denotes Net Bank Credit plus investments made
by banks in non-SLR bonds held in HTM category. However, investments made by banks
in the Recapitalization Bonds and Inter-bank exposures will not be taken into account for
the purpose of priority sector lending targets/sub-targets.
Subordinate Debt is a debt owed to an unsecured creditor that in the event of
liquidation can only be paid after the claims of secured creditors have been met.
Normally, subordinate debt ranks below other secured loans with regard to claims on
assets or earnings.

Time buckets for BFM exam

 Time buckets for BFM exam

https://drive.google.com/file/d/1FrtoipiegRYtH9UQZrt2GgvQQZfQDyEG/view?usp=sharing

Calculate Altman Z score

 Calculate Altman Z score 

a) 1.945

b) 2.945

c) 3.945

d) 4.945

The prediction that the company  

a) non bankrupt company 

b) is not on the verge of financial ruin

c)  bankrupt company

d) is  on the verge of financial ruin

e) a and b

d) c and d

1. Working capital = Current assets - current liabilities = 140000 - 70000 = 70,000

2. Total assets = 210000+90000+35000+10000+5000 = 350000

3. Retained earnings. = Reserves & surplus = 30000

4. EBIT = operating profit = 200000

5. Market value of shares = 10000 x 15 = 150000

6. Book value of total debts = Long term liabilities + current liabilities = 150000 + 70000 =

220000.

7. Sales = 200000 x 4 = 800000, since operating profit is 25% on sales.

Conclusion:

Z = 1.2×0.20 + 1.4 × 0.09 + 3.3 × 0.57 + 0.6 × 0.68 + 1.0 × 2.29 = 4.945, say 4.95

CAIIB BFM fb QUESTIONS

 Credit conversion factor - The credit conversion factor (CCF) converts the amount of a free credit line and other off-balance-sheet transactions (with the exception of derivatives) to an EAD (exposure at default) amount. This function is used to calculate the exposure at default. CHIPS - Clearing House Interbank Payments System CHAPS - Clearing House Automated Payment System Coupon swap - A zero coupon swap is an exchange of income streams in which the stream of floating interest-rate payments is made periodically, as it would be in a plain vanilla swap, but the stream of fixed-rate payments is made as one lump-sum payment when the swap reaches maturity instead of periodically over the life of the swap. Word Mine in dealing room - Dealer takes the spot/forward/deposit whichever has been quoted from the counter party. It is dangerous to use the expression unless amounts have been qualified first. - Intrinsic Risk Gone concern - Defunct firm or one in the process of being wound up. Debts of such firms become due immediately in full, their market value is determined on the basis of auction or liquidation value of their tangible assets, and their goodwill counts for nothing. Abbreviation of EMV chip - Europay, MasterCard and Visa Provision coverage ratio = Cumulative provisions / Gross NPAs Intrinsic risk - Risk does not mean volatility; risk means losing your money. That happens when a business fails to deliver the operating performance embodied in the price an investor paid to acquire it. Call risk - Call risk is the risk that a bond issuer will redeem its bonds before they mature. Certificate of deposit - A certificate of deposit (CD) is a savings certificate entitling the bearer to receive interest. A CD bears a maturity date, a specified fixed interest rate and can be issued in any denomination. CDs are generally issued by commercial banks. The original Basel III rule from 2010 required banks to fund themselves with 4.5% of common equity (up from 2% in Basel II) of riskweighted assets (RWAs). Since 2015, a minimum Common Equity Tier 1 (CET1) ratio of 4.5% must be maintained at all times by the bank.[3] This ratio is calculated as follows: CET1/RWAs >= 4.5 % The minimum Tier 1 capital increases from 4% in Basel II to 6%,[3] applicable in 2015, over RWAs.[4] This 6% is composed of 4.5% of CET1, plus an extra 1.5% of Additional Tier 1 (AT1). Furthermore, Basel III introduced two additional capital buffers: A mandatory "capital conservation buffer", equivalent to 2.5% of risk-weighted assets. Considering the 4.5% CET1 capital ratio required, banks have to hold a total of 7% CET1 capital, from 2019 onwards. A "discretionary counter-cyclical buffer", allowing national regulators to require up to an additional 2.5% of capital during periods of high credit growth. The level of this buffer ranges between 0% and 2.5% of RWA and must be met by CET1 capital. MSF - Marginal Standing Facility (MSF) rate refers to the rate at which the scheduled banks can borrow funds overnight from RBI against government securities. MSF is a very short term borrowing scheme for scheduled commercial banks. Marginal Standing Facility (MSF) - 7.00% (w.e.f. 05/04/2016). Decreased from 8.25% which was continuing since 02/06/2015 European option - A European option is an option that can only be exercised at the end of its life, at its maturity. European options tend to sometimes trade at a discount to its comparable American option. This is because American options allow investors more opportunities to exercise the contract. Yield - The income return on an investment. This refers to the interest or dividends received from a security and is usually expressed annually as a percentage based on the investment's cost, its current market value or its face value. BPV - BPV is a method that is used to measure interest rate risk. It is sometimes referred to as a delta or DV01. It is often used to measure the interest rate risk associated with swap trading books, bond trading portfolios and money market books. LC crystallisation questions Exposure measure Basel 3 general features swap questions 2 What is supervisor review role in Basel 3 Restructuring provision is for how much period Leverage ratio Addtional tier 1 is how much percentage of tier 1 modified duration of equity Bill buying rate Cross rate Loss spot Case Studies on 1. Cancellation of contract 2. NRE/NRO POA 3. RWA 4. MEAN & SD 5. SLR 6. YTM 7. SHORT LERM & LONG TERM GAP ASSET VS Liabilities 8. NII & NIM 9. Tier1, Tier2 10. Capital adequecy 11. Nostro Vostro Loro 12. Daily volatilty 13. Stop loss limit 14. Operational risk case study 15. Foreign exchange numericals 16. Swap numericals 17. Liquidity case study 18. Forward rate agreement 25 crore 3 month swap, three year three business line calculate yield and risk weightage 19. Calculate CET Basel 3 20. Calculate Aadditional tier 1 2 to 3 question duration 5 question export bill(cancellation of contract rate, margin amount,rebook rate,etc) 5 question on capital adequacy (balance sheet provided, compute equity capital, tier 1 capital, total rw, capital adequacy, buffer capital) 5 question on nostro,loro vostro 5 question on FRA 5 question on net interest margin 2-3 question on bonds 3-4 question on LC some 2-3 sums on bpv 1. Rate qoute 1 ques 2.LC partial delivery UCPDC rule 3.FRA 6*9 dates of delivery and maturity 4.case study on rules and guidelines regarding NRE, NRO and FCNR accounts- amt of loan,POA,remittance,fund transfer limit etc 5.coupon swaps,forward contracts 6.securitization-SPV or Commercial bank allocation of assets 7.Case study on NII,NIM,EER 8.Case study on Cash flows,deviation during years,SD/mean 9.ECGC insurance premium bear by? 10.CHIPS-USA 11.treasury risk management 4-5 ques 12.European put option 13.Authorises person categ 2 14. ques on BOP expansion 15.bank margin calculation from rates 16.Stop loss given- asked whether buy or sell at what rate to book profit or stop loss 17.monthly volatility given-calculate daily volatility 18.modified duration calculation 19.case study on Nostro Vostro and Loro and Mirror accounts 20.which is not an off balance sheet item of following 21.crystallisation of sight bills 30 days 22.LC date expired due to bank closed due to hurricane UCPDC rule 23.standard ECGC policy cover-political risk 24.basel III - tier 2 capital req of total risk wtd assets, pillar 3 def 25.standardised approach and basic indicator approach and AMA all methods for operational risk calcualtion 24. volatility can also be measured by? 25.price volatility depends on yield volatility,BPV,Yield and price 26.VaR related 2 ques theoretical 27.derivatives hedge underlying risks 28.call risk 29.Maturity ladder or baskets case study 30.provision coverage ratio def 31.asset liability mismatch 32. Bond ytm,current yield 2-3 ques Note : I found no case studies regarding risk wt asset or capital charge finding, provisioning,risk type identification or forex rate quotations which I heard alwez come so there is a change in patten this time - more theory. To clear this read - module 1 and 2 thoroughly and D- Basel III, asset classification and provisions (no ques this time), module 3- just browse over summary it's sufficient. All the best !! Recollected - Dec 2013 ----------------------- Which one of the following is the nodal agency designated by government of india to manage the Export Marketing Fund (EmF)? a. Exim Bank b. Export promotion councils of respective commodities c. Ministry of finance d. Export Council guarantee corporations Ans - a .. Quantitative disclosures in respect of capital requirements for market risk in trading book not include ? a. Foreign Exchange Risk b. Interest rate risk c. Securitisation expousures d. Equity position Risk Ans - c .. A bank borrows US $ for 03 months @ 2.5% and swaps the same in the INR for 03 months for deployment in CPs @ 5.5%. The 03 Months premium on US $ is 0.75% the margin generated by the bank in the transaction is ...... a. 3% b. 2.25% c. 5.5% d. Non of these Ans - b = 5.5-2.5=3 = 3*.75 = 2.25% .. The main purpose of capital adequacy norms is to ensure that a bank has sufficient capital to ...... a. Provide loans b. Repay its depositors c. Provide a stable resources to absorb any losses arising from the risks in its business d. Have adequate infrastructure of its on Ans - c .. A bank holds stocks of a company ‟A‟ and wants to protect the downside risk on it may ...... a. Take a long position in the stock futures b. Take a short position in the stock futures c. Purchase call option on the stock d. Sell put option Ans - d .. A 91 day T-bill with remaining maturity of 73 days is priced at Rs 99. What is the yield? a. 5% b. 5.05% c. 4.95% d. 5.20% Ans - 2 (100-Price)*365*100 / (price * no of days to maturity) Wherein; P – Purchase price D – Days to maturity Day Count: For Treasury Bills, D = [actual number of days to maturity/365] in this case price is 99 and days to maturity are 73 so answer would be (100-99)*365*100 / ( 99*73)=5.05 ans .. On a 5 point scale (very high,high,average,modete & Low),probability of occurrence of an activity has been estimated at an average level. Potential financial impact is estimated at an high level, given that the impect of internal control is 40% what is the estimated level of operational level? a. Very high to high b. High to average c. Average to moderate d. Moderate to Low Ans - d .. Market risk in treasury can be controlled by ...... a. Overnight limit alone b. Gap limit only c. Counter party limit only d. Both a and b Ans - d .. A bank identified 4 asets(a,b,c and d) with a view to reduce risk. it has to choose one of them Which one of the following criteria would be most relevant for the purpose? a. Risk capital required for each assests b. Return on risk capital vis-à-vis that for the portfolio c. Correlation of assets with the portfolio d. Income earmed on assets Ans - c .. Losses from failed transaction processing is classified under „Event Type Classification as ...... a. Business Disruptions and System failure b. Execution,Delivery and process Management c. Clients, products and Business Practices d. None of the above Ans - b .. Which one of the following ratio does not take into account risks in banking business? a. ROC b. Capital adequacy c. RORAC d. RAROC Ans - a .. A rating model combines financial ratios using reported accounting instruction and equaty values to forecast the probability of a company enterning bankrupacy with in 12 month period. This model is known as ...... a. Altman,s Z score model b. Credit metrics model c. Credit risk model d. None of the Above Ans - a .. Interest income of a bank does not include ...... a. Profit on sale of investments b. Interest on balances with RBI c. Interst on bills discounted d. Interest on car loans Ans - a .. Components of portfolio risk are ...... a. Dafault risk and systematic risk b. Down-gradation risk and concentration risk c. Concentration risk and intrinsic risk d. Default risk and down-gradation risk Ans - c .. Loans against balances held in FCNR(B) account can be permitted up to ...... a. Rs 50 lakh with 35% margin b. Rs 100 lakh with 35% margin c. US $ 1 MIO without any margin d. Any amount subject to usual margin requirements. Ans - d Banks can from 12.10.2012 grant loan against these depsoits without any limits subjuect to usual margin requirements .. Who advices the weekly average rates for FCNR(B) deposits to the ADR ...... a. Forex Association of india b. FEDAI c. EXIM Bank d. RBI Ans - b .. YTM of a bond depends upon ...... a. Coupon rate and market value only b. Market value and residual maturity only c. Residual matuarity and coupon rate only d. Coupon rate market value and residual matuarity Ans - b .. Export packing Credit is normally computed on the basis of ...... a. FOB value of Export b. CIF value of export c. CFR value of export d. C & I value of export Ans - a .. A bank in Mumbai quotes a FRA on 10th March 6*9 FRA at MIBOR 5.15-5.25 What is the settlement date matuarity date of the FRA a. 10th Dec : 10th Dec b. 10th Sep : 10th Dec c. 10Th Sep : 10th Sep d. 10th Dec : 10th Sep Ans - b .. Which approaches are used for measueing and managing funding requirement ? i) stock approach ii) Standered approached iii) Flow approach iv) Quantitatives approach a. i) and iii) only b. ii) and iv) only c. ii) and iii) only d. i) and iv) only Ans - a .. IF the YTM is 6% and the coupon rate of 7% is payable semi-annually the value of the bond to be ...... (PVIFA (3%,14)=11.296, PVIF (3%,14)=.661 a. Rs 1451.72 b. Rs 1056.36 c. Rs 1112.84 d. Non of above Ans : bond valuation=i (PVIFAkd,n) + F (PVIFkd,n) = 70*11.296+1000*.661=790.72+661=1451.72 ANS Based on the following information answer Q no 27 to 28 Tour bank ABCD is planning to get international banking and start forex trading tou are request to undertake several steps/ takes liences etc. .. Based on the information given below answer Q no 22 to Q 25 The forex daelar of KBC Bank sold GBP 20000 in the interbank market @83.7500 in cover of import TT recorted by one of their branches. Subsequently it was detected that the transaction had erroneously reported twice by the branch and hence the sale had to be cancelled the interest rate at the time of cancellation was 1GBP=83.6875 /83.7275. ONE month forward rate: 1 GBP =83.7300/83.7700 Brokerage of Rs. 1000 for each sale as well as purchase transaction is payable. What is the amount received in the original sale transaction by the dealar? a. Rs 16,75,400 b. Rs 16,73,750 c. Rs 16,74,000 d. Rs 16,74,550 Ans: Which rate would be applied for cancellation? a. Bill Selling b. Bill buying c. TT selling d. TT Buying Ans: How much has to be paid to the dealer at the time of cancellation? a. Rs 16,74,550 b. Rs 16,74,600 c. Rs 16,75,550 d. Rs 16,73,750 Ans: How much is the loss/gain on cancellation of GBP sale by the dealer? a. Rs 1550 loos b. Rs 1550 Gain c. Rs 1000 Gain d. No profit no loss Ans: Recollected - June 2015 ------------------------------ Calculation of CRR and SLR Gold card scheme of exporters Supervisory review Rwa calculation Letter of credit case study business line exposure numerical calculation of incremental NPA questions related to risks and treasury UDPDC 600 irrevocable lc Asset liability Gap. Case study Export bill case study Tier1 and tier2 capital n CAR case study On 12 feb, received import bill of USD 10000. The bill has to retired to debit the a/c of the customer. Interbank spot rate =34.6500/7200. The spot rate for March is 5000/4500. The exchange margin TT SELLING is 0.15% and exchange margin BILL SELLING is 0.20%.quote rate to be applied For retirement of import bills, whether under LC or otherwise, bank's bill selling rate ruling on the date of retirement of bills or the forward rate, shall be applied. All foreign currency bills under LC, if not retired on receipt, shall be crystallized into Rupee liability, at TT Selling rate, on the 10th day after the date of receipt of documents. So, here the answer should be = 34.4500 - (34.45 * 0.20 / 100) = 34.4500 - 0.0689 = 34.3811 ............... ABC bank ltd has following repricing assets &liabilities as on 31/03/2015 Call money rs1500crore Cash credit adances rs1200 crore Cash in hand rs1000crore Saving bank deposit rs1500crore Fixed deposit rs1500crore Current bal a/c rs1250 crore 1.adjusted gap in repricing assets &liabilities? 2.if intrest falls by 1%across the board for all assets&liabilities the net intrest income will be? 3.if int increases by1.5% across the board for all assets &liabilities the net intrest income will be? If int on call money falls by1% on cash credit by 0.5% on sb a/c by 0.30% & on fd by 1% the net intrest income? ............... Export bill for usd 5mio drawn 90 days from the date of shipment Shipment date 3rd october2014 Due date is 1st feb2015 Exchange margin 0.15% Spot rupee : 63.15/20 Premium spot-january55/60 paise Rate to be quoted to nearest 0.25 paise & rupee amt is to be rounded off Rate of intrest on post shipment export up to 180 days is 9%p.a Comm. On bills purchased is 0.075% Int & comm to be charged up front a.bill buying rate? b.The int to be recovered from the exporter will be? c.the comm charged to the transaction will be closed to? d.Amt payable to the exporter will be? e.in case int chargeable is 10%, amt payable to the exporter will be lower by? ............... A customer presents a bill worth usd 1mio at your bank which is due for maturity at ant time during second month.following information as follows Rs/$ spot:63.42/63.57 One month swap points:20/10 Two month swap points:15/10 Bank‟s margin is 0.5%. for merchant transaction 1.one month forward market buying rate? 2.One month forward selling rate will be? 3.the two months forward market buying rate? 4.the rate quoted for buying the bill will be? ............... ABC bank ltd on 15/10/2014 as follows : Rs in crore Paid up capital 500 Stock surplus 25 Statutory reserves 650 Capital reserves representing Surplus arising out of sale proceeds of assets 50 Other disclosed free reserves 120 General provision & loss reserves 150 Specific provision on npa at port folio level 15 Provision in lieu of diminution in fair value of assets in case of restructured adv 10 Revaluation reserves 100 Infusion of capital after published bal sheet 50 Rwa under credit/standarised approach 6000 Capital charge for market risk 270 Capital chare for operational risk 180 a.eligible tier1 capital? b.eligible tier2 capital? c.eligible crar of the bank will be? d.as per guidelines exposure ceiling of abc bak on15/10/2014 to a borrower group in the infrastructure tale space? e.bank intends to finance a single nbfc& purposes&other infrastructure finance its exposure ceiling will be on 15/10/2014? ............... Default probality of advance portfolio of a bank Rating aaa aa a bbb bb b ccc 3yrs 0.03% 0.12% 0.25% 1.05% 6% 25% 40% 5yrs 0.10% 0.35% 0.55% 1.90% 10% 35% 25% Base rate of 11% is charged to aaa category of borrowers for a 3yr loan load factor to be added to base rate. 1%of aa, 2%of a, 3% of bbb& 4% of bb a/c load factor to be further increased by 0.5% for each additional maturity year over 3yrs will be 1.a loan of rs400 crore for 5yrs was given to an A rated COMP two yrs back.there has been no default. Current out standing is rs200 crore. Exposure at default is 100% and loss given default is 50%. The expected loss on this a/c will be? 2.as per risk policy of the bank the loan that shall earn the lowest return will be? 3.received a proposal from a A rated borrower for a loan repayable in 5yrs.what rate of intrest should be charged to th borrower? 4.as on 31/03/2014,the bank had 200BBB rated a/c out of which 10% a/c migrated to default category by 31/03/2015. 5. what is the increase in the number of a/c‟s in the default category? ............... ABC bank has a capital of rs400 crore s on 31/03/2014 following addl details as follows s.no details amt in crore 1. cash &bal with rbi 200 2. bank balances 200 3. INVESTMENTS Held for trading 500 Available for sale 1000 Held to maturity 500 4. advances(net) 2000 5. other assets 300 6. total assets 4700 Interms of counter party the investments as follows Counter party amt in crore Government 1000 Banks 500 Others 500 The break investments as under Govt.sec bank bonds other sec total HFT 100 100 300 500 AFS 600 400 - 1000 Trading book 700 500 300 1500 HTM 300 - 200 500 TOTAL 1000 500 500 2000 Risk weights assigned as follows DETAILS OF ASSET RISK WEIGHT Cash&bal with rbi 0 Bank bal 20 INVESTMENTS Govt 2.5 Banks 22.5 Others 102.5 Adv & other assets 100 1.total risk weighted assets are? 2.% of total risk weighted assets to the book value of assets? 3.capital adequacy of the bank will be? 4.diff between the max&min risk weighted assets under investments? 5.capital held by abc bank in excess of the minimum regulatory requirement comes to ---------------- crores? ............... Recollected - Dec 2015 ---------------------------- 1. As per basel 3...investment % in banking and FI Minimum total capital requirement will remain at the current 8% level (9% as per RBI). But the required total capital will increase to 10.5% (11.5% as per RBI) when combined with the conservation buffer (2.5%). 2. What option is available to issuer in CP? Issuer of CP can issue/hold CP in dematerialised or physical form 3. Call money otc deal ____ time period for NDS Deals in the Call/Notice/Term money market can be done from 9:00 am to 5:00 pm on weekdays and from 9:00 am to 2:00 pm on Saturdays or as specified by RBI from time to time. 4. fimmda/fedai/iba formed mibor committee...name this company Board of Financial Benchmarks India Pvt. Ltd (FBIL) 5. ALCO committee meeting in ____ time period Individual banks will have to decide the frequency for holding their ALCO meetings 6. Under lrs amt dat can be remitted per fy USD 250,000 7. Recession period as per ICAAP 8. No of principles under SRP 4 9. Negative carry of crr n slr 10. No. imp areas in mkt disciplines 13 11. T-bill min investment Rs. 25000 12. NIM and EER Formula.... NIM = NII - NIE EER = Equity / Total assets 13. case study on dgap,weight,leverage, modified duration... Modified duration = sub of pvt/ sub of pv Mc duration = mod dur/ yield + 1 Dirty Bond is a bond with interest of broken period. One that is traded on a day between two successive coupon payment dates. Npa provision calculations gap calculAtions nim rwa calculations cd theory fwd rate calculations What is dirty price ..what is ponv ..basel 3 questions ...difference between credit linked note nd CDS ...question on haircut ..case study on duration, modified duration ..case study on Letter of credit Case study on pricing of assets nd liabilities ..questions on spot price..forward rate 5 Numbers bunch on Commercial paper Like validity, amount, eligibility etc. Total 5 number. All r there in ur sample questions bt one by one. Here they asked in bunch. Currency swap sum for 5 number. Last time also in june it had come 5 number questions on Import Lc. Different 2 Questions. Like 1 is lc for quantity 1000mt nd export presented 2 bill of ladings from different dates. If lc is ristricked for partial shipment then 4 option for different discrepancies .. Other Questions if lc is silent on insurance and exporter submit 105% of invoice amt insurance cover then.. Like this 5 question on lcs basically on ucpdc article bt example wise Static and dynamic simulation How many partys in an otc txn higher the RAROC____is the reward expectation from the investor. As per regulator Basel III which are of following criteria is required for addition Tier I capital at the pre speeding trigger point. Dirty price=clean price+accrued interest T-bill min investment Rs. 25000 Under LRS amt dat can be remitted per fy USD 250,000 NIM and EER Formula.... Net Interest Margin is the ratio of net interest income to average interest-earning assets = NIM = NII - NIE EER = Equity / Total assets No. imp areas in mkt disciplines 13 F.I can issue CDs for a period of? 1 to 3 years Interest rate ceiling fixed by regulator on FCNR (B), 3-5yrs? Interest ceiling for maturity period between 1 year and 3 years is LIBOR/Swap +200bps Interest ceiling for maturity period between 3 years and 5 years is LIBOR/Swap +400bps 3 types of Forex exposures Transaction, Translation and Economic Exposure 25 day volatility of a stock is 3.75. Find daily volatility? volatility stocks = root of no. of days * daily volatility 0.75 C.D are issued in the form of? Usance Promissory Note Article 10 of UCP 600? Ammenement acceptance CRILC full form Central Repository of Information on Large Credits (CRILC) RWA of housing loan Housing Loans - 50% Housing Loans > Rs. 30 Lakhs - 75% Provision of sub - standard category (secured)? 15% Advanced measurement approach under operational risk, risk mitigation upto ..........%? 20% Minimum credit rating by sebi? The minimum credit rating shall be 'A3' as per rating symbol and definition prescribed by SEBI. Full Form of PONV point of non-viability Interbank Rate The rate of interest charged on short-term loans made between banks. Banks borrow and lend money in the interbank market in order to manage liquidity and meet the requirements placed on them. ........... Case Studies on NPA Provisions A claim of Rs. 49 lacs has been settled by ECGC in favour of a bank against default of Rs. 70 lacs. Subsequently the bank realizes Rs. 15 lacs with the collaterals available to the loan. What will be actual amount settled by ECGC after realization of security by the bank? a. Rs. 49 lacs b. Rs. 42.5 lacs c. Rs. 38.5 lacs d. Rs. 34 lacs Ans - c Explanation : ECGC had settled Rs. 49 lacs on default of 70 Lacs (That is 70% of the default amount) But Subsequent to that settlement, Rs. 15 lacs was realised through the security held. So, the claim amount from ECGC should be, 55 Lacs only from ECGC. And the ECGC had settled only 70 % of the claim amount. So, the settlement amount will be, 70% of Rs. 55 lacs = 5500000 x 70/100 = 38.5 lacs So, actual amount settled by ECGC = Rs. 38.5 lacs .. Asset in doubtful category for 2 years – Rs. 500000/- Realization value of security – Rs. 300000/- What will be the provision requirement? a. Rs. 500000/- b. Rs. 320000/- c. Rs. 200000/- d. Rs. 175000/- Ans - b Explanation Provision for secured portion of Doubtful Cat for 2 years = 40% Provision for unsecured portion of Doubtful Cat for 2 years = 100% Here, Secured portion = Rs. 300000 Unsecured portion = Rs. 200000 Provision = (300000 * 40/100) + 200000 = 120000 + 200000 = 320000 .. An advance of Rs. 400000/- has been declared sub standard on 31/05/2015. It is covered by securities with realizable value of Rs. 250000/-. What will be the total provision in the account as on 31/03/2015? a. 150000 b. 75000 c. 55000 d. 50000 Ans - b Explanation : Sub standard assets will attract provision of 15 % for secured portion and 25 % for unsecured portion. Please refer “http://rbidocs.rbi.org.in/rdocs/notification/PDFs/62MCIRAC290613.pdf” Page - 25, Para – 5.4. So, = 15% of 250000 + 25% of of 150000 = 37500 + 37500 = 75000 .. Balance sheet of a bank provides the following information: Fixed Assets - 1000cr Investment in central Govt Securities - Rs 10000cr In standard loan accounts Housing Loans - RS 6000cr (Secured, below Rs 10 lac) the Retail loan - Rs 4000cr Other loans - Rs 8000cr sub-standard secured loans - Rs 1000cr sub-standard unsecured loans - Rs 500cr Doubtful loans (D-1, secured) - Rs 800cr Doubtful loans (D-1, unsecured) - Rs 600cr Doubtful loans (D-2, secured) - Rs 500cr Doubtful loans (D-2, unsecured) - Rs 1000cr Doubtful loans (D-3, secured) - Rs 1000cr Doubtful loans (D-3, unsecured) - Rs 600cr Loss Assets - 50cr and other assets - Rs 500cr. Answer the following questions, based on this information, by using standard Approach for credit risk. 1. What is the amount of RWAs for investment in govt securities? a. Rs 5000cr b. Rs 3500cr c. Rs 2500cr d. Nil 2. What is the amount of RWAs for sub-standard unsecured accounts? a. Rs 500cr b. Rs 7500cr c. Rs 1000cr d. Rs 1500cr 3. What is the amount of RWAs for doubtful (D-1, unSecured) accounts? a. Rs 300cr b. Rs 500cr c. Rs 800cr d. Rs 900cr 4. What is the amount of RWAs for doubtful (D-2, unSecured) accounts? a. Rs 300cr b. Rs 500cr c. Rs 800cr d. Rs 900cr 5. What is the amount of RWAs for doubtful (D-3, unSecured) accounts? a. Rs 300cr b. Rs 500cr c. Rs 800cr d. Rs 900cr 6. What is the amount of RWAs for retail loans? a. 3000cr b. 4000cr c. 5000cr d. 6000cr 7. What is the amount of RWAs for housing loans? a. 3000cr b. 4000cr c. 5000cr d. 6000cr Solution : 1. d RW against Govt Securities = 0 % So, RWA = 10000 x 0% = 0 Cr 2. a If the provision is less than 20 %, then RW is 150% If the provision is 20-49 %, then RW is 100% If the provision is 50% or more, then RW is 50% Provision in Sub-Standard Un-Secured - 25 %, and so, RW = 100 % So, RWA = 500 x 100 % = 500 Cr 3. a If the provision is less than 20 %, then RW is 150% If the provision is 20-49 %, then RW is 100% If the provision is 50% or more, then RW is 50% Provision in doubtful (D-1, unsecured) - 100 %, and so, RW = 50 % So, RWA = 600 x 50 % = 300 Cr 4. b If the provision is less than 20 %, then RW is 150% If the provision is 20-49 %, then RW is 100% If the provision is 50% or more, then RW is 50% Provision in doubtful (D-2, unsecured) - 100 %, and so, RW = 50 % So, RWA = 1000 x 50 % = 500 Cr 5. a If the provision is less than 20 %, then RW is 150% If the provision is 20-49 %, then RW is 100% If the provision is 50% or more, then RW is 50% Provision in doubtful (D-3, unsecured) - 100 %, and so, RW = 50 % So, RWA = 600 x 50 % = 300 Cr 6. a RW on retail loans = 75 % So, RWA = 4000 x 75% = 3000 Cr 7. a RW on housing loans = 50 % So, RWA = 6000 x 50% = 3000 Cr ....................................... ABC Bank has the following re-pricing assets and liabilities (Rs. in crores): Call Money - 600 Cash Credit Loans - 480 Cash in Hand - 500 Saving Bank - 600 FD - 600 Current Depost - 600 Now, answer the following based on the above information. 1. What is the adjusted gap in re-pricing assets and liabilities? Adjusted gap : = (SB + FD) - (Call money + CC) = (600 + 600) - (600 + 480) = 1200 - 1080 = Rs.120cr (Rs. 120 cr Negative Gap, because assets are less than liabilities) The cash in hand and current account deposits are not subject to re-pricing as these are not interest bearing, hence these have been ignored. 2. What is the change in NII, if interest rate falls by 3% points for all assets and liabilities? There is negative gap (interest bearing liabilities more) of Rs.120cr [(600+600)-(600+480)]. Which means the interest cost declines @2% on this negative gap, which leads to increase in NII. Hence it is Rs.120cr * 3% = Rs. 3.60cr increase in NII 3. What is the change in NII, if interest rate increase by 3% points for all assets and liabilities? There is negative gap (interest bearing liabilities more) of Rs.120cr [(600+600)-(600+480)]. Which means the interest cost increases @3% on this negative gap, which leads to decline in NII. Hence it is Rs.120cr * 3% = Rs. 3.60cr decline in NII 4. What is the change in NII, if interest rate falls on call money by 1%, SB by 0.2%, FD by 1% and CC by 0.6%? Fall in interest income in case of assets = (Call- 600 * 1% = 6.00cr) + (Cash credit- 480 * 0.6% = 2.88) = Rs.8.88cr. Fall in interest expenses in case of liabilities = (SB- 600 * 0.2 = 1.20cr) + (FD- 600 + 1% = 6.00 cr) = 7.20cr Net Decline = 8.88cr - 7.20cr = 1.68cr 5. What is the change in NII, if interest rate increases on call money by 0.5%, SB by 0.1%, FD by 0.8% and CC by 1%? Increase in interest amount in case of assets : = (Call- 600 * 0.5% = 3.00cr) + (Cash credit- 480 * 1% = 4.80) = Rs.7.80cr. Increase in interest amount in case of liabilities : = (SB- 600 * 0.1 = 0.60cr) + (FD- 600 * 0.8% = 4.80cr) = 5.40cr Net improvement = 7.80cr - 5.40cr = 2.40cr .. ABC Bank provides following information: Rs.in crores - 1 st year Net profits - 250 Provisions - 300 Staff expenses - 350 Other operating expenses - 150 Other income - 400 Rs.in crores - 2nd year Net profits - 200 Provisions - 250 Staff expenses - 300 Other operating expenses - 250 Other income - 500 Answer the following questions, based on the above information : 1. What is the amount of capital charge for operational risk, on the basis of 1st year results alone as per Basic indicator approach. Capital charge = Gross income * 15% Gross income = net profit + provisions + staff expenses + other operating expenses = 250 + 300 + 350 + 150 = 1050 cr Capital charge = 1050 * 15% = 157.50 cr 2. What is the amount of capital charge for operational risk, on the basis of 2nd year results alone as per Basic indicator approach. Capital charge = Gross income * 15% Gross income = net profit + provisions + staff expenses + other operating expenses = 200 + 250 + 300 + 250 = 1000 cr Capital charge = 1000 * 15% = 150 cr 3. What is the amount of capital charge for operational risk, on the basis of 1st and 2nd year results as per Basic indicator approach. Capital charge = Gross income * 15% Gross income = net profit + provisions + staff expenses + other operating expenses 1st year = 250 + 300 + 350 + 150 = 1050 cr 2nd year = 200 + 250 + 300 + 250 = 1000 cr Average gross income =(1050 + 1000) / 2 = 2050 / 2 = 1025 cr Capital charge = 1025 * 15% = 153.75 cr 4. What is the amount of risk weighted assets for operational risk as per Basel 2 recommendations, on the basis of 1st year results alone, as per Basic indicator approach? RWA = Capital charge / 8% = 157.50 / 8% = Rs.1968.75 cr 5. What is the amount of risk weighted assets for operational risk as per Basel 2 recommendations, on the basis of 2nd year results alone? RWA = Capital charge / 8% = 150 / 8% = Rs.1875 cr 6. What is the amount of risk weighted assets for operational risk as per Basel 2 recommendations, on the basis of 1st year and 2nd results? RWA = Capital charge / 8% = 153.75 / 8% = Rs.1921.88 cr .. BASEL III 3 Pillars of BASEL III The basic structure of Basel III remains unchanged with three mutually reinforcing pillars. Pillar 1 : Minimum Regulatory Capital Requirements based on Risk Weighted Assets (RWAs) : Maintaining capital calculated through credit, market and operational risk areas. Pillar 2 : Supervisory Review Process : Regulating tools and frameworks for dealing with peripheral risks that banks face. Pillar 3: Market Discipline : Increasing the disclosures that banks must provide to increase the transparency of banks Major Features of Basel III ? (a) Better Capital Quality : One of the key elements of Basel 3 is the introduction of much stricter definition of capital. Better quality capital means the higher loss-absorbing capacity. This in turn will mean that banks will be stronger, allowing them to better withstand periods of stress. (b) Capital Conservation Buffer: Another key feature of Basel iii is that now banks will be required to hold a capital conservation buffer of 2.5%. The aim of asking to build conservation buffer is to ensure that banks maintain a cushion of capital that can be used to absorb losses during periods of financial and economic stress. (c) Countercyclical Buffer: This is also one of the key elements of Basel III. The countercyclical buffer has been introducted with the objective to increase capital requirements in good times and decrease the same in bad times. The buffer will slow banking activity when it overheats and will encourage lending when times are tough i.e. in bad times. The buffer will range from 0% to 2.5%, consisting of common equity or other fully loss-absorbing capital. (d) Minimum Common Equity and Tier 1 Capital Requirements : The minimum requirement for common equity, the highest form of loss-absorbing capital, has been raised under Basel III from 2% to 4.5% of total risk-weighted assets. The overall Tier 1 capital requirement, consisting of not only common equity but also other qualifying financial instruments, will also increase from the current minimum of 4% to 6%. Although the minimum total capital requirement will remain at the current 8% level, yet the required total capital will increase to 10.5% when combined with the conservation buffer. (e) Leverage Ratio: A review of the financial crisis of 2008 has indicted that the value of many assets fell quicker than assumed from historical experience. Thus, now Basel III rules include a leverage ratio to serve as a safety net. A leverage ratio is the relative amount of capital to total assets (not risk-weighted). This aims to put a cap on swelling of leverage in the banking sector on a global basis. 3% leverage ratio of Tier 1 will be tested before a mandatory leverage ratio is introduced in January 2018. (f) Liquidity Ratios: Under Basel III, a framework for liquidity risk management will be created. A new Liquidity Coverage Ratio (LCR) and Net Stable Funding Ratio (NSFR) are to be introduced in 2015 and 2018, respectively. (g) Systemically Important Financial Institutions (SIFI) : As part of the macro-prudential framework, systemically important banks will be expected to have loss-absorbing capability beyond the Basel III requirements. Options for implementation include capital surcharges, contingent capital and bail-in-debt. Comparison of Capital Requirements under Basel II and Basel III : Requirements Under Basel II Under Basel III Minimum Ratio of Total Capital To RWAs 8% 10.50% Minimum Ratio of Common Equity to RWAs 2% 4.50% to 7.00% Tier I capital to RWAs 4% 6.00% Core Tier I capital to RWAs 2% 5.00% Capital Conservation Buffers to RWAs None 2.50% Leverage Ratio None 3.00% Countercyclical Buffer None 0% to 2.50% Minimum Liquidity Coverage Ratio None TBD (2015) Minimum Net Stable Funding Ratio None TBD (2018) Systemically important Financial Institutions Charge None TBD (2011) .. 1. Wish you all the very best for your exam. ............ Credit conversion factor - The credit conversion factor (CCF) converts the amount of a free credit line and other off-balance-sheet transactions (with the exception of derivatives) to an EAD (exposure at default) amount. This function is used to calculate the exposure at default. CHIPS - Clearing House Interbank Payments System CHAPS - Clearing House Automated Payment System Coupon swap - A zero coupon swap is an exchange of income streams in which the stream of floating interest-rate payments is made periodically, as it would be in a plain vanilla swap, but the stream of fixed-rate payments is made as one lump-sum payment when the swap reaches maturity instead of periodically over the life of the swap. Word Mine in dealing room - Dealer takes the spot/forward/deposit whichever has been quoted from the counter party. It is dangerous to use the expression unless amounts have been qualified first. - Intrinsic Risk Gone concern - Defunct firm or one in the process of being wound up. Debts of such firms become due immediately in full, their market value is determined on the basis of auction or liquidation value of their tangible assets, and their goodwill counts for nothing. Abbreviation of EMV chip - Europay, MasterCard and Visa Provision coverage ratio = Cumulative provisions / Gross NPAs Intrinsic risk - Risk does not mean volatility; risk means losing your money. That happens when a business fails to deliver the operating performance embodied in the price an investor paid to acquire it. Call risk - Call risk is the risk that a bond issuer will redeem its bonds before they mature. Certificate of deposit - A certificate of deposit (CD) is a savings certificate entitling the bearer to receive interest. A CD bears a maturity date, a specified fixed interest rate and can be issued in any denomination. CDs are generally issued by commercial banks. The original Basel III rule from 2010 required banks to fund themselves with 4.5% of common equity (up from 2% in Basel II) of riskweighted assets (RWAs). Since 2015, a minimum Common Equity Tier 1 (CET1) ratio of 4.5% must be maintained at all times by the bank.[3] This ratio is calculated as follows: CET1/RWAs >= 4.5 % The minimum Tier 1 capital increases from 4% in Basel II to 6%,[3] applicable in 2015, over RWAs.[4] This 6% is composed of 4.5% of CET1, plus an extra 1.5% of Additional Tier 1 (AT1). Furthermore, Basel III introduced two additional capital buffers: A mandatory "capital conservation buffer", equivalent to 2.5% of risk-weighted assets. Considering the 4.5% CET1 capital ratio required, banks have to hold a total of 7% CET1 capital, from 2019 onwards. A "discretionary counter-cyclical buffer", allowing national regulators to require up to an additional 2.5% of capital during periods of high credit growth. The level of this buffer ranges between 0% and 2.5% of RWA and must be met by CET1 capital. MSF - Marginal Standing Facility (MSF) rate refers to the rate at which the scheduled banks can borrow funds overnight from RBI against government securities. MSF is a very short term borrowing scheme for scheduled commercial banks. Marginal Standing Facility (MSF) - 7.00% (w.e.f. 05/04/2016). Decreased from 8.25% which was continuing since 02/06/2015 European option - A European option is an option that can only be exercised at the end of its life, at its maturity. European options tend to sometimes trade at a discount to its comparable American option. This is because American options allow investors more opportunities to exercise the contract. Yield - The income return on an investment. This refers to the interest or dividends received from a security and is usually expressed annually as a percentage based on the investment's cost, its current market value or its face value. BPV - BPV is a method that is used to measure interest rate risk. It is sometimes referred to as a delta or DV01. It is often used to measure the interest rate risk associated with swap trading books, bond trading portfolios and money market books. LC crystallisation questions Exposure measure Basel 3 general features swap questions 2 What is supervisor review role in Basel 3 Restructuring provision is for how much period Leverage ratio Addtional tier 1 is how much percentage of tier 1 modified duration of equity Bill buying rate Cross rate Loss spot Case Studies on 1. Cancellation of contract 2. NRE/NRO POA 3. RWA 4. MEAN & SD 5. SLR 6. YTM 7. SHORT LERM & LONG TERM GAP ASSET VS Liabilities 8. NII & NIM 9. Tier1, Tier2 10. Capital adequecy 11. Nostro Vostro Loro 12. Daily volatilty 13. Stop loss limit 14. Operational risk case study 15. Foreign exchange numericals 16. Swap numericals 17. Liquidity case study 18. Forward rate agreement 25 crore 3 month swap, three year three business line calculate yield and risk weightage 19. Calculate CET Basel 3 20. Calculate Aadditional tier 1 2 to 3 question duration 5 question export bill(cancellation of contract rate, margin amount,rebook rate,etc) 5 question on capital adequacy (balance sheet provided, compute equity capital, tier 1 capital, total rw, capital adequacy, buffer capital) 5 question on nostro,loro vostro 5 question on FRA 5 question on net interest margin 2-3 question on bonds 3-4 question on LC some 2-3 sums on bpv 1. Rate qoute 1 ques 2.LC partial delivery UCPDC rule 3.FRA 6*9 dates of delivery and maturity 4.case study on rules and guidelines regarding NRE, NRO and FCNR accounts- amt of loan,POA,remittance,fund transfer limit etc 5.coupon swaps,forward contracts 6.securitization-SPV or Commercial bank allocation of assets 7.Case study on NII,NIM,EER 8.Case study on Cash flows,deviation during years,SD/mean 9.ECGC insurance premium bear by? 10.CHIPS-USA 11.treasury risk management 4-5 ques 12.European put option 13.Authorises person categ 2 14. ques on BOP expansion 15.bank margin calculation from rates 16.Stop loss given- asked whether buy or sell at what rate to book profit or stop loss 17.monthly volatility given-calculate daily volatility 18.modified duration calculation 19.case study on Nostro Vostro and Loro and Mirror accounts 20.which is not an off balance sheet item of following 21.crystallisation of sight bills 30 days 22.LC date expired due to bank closed due to hurricane UCPDC rule 23.standard ECGC policy cover-political risk 24.basel III - tier 2 capital req of total risk wtd assets, pillar 3 def 25.standardised approach and basic indicator approach and AMA all methods for operational risk calcualtion 24. volatility can also be measured by? 25.price volatility depends on yield volatility,BPV,Yield and price 26.VaR related 2 ques theoretical 27.derivatives hedge underlying risks 28.call risk 29.Maturity ladder or baskets case study 30.provision coverage ratio def 31.asset liability mismatch 32. Bond ytm,current yield 2-3 ques