Caiib bfm case studies

BFM- Case studies

1. Probability of occurrence=4
Potential financial impact=4
Impact of internal control=0%
What is the estimated level of operational risk?
A.3
B.2
C.0
D.4
=(4*4*(1-0))square.5=4, So ans is d (look for page295 BFM)
Estimated level of operational risk=Estd probability of
occurrence(4)*Estd potential financial impact(4) *estimated impact of
internal controls
2 If there is an asset of Rs 120 in the doubt ful-I cat and the
realization value of security is rs 90 only , what will be the provision
requirement.
A Rs 48
B Rs 57
C Rs 39
D Rs 75
Ans : 48 since it a doubtful-I cat so provisioning will be 20% of
realization value Rs 90 i.e Rs 18 and 100% of short Fall that is 120-
90= 30. So ans will be 30+1-8= 48
3(a). If there is an asset of Rs 120 only in the doubt ful-II cat and
the realization value of security is Rs 90 if above mentioned asset in
doubtful-ii category what will be the provision requirement.
A 39
B 57
C 66
D 75
Ans : b since it a doubtful-II cat so 30% realization value of Rs
90 i.e Rs 27 and 100% of short Fall that is 120-90= 30 so ans will
be 30+27= 57
3(b). If there is an assets of Rs 120 only in the doubt ful-III cat and
the realization value of security is Rs 90 if above mentioned asset in
doubt-III than what will be the provision requirement.
A 120
B 48
C 57
D 108
Ans : a since it a doubtful-III cat so 100% of realization value Rs 90
i.e Rs 90 and 100% of short Fall that is 120-90= 30 so ans will be
90+30=120
4. A preshipment account above 3 years as on mar 31 2004 has debit
balance of Rs 4 lakh. Principle security value is 1.50 lakh and ECGC
cover is available at 50 %. What provision will be made on the a/c as
on 31.05.2025 .
A Rs 2.15 lac
B 2.0 lac
C 1.92 lac
D 2.25 lac
Ans : a do not know pl.. solved any body I m unable to
5. A/C of ABC has become doubtful with balance of Rs. 6 lac . The
collateral security value is Rs 3 lac and that of principle security is 2
lac. Guarantors worth is Rs 10 lac . A/c is in more than 1 Yr and up
to 3 yr doubtful category . What will be amount of provision as on
mar 2013.
A Rs 1.50 lac
B 2.50 lac
C 1.80 lac
D 3.0 lac
Ans : B since it is in more than two yr in doubtful category it
should be treated as doubtful-II cat and allow 30% of realisation
value that is 3+2=5 , 30% of 5 will be Rs 1.50 lac and 100% of
short fall that is 6-5=1 lac so 1.50+1.0=2.50 lac ans
6. Provisions to be made for a standard asset....teaser housing loan
A)0.25%
B)0.40%
C)1%
D) 2%
Ans: 2%
7. A 5-year 6% semi-annual bond @ market yield of 8%, having a price of
Rs. 92, falls to Rs. 91.80 at a yield of 8.10%, what is Basis Point Value
(BPV)?
1) Rs. 0.20 2) Rs. 0.10 3) Rs. 0.02 4) Rs. 0.05
BPV=92-91.80/8.10%-8%=.2/.10*100=.2/10=.02
8. Received order of USD 50000(CIF) to Australia on 1.1.11 when USD/INR
Bill Buying Rate is 43.50. How much preshipment finance will be released
considering profit margin of 10% and Insurance and freight cost@ 12%.
ans
FOB Value = CIF – Insurance and Freight – Profit (Calculation at Bill Buying
Rate on 1.1.11) i.e
= 50000X43.5 = 2175000 – 216000(12%) – 191400(10% of 1914000) =
1722600
Pre-shipment Finance = FOB value -25%(Margin) = 1722600-
430650=1291950.
9. Spot Rate ((Forward Rates)) is 35.6000/6500 Forward 1M=3500/3000
2M=5500/3000, 3M=8500/8000, Transit Period ----20 days, Exchange
Margin = 0.15%.
Find Bill Buying Rate & 2 M Forward Buying Rate
a)31.6979
b)34.6979
c)27.6979
d)25.6979
ans: Bill Buying Rate (Ready) : Bill Date +20 days
Spot Rate = 35.6000 Less Forward Discount 1M (0.3500) Less Exchange
Margin 0.15% (0.529)
i.e. 35.6000-.3500-.0529(0.15% of 35.2500) = 35.1971
3 Month Forward Buying Rate will be applied. 20 days + 2M
Spot Rate = 35.6000 Less Forward Discount of 3M (.8500) Less Exchange
Margin (.0521)
i.e. 35.6000-.8500-.0521(0.15% of 34.7500) = 34.6979 Ans.
10.Issue of DD on New York for USD 25000. The spot Rate is IUSD =
34.3575/3825 1M forward rate is 34.7825/8250
Exchange margin: 0.15%
a ) 32.4341
b ) 34.4341
c ) 36.4341
d ) 38.4341
Ans: Issue of DD on New York for USD 25000. The spot Rate is IUSD =
34.3575/3825 IM forward rate is 34.7825/8250
Exchange margin: 0.15%
Solution:
TT Selling Rate will Apply
Spot Rate = 34.3825 Add Exchange margin (.15%) i.e. 0.516
TT Selling Rate = Spot Rate + Exchange Margin = 34.4341 Ans.
11 Exporter received Advance remittance by way of TT French Franc
100000.
The spot rates are in India IUSD = 35.85/35.92 1M forward =.50/.60
The spot rates in Singapore are 1USD = 6.0220/6.0340 1M forward
=.0040/.0045
Exchange margin = 0.8%
a ) INR 4.9366
b ) INR 5.9366
c ) INR 6.9366
d ) INR 7.9366
Solution
Cross Rate will apply
USD will be bought in the local market at TT Buying rate and sold at Spot
Selling Rates in Singapore for French
Francs:
TT Buying Rates USD/INR = Spot rate – Exchange margin = 35.8500-.0287
= 35.8213
Spot Selling Rate for USD/Francs = 6.0340
Inference:
6.0340 Franc = 1USD
= INR 35.8213
1 franc = 35.8213/6.0340 = INR 5.9366 Ans.
12. On 12th Feb, received Import Bill of USD-10000. The bill has to be
retired to debit the account of the customer. Interbank spot rate
=34.6500/7200. The spot rate for March is 5000/4500. The exchange
margin for TT selling is .15% and Exchange margin for Bill selling is .20%.
Quote rate to be applied.
a ) 31.8415
b ) 34.8415
c ) 35.8415
d ) 39.8415
Solution
Bill Selling Rate will be applied.
Spot Rate + Exchange margin for TT Selling + Exchange margin for Bill
selling = 34.7200+.0520+.0695 = 34.8415
13 On 15th July, Customer presented a sight bill for USD 100000 for
Purchase under LC. How much amount will be credited to the account of the
Exporter. Transit period is 20 days and Exchange margin is 0.15%. The spot
rate is 34.75/85. Forward differentials:
Aug: .60/.57 Sep:1.00/.97 Oct: 1.40/1.37
a ) 28.0988
b ) 34.0988
c ) 40.0988
d ) 44.0988
Solution
Bill Buying rate will be applied.
Spot Rate----34.75 Less discount .60 = 34.15
Less Exchange Margin O.15% i.e. .0512 =34.0988 Ans.
14. Bank received MT of USD 5000 on 15th Sep. The Nostro account was
already credited. What amount will be paid to the customer: Spot Rate
34.25/30. Oct Forward Differential is 22/24. Exchange margin is .80%
a ) 38.2226
b ) 34.2226
c ) 30.2226
d ) 32.2226
Solution
TT buying Rate will be applied
34.25 - .0274 = 34.2226 Ans.
15. Spot Rate ((Forward Rates)) is 35.6000/6500 Forward 1M=3500/3000
2M=5500/3000 3M=8500/8000
Transit Period ----20 days, Exchange Margin = 0.15%.
Find Bill Buying Rate & 2 M Forward Buying Rate
a ) 31.6979
b ) 34.6979
c ) 27.6979
d ) 25.6979
Solution
Bill Buying Rate (Ready) : Bill Date +20 days
Spot Rate = 35.6000 Less Forward Discount 1M (0.3500) Less Exchange
Margin 0.15% (0.529)
i.e. 35.6000-.3500-.0529(0.15% of 35.2500) = 35.1971
3 Month Forward Buying Rate will be applied. 20 days + 2M
Spot Rate = 35.6000 Less Forward Discount of 3M (.8500) Less Exchange
Margin (.0521)
i.e. 35.6000-.8500-.0521(0.15% of 34.7500) = 34.6979 Ans.
16 Issue of DD on New York for USD 25000. The spot Rate is IUSD =
34.3575/3825. 1M forward rate is 34.7825/8250, Exchange margin:
0.15%. Calculate TT Selling rate
a ) 32.4341
b ) 34.4341
c ) 36.4341
d ) 38.4341
Issue of DD on New York for USD 25000. The spot Rate is IUSD =
34.3575/3825, 1M forward rate is 34.7825/8250
Exchange margin: 0.15%
Solution:
TT Selling Rate will Apply
Spot Rate = 34.3825 Add Exchange margin (.15%) i.e. 0.516
TT Selling Rate = Spot Rate + Exchange Margin = 34.4341 Ans.
17. Exporter received Advance remittance by way of TT French Franc
100000.
The spot rates are in India IUSD = 35.85/35.92 1M forward =.50/.60
The spot rates in Singapore are 1USD = 6.0220/6.0340 1M forward
=.0040/.0045, Exchange margin = 0.8%
a ) INR 4.9366
b ) INR 5.9366
c ) INR 6.9366
d ) INR 7.9366
Ans: 6.0220*.008=.0481, -0040= 5.97
Cross Rate will apply
USD will be bought in the local market at TT Buying rate and sold at Spot
Selling Rates in Singapore for French Francs:
TT Buying Rates USD/INR = Spot rate – Exchange margin = 35.8500-.0287
= 35.8213
Spot Selling Rate for USD/Francs = 6.0340
Inference:
6.0340 Franc = 1USD
= INR 35.8213
1 franc = 35.8213/6.0340 = INR 5.9366 Ans.
18.A 91 days T Bill, after 41 days is trading at 99, calculate the yield on T
bill..
1) 7.35
2) 7.37
3) 6.89
4) 8.01
ANS: 100-99*365*100/99*50=36500/4950=7.37 ans
19. One of your exporter customers has received an export order for USD
100,000/- (Present conversion rate USD 1= RS 47/-). The contract is for CIF
value. Freight is estimated at 10% and insurance premium will be
approximately 5%. Your branch has prescribed a margin of 10%. What will
be the eligible packing credit loan amount?
1. 32,13,000
2. 37,80,000
3. 42,00,000
4. 35,95,000*
Ans FOB value= 100000*47=4700000-(15% freight)705000=3995000
Pre shipment= FOB- Margin=3995000-399500=3595000ans
20. You are required to negotiate an export bill for USD 150000.00 at 60
days after sight drawn under a LC. Assuming the following rates in the inter
bank market calculate the exchange rate to be quoted bearing in mind that
the required exchange margin is 0.150% , NTP is 20 days and interest is to
be collected at 11% p.a. at the time of negotiation and recoverable from the
customer.
SPOT USD1= Rs.48.2000/48.2500 and premia are
one month-0.0800/0100, 2 month 0.1500/0.1650 and 3 month
0.2300/0.2400
ANS: Since the NTP is 20 days and usance of the bill is 60 days the forward
rate should be that as applicable to 80 days. Since this is a buying
transaction the premium for 2 months is only considered because of the
principle “give less”. The working of the rate is as under:
Inter bank rate + premium= 48.200+ 0.1500 = 48.3500
Exchange margin @ 0.150% is reduced from the above = 48.3500- 0.0545
= 48.2955 and when rounded off it is 48.2950
Amount payable to the customer = 150000* 48.3500 =Rs.7252500
Interest recoverable = {7252500* 80*11}/ 36500= Rs174854.79
20 A bond with Rs 100 par value has a coupon rate of 14 %. The required
rate of return on the bond is 13 % and it matures in 5 years. Find the value
of bond. ?
FORMULA :
COUPON RATE / (1*ROR) N
SO : 14/1.13+ 14/(1.13)2 +14/(1.13)3 +14/(1.13)4 + 114/(1.13)5
:- 12.38 + 10.96 + 9.70 + 8.86 + 61.87 = 103.77
21.COST / UNIT
RAW MATERIAL 50
DIRECT LABOUR 20
OVERHEADS 40
TOTAL COST 110
NO OF UNITS 10,000
NO OF UNITS SOLD ON CREDIT 8000
AVERATE RAW MATERIAL IN STOCK : 1 MONTH
AVERAGE WORK IN PROGRESS : 0.5 MONTH
AVERAGE FINISHED GOODS IN STOCK : 0.5 MONTH
CREDIT BY SUPPLIER : 1 MONTH
CREDIT TO DEBTOR : 2 MONTHS
TAKE 1 YEAR = 12 MONTHS
INVESTMENT IN WORKING CAPITAL FOR FINISHED GOODS IS
NO OF UNIT * COST OF PRODUCTION PRICE * FINISHED GOODS DAY / 365
10000 * 110 * .05/12 = 45833
GROSS PROFIT : 8
NET PROFIT : 5
DEPRECTIATION : 3
SALES : 80
PURCHASE : 60
CAPITAL : 50
CC BANK : 20
TERM LOAN : 10
TERM LOAN ( INSTALL FALL ) 2
CREDITORS : 12
OTHER O/S EXP : 6
FIXED ASSETS : 65
INVESTMENT : 10
DEBTOR : 8
CLOSING STOCK: 7
CASH AND BANK : 5
LOAN AND ADVANCE : 5
INT. ON TERM LOAN : 1.5
1) GROSS PROFIT RATIO
G.P / SALES * 100 : 8/80*100 = 10
2) NET PROFIT RATIO
N.P. / SALES * 100 : 5 / 80 * 100 = 6.25
3) CURRENT RATIO
C.A. / C.L. ( INCL T/L) ( 8 + 7 + 5 + 5 ) / ( 2 + 12 + 6 +20) = 6.25
4) DEBT EQUIRY RATION
DEBT / EQRY : ( 20 + 10 + 2 12 + 6 ) / ( 50)
5) CREDITOR PAYMENT PERIOD
CREDITORS / PURCHASE * 365 : 12/60 *365 = 60.83
6) STOCK HOLDING PERIOD
STOCK / PURCHASE * 365 7 / 80 *365 = 31.93
DSCR : ( PAT + DEPRE+INT ON T/L ) / INT IN T/L AND INSTL OF T/L)
( 5 + 3 1.5 ) / ( 2 + 1.5)
QTN. RS.1000 TREASURE BOND WITH COUPON RATE OF 6 % . TODAY
PRICE AT RS 1010.77 AND SELL IT NEXT YEAR AT THE PRICE OF RS 1020.
SO WHAT IS RATE OR RETURN ON BOND ?
FORMULA : % + DIFFERENCE / INVESTMENT
SO : 60 + 9.23 / 1010.77 = 6.86
33.A bank is holding bond portfolio having BPV of Rs 51000 per Cr. The
book value of the holding is Rs 9780 Cr having present market value of Rs
10543 Cr. Total face value of the holding is Rs 10124 Crs. What would
be the gain/loss on the holding if the portfolio yield increases by 12 basis
points ?
a) Loss of Rs 1265.16
b) loss of Rs 1214.68
c) loss of Rs 612000
d) Insufficient data
Ans : c Yield is inversely proportionate to market price..
So increase in yield..
Will decrease the market price. ..
Means loss in holding the portfolio. ..
BPV is Change in price by 1 basis point ( 0.01%) change in yield..
So by change in the yield by 12 basis points or 12 BPV..
Change in price will be..
= 12 × 51000
= 612000
Loss of rs 6,12,000 per Cr
34. A 20 YR 11% Semi-annual bond @ market yield of 9.80% has 15
Yr remaining for maturity> Mc Cauley’S duration of the bond is 9.2 Yr.
What is the approximate change in price if the market yield goes down by
1% ?
a) Price increases by 8.70%
b) Price increases by 8.77%
c) Price decreases by 8.87%
d) Price decreases by 9.20%
ans : b Modified duration is McCauley's duration discounted by one period
yield to maturity
Modified duration =
McCauley's duration / ( 1 + yield )
= 9.2 / ( 1 + 9.8%)
= 9.2 / ( 1 +0.098)
= 9.2 / ( 1.098)
= 8.37 = modified duration
% change in price = - modified duration × yield change
= - 8.37× (-1%)
= (+)8.37 %
+ means increase in price
So 8.37 % increase in price. .
My magnitude of answer Is different from answer b
35. Say Mr. X purchase 2000 shares of stock ‘A’ at Rs 125 per share
and 1000 shares of stock ‘B’ at Rs 90 per share. The price is expected
to fluctuate 2% daily for stock ‘A’ and 1.25% daily stock ‘ B’ (daily
volatility figure estimated from past data) . He estimates daily potential
loss to be Rs 6350 approximately. The market factor sensitivity of the
portfolio is……..
a) Rs 6350
b) Rs 3000
c) Rs 6.35
d) None of these
ans:d should be ....d
Because market factor sensitivity of portfolio is...
1% of total position. .
Here total position in portfolio is..
125×2000 + 90× 1000
= 250000 + 90000
= 340000
1 % of total position
= 3400 rs
36. A bond portfolio having a bond A (market Value Rs 300 Crs and
MD of 3.5 Yr) and bond B (market value Rs 500 Crs and MD of 05 Yrs)
What is the BPV of the portfolio ?
a) Rs 44375 per crore
b) Rs 4437.50 per crore
c) Rs 44375 per million
d) Rs 4437.50 per million
Explanation. .
BPV of bond A ...
Change in price =
Modified duration × yield change
= 3.5 × 0.01 (basis point change)
=0.035
BPV of bond B
Samilarily
Change in price =
Modified duration × yield change
= 5.0 × 0.01 (basis point change)
= 0.050
BPV of portfolio is equal to. .
Weighted average of BPV
= (0.035×300 + 0.050× 500)/800
= (10.5 + 25)/ 800
= 35.5 / 800
= 0.044375
That is on 100 face value
For per crore we should multiply by 100000
So we get 4437.50 per crore..
Answer b
37. Say Mr. X purchase 2000 shares of stock ‘A’ at Rs 125 per share
and 1000 shares of stock ‘B’ at Rs 90 per share. The price is expected
to fluctuate 2% daily for stock ‘A’ and 1.25% daily stock ‘ B’ (daily
volatility figure estimated from past data) . He estimates daily potential
loss to be Rs 6350 approximately. What is the VaR of 99% confidance
interval(corresponding to 2.33 standard deviation) (Assume that the
stocks have zero correlation)
a) Rs 14795.50
b) Rs 6350
c) Rs 19050
d) None of these
ans: a refer page 251 and 252
How they arrive at option a..
Daily estimated loss is 6350
Daily percentage loss is..
= (daily loss / total position)× 100
Daily loss = 6350
Total position
= 2000 × 125 + 1000 × 90
= 250000 + 90000
= 340000
Daily percentage loss
= (6350/340000)× 100
= 0.018676 × 100
= 1.8676 %
So for getting loss at 99 % confidence level...
Defeasance factor
= Daily percentage loss × standard deviation
= 1.8676 × 2.33
= 4.3516 %
So VaR of portfolio is.
= tatal position × Defeasance factor
= 340000 × 4.3516
= 14795.4999
= 14795.50
That is option a
38. Two stocks A and B have negative correlation of 80% between them
the portfolio consists of 100 units of stock a ( market price Rs 100 ) and
200 units of stock b ( market price Rs 200) if price of stock A moves up
by 10 % what would be gain/loss on the portfolio ?
a) gain Rs 4200
b) loss Rs 2200
c) Loss rs 600
d) non of these
ans : b Explanation. .
Co relation is 80% = 0.80
Which is negative. .
Means. .
two stock price is inversely related. ..
If price of stock a goes up
Then price of stock b goes down. ..
Factor is by 0.80..
Here stock price of a goes up by 10 %..
Current price of stock a is 110 rs...
Also price of stock b is goes down by 10%×0.80 = 8%
Current price of stock b..
Will be 200× (1-.08%)
= 184 rs. .
Gain in stock a
= 110×100 - 100×100
= 11000 - 10000
= 1000
Loss in sock b
= 184×200 - 200×200
= 36800 - 40000
= -3200
In totally. .
= 1000+(-3200)
= -2200
= loss of 2200
39 What would be issue price of a CP carrying an interest rate of 8 %
and maturity of 06 manths expressed as% of notional value ?
a) 100 %
b) 92.59%
c) 96.15%
d) none of these
ans:c
= (100/104)× 100
= 96.15384
= 96.15
Interest rate = 8 % annual
For six months it should be 4 %
CPs are issued at discount prices. .
So if face value is 100..
Then 8 % annual.
4% for semi annual. .
Issue price × (1+ 4%) = 100
Issue price × 1.04 = 100
Issue price = 100/1.04
= 96.15384
= 96.15
41. 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 ?
1) Very high to high
2) High to average
3) Average to moderate
4) Moderate to Low
Ans: c
Estimated level of operational risk =
Estimated probability of occurrence × estimated potential financial impact ×
Estimated impact of internal controls
Firstly we assume 5 level risk in numbers. ..
Scale of risk. .
Very high - 4
High - 3
Average - 2
Moderate - 1
Low - 0
So probability of occurrence
= average = 2
Potential financial impact
= high = 3
Impact of internal control
= 40 %
For calculation. .
Estimated level of operational risk =
Square root of (2 × 3 × ( 1-40%))
= square root of (6 × 0.60)
= square root of 3.6
= more than 1 and less than 2
= more than moderate and less than average
Answer ..c..
Average to moderate
Reference page no 294, 295
BFM McMillan book
42. For estimating level of operational risk, abank estimates probability of
occurrence on historical frequency and maps it on a 5 point scale where
1. implies negligible risk
2. Implies low risk
3. implies medium risk
4. implies high risk
5. implies very high risk
For estimating potential financial impact it relies on past observations and
severly of impact I s also mapped on a scale of 5 as mentioned above
In one of the OR category the bank finds that probability of occuerence
stands mapped at 2 and potential financial impact is mapped at 5
Estimateed impact of internal control is 50% . What is the level of
operational risk for the given OR category?
a) Low risk
b) Medium risk
c) High risk
d) Very high risk
Ans : b
Explanation. ...
.
Estimated level of operational risk =
Estimated probability of occurrence × estimated potential financial
impact × Estimated impact of internal controls
Firstly we assume 5 level risk in numbers. ..
Scale of risk. .
Very high - 5
High - 4
Medium - 3
Low - 2
Negligible - 1
So probability of occurrence
= average = 2
Potential financial impact
= high = 5
Impact of internal control
= 50 %
For calculation. .
Estimated level of operational risk =
Square root of (2 × 5 × ( 1-50%))
= square root of (10 × 0.50)
= square root of 5
= 2.23
= medium risk
Answer ..b
43. A 91day T bill remaining maturity of 73 days is priced at 99%
a) 5%
b) 5.05%
c) 4.95%
d) 5.20%
ans : b y= (100-p)/p *365/d *100 (100-99/99)*365/73*100=5.05
43.A bank,s G sec portfolio has 100 day VaR at 95% confidance level
of 4% based on yield.What is the worst case scenario over 25 days ?
a) increase in yield by 0.4%
b) Decrease in yield by 0.4%
c) Increase in yield by 2%
d) Decrease in yield by 2%
ans: 100 day VaR is 4 %
So one day Var is..
4 = one day VaR × square root of 100
4 = one day VaR × 10
One day VaR = 0.4 %
25 day VaR = 0.4 × suare root of 25
= 0.4 × 5
= 2 %
In worst case scenario yield will always increase. .
Because this will decrease the market price or value. .
Answer is increase in yield by 2 %
44. A bank,s G sec portfolio has 100 day VaR at 95%
confidance level of 4% based on yield.What is the worst case
scenario over 25 days
in case the portfolio size of the bank,s (mentioned above ) G
sec portfolio is rs 10000 croeres with average modified duration of
3, then worst case loss that the bank may suffer overnight is
a) RS 120 crores in terms of market value
b) loss of Rs 40 crores by way of interest income
c) Gain of Rs 40 crores by way of interest income
d) none of these
ans: 3*.4*10000/100=120 cr
45. 100 day VaR of a given security is 5% with 90 % confidence
interval. In a year (250 working days) , How many days VaR may
be observed at more than 5% ?
a) 12.5 days
b) 10 days
c) 25 days
d) None of these
46. VaR for US/INR rate at 95 % confidence interval is 50 BPs
over night. If the day closes at Rs 44.30 spot for USD, What is the
worst possible rate for imports the day after ?
a) Rs 44.80
b) Rs 43.80
c) 45
d) 45.01
ans: questions for worst situation for import if bP will be added in
export BP will be deducted. So ans will be 44.30+.50=44.80 ans will
be a
Because In worst situation for import price for USD will always increase. ...
47. a 10 Yr bond with semi annual coupon rate@ 8% is being
traded in the market at rS 95/- Th YTM of the bond is
a) 8.42%
b) It can,t be determinded based on data given
c) it may be determined and is expected to be above 8%
d)it may be determined and is expected to be below 8%
ans : c
Ytm different from current yield...
Simple rule is that regarding YTM is.
When market price is below face value..
Then YTM will be greater than the interest or coupon rate...
And when market price greater than the face value ...
Then it will be definitely YTM is lower than the interest or coupon rate
48. A bond having a duration of 6 Yr is yielding 8% at present .
if yield increase by .50% . what would be the impact on price of the
bond ?
a) Bond price would go up by 2.7%
b) Bond price would fall by 2.7%
c) Bond price would go up by 2.8%
d) Bond price would fall by 2.8%
ans : d Modified duration is McCauley's duration discounted by one period
yield to maturity
Here we are talking McCauley's duration is 6 years. .as if no McCauley's
duration is given
Modified duration =McCauley's duration / ( 1 + yield )
= 6 / ( 1 + 8%)
= 6/ ( 1 +0.08)
= 6/ ( 1.08)
= 5.556 = modified duration
% change in price =- modified duration × yield change
= - 5.556× (+0.50%)
= (-)2.7778 %
= (-) 2.8
( - )means decrease in price
2.8 % decrease in price. .
49. Currency X having 6% risk free rate for 6 months has a
spot rate of 30Y . where Y is another currency and has 4% risk
free rate for 06 months period. The 6 months forward rate of X in
terms of Y would be
a) 29.70 B
b) 29.71 B
c) 30.30 B
d) 30.29 B
ans : b
According to interest rate parity..
(Fyx/ Syx) = (1+Interest of y)/(1+Interest of x)
F = Forward rate
S = Spot rate
yx means..expression of exchange rate...
Here exchange rate is given in
Terms of..
1 x = 30 y..
Thatswhy x is in the denominator. .yx
Fyx / 30Y = (1+2%)/(1+3%)
Fyx = ( 1.02/1.03) × 30Y
Fyx = 0.99029 × 30Y
Fyx = 29.7087 Y
Fyx = 29.71 Y
50 An individual purchases a call option for 500 shares of A with
strike price at Rs 120 (Present price Rs 100) and remaining maturity of
03 months at a premium of Rs 40 . On maturity shares of A was
priced at Rs 140. Taking interest cost @ 12% p.a . what is the profit
earned by the individual on the transaction ?
a) No loss no profit
b) Rs 600 loss
c) Rs 10600 loss
d) None of these
Ans : c Explanation. .
Call option ..
He will pushase 500 shares of A..at a price of 120
Tatal value of shares is..
60000
Then he will sell the total shares in the market at a price of 140..
500 × 140
= 70000
So profit of 10000 in the transaction. .
But he has to pay the premium for call options. .
Which is 40 × 500
= 20000
And for getting this much fund interest cost is..
= 20000 × 3 % for 3 months (12% p.a for 03 months 12/4=3)
= 600
Total premium + premium cost
= 20000 + 600
= 20600
In totality. ..
= 10000 - 20600
= - 10600
51. A financial institution buys a specified no of futures at NSE on
a stock Rs 90 each when spot price of the stocks Rs 95 . At the
maturity of the contract the FI takes delivery of the shares. During
the period of Rs 3. The acquisition cost to the FI per share is (
ignore any commission charged by exchange)
a) Rs 95
b) Rs 90
c) Rs 97
d) None of these
ans : b
52. A fixed for floating swap on a notional amount of Rs 10 crores
exchanges 9% fixed against 2% over MIBOR. Settlement is up
front based on closing MIBOR of the immediately preceding quarter. If
the MIBOR is 4% on the last day of the quarter, what is amount of
settlement and who pays it ? Given risk free rate is 5%
a) Rs 12,50,000 floating rate payer
b) Rs 12,34,567 fixed rate payer
c) Rs 7,40,740 fixed rate payer
d) Rs 7,50,000 fixed arte payer
ans: Here question is for..
Exchange of interest rate payment. .
Only difference amount of interest will be paid...
By one party to another party. ..
two parties
1... fixed interest rate payer who will pay 9 % fixed interest rate
2 ...floating interest rate payer...
Who will pay 2 + MIBOR interest rate
MIBOR is at the end of last quarter is 4 %
So total floating rate us 6 %..
And difference of interest rate is..
= 9 - 6= 3 %
Means fixed interest rate payer will pay the difference of interest to floating
interest rate party..
Notional value..
10 crore. .
Difference interest rate for the one quarter is..
= 3 / 4= 0.75%
So 0.75 % of 10 crore
= 750000
That is Answer... d
53. A bank borrows US $ for 03 months @ 2.5% and swaps the
same in to INR for 03 months for deployment in CPs @ 5.5%.
The 3 months premium on US $ 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
Bank borrow US $ for 3 months @ 2.5%
Same will invest in CP foe 3 months @ 5.5 %..
Then here gaining 3% by interest rate margin...
But when bank repay his borrowing in $..
So bank has pay 0.75 extra because US $ will become costly by 0.75%..
US $ is at premium. .
So it will reduce bank gain by 0.75 %..
3.0% - 0.75 %
= 2.25
54. A bank makes provision in account with out standing balance
of Rs 100 Crs (Risk Weight 150%) of Rs 30 Crs. The amount
that will qualify for Tier ii capital is
a) Rs 1.25 Crs
b) Rs 30 Crs
c) Nil
d) Non of these
ans is c
55. A company enjoys cash credit account with a bank . HE also has a
term looan account with o/s balance of Rs 15 Crs as on 31-03-2010 the
bank has also subscribed to the bonds issued by the borrower company
amounting to Rs 3 Crs. As on 31-03-2010 the CC account with o/s balance
of Rs 1.20 Crs is required to be classified as NPA there is no default in
payment of interest and installment in the term loan and bonds. The amount
that will become NPA on account of this borrow company is
a) Rs 1.20 Crs
b) Rs 16.20 Crs
c) 19.20 Crs
d) none of these
ans: c = 15+3+1.20=19.20
56. A bank has deposits worth ZMW 3,00,000 billion. The interest rate on
this is 12%. SRR to be maintaioned by the bank is 8% effective cost to
deposit is....
1) 12%
2) 15.23%
3) 13.04%
4) 14.66%
Ans: 3 From 300000
8 % should be made for SLR requirements
So available fund for making loans(asset)
= 300000 - 8% of 300000
= 300000 - 24000
= 276000
For this fund 276000
Bank is paying 12 % on 300000
Cost of fund is 36000
So making no loss ..
Bank has to lend money at that interest rate..
Which will cover this cost of funding that is 36000
36000 = 276000 × r /100
36000/276000 = r / 100
0.1304 = r / 100
r = 13.04 %
57. in a loan a/c the balance outstanding is 4.20 lacs and a cover of 75% is
available from CGFTMSE .the a/c has been doubtful since 25.08.2009.and
the value of security held is 1,50,000.the total provision in the a/c as on
31.03.2013 will be
1.2,10,000
2.2,17,500
3.1,26,000
4.2,65,000
Answer should be 2
Explanation ...
Outstanding. .balance. .
Is .....420000
Security available is..
150000
CGFTMSE...on remaining amount
Which is. .
= 420000- 150000
= 270000
Coverage is only 75 %..
So uncovered amount. .
We will take as a Provisioning. .
Which is ..
= 25% of 270000
= 67500
Since loan is in doubtful category for more than 3 years
So we will take 100 % Provisioning for security value. .
Which is.
= 150000
So totality. .
Provisioning is..
= 150000 + 67500
= 217500
58. A customer covers its receivable under exchange fluction risk cover
scheme of ECGC . On due date the currency appreciate by 45%. The
customer will gain on the transaction due to currency fluction.
a) 45%
b) 12%
c) 10%
d) 2%
Ans: bAny loss or gain..
Within the range of 2 % to 35%..
Will go in ecgc account. .
Thatswhy. .
Gain of 45%
Of that...33% will go in ecgc account. .
So profit only. .12%..
For customer
59. A claim of Rs 45 lacs has been settled by ECGC in favour of a bank
againt default of Rs 60 lacs. Subsequently the bank realizes Rs 20 lacs
collaterals available to it.What is the loss suffered by the bank on this loan
?
a) Rs 10 lacs
b) Rs 5 lacs
c) Rs 20 lacs
d) Non of these
ans: A Because of ecgc settled the 45 lakhs on default of 60 lakhs. .
Which means. .ecgc settled the 75 % of default. .
here 20 lakhs is realised security. ...
Which means claim amount will be only..
40 lakhs towards ecgc...
And ecgc will settle obly 75 % amount. .
And 25 % will be bear by bank..
So loss of 25% of 40 lakhs.
Means loss 10 lakhs will bear by bank
60. A claim of Rs 45 lacs has been settled by ECGC in favour of a bank
againt default of Rs 60 lacs. Subsequently the bank realizes Rs 20 lacs
collaterals available to it.What is thenet amount paid to ECGC ?
a) Rs 30 lacs
b) 45 lacs
c) 20 lacs
d) None of these
Because of ecgc settled the 45 lakhs on default of 60 lakhs. .
Which means. .ecgc settled the 75 % of default. .
here 20 lakhs is realised security. ...
Which means claim amount will be only..
40 lakhs towards ecgc...
And ecgc will settle obly 75 % amount. .
And 25 % will be bear by bank..
So 75% of 40 lakhs.
Means 30 lakhs will settled by ecgc
61.
an advance of Rs 235000/- has been declared sub standard on 31/05/2012.
It is covered by securities with realizable value of Rs 168000/-. Total
provision in the account as on 31/03/2013 will amount to:
1) 35250
2) 30200
3) 47000
4) 83800
right ans should be. ..2
Explanation. .
We take provision. .
10 % for secured portion.
20% for unsecured portion
= 10% of 168000 + 20% of of 67000
= 16800 + 13400
= 30200
62. The ovenight VaR of 1yr govt security yield is 0.20% with a current yield
of 7.50%. A prospective seller of the security may expect the yield to be on
next day
1) 7.50%
2)7.70%
3) 7.30%
4) inadequate information to make the calculation.
right ans is B any one explain
In worst case scenario prospective seller of security may expect rise in
the yield so ans is 7.50+0.20=7.70......
Same case vl diffrent fr prospective buyer as he expect the yield to fall
so 7.70-.20=7.30
Qtn 63. Received order of USD 50000(CIF) to Australia on 1.1.11 when
USD/INR Bill Buying Rate is 43.50. How much preshipment finance will be
released considering profit margin of 10% and Insurance and freight cost@
12%. And margin is 25%.
ans
FOB Value = CIF – Insurance and Freight – Profit (Calculation at Bill Buying
Rate on 1.1.11)
= 50000X43.5 = 2175000 – 216000(12%) – 191400(10% of 1914000) =
1722600
Pre-shipment Finance = FOB value -25%(Margin) = 1722600-
430650=1291950.
Qtn 64 Spot Rate ((Forward Rates)) is 35.6000/6500 Forward
1M=3500/3000 2M=5500/3000 3M=8500/8000
Transit Period ----20 days Exchange Margin = 0.15%.
Find Bill Buying Rate & 2 M Forward Buying Rate
a ) 31.6979
b ) 34.6979
c ) 27.6979
d ) 25.6979
Dinesh Jawalkar Solution
Bill Buying Rate (Ready) : Bill Date +20 days
Spot Rate = 35.6000 Less Forward Discount 1M (0.3500) Less Exchange
Margin 0.15% (0.529)
i.e. 35.6000-.3500-.0529(0.15% of 35.2500) = 35.1971
3 Month Forward Buying Rate will be applied. 20 days + 2M
Spot Rate = 35.6000 Less Forward Discount of 3M (.8500) Less Exchange
Margin (.0521)
i.e. 35.6000-.8500-.0521(0.15% of 34.7500) = 34.6979 Ans.
Qtn 65
Issue of DD on New York for USD 25000. The spot Rate is IUSD =
34.3575/3825 IM forward rate is
34.7825/8250
Exchange margin: 0.15%
a ) 32.4341
b ) 34.4341
c ) 36.4341
d ) 38.4341

Dinesh Jawalkar Issue of DD on New York for USD 25000. The spot Rate is
IUSD = 34.3575/3825 IM forward rate is
34.7825/8250
Exchange margin: 0.15%
Solution:
TT Selling Rate will Apply
Spot Rate = 34.3825 Add Exchange margin (.15%) i.e. 0.516
TT Selling Rate = Spot Rate + Exchange Margin = 34.4341 Ans.
Qtn:65 Exporter received Advance remittance by way of TT French Franc
100000.
The spot rates are in India IUSD = 35.85/35.92 1M forward =.50/.60
The spot rates in Singapore are 1USD = 6.0220/6.0340 1M forward
=.0040/.0045
Exchange margin = 0.8%
a ) INR 4.9366
b ) INR 5.9366
c ) INR 6.9366
d ) INR 7.9366
Dinesh Jawalkar Solution
Cross Rate will apply
USD will be bought in the local market at TT Buying rate and sold at Spot
Selling Rates in Singapore for French
Francs:
TT Buying Rates USD/INR = Spot rate – Exchange margin = 35.8500-.0287
= 35.8213
Spot Selling Rate for USD/Francs = 6.0340
Inference:
6.0340 Franc = 1USD
= INR 35.8213
1 franc = 35.8213/6.0340 = INR 5.9366 Ans.
Qtn 66 On 12th Feb, received Import Bill of USD-10000. The bill has to
retired to debit the account of the customer. Interbank
spot rate =34.6500/7200. The spot rate for March is 5000/4500. The
exchange margin for TT selling is .15%
and Exchange margin for Bill selling is .020%. Quote rate to be applied.
a ) 31.8415
b ) 34.8415
c ) 35.8415
d ) 39.8415
Dinesh Jawalkar Solution
Bill Selling Rate will be applied.
Spot Rate + Exchange margin for TT Selling + Exchange margin for Bill
selling = 34.7200+.0520+.0695 = 34.8415
qtn:66 On 15th July, Customer presented a sight bill for USD 100000 for
Purchase under LC. How much amount will be
credited to the account of the Exporter. Transit period is 20 days and
Exchange margin is 0.15%. The spot rate is
34.75/85. Forward differentials:
Aug: .60/.57 Sep:1.00/.97 Oct: 1.40/1.37
a ) 28.0988
b ) 34.0988
c ) 40.0988
d ) 44.0988
Solution
Bill Buying rate will be applied.
Spot Rate----34.75 Less discount .60 = 34.15
Less Exchange Margin O.15% i.e. .0512 =34.0988 Ans.
Qtn 67Bank received MT of USD 5000 on 15th Sep. The Nostro account was
already credited. What amount will be paid to
the customer: Spot Rate 34.25/30. Oct Forward Differential is 22/24.
Exchange margin is .80%
a ) 38.2226
b ) 34.2226
c ) 30.2226
d ) 32.2226
Solution
TT buying Rate will be applied
34.25 - .0274 = 34.2226 Ans.
Qtn 67Spot Rate ((Forward Rates)) is 35.6000/6500 Forward
1M=3500/3000 2M=5500/3000 3M=8500/8000
Transit Period ----20 days Exchange Margin = 0.15%.
Find Bill Buying Rate & 2 M Forward Buying Rate
a ) 31.6979
b ) 34.6979
c ) 27.6979
d ) 25.6979
Solution
Bill Buying Rate (Ready) : Bill Date +20 days
Spot Rate = 35.6000 Less Forward Discount 1M (0.3500) Less Exchange
Margin 0.15% (0.529)
i.e. 35.6000-.3500-.0529(0.15% of 35.2500) = 35.1971
3 Month Forward Buying Rate will be applied. 20 days + 2M
Spot Rate = 35.6000 Less Forward Discount of 3M (.8500) Less Exchange
Margin (.0521)
i.e. 35.6000-.8500-.0521(0.15% of 34.7500) = 34.6979 Ans.
Qtn 67Issue of DD on New York for USD 25000. The spot Rate is IUSD =
34.3575/3825 IM forward rate is
34.7825/8250
Exchange margin: 0.15%
a ) 32.4341
b ) 34.4341
c ) 36.4341
d ) 38.4341
Issue of DD on New York for USD 25000. The spot Rate is IUSD =
34.3575/3825 IM forward rate is
34.7825/8250
Exchange margin: 0.15%
Solution:
TT Selling Rate will Apply
Spot Rate = 34.3825 Add Exchange margin (.15%) i.e. 0.516
TT Selling Rate = Spot Rate + Exchange Margin = 34.4341 Ans.
Qtn 67 Exporter received Advance remittance by way of TT French Franc
100000.
The spot rates are in India IUSD = 35.85/35.92 1M forward =.50/.60
The spot rates in Singapore are 1USD = 6.0220/6.0340 1M forward
=.0040/.0045
Exchange margin = 0.8%
a ) INR 4.9366...See More

Hitesh Kothari 6.0220*.008=.0481, -0040= 5.97
Cross Rate will apply
USD will be bought in the local market at TT Buying rate and sold at Spot
Selling Rates in Singapore for French
Francs:
TT Buying Rates USD/INR = Spot rate – Exchange margin = 35.8500-.0287
= 35.8213
Spot Selling Rate for USD/Francs = 6.0340
Inference:
6.0340 Franc = 1USD
= INR 35.8213
1 franc = 35.8213/6.0340 = INR 5.9366 Ans.
68. International Advisors, Inc. (IAI) is receiving a payment of 100,000
Euros in three months. The spot rate for the Euro is currently $0.92 per
Euro, but IAI has entered into a threemonth
forward contract with their bank at $0.94 per Euro. How much will IAI
receive in
three months?
a. $92,000
b. $94,000
c. $106,383
d. $108,696
ANS : B
69. One year T-bill rate is 9% and the rate on one year zero
coupon debenture issued by LM ltd is 12.50% , the probabililty of
default is …..
a) 4%
b) 3%
c) 5%
d) non of these
ans: b formula for probability of default is 1-P= 1- ( (1+i)/(1+k))
=1-((1.09/1.125))=1-.969=.03=3% ( Page 284 of bFM).
70. A bond with acupon rate of 7.38% maturing in 2015 and trading
at Rs 106.32 will have yield of…………….
a) 6.94%
b) 14.40%
c)7.84%
d) non of these
ans : a = current yield= coupon rate/ Prevailing mkt value=
.0738/106.32= 6.94%

Caiib bfm exports

EXPORTS: Important overview of exports

 Useful for Certified credit officer and CAIIB

RBI and DGFT::

RBI controls Foreign Exchange and DGFT (Directorate General of Foreign
Trade) controls Foreign Trade. Exim Policy as framed in accordance with
FEMA is implemented by DGFT. DGFT functions under direct control of
Ministry of Commerce and Industry. It regulates Imports and Exports
through EXIM Policy.
On the other hand, RBI keeps Forex Reserves, Finances Export trade and
Regulates exchange control. Receipts and Payments of Forex are also
handled by RBI.

IEC - Importer Exporter Code::
One has to apply for IEC to become eligible for Imports and Exports. DGFT
allots IEC to Exporters and Importers in accordance with RBI guidelines
and FEMA regulations. EXIM Policy is also considered before allotting IEC.
Export
Declaration
Form
All exports (physically or otherwise) shall be declared in the following Form.
1. GR form--- meant for exports made otherwise than by post.
2. PP Form---meant for exports by post parcel.
3. Softex form---meant for export of software.
4. SDF (Statutory Declaration Form)----replaced GR form in order to
submit declaration electronically.
SDF is submitted in duplicate with Custom Commissioned who puts its
stamp and hands over the same to exporter marked “Exchange Control
Copy” for submission thereof to AD.
Exemptions
 Up to USD 25000 (value) – Goods or services as declared by the
exporter.
 Trade Samples, Personal effects and Central Govt. goods.
 Gift items having value up to Rs. 5.00 lac.
 Goods with value not exceeding USD 1000 value to Myanmar.
 Goods imported free of cost for re-export.
 Goods sent for testing.
ADs may consider waiver for export of goods free of cost for export
promotion up to 2% of average annual exports of previous 3 years subject
to ceiling of Rs. 5.00 lac. The limit is Rs. 10.00 lac for Status Holder
Exporters.

Prescribed Time limits::

The time norms for export trade are as under:
 Submission of documents with “Exchange Control Copy” to AD
within 21 days from date of shipment.
 Time period for realization of Export proceeds is has been reduced
to 9M for all types of exports including exports to SEZ (Special
economic zones), SHE(Status Holder Exporters) and 100%EOUs.
Previously, the time period was 12Months for SEZs and SHEs.
 For, Exports to Warehouse established outside India, as soon as it
is realized and in any case within fifteen months from the date of
shipment of goods
 After expiry of time limit, extension is sought by Exporter on ETX
Form. The AD can extend the period by 6M.
However, reporting will be made to RBI on XOS Form on half yearly basis

in respect of all overdue bills which remained outstanding for more than
prescribed period or the bills which are overdue

Direct Dispatch
of Shipping
Documents::

AD banks may handle direct dispatch of shipping documents provided
export proceeds are up to USD 1 Million and the exporter is regular
customer of at least 6 months.

Advance Payments::

Exporters may receive advance payments from their overseas importers
provided:
 Shipment is made within 1 year from receipt of advance.
 Rate of interest payable should not exceed LIBOR+100 bps.
 Documents are routed through AD from which advance was routed.
Prescribed
Method of
payment and
Reduction in
export proceeds
Exporter will receive payment though any of the following mode:
 Bank Drafts, TC, Currency, FCNR/NRE deposits, International
Credit Card. But the proceeds can be in Indian Rupees from Nepal
and Bhutan.
 Export proceeds from ACU countries can be settled in ACU/EURO
or ACU/Dollar. A separate Dollar/Euro account is maintained which
is denominated as ACU Dollar or ACU EURO.
ACU – Asian Clearing Union was formed in Tehran, Iran in 1974 and it
comprises of following 9 countries as members.
India, Bangladesh, Bhutan, Myanmar, Iran, Pak, Srilanka, Nepal and
Maldives.
Exporters may be allowed to reduce the export proceeds with the following:
 Reduction in Invoice value on account of discount for pre-payment
of Usance bills (maximum 25%)
 Agency commission on exports.
 Claims against exports.
 Write off the unrecoverable export dues up to maximum limit of 10%
of export value.
The proceeds of exports can be got deposited by exporter in any of the
following account:
1. Overseas Foreign Currency account.
2. Diamond Dollar account.
3. EEFC (Exchange Earners Foreign Currency account)

DDA _ diamond Dollar accounts
Diamond Dollar account can be opened by traders dealing in Rough and
Polished diamond or Diamond studded Jewellary with the following
conditions:
1. With track record of 2 years.
2. Average Export turnover of 3 crores or above during preceding 3
licensing years.
DDA account can be opened by the exporter for transacting business in
Foreign Exchange. An exporter can have maximum 5 Diamond Dollar
accounts.
EEFC Exchange Earners Foreign Currency accounts can be opened by exporters.
100% export proceeds can be credited in the account which does not earn
interest but this amount is repatriable outside India for imports (Current
Account transactions).

Pre-shipment
Finance or
Packing Credit::

Packing credit has the following features:
1. Calculation of FOB value of order/LC amount or Domestic cost of
production (whichever is lower).
2. IEC allotted by DGFT.
3. Exporter should not be on the “Caution List” of RBI.
4. He should not be under “Specific Approval list” of ECGC.
5. There must be valid Export order or LC.
6. Account should be KYC compliant.
Liquidation of Pre-shipment credit
 Out of proceeds of the bill.
 Out of negotiation of export documents.
 Out of balances held in EEFC account
 Out of proceeds of Post Shipment credit.
Concessional rate of interest is allowed on Packing Credit up to 270
days. Previously, the period was 180 days. Running facility can also be
allowed to good customers.

Post Shipment
Finance::

Post shipment finance is made available to exporters on the following
conditions:
 IEC accompanied by prescribed declaration on GR/PP/Softex/SDF
form must be submitted.
 Documents must be submitted by exporter within 21 days of
shipment.
 Payment must be made in approved manner within 6 months.
 Normal Transit Period is 25 days.
 The margin is NIL normally. But in any case, it should not exceed
10% if LC is there otherwise it can be up to 25%.
Types of Post Shipment Finance:
 Export Bills Purchased for sights bills and Discounting for Usance
bills.
 Export bills negotiation.
Discrepancies of Documents
Late Shipment, LC expired, Late presentation of shipping documents, Bill
of Lading not signed properly, Incomplete Bill of Lading, Clause Bill of
Lading , Short Bill of Lading or Inadequate Insurance.
Advance against Un-drawn Balance
Undrawn balance is the amount less received from Importers. Bank can
finance up to 10% undrawn amount up to maximum period of 90 days.
Advance against Duty Drawback
Duty drawback is the support by Government by way of refund of
Excise/Custom duty in case the domestic cost of the product is higher than
the Price charged from the importer. This is done to boost exports despite
international competition. Bank can make loan to exporter against Duty
Drawback up to maximum period of 90 days.
GATS Credit can be afforded to exporters of all the 161 services covered under
GATS “General Agreement on Trade in Services”. The provisions
applicable to export of goods apply mutatis mutandis to export of services.

Crystallization of
Overdue Bills
Consequent upon non-realization, Conversion of Foreign Exchange liability
into Rupees is called crystallization. It is done on 30th day from notional
due date at prevailing TT selling rate or Original Bill Buying Rate
(Whichever is higher).
DA Bills
Notional due date is calculated in DA Bill by adding normal period of transit
i.e. 25 days in the Usance period. 30th day is taken from notional due date.
DP Bills
30th day after Normal Transit Period
If 30th day happens to be holiday or Saturday, liability will be
crystallized on the following working day.
Policy has been liberalized and crystallization period will be decided by
individual banks.
Export of
services
Credit can be provided to exporters of all 161 tradable services covered
under GATS (General Agreement on Trade in services) where payment for
such services is received in Forex. The provisions applicable to export of
goods apply to export of services.
Gold Card
Scheme
All exporters in Small and Medium Sector with good track record are
eligible to avail Gold Card Scheme. The conditions are :
1. Account should be classified as Standard assets for the last 3
years.
2. Limit is sanctioned for 3 years and thereafter automatic renewal.
3. There is provision of 20% Standby limit.
4. Packing Credit is allowed in Foreign currency.
5. Concessional rate is allowed for 90 days initially which can be
extended for 360 days.
6. Bank may waive collateral and provide exemption from ECGC
Guarantee schemes.
7.
Factoring and
Forfaiting
Factoring is financing and collection of Receivables. The client sells
Receivables at discount to Factor in order to raise finance for Working
Capital. It may be with or without recourse. Factor finances about 80%
and balance of 20% is paid after collection from the borrower. Bill should
carry LR/RR. Maximum Debt period permitted is 150 days inclusive of
grace period of 60 days. Debts are assigned in favour of Factor. There are
2 factors in International Factoring. One is Export Factor and the other is
Import Factor. Importer pays to Import factor who remits the same to Export
Factor.
Forfaiting is Finance of Export Receivables to exporter by the Forfaitor. It
is also called discounting of Trade Receivablessuch as drafts drawn under
LC, B/E or PN.It is always No Recourse Basis (i.e. without recourse to
exporter). Forfaitor after sending documents to Exporters‟ Bank makes
100% payment to exporter after deducting applicable discount. Maximum
period of Advance is 180 days.

BFM incoterms

BFM➡INCOTERMS 2015 Classification
RULES FOR ANY MODE OR MODES OF TRANSPORT

➡1. EXW (‘Ex Works’)

✅The seller makes the goods available to be collected at their premises and the buyer is responsible for all other risks, transportation costs, taxes and duties from that point onwards. This term is commonly used when quoting a price.

➡2. FCA (‘Free Carrier’)

✅The seller gives the goods, cleared for export, to the buyer’s carrier at a specified place. The buyer is then responsible for getting transported to the specified place of final delivery. This term is commonly used for containers travelling by more than one mode of transport.

➡3. CPT (‘Carriage Paid To’)

✅The seller pays to transport the goods to the specified destination. Responsibility for the goods transfers to the buyer when the seller passes them to the first carrier.

➡4. CIP (‘Carriage and Insurance Paid’)

✅The seller pays for insurance as well as transport to the specified destination. Responsibility for the goods transfers to the buyer when the seller passes them to the first carrier.
CIP (‘Carriage and Insurance Paid’) is commonly used for goods being transported by container by more than one mode of transport. If transporting only by sea

➡5. DAT (‘Delivered at Terminal’)

✅The seller pays for transport to a specified terminal at the agreed destination. The buyer is responsible for the cost of importing the goods. The buyer takes responsibility once the goods are unloaded at the terminal

➡6. DAP (‘Delivered at Place’)

✅The seller pays for transport to the specified destination, but the buyer pays the cost of importing the goods.
The seller takes responsibility for the goods until they’re ready to be unloaded by the buyer.

➡7. DDP/DTP (‘Delivered Duty Paid’)

✅The seller is responsible for delivering the goods to the named destination in the buyer’s country, including all costs involved.

RULES FOR SEA AND INLAND WATERWAY TRANSPORT

➡8. FAS (‘Free Alongside Ship’)

✅The seller puts the goods alongside the ship at the specified port they’re going to be shipped from. The seller must get the goods ready for export, but the buyer is responsible for the cost and risk involved in loading them.

This term is commonly used for heavy-lift or bulk cargo (e.g. generators, boats), but not for goods transported in containers by more than one mode of transport (FCA is usually used for this).

➡9. FOB (‘Free on Board’)

✅The seller must get the goods ready for export and load them onto the specified ship. The buyer and seller share the costs and risks when the goods are on board. This term is not used for goods transported in containers by more than one mode of transport (FCA is usually used for this).

➡10. CFR (‘Cost and Freight’)

✅The seller must pay the costs of bringing the goods to the specified port. The buyer is responsible for risks when the goods are loaded onto the ship.

➡11. CIF (‘Cost, Insurance and Freight’)

✅The seller must pay the costs of bringing the goods to the specified port. They also pay for insurance. The buyer is responsible for risks when the goods are loaded onto the ship.

EXPORT - IMPORT FINANCE MCQs

 EXPORT - IMPORT FINANCE MCQs

Multiple Choice Questions.
1. Incoterms cover
A. trade in intangibles
B. ownership and transfer rights
C. contracts of carriage.
D. rights and obligations of parties to contract of sales
ANSWER: D
2. Which of the following term cannot be used for transportation of goods by sea?
A. CFR.
B. DDP.
C. DES
D. DEQ.
ANSWER: B
3. The incoterm providing least responsibility to seller is
A. EXW.
B. DDP.
C. FOB
D. CIF.
ANSWER: A
4. The group of incoterms under which the seller's responsibility is to obtain freight paid transport
document for the main carriage is
A. E terms
B. C terms.
C. D terms
D. F tenns.
ANSWER: B
5. The incoterm should indicate the place of shipment in case of
A. F terms
B. E terms.
C. C terms.
D. D terms.
ANSWER: A
a
6. Incoterm is specific about the responsibility for marine insurance in case of
A. FOB and EXW
B. FOB and CIF.
C. CIF and CIP.
D. CPT and DDP.
ANSWER: C
7. The group of terms arranged in order of increasing responsibility of exporter is.
A. C,D,E and F terms.
B. D,E,F and C terms.
C. E,F,C and D terms.
D. F,C,E and D tenns.
ANSWER: C
8. The price quoted by the seller for the product
A. will vary depending upon the incoterm chosen.
B. irrespective of the incoterm.
C. will be the base price; the effect of incoterm to be added later.
D. will include only cost.
ANSWER: A
9. Adoption of incoterm is
A. compulsory for all international contracts
B. compulsory for all letter of credit transactions.
C. optional for the parties to the contract.
D. mandatory for transactions with Europe.
ANSWER: C
10. Which of the following term cannot be used for transportation of goods by Road or Air?
A. FAS.
B. DDR
C. EXW.
D. CIR
ANSWER: A
11. Packing credit is
A. an advance made for packing goods for export.
B. pre-shipment finance for export.
C. a priority sector advance.
D. advance for importer.
ANSWER: B
12. The amount of packing credit should not normally exceed
A. the local cost of manufacture for the exporter.
B. FOB value of the export contract.
C. CIF value of the export contract.
D. the cost of manufacture or FOB value of the export contract whichever is less.
ANSWER: D
13. Which of the following person is not eligible for packing credit?
A. a .merchant exporter.
B. a person making deemed exports.
C. sub-suppliers to manufacture exporter.
D. supplier to sub-supplier to manufacture exporter.
ANSWER: D
14. The running account facility for packing credit is available for
A. status holders only.
B. export for specified goods.
C. exporters with good track record
D. exporters with orders above Rs. 100 crores.
ANSWER: C
15. The advantage to the exporter of running account facility of packing credit is
A. production of letter of credit or firm order is completely waive
B. the period of facility need not be adhered to.
C. production of letter credit on firm order is waived immediately they must be produced within
reasonable time.
D. the rate of interest is low.
ANSWER: C
16. The exemption from the condition credit should not exceed domestic cost of production is not waived
for
A. commodity eligible for duty drawback.
B. commodity imported under advance licence
C. HPS groundnuts.
D. agro based productions like tobacco.
ANSWER: B
17. The substitution of commodity/fresh export of adjustment of packing credit is not available for
A. advance against sensitive commodities.
B. transactions of sister/associate/group concerns.
C. exports availing running account facility.
D. exports with imports.
ANSWER: B
18. Normally the maximum period for which packing credit advances are made is
A. 90 days.
B. 135 days.
C. 180 days.
D. 360 days.
ANSWER: C
19. A pre-shipment advance is not expected to be adjusted by
A. proceeds of export bill
B. export incentives.
C. post-shipment finance.
D. local funds.
ANSWER: D

DIFFERENT KINDS OF RISKS RELATED TO FOREX TRANSACTIONS

DIFFERENT KINDS OF RISKS RELATED TO FOREX TRANSACTIONS
Foreign exchange operations face large no. of different type of risk due to a variety of reasons such as location of forex
markets without any single location, markets existing in different time zones, frequent fluctuations in the foreign currency
rates, effect of policies of the government and central banks of the related country etc.
Foreign exchange exposure: The exposure can be classified into 3 categories:
1. Transaction exposure : This arises on account of normal business operation. A transaction in foreign exchange can
exposure a firm to currency risk, when compared to the value in home currency.
2. Translation exposure : It arises on valuation of assts and liabilities created through foreign exchange and receivables or
payable in home currency, at the end of accounting period. These are notional and not actual.
3. Operating exposure : These are the factor external to a firm such as change in competition, reduction in import duty,
reduction in prices by other country exporters etc.
Exchange rate risk : Even the major currencies may experience substantial exchange rate movements over relatively short
periods of time. These can alter the balance sheet of a bank if the bank has assets or liabilities domiciled in those currencies.
An adverse movement of the rate can alter the value of the foreign exchange holdings, if not covered properly. The dealers
have to cover the position immediately.
Positions in a foreign currency : When the assets and the outstanding contracts to purchase that currency are more than the
liabilities plus and the outstanding contracts to sell that currency.
 Long or overbought position : When the purchases (and outstanding contracts to purchase) are more than the sale (the
outstanding contracts to sell).
 Short position or oversold position : When the purchases (and outstanding contracts to
purchase) are less than the sale (the outstanding contracts to sell).
Overbought or oversold position : It is called open position
Covering of position risk : The position is covered by fixing suitable limits (such as daylight position limit, overnight position limit,
single deal limit, gap-for-ward mismatch limits).
Prudent limit prescribed by RBI for open position : RBI has given discretion to bank Boards to fix their own open position limits
according to their own requirement, expertise and other related considerations.
Pre-settlement risk : It is the risk of failure of the counter party, due to bankruptcy or closure or other risk, before maturity of the
contract. This may force the bank to cover the contract at the ongoing market rates resulting into loss due to difference prevailing
between the contracted rate and rate at which the contract covered.
Settlement risk: Payment/delivery of one currency and received of other currency by both the parties. Settlement risk is the
risk of failure of the counter party during the course of settlement due to time zone differences between the two currencies
which are to be exchanged. For example, if a bank in the earlier time zone (say in Australia) performs its obligation and
delivers the currency and a bank in a later time zone (say USA) fails to deliver or delivers with delay, the loss may be caused to
the bank in the earlier time zone.
Foreign exchange settlement risk is also called temporal risk or Herstatt risk (named after failure of Bankhaus Herstatt in Germany)
The settlement risk can be taken care of by operating the system on a single time basis and also on real time gross settlement
(RTGS) basis.
Liquidity risk: The liquidity risk is where a market does not have the capacity to handle, at least without significant adverse
impact on the price, the volume of whatever the borrower buys or sells at the time he want to deal. Inability to meet debt
when they fall due could be another form of such risk.
For example, if there is deal of UK Pound purchase against the rupee and the party selling the UK Pound is short of pound in its
NOSTRO account, it may default in payment or it may meet its commitment by borrowing at a very high cost.
Country risk: It is the risk that arises when a counter party abroad, is unable to fulfill its obligation due to reasons other than the

normal risk related to lending or investment.
For example, a counter party is willing and capable to meet its obligation but due to restrictions imposed by the govt. of the
country or change in the polices of the govt., say on remittances etc. is unable to meet its repayment / remittance capacity.
Country risk can be very high in case of those countries that are having foreign exchange reserve problem.
Banks control country risk by putting restrictions on overall exposure, country exposure.
Country risk is in addition to normal credit risk. While the normal credit risk is due to failure on meeting obligation on the part of
counterparty on its own, the country risk arises due to actions initiated by the Govt. of that country due to which counterparty is not
able to perform its part.
Sovereign risk : It is larger than country risk. It arises when the counterparty is a foreign govt. or its agency and enjoys sovereign
immunity under law of that country. Due to this reason, legal action cannot be taken against that counterparty. This risk can be
reduced through disclaimers and by imposing 3,d country jurisdictions.
Interest rate risk: The potential cost of adverse movement of interest rates that the bank faces on its deposits and other
liabilities or currency swaps, forward contracts etc. is called interest rate risk. This risk arises on account of adverse
movement of interest rates or due to interest rate differentials. The bank may face adverse cost on its deposit or adverse
earning impact on its lending and investments due to such change in interest rates.
Interest rate can be managed by determining the interest rate scenario, undertaking appropriate sensitivity exercise to estimate the
potential profit or losses based on interest rate projections.
Gap risk : Banks on certain occasions are not able to match their forward purchase and sales, borrowing and lending which
creates a mismatch position, which is called gap risk. The gaps are required to be filled by paying or receiving the forward
differential. These differentials are the function of interest rates.
The gap risk can be managed by using derivative products such as interest rate swaps, currency
swaps, forward rate agreements.
Fledging risk: This occurs when one fails to achieve a satisfactory hedge for one's exposure, either because it could not be
arranged or as the result of an error. One may also be exposed to basic risk where the available hedging instrument closely
matches but does not exactly mirror or track the risk being hedged.
Operational risk : It is a potential catch that includes human errors or defalcations, loss of documents and records, ineffective
systems or controls and security breaches, how often do one consider the disaster scenario.
Legal, jurisdiction, litigation and documentation risks including netting agreements and cross border insolvency. Which country's
laws regulate individual contracts and the arbitration of disputes ? Could a plaintiff take action against a borrower in an
overseas court where they have better prospects of success or of higher awards ? There is a growing and widespread belief
that, whatever goes wrong, someone else must pay. The compensation culture whatever its justification or cause, is becoming
a big problem for many businesses.

DERIVATIVES

DERIVATIVES
In India, different derivatives instruments are permitted and regulated by various regulators, like Reserve Bank of India (RBI),
Securities and Exchange Board of India (SEBI) and Forward Markets Commission (FMC). Broadly, RBI is empowered to regulate
the interest rate derivatives, foreign currency derivatives and credit derivatives.
Definition : A derivative is a financial instrument:
(a) whose value changes in response to the change in a specified interest rate, security price, commodity price, foreign
exchange rate, index of prices or rates, a credit rating or credit index, or similar variable (sometimes called the 'underlying');
(b) that requires no initial net investment or little initial net investment relative to other types of contracts that have a
similar response to changes in market conditions; and
(c) that is settled at a future date.
For regulatory purposes, derivatives have been defined in the Reserve Bank of India Act, as "an instrument, to be settled at a
future date, whose value is derived from change in interest rate, foreign exchange rate, credit rating or credit index, price of
securities (also called "underlying"), or a combination of more than one of them and includes interest rate swaps, forward
rate agreements, foreign currency swaps, foreign currency-rupee swaps, foreign currency options, foreign currency-rupee
options or such other instruments as may be specified by the Bank from time to time.
Derivatives Markets
There are two distinct groups of derivative contracts:
Over-the-counter (OTC) derivatives: Contracts that are traded directly between two eligible parties, with or without the use
of an intermediary and without going through an exchange.
Exchange-traded derivatives: Derivative products that are traded on an exchange.
Participants : Participants of this market can broadly be classified into two functional categories, namely, (a) users (who
participates in the derivatives market to manage an underlying risk) and (b) the market-maker who provides continuous bid
and offer prices to users and other market-makers. A market-maker need not have an underlying risk.
Purpose : Derivatives serve a useful risk-management purpose for both financial and nonfinancial firms. It enables transfer of
various financial risks to entities who are more willing or better suited to take or manage them.
Users can undertake derivative transactions to hedge - specifically reduce or extinguish an existing identified risk on an
ongoing

TYPES OF LETTERS OF CREDITS

TYPES OF LETTERS OF CREDITS

Documents against
Payment LC or Si ght
LC
DP LCs or Sight LCs are those where the payment is made against documents on presentation.
(DA = Documents against payment, DP=Documents against acceptance)
Documents against
acceptance or
us ance

DA LCs or Acceptance LCs are those, where the payment is to be made on the maturity date in terms
of the credit. The documents of title to goods are delivered to applicant merely on acceptance of
documents for payment. (DA = Documents against payment, DP=Documents against acceptance)
Deferred Payment LC It is similar to Usance LC but there is no bill of exchange or draft. It is payable on a future date if
documents as per LC are submitted.

Irrevocable and
revocable credits
The issuing bank can amend or cancel the undertaking if the beneficiary consents.
A revocable credit is one that can be cancelled or amended at any time without the prior knowledge
of the seller. If the negotiating bank makes a payment to the seller prior to receiving notice of
cancellation or amendment, the issuing bank must honour the liability.
With or without recourse
Where the beneficiary holds himself liable to the holder of the bill if dishonoured, is
considered to be with-recourse. Where he does not hold Himself liable, the credit is said to be
without-recourse. As per RBI directive dated Jan 23, 2003, banks should not open LCs and purchase /
discount / negotiate bills bearing the 'without recourse' clause.
Restricted LCs A restricted LC is one wherein a specified bank is designated to pay, accept or negotiate.
Confirmed Credits A credit to which the advising or other hank at the request of the issuing bank adds confirmation that
payment will be made. By such additions, the confirming bank steps into the shoes of the issuing
bank and thus the confirming bank negotiates documents if tendered by the beneficiary.
Transferable Credits The beneficiary is entitled to request the paying, accepting or negotiating bank to make available in
whole or part, the credit Cu one or more other parties (Article 48 of UCPDC). For partial transfer to
one or more second beneficiary/ies the credit must provide for partial shipment.

Back to back
credits
A back to back credit is one where an exporter received a documentary credit opened by a buyer in
his favour. He tenders the same to the bank in his country as a cover for opening another LC in
favour of his local suppliers. The terms of such credit would be identical except that the price may
be lower and validity earlier.
Red Clause
Credits
A red clause credit also referred to a packing or anticipatory credit has a clause permitting the
correspondent bank in the exporter's country to grant advance to beneficiary at issuing bank's
responsibility. These advances are adjusted from proceeds of the bills negotiated.

Green Clause
Credits
A green clause LC permits the advances for storage of goods in a warehouse in addition to preshipment
advance
.
Stand-by
Credits
Standby credits is similar to performance bond or guarantee, but issued in the form of LC. The
beneficiary can submit his claim by means of a draft accompanied by the requisite documentary
evidence of performance, as stipulated in the credit.

Documentary or clean
credits
When LC specifies that the bills drawn under LC must accompany documents of title to goods such as
RRs or MTRs or Bills of lading etc. it is termed as Documentary Credit. If any such documents are not
called, the credit is said to be Clean Credit.

Revolving Credits These provide that the amount of drawings made thereunder would be reinstated and made
available to the beneficiary again and again for further drawings during the currency of credit.
Instahnent credit It is a letter of credit for the full value of goods but requires shipments of specific quantities of
goods within nominated period and allows for part-shipment. In case any instalment of shipment is
missed, credit will not be available for that and subsequent instalment unless of LC permits the

Basel capital adequacy framework pillers

The Basel capital adequacy framework rests on the following three mutually- reinforcing pillars:

Pillar 1: Minimum Capital Requirements - which prescribes a risk-sensitive calculation of capital requirements that, for the first time, explicitly includes operational risk in addition to market and credit risk.
Pillar 2: Supervisory Review Process (SRP) - which envisages the establishment of suitable risk management systems in banks and their review by the supervisory authority.
Pillar 3: Market Discipline - which seeks to achieve increased transparency through expanded disclosure requirements for banks.

The Basel Committee also lays down the following four key principles in regard to the SRP envisaged under Pillar 2:

Principle 1: Banks should have a process for assessing their overall capital adequacy in relation to their risk profile and a strategy for maintaining their capital levels.
Principle 2: Supervisors should review and evaluate banks’ internal capital adequacy assessments and strategies, as well as their ability to monitor and ensure their compliance with the regulatory capital ratios. Supervisors should
take appropriate supervisory action if they are not satisfied with the result of this process.
Principle 3: Supervisors should expect banks to operate above the minimum regulatory capital ratios and should have the ability to require banks to hold capital in excess of the minimum.
Principle 4: Supervisors should seek to intervene at an early stage to prevent capital from falling below the minimum levels required to support the risk characteristics of a particular bank and should require rapid remedial action if capital is not maintained or restored.

 It would be seen that the principles 1 and 3 relate to the supervisory expectations from banks while the principles 2 and 4 deal with the role of the supervisors under Pillar 2. Pillar 2 (Supervisory Review Process - SRP) requires banks to implement an internal process, called the Internal Capital Adequacy Assessment Process (ICAAP), for assessing their capital adequacy in relation to their risk profiles as well as a strategy for maintaining their capital levels. Pillar 2 also requires the supervisory authorities to subject all banks to an evaluation process, hereafter called Supervisory Review and Evaluation Process (SREP), and to initiate such supervisory measures on that basis, as might be considered necessary. An analysis of the foregoing principles indicates that the following broad responsibilities have been cast on banks and the supervisors:

Banks’ responsibilities:
(a)Banks should have in place a process for assessing their overall capital adequacy in relation to their risk profile and a strategy for maintaining their capital levels (Principle 1)
(b)Banks should operate above the minimum regulatory capital ratios (Principle 3)
Supervisors’ responsibilities
(a) Supervisors should review and evaluate a bank’s ICAAP. (Principle 2)
(b) Supervisors should take appropriate action if they are not satisfied with the results of this process. (Principle 2)
(c) Supervisors should review and evaluate a bank’s compliance with the regulatory capital ratios. (Principle 2)
(d) Supervisors should have the ability to require banks to hold capital in excess of the minimum. (Principle 3)
(e) Supervisors should seek to intervene at an early stage to prevent capital from falling below the minimum levels. (Principle 4)
(f) Supervisors should require rapid remedial action if capital is not maintained or restored. (Principle 4)

Thus, the ICAAP and SREP are the two important components of Pillar 2

and could be broadly defined as follows:
The ICAAP comprises a bank’s procedures and measures designed to ensure the following:
(a) An appropriate identification and measurement of risks;
(b) An appropriate level of internal capital in relation to the bank’s risk profile; and
(c) Application and further development of suitable risk management systems in the bank.
The SREP consists of a review and evaluation process adopted by the supervisor, which covers all the processes and measures defined in the principles listed above. Essentially, these include the review and evaluation of the bank’s ICAAP, conducting an independent assessment of the bank’s risk profile, and if necessary, taking appropriate prudential measures and other supervisory actions.
These guidelines seek to provide broad guidance to banks by outlining the manner in which the SREP would be carried out by the RBI, the expected scope and design of their ICAAP, and the expectations of the RBI from banks in regard to implementation of the ICAAP.

ARTICLES OF UCPDC 600

ARTICLES OF UCPDC 600

Article-1 : UCPDC-boo apply to any LC when its text expressly indicates that it is subject to these rules. The rules are binding on all
parties thereto unless expressly modified or excluded by the credit.
Article-2: Definitions : Advising bank, Applicant, Banking day, Beneficiary, Complying presentation, Confirmation, Confirming
bank, Credit, Honour, Issuing bank, Negotiation, Nominated, Presentation, Presenter.
Article-3 Interpretations:
 A credit is irrevocable even if there is no indication to that effect.
 Branches of a bank in different countries are separate banks.
 The expression "on or about" will be interpreted as an event to occur during a period of 5 calendar days before until 5
calendar days after the specified date, both start and end dates included.
 The terms "first half" and "second hal' of a month shall be construed respectively as the 1st to the 15th and the 16th to the
last day of the month, all dates inclusive.
 The terms "beginning", "middle" and "end" of a month shall be construed respectively as the 1st to the loth, the nth to the
loth and the 21st to the last day of the month, all dates inclusive.
Article-4 Credits v. Contracts: A credit is a separate transaction from the sale. Banks are not concerned with or bound by such
contract, even if any reference is included in the LC.
ArticIe-5 Documents v. Goods: Banks deal with documents and not with goods, services or performance to which documents
relate.
Article-6 Availability, Expiry Date and Place for Presentation: A credit must state an expiry date for presentation. An expiry date
for negotiation is deemed expiry date for presentation which must be made on or before the expiry date.
Article-7 Issuing Bank Undertaking: If stipulated documents are presented to the nominated bank or to the issuing bank, the
issuing bank must honour.
Article-8 Confirming Bank Undertaking: The confirming bank must honour the credit. It must reimburse another nominated bank
that has negotiated a complying presentation and forwarded the documents to the confirming bank.
Article-9 Advising of Credits and Amendments: A credit and any amendment may be advised to a beneficiary through an
advising bank. An advising bank advises the credit and any amendment without any undertaking to negotiate. By advising the
credit, the advising bank signifies that it has satisfied itself as to the apparent authenticity of the credit and the advice accurately
reflects the terms and conditions of the credit or amendment received.
Article-io Amendment: A credit can neither be amended nor cancelled without the agreement of the issuing bank, the
confirming bank and the beneficiary. Partial acceptance is not allowed and will be deemed to be notification of rejection of the
amendment.
Article-it Tele transmitted and Pre-Advised LC and Amendments: An authenticated teletransmission will be deemed to be the
operative credit or amendment, and any subsequent mail confirmation shall be disregarded. If it states "full details to follow" the
tele-transmission will not be operative credit or amendment.
Article-12 Nomination: By nominating a bank to accept a draft or incur a deferred payment undertaking, an issuing bank
authorizes that nominated bank to prepay or purchase a draft accepted or a deferred payment undertaking incurred by that
nominated bank.
Article-13 Bank-to-Bank Reimbursement Arrangements.: If a credit states that reimbursement is to be obtained by a nominated
bank, the credit must state if the reimbursement is subject to the ICC rules in effect on the date of issuance of the credit.
Article-14 Standard for Examination of Documents:
(a) A nominated bank and issuing bank shall each have a maximum of 5 banking days following the day of presentation to
determine if the documents are in order.
(b) A presentation must bemade by or on behalf of the beneficiary not later than 21 calendar days after the date of shipment as
described in these rules, but in any event not later than the expiry date of
the credit.
(c) A document may be dated prior to the issuance date of the credit, but must not be dated later than its date of presentation.
Article-15 Complying Presentation: a. When an issuing bank or confirming bank determines that a presentation is complying, it
must honour or negotiate the documents.
Article-16 Discrepant Documents,Waiver and Notice:
a. When a nominated bank determines that a presentation does not comply, it may refuse to honour or negotiate.
b. When an issuing bank determines that a presentation does not comply, it may approach the applicant for a waiver of
discrepancies.
Article-17 Original Documents and Copies: a. At least one original of each document stipulated in the credit must be presented.
Article-18 Commercial Invoice: (a) A commercial invoice, must appear to have been issued by the beneficiary; made out in the
name of the applicant, made out in the same currency as the credit; and need not be signed. (b) The description of the goods,
service or performance in a commercial invoice must correspond with that appearing in the credit.
Article-19 Transport Document Covering at Least Two Different Modes of Transport: The date of issuance of the transport
document will be deemed to be the date of dispatch, taking in charge or shipped on board, and the date of shipment

A transport document indicating that trans-shipment will or may take place is acceptable, even if the credit prohibits transshipment.
Article-2o Bill of Lading: a. A bill of lading, must indicate that the goods have been shipped on board a named vessel at the port
of loading stated in the credit. The date of issuance of the bill of lading will be deemed to be the date of shipment.
Article-21 Non-Negotiable Sea Waybill: It must indicate that the goods have been shipped on board a named vessel at the port
of loading stated in the credit.
Article-22 Charter Party Bill of Lading: It must indicate that the goods have been shipped on board a named vessel at the port of
loading stated in the credit. The date of issuance of the charter party bill of lading will be deemed to be the date of shipment.
Ai-tide-23 Air Transport Document: It must appear to indicate that the goods have been accepted for carriage and indicate
the date of issuance. This date will be deemed to be the date of shipment.
Artiele-24 Road, Rail or Inland Waterway Transport Documents: These must indicate the date of shipment or the date the goods
have been received for shipment, dispatch or carriage at the place stated in the credit. The date of issuance of the transport
document will be deemed to be the date of shipment.
Article-25 Courier Receipt, Post Receipt of Certificate of Posting: A courier receipt evidencing receipt of goods for transport,
must indicate a date of pick-up or of receipt or wording to this effect. This date will be deemed to be the date of shipment.
Article-26 "On Deck", "Shipper's Load and Count", "Said by Shipper to Contain" and Charges Additional to Freight: A transport
document must not indicate that the goods are or will be loaded on deck. A clause on a transport document stating that the
goods may be loaded on deck is acceptable.
Article-27 Clean Transport Document: A clean transport document is one bearing no clause or notation expressly declaring a
defective condition of the goods or their packaging.
Article-28 Insurance Document and Coverage: An insurance document can be an insurance policy, an insurance certificate or a
declaration under an open cover. Cover notes will not be accepted
(b) The date of the insurance document must be no later than the date of shipment, unless it appears from the insurance
document that the cover is effective from a date not later than the date of shipment
(c) The insurance document must be in the same currency as the credit (d) If there is no indication in the LC of the insurance
coverage required, the amount of insurance coverage must be at least no% of the CIF or CIP value of the goods.
Article-29 Extension of Expiry Date or Last Day for Presentation: If the expiry date of a credit or the last day for presentation
falls on a day when the bank to which presentation is to be made is closed, the expiry date or the last day for presentation, as the
case may be, will be extended to the
first following banking day. In such case, a nominated bank must provide a statement on its covering schedule that the
presentation was made within the time limits extended in accordance with article 29. The latest date for shipment will not be
extended as a result of article 29.
Article-30 Tolerance in Credit Amount, Quantity and Unit Prices:
(a) The words "about" or "apprx" used in connection with the amount of LC or the quantity or the unit price stated in the LC are
to be construed as allowing a tolerance not to exceed 10% more or 10% less than the amount, the quantity or the unit price to
which they refer.
(b) A maximum tolerance of 5% more or 5% less than the quantity of the goods is allowed, where the credit does not state
quantity in terms of a stipulated no. of packing units or individual items and the total amount of the drawings does not exceed
the amount of LC.
(c) Even when partial shipments are not allowed, a tolerance not to exceed 5% less than the amount of the credit is allowed,
provided that the quantity of the goods, if stated in the credit, is shipped in full and a unit price, if stated in the credit, is not
reduced or that sub-article 30 (b) is not applicable.
Article-31 Partial Drawings or Shipments: Partial drawings or shipments are allowed.
Article-32 Instalment Drawings or Shipments: If a drawing or shipment by instalments within given periods is stipulated in the
credit and any instalment is not drawn or shipped within the period allowed for that instalment, the credit ceases to be available
for that and any subsequent instalment.
Article-33 Presentation Time: A bank has no obligation to accept a presentation outside of its banking hours.
Article-34 Disclaimer on Effectiveness of Documents: A bank assumes no liability or responsibility for the form, sufficiency,
accuracy, genuineness, falsification or legal effect of any document, or for the general or particular conditions stipulated in a
document or superimposed thereon; nor does it assume any liability or responsibility for the description, quantity, weight, quality,
condition, packing, delivery, value or existence of the goods, services or other performance represented by any document, or for
the goods faith or acts or omissions, solvency, performance or standing of the consignor, the carrier, the forwarder, the consignee
or the insurer of the goods or any other person.
Article-35 Disclaimer on Transmission and Translation: A bank assumes no liability or responsibility for the consequences arising
out of delay, loss in transit, mutilation or other errors arising in the transmission of any messages or delivery of letters or
documents, when such messages, letters or documents are transmitted or sent according to the requirements stated in the
credit, or when the bank may have taken the initiative in the choice of the delivery service in the absence of such instructions in
the credit.
Article-36 Force Majeure: A bank assumes no responsibility for consequences arising out of the interruption of its business by

Acts of God, riots, civil commotions, insurrections, wars, acts of terrorism, or by any strikes or lockouts or causes beyond its
control.
Article-37 Disclaimer for Acts of an Instructed Party: A bank utilizing the services of another bank for the purpose of giving effect
to the instructions of the applicant does so for the account and at the risk of the applicant.
Article 38- Transferable Credits: A transferable credit may be made available in whole or in part to 2nd beneficiary at the request
of the first beneficiary. It cannot be transferred at the request of a second beneficiary. The first beneficiary can substitute its own
invoice and draft for those of a second beneficiary for an amount not in excess of LC.
Article-39 Assignment of Proceeds: The beneficiary can assign any proceeds to which it may be or may become entitled under
the credit.
eUCP : Supplement to UCPDC for Electronic Presentation (Version IA)
eUCP has been created to take care of the demand of the market for the presentation of electronic documents or for a mixture of
paper documents and electronic presentation. It provides definitions permitting UCP 60o terminology and providing rules to
allow both sets of rules to work together.
Article el of eUCP narrates the scope of eUCP. eUCP also deals with relationship of eUCP and UCP 600 (e2), definitions (e3),
format (e4), presentation (e5), examination (e6), notice of refusal (e7), originals and copies (e8), date of issuance (e9), transport
(elo), corruption of electronic record after presentation (en) and additional disclaimer of liability for presentation of electronic
records under eUCP (e12).
INTERPRETATIONS USED IN UCPDC-600
 A credit is irrevocable even if there is no indication to that effect.
 On or about — Such expression will be interpreted as a stipulation that an event is to occur during a period of 5 calendar days
before until 5 calendar days after the specified date, both start and end dates included.
 The words `to', 'until', 'from' and 'between' when used to determine a period of shipment include the date mentioned and
the words 'before' and 'after' exclude the date mentioned.
 The words 'from' and 'after' when used to determine a maturity date exclude the datementioned.
 The terms 'first half and 'second half of a month shall be construed respectively as the 1st to the 15th and the 16th to the last
day of the month, all dates inclusive.
 The terms 'beginning', 'middle' and 'end' of a month shall be construed respectively as the ist to 10th, the 11th to the 20th and
the 21St to the last day of the month, all dates inclusive.
 Branches in different countries are considered to be separate banks.
 The date of issuance of the transport documents will be deemed to date of despatch, taking in charge or shipped on board
and the date of shipment. If the transport document indicates, by stamp or notation, a date of despatch taking in charge or
shipped on board, this date will be deemed to the date of shipment.
 Trans-shipmentmeans unloading from onemeans of conveyance and reloading to anothermeans of conveyance (whether or not in
different modes of transport) during the carriage, from the place of dispatch taking in charge or shipment to the place of final
destination stated in the credit.
 A clean transport documents is one bearing no clause of notation expressly declaring a defective condition of the goods or
their packaging.
 If there is no indication in the credit about insurance coverage, amount of insurance coverage must be at least 110% of CIF or
CIP value of the goods.

Facilities for Non-resident Indians (NRIs)

Facilities for Non-resident Indians (NRIs)
Purpose
v) To hedge the exchange rate risk on the market value of investment made under the
portfolio scheme in accordance with provisions of FERA, 1973 or under notifications issued
there under or in accordance with provisions of FEMA, 1999. For access to ETCD market, see para. 4 below. vi) To hedge the exchange rate risk on the amount of dividend due on shares held in Indian
companies. vii) To hedge the exchange rate risk on the amounts held in FCNR (B) deposits. viii) To hedge the exchange rate risk on balances held in NRE account. Products
ix) Forward foreign exchange contracts with rupee as one of the currencies, and foreign currency-
INR options. x) Additionally, for balances in FCNR (B) accounts – Cross currency (not involving the rupee)
forward contracts to convert the balances in one foreign currency to other foreign currencies in
which FCNR (B) deposits are permitted to be maintained. (c)Terms
9 and conditions for Non-Resident Indians (NRIs) participating in the Exchange
Traded Currency Derivatives (ETCD)
i. NRIs shall designate an AD Cat-I bank for the purpose of monitoring and reporting their combined
positions in the OTC and ETCD segment

(an)NRIs may take positions in the currency futures / exchange traded options market to hedge the
currency risk on the market value of their permissible (under FEMA, 1999) Rupee investments in
debt and equity and dividend due and balances held in NRE accounts. (ao)The exchange/ clearing corporation will provide details of all transactions of the NRI to the
designated bank. (ap)The designated bank will consolidate the positions of the NRI on the exchanges as well as the
OTC derivative contracts booked with them and with other AD banks. The designated bank shall
monitor the aggregate positions and ensure the existence of underlying Rupee currency risk and
bring transgressions, if any, to the notice of RBI / SEBI. (aq)The onus of ensuring the existence of the underlying exposure shall rest with the NRI
concerned. If the magnitude of exposure through the hedge transactions exceeds the magnitude of
underlying exposure, the concerned NRI shall be liable to such penal action as may be taken by
Reserve Bank of India under the Foreign Exchange Management Act (FEMA), 1999.

Loans to NRIs

Loans to NRIs NRI can avail the following loans:
1. Rupee Loans in India
- Up to up to any limit subject to prescribed margin. - For personal purpose, contribution to Capital in Indian
Companies or for acquisition of property. - Repayment of loan will be either from inward remittances or
from local resources through NRO accounts. 2. Foreign Currency Loans in India
- Against security of funds in FCNR-B deposits. - Maturity of loan should not exceed due date of deposits. - Repayment from Fresh remittances or from maturity proceeds of
deposits. 3. Loans to 3
rd Parties provided
- There is no direct or indirect consideration for NRE depositor
agreeing to pledge his FD. - Margin, rate of Interest and Purpose of loan shall be as per RBI
guidelines. - The loan will be utilized for personal purpose or business
purpose and not for re-lending or carrying out
Agriculture/Plantation/Real estate activities. - Loan documents will be executed personally by the depositor
and Power of attorney is not allowed. 4. Housing Loans to NRIs : HL can be sanctioned to NRIs subject to
following conditions: - Quantum of loan, Margin and period of Repayment shall be
same as applicable to Indian resident. - The loan shall not be credited to NRE/FCNR account of the
customer. - EM of IP is must and lien on assets. - Repayment from remittance abroad or by debit to NRE/FCNR
account or from rental income derived from property.

Memory recalled questions of BFM (Batch3 – 2.00 pm 10-06-2018)

Memory recalled questions of BFM (Batch3 – 2.00 pm 10-06-2018)
1. WHAT IS NOSTRO ACCOUNT, QUESTION HAVING VERY CONFUSING DEFINATION
2. Case study on LC- question to find advising bank
3. Case study on LC- question to find negotiating bank
4. Case study on LC- question to find issuing bank
5. Case study on LC- question to find confirming bank
6. In LC nothing is mentioned and it should be considered which lc- answer was irrevocable
7. Case study  to find the best possible rate out of two banks rate for sending money abroad, whether tt selling rate, tt buying rate will be applicable
8. Case study to find the best possible rate out of two banks rate for sending money from FCNR deposit, answer none of these as FCNR is already in USD
9.  Case study on to find the best possible rate out of two banks rate tt selling rate, tt buying, currency buying/selling rate will be applicable
10.  Question related to Yield on bonds, numerical type
11. Leverage ratio calculation
12. Case study on TT buying rate to find the best possible rate out of two banks rate
13.  In stock of HQLA for the purpose of cap liquidity and coverage ratio
14. Notional transit period time- 25 days
15. Question can POA can send the remittance from NRE a/c – no
16. What is American style?
17. What is European option style
18. One question to calculate modified duration
19. Features of FIMMDA
20. Notice money time period- 2 to 14 days
21. Difference between CLN and CDS
22. Question to find the economic equity ratio
23. ONE question on at the money
24. One question of out of money
25. One question on in the money
26. Who developed FX clear- RBI, CCIL, SEBI, answer CCIL
27. Features of CBLO
28. What  is repo
29. Risk pricing related question to find the practical use of it out of options
30. Case study related to rating migration- %age change in the AAA, AA, B rate companies as compared to previous year- 3 questions were there
31. Role of Board of directors in management of risk, question was who makes policies, risk limits, system for the risk management
32. In the above question, who is responsible for implementation of the same
33. Penalty for not crediting the amount claimed by the correspondent bank, 1%, 2%, 3%,4%
34. Case study related to FC, NRI gets 20000USD and wants to get it credited in his NRE a/c is it possible- 4 option were given, correct one was  can be done by taking CDF
35. Capital charge for foreign exchange
36. Case study on NII- to find the %age change in NII when interest rate declines by 1% in given interest rates
37. Case study on NII- to find the %age change in NII when interest rate declines by .05% in given interest rates
38. Case study on NII- to find the %age change in NII when interest rate declines by 1% in assests in given interest rates
39. Question to find capital fund.
40. Questions to find the CRAR and RWA of Bank A and Bank B
41. Questions to make comparison of Bank A and B related to their asset liability management 
42. key priniciples in Supervising review process of basel III
43. call option and put option case study to find whether the holder of call option will utilize the deal or not
44. call option and put option case study to find whether the holder of put option will have profit or loss by making the deal
45. impact of CRR

Current affair s on 04.06.2019

Today's Headlines from www:

*Economic Times*

📝 MCA examining pre-packaged insolvency solutions to cut delay under IBC

📝 GE Power bags Rs 738-cr order from Aravali Power Company

📝 283.37 million tonnes of food grains produced in 2018-19

📝 Mahindra invest Rs 1000 crore in developing BS-VI technology

📝 Increased power supplies keep prices under control: IndRa

📝 70 products in pipeline,Dr Reddy's bullish on China

📝 Rupee jumps by 44 paise to 69.26

*Business Standard*

📝 Nilekani panel wants cheaper digital payment to improve financial inclusion

📝 Sensex ends above 40,000-mark; all 19 indices rise, auto gains the most

📝 L&T promoters to offload 4.03 million LTTS shares on June 4 and 6

📝 Bond yield dips to 18-month low of 6.94% amid hope of RBI rate cut

📝 Manufacturing PMI hits 3-month high of 52.8, govt sees demand picking up

📝 $1-trn investments in each of next 5 years can spur GDP growth to 10%: CII

📝 India's wealth managers buck the Asia trend with 18% asset growth

📝 India plans to return to talks with US after Trump's trade attack: Report

*Financial Express*

📝 NRIs to furnish income tax return in ITR-2 Form

📝 Wheat production rises 1.3% to 101.20 MT in crop year 2018-19

📝 Air India sets up nodal cell to facilitate interaction among advisors for disinvestment

📝 Bank fraud touches unprecedented Rs 71,500 crore in 2018-19: RBI

📝 Collapsed Jet Airways’ ex-partners, rivals scramble to fill India capacity void

📝 Samsung vows to keep up investment as trade war raises risks

📝 India on fast track: Modi government to launch 5G trials in next 100 days

*Mint*

📝 SoftBank eyes smaller deals, early entry into startups in India revamp

📝 Govt plans to increase health budget to support Modicare

📝 RBI revises norms on banks’ exposure to large borrowers

📝 Mitsubishi invests ₹250 cr in TVS Automobile to raise stake to 25%

📝 M&A deals decline in Jan-Mar quarter to $9.9 bn, says report

📝 Amid banking distress, Fitch downgrades ICICI Bank, Axis Bank rating by a notch

📝 Canadian pension fund CDPQ buys M&M shares worth ₹1,244 cr

📝 Microfinance industry posts 38% growth in 2018-19.

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





1 C 2 A 3 D 4 D 5 D 6 D 7 D 8 D 9 D 10 D

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

Caiib BFM strategy

BFM::;;



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



-International Banking



-Risk Management



-Treasury Management



-Balance Sheet Management



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



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



Module A-International Banking



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



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



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



Module B-Risk Management



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



Module C- Treasury Management



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



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



Module-D Balance Sheet Management



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



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



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