TT and Bill rates

TT Rates and Bill Rates

Following 4 types of buying and selling rates are important:
1. TT Buying rate
2. Bill Buying rate
3. TT Selling rate
4. Bill Selling rate
In Interbank market, exchange rate is quoted up to 4 decimals in multiples of 0.0025. e.g.
1USD=53.5625/5650
For customers the exchange rate is quoted in two decimal places i.e. Rupees and paisa. e.g. 1
USD =Rs. 55.54.
Amount being paid or received will be rounded off to nearest Rupee.

TT Buying Rate
It is required to calculate when our Nostro account is already credited or
being credited without delay e.g. Receipt of DD, MT, TT or collection of
Foreign bills. This rate is used for cancellation of Forward Sales Contract.
Calculation
Spot Rate – Exchange Margin
Bill Buying Rate Bill Buying rate is applied when bank gives INR to the customer before
receipt of Foreign Exchange in the Nostro account i.e. Nostro account is
credited after the purchase transaction. In such cases.
Examples are:
 Export Bills Purchased/Discounted/Negotiated.
 Cheques/DDs purchased by the bank.
Calculation
Spot Rate + Forward Premium (or deduct forward discount) – Exchange
margin.
TT Selling Rate Any sale transaction where no delay is involved is quoted at TT selling rate.
It is desired in issue of TT, MT or Draft. It is also desired in crystallization of
Export bills and Cancellation of Forward purchase contract.
Calculation
Spot Rate + Exchange Margin
Bill Selling Rate It is applied where handling of documents is involved e.g. Payment against
Import transactions:
Calculation
Spot Rate + Exchange Margin for TT selling + Exchange margin for Bill
Selling

Kyc aml

KYC AML::

1. KYC, AML & CFT guidelines are issued under act.
a) KYC Act b) PMLA 2002 c) BR Act d) NI Act
2. FATF (Financial Action Task Force on Money Laundering) also known as GAFI
(Groupe d'action financiere) has its head quarters at
a) New Delhi b) London c) Paris d) Geneva
3. Section 12 of PMLA places the following obligations on the Bank except
a) Maintaining a record of prescribed transactions & preserving records there of.
b) Furnishing information of prescribed transactions to the specified authority.
c) Verifying and maintaining records of the identity of its clients and identifying the
beneficial owners, if any, of such clients
d) None of the above
4. Under KYC/AML/CFT/Fraud prevention measures, observance of KYC compliance and
fraud prevention day is observed on..
a) 1st August b) 5th August
c) 1st September d) 5th September
5. The Anti Money Laundering Cell of the Bank has been established at
a) Jaipur b) Nagpur c) Bhubaneswar d) New Delhi
6. In case the PoS transaction amount is Rs. and above, the merchant is required
to obtain the copy of PAN in case of domestic card transaction.
a) 20000 b) 150000 c) 100000 d) 50000
7. Smurfing, Layering and Integration are three types of
a) Money laundering Activity b) Money tracking Activity
c) Source tracking Activity d) User tracking Activity
8. The Software used for generation of Suspicious Transactions Report is known as:
a) E-KYC b) AMLOCK c) E-BANCS d) E-AML
9. Which of the following is the key element of KYC/AML/CFT?
a) Customer Identification & Acceptance
b) Customer Identification & Transaction Monitoring
c) Customer Acceptance, Customer Identification, Risk Categorization & Monitoring
of transaction
d) Customer Acceptance & Risk Management

10. "Controlling ownership interest" means ownership of or entitlement to more than
percent of shares or capital or profits of a company.
a) 50 b) 10 c) 15 d) 25
11. Which is not one of the documents from the "Officially Valid Documents" list prescribed by
the RBI.
a) Post office ID b0 PAN Card c) DL d) Adhaar
12. Facilities/Restrictions in 'Small account' includes
a) the aggregate of all credits in a financial year does not exceed rupees one lakh
b) the aggregate of all withdrawals and transfers in a month does not exceed rupees
ten thousand
c) the balance at any point of time does not exceed rupees fifty thousand
d) All the above
13. For Low risk customers, Customer Identification data should be updated once in
years.
a) 3 b) 4 c) 10 d) 8
14. Branches may open bank account in favor of foreign students studying in
India.
a) SB b) NRO c) CA d) NRE
15. As per the Simplified KYC guidelines, the current limits for balance in Small Deposit
Accounts should not exceed
a) Rs.20,000 b) Rs.50,000 c) Rs.1,00,000 d) Rs.2,00,000
16. Counterfeit Currency Reports should be submitted to: -
a) LHO KYC Deptt b) Controlling Office
c) FIU-IND d) None of the above
17. Politically exposed persons are:
a) Individuals who are or have been entrusted with prominent public function in a
foreign country
b) MLAs and MPs
c) Individuals related to a political party
d) All the above
18. Cash Transaction Reports (CTRs) are required to be compiled by branches and submitted
to Controllers for onward transmission to FIU-IND at intervals.
a) Weekly b) Fortnightly c) Monthly d) Bimonthly
19. Cash withdrawals and deposits for Rs. lacs and above in deposit, cash credit
and overdraft accounts to be recorded in a separate register and reported to controlling
office every month.
a) 5 b) 10 c) 15 d) 20

1. (b) 2. (c) 3. (d) 4. (a) 5. (a) 6. (d) 7. (a) 8. (b) 9. (c) 10. (d)
11. (a) 12. (d) 13. (c) 14. (b) 15. (b) 16. (c) 17. (a) 18. (c) 19. (b)

Ratio

Ratio Analysis
Financial statements: The statement which provides us the financial position of a
Balance Sheet are called “Finance Statements”, which includes – Trading Account (in
case of Manufacturing concerns), Profit & Loss Account, Balance Sheet, Cash Flow
Statement and Funds Flow Statement. The analysis of Balance Sheet is a process of
bringing down the difficult matter into a simple and easily understandable one. To
have a clear understanding of the financial position of the Business concern, at least
three years financial statements are to be ascertained. They provide us treasure of
information. Balance Sheet of a business concern shows the strength of the concern
on a given date but not reveal the current state of affairs of the concerns. Balance
Sheet is having certain limitations, because it does not disclose the critical factors,
such as Managerial Efficiency, Technical competence, Marketing capabilities and
Competition in the market.
Ratio means a comparison of two items which are having cause and relationship.
Ratios can be expressed in percentage or in number of times. Depending upon the
nature, the ratios are broadly classified in to four categories viz., Liquidity Ratios,
Leverage Or Solvency Ratios, Activity Ratios and Profitability Ratios.
1. LIQUIDITY RATIOS: These Ratios helps to find out the ability of the business
concern to pay the short term liability of its liquidity. Any adverse position in liquidity
leads to sudden fall of the unit.
i) Current Ratio: Current Ratio denotes the capacity of the business concern to
meet its current obligation out of the total value of the Current Assets. Current Ratio
= Current Assets / Current Liabilities. Term Loan installments falling due for payment
in next 12 months are to be taken as Term Liability for the purpose of calculation of
Current Ratio /MPBF. Inter-corporate deposits are to be treated as Non-Current
Assets. Ideal Current Ratio is 2:1. Acceptable Ratio as per our Loan Policy
guidelines is 1.33:1 for the limits enjoying above `6.00 crores and 1.15:1 for the
business concerns availing limits of below `6.00 crores. Any deviation below the
required ratio requires ratification of Higher Authority.
ii) Quick Ratio Or Acid Test Ratio: This ratio is a comparison of Quick Assets to
Current Liabilities. Quick Assets mean the assets which have instant liquidity of the
business concern. Though the Inventory and Prepaid expenses are part of Current
Assets, it may be difficult to sell and realize the inventory. Hence, Inventory and
Prepaid expenses are to be excluded for arriving the Quick Asset Ratio.
Current Assets – (Inventory+Prepaid Exp) Quick
Ratio or Acid Test Ratio = ----------------------------------------------
Current Liabilities
Ideal Quick Ratio is 1:1. Current Ratio is always to be read along with Quick Ratio. A
fall in the Quick Ratio in comparison to the Current Ratio indicates high inventory
holdings.
2. LEVERAGE AND SOLVENCY RATIOS: These Ratios helps to find out the Long
Term Financial stability of the business concern
i)Debt Equity Ratio: Long Term Debt / Equity – Here, Equity refers Tangible Net
worth. The Ideal ratio is 2:1 and the higher may also be considered as safe.
ii) Debt Service Coverage Ratio: It helps to know the capacity of the firm to
repay the Long Term Loan Instalment and Interest. Ideal DSCR is 2:1. The higher
the DSCR, we may fix the lower repayment period. However, banks may also

consider DSCR 1.20:1 where fixed income generation is assured, such as Rent
Receivables etc.
Net Profit After Tax + Depreciation +Int. on TL
DSCR = -------------------------------------------------------------
Int. on TL + Instalment on TL
iii) Fixed Assets Coverage Ratio (FACR): This ratio indicates the extent of Fixed
assets met out of long term borrowed funds. Ideal Ratio is 2:1
Net Block
FACR = --------------------------- (Net Block means Total Assets– Depreciation)
Long Term Debt
iv) Interest Coverage Ratio:
EBIDT
Interest Coverage Ratio = ---------------
Interest
Where EBIDT is Earning Before Interest, Depreciation and Tax. This ratio indicates
the interest servicing capacity of the unit. Higher the ratio has probability of nonservicing
of interest and hence avoidance of slippage of asset.
3. ACTIVITY RATIOS:
i) Inventory Turnover Ratio: Inventory constitutes raw material, work in process,
finished goods etc. The ratio is arrived by dividing Inventory by average monthly Net
sales to arrive at inventory levels in number of months. Lower the ratio, the faster
the movement of inventories and Higher the ratio slower the movement of
inventories. It also indicates the time taken to replenish the inventories. Separate
parameters are laid down for fabrication units & seasonal industries (maintaining
peak level inventories as at March) where operating cycle is longer compared to
other businesses and others.
Inventory x (RM+WIP+FG) x 12 (OR ) Cost of Goods Sold
Net Sales = Average Stock ((Opening Stock+Closing stock)/2)
ii) Debtors Velocity Ratio: Debtors
------------ x period
Credit sales
Lower the collection period indicates efficiency in realization of receivables and viceversa.
iii) Creditors Velocity Ratio: Trade Creditors
---------------------- x period
Credit Purchase
Higher velocity denotes that the company is enjoying credit from its suppliers and it
has bearing on Maximum Permissible Bank Finance (MPBF)
iv) Assets Turnover Ratio:
Net Sales
ASSET TURNOVER RATIO=-----------------------------
Total Operating Assets
Total Operating Assets= Total Assets – Intangible Assets. Higher the ratio indicates
favorable situation of optimum utilization of all the fixed assets.
4. PROFITABILITY RATIOS:
i) Gross Profit Ratio -> Gross Profit/Net Sales*100 – Gross Profit Ratio
indicates the manufacturing efficiency and Pricing policy of the concern. Higher
percentage indicates higher sales volume, better pricing of the product or lesser cost
of production

ii) Net Profit Ratio: Net Profit After Tax
----------------------------------- X 100
Net Sales
A decline trend is a pointer to some unhealthy development unless the company had
made usurious profits in the past and has consciously decided to reduce its profits by
lowering the prices of its product.
iii) Return on Equity: Net Profit After Tax
----------------------------------- X 100
Tangible Networth
Working Capital Assessment
i) Turnover Method: (for WC limits up to & inclusive of `6.00 Crore)
A. Accepted Projected Sales Turnover
B. 25% of Sales Turnover
C. Margin @ 5 % of Sales Turnover
D. Actual NWC available as per latest Audited Balance Sheet
E. B-C
F. B-D
G. M.P.B.F = E or F, whichever is less.
ii) Inventory Method – For WC limits up to & inclusive of `6.00 Crore
A. Total Current Assets
B. Current Liabilities (other than Bank Borrowings)
C. Working Capital Gap = A – B
D. Margin @ 13% of Projected Current Assets
E. Actual NWC available as per latest Audited Balance Sheet
F. C-D
G. C-E
H. M.P.B.F = F or G, whichever is less.
Maximum Working Capital credit limit up to which Turn Over method can be
extended is `6 Crores. Where the limits of above `6.00 Crore, the margin is to be
taken as 25% projected current assets. If actual NWC is less than required
margin, the borrower has to bring in the short fall.
The minimum acceptable Current Ratio for working capital credit facility up to `6
crore & above `6 crore is 1.15 & 1.33 respectively.
Maximum acceptable level of Total Debt- Equity Ratio is 4.
Maximum permissible Gearing Ratio while assessing the eligibility for nonfunded
limits is 10.
Standard average DSCR specified for all Term Loans is 1.50 to 2.00. However,
in case of assured source of income, it can be taken as 1.20. Lower DSCR can be
accepted for Rural Godowns

Moody's CICC

Moody's CICC:: Details

Level 1:

1 The Commercial Credit
Landscape in india

1 Overview of the commercial credit landscape in India
2 Role of RBI and legal due diligence
3 Types of credit facilities offered for commercial borrowers

2 Fundamentals of Credit
Risk, Credit Rating and
Appraisal Process
4 Understanding credit risk
5 Credit assessment framework and underwriting
6 Understanding credit ratings

3 Accounting Issues in
Financial Statements
for Bankers
7 Introduction to accrual accounting
8 Asset conversion cycle
9 Capital investment cycle
10 Operating cycle
11 Assets and liabilities
12 Financial reporting, Indian accounting standards and disclosure standards
13 Identifying creative accounting issues

4 Credit Analysis
Framework – Business
Risk Assessment
14 Credit analysis framework - business risk
15 Assessing business environment
16 Assessing industry status
17 Assessing competition
18 Assessing company vulnerability
5 Credit Analysis
Framework – Management
Risk Assessment
19 Credit analysis framework - management and owner risk
20 Management integrity
21 Management skill and execution
22 Management scope
6 Credit Analysis
Framework – Financial
Risk Assessment
23 Credit analysis framework - financial risk analysis
24 Businesses and their borrowing needs
25 Profitability ratios
26 Activity ratios
27 Capital spending, gearing, and debt coverage
28 Cash flow analysis
29 Projections, sensitivity analysis and credit risk assessment
7 Credit Analysis
Framework - Assessing
Fund-Based and Non-
Fund Based Credits
30 Assessment of working capital facilities
31 Assessment of term loan for capital investment
32 Assessment of quasi credit/non-funded facilities
8 Credit Analysis
Framework – Structure,
Securities and Risk
Mitigation Assessment
33 Group structure consideration
34 Facility structuring and documentation
35 Security and guarantees
36 Covenants and risk triggers
9 Credit Decision,
Pricing and Effective
Credit Monitoring
37 Credit decision and pricing
38 Credit administration/documentation
39 Effective credit monitoring processes
10 Commercial Banking,
Problem Credit and
NPA Management
40 Early detection signals and impairment management practices
41 Impairment grading and regulatory reporting and classification procedures
42 Recovery management process and institutional approach for recovery resolution - JLF/CDR

LEVEL 2 Skills Application Course
Level 2 comprises practical application of concepts covered in Level 1, using real-life case studies and lending scenarios.
The interactive simulations are aimed at strengthening job performance by providing candidates with realistic lending
decisions they would expect to encounter in their day-to-day jobs.
CASE STUDY SCENARIOS WILL BE USED TO BUILD THE FOLLOWING CAPABILITIES:
» Undertake an effective business risk analysis and credit assessment.
» Analyse and interpret financial statements and assess
overall financial risk (including use of CMA formats).
» Assess long-term capital expansion related term loan
requirements, using applicable assessment methodologies
and tools (CMA), and propose appropriate structure
that ensures adequate debt servicing capacity.
» Undertake proactive loan monitoring and early
alert reviews to avoid problem loans.
Certification Exam
» It is a two-hour in-person exam. A pass score
of 50% is required to earn the certification.
Conduct management risk assessment.
» Assess working capital requirements, using applicable
assessment methodologies (including MPBF) and propose
the right credit facilities based on borrower risk.
» Propose superior risk mitigation/protection through evaluating
the collateral/security controls and effective loan covenants.

The combination of both Level 1 and Level 2 courses supports the overall development and
continuous improvement of credit skills relevant to the market. Upon completion of Level 2,
the candidate will be eligible to register for the certification exam.

Basel committee

BASEL COMMITTEE ::
The Basel Committee on Banking Supervision provides a forum for regular cooperation on banking supervisory matters. Its objective is to enhance understanding of key supervisory issues and improve the quality ofbanking supervision worldwide. It seeks to do so by exchanging information on national supervisory issues,
approaches and techniques, with a view to promoting common understanding. The Committees Secretariat is
located at the Bank for International Settlements (BIS) in Basel, Switzerland.
FEATURES OF BASEL II NORMS
Basel II Norms are considered as the reformed & refined form of Basel I Accord. The Basel II Norms primarily
stress on 3 factors, viz. Capital Adequacy, Supervisory Review and Market discipline. The Basel Committee
calls these factors as the Three Pillars to manage risks.

PILLAR I: CAPITAL ADEQUACY REQUIREMENTS

Under the Basel II Norms, banks should maintain a minimum capital adequacy requirement of 8% of risk as-
sets. For India, the Reserve Bank of India has mandated maintaining of 9% minimum capital adequacy re-
quirement. This requirement is popularly called as Capital Adequacy Ratio (CAR) or Capital to Risk Weighted
Assets Ratio (CRAR).

PILLAR II: SUPERVISORY REVIEW

Banks majorly encounter with 3 Risks, viz. Credit, Operational & Market Risks. Basel II Norms under this Pillar
wants to ensure that not only banks have adequate capital to support all the risks, but also to encourage them
to develop and use better risk management techniques in monitoring and managing their risks.

 The process has four key principles:

• Banks should have a process for assessing their overall capital adequacy in relation to their risk profile
and a strategy for monitoring their capital levels.
• Supervisors should review and evaluate bank‟s internal capital adequacy assessment and strategies,
as well as their ability to monitor and ensure their compliance with regulatory capital ratios.
• 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.
• Supervisors should seek to intervene at an early stage to prevent capital from falling below minimum
level and should require rapid remedial action if capital is not mentioned or restored.
•
PILLAR III: MARKET DISCIPLINE:

Market discipline imposes banks to conduct their banking business in a safe, sound and effective manner.
Mandatory disclosure requirements on capital, risk exposure (semiannually or more frequently, if appropriate
are required to be made so that market participants can assess a bank‟s capital adequacy. Qualitative disclo-
sures such as risk management objectives and policies, definitions etc. may be also published.

BASEL III

The Reserve Bank released, guidelines outlining proposed implementation of Basel III capital regulation in
India. These guidelines are in response to the comprehensive reform package entitled
“Basel III: A global regulatory framework for more resilient banks and banking systems” of the Basel Commit-
tee on Banking Supervision (BCBS) issued in December 2010.
The major highlights of the draft guidelines are:

MINIMUM CAPITAL REQUIREMENTS

• Common Equity Tier 1 (CET1) capital must be at least 5.5% of risk-weighted
assets (RWAs);
• Tier 1 capital must be at least 7% of RWAs; and
Total capital must be at
least 9% of RWAs.

CAPITAL CONSERVATION BUFFER
The capital conservation buffer in the form of Common Equity of 2.5% of RWAs. A such minimum Cap-
ital Adequacy ratio for banks will be 11.5% after full application of the capital conservation buffer by 31
March 2018.

Fatf recommendation

THE FATF RECOMMENDATIONS::  Total 40

A – AML/CFT POLICIES AND COORDINATION

1 - Assessing risks & applying a risk-based approach *
2  - National cooperation and coordination

B – MONEY LAUNDERING AND CONFISCATION

3  Money laundering offence *
4 Confiscation and provisional measures *

C – TERRORIST FINANCING AND FINANCING OF PROLIFERATION

5 Terrorist financing offence *
6 Targeted financial sanctions related to terrorism & terrorist financing *
7 Targeted financial sanctions related to proliferation *
8  Non-profit organisations *

D – PREVENTIVE MEASURES

9 Financial institution secrecy laws
Customer due diligence and record keeping
10  Customer due diligence *
11  Record keeping
Additional measures for specific customers and activities
12  Politically exposed persons *
13  Correspondent banking *
14 Money or value transfer services *
15 New technologies
16  Wire transfers *

Reliance, Controls and Financial Groups

17  Reliance on third parties *
18  Internal controls and foreign branches and subsidiaries *
19  Higher-risk countries *
Reporting of suspicious transactions
20  Reporting of suspicious transactions *
21 Tipping-off and confidentiality

Designated non-financial Businesses and Professions (DNFBPs)

22  DNFBPs: Customer due diligence *
23 DNFBPs: Other measures *

THE FATF RECOMMENDATIONS
INTERNATIONAL STANDARDS ON COMBATING MONEY LAUNDERING AND THE FINANCING OF TERRORISM & PROLIFERATION
 2012 OECD/FATF 5

E – TRANSPARENCY AND BENEFICIAL OWNERSHIP
OF LEGAL PERSONS AND ARRANGEMENTS

24  Transparency and beneficial ownership of legal persons *
25 Transparency and beneficial ownership of legal arrangements *

F – POWERS AND RESPONSIBILITIES OF COMPETENT AUTHORITIES
AND OTHER INSTITUTIONAL MEASURES
Regulation and Supervision

26 Regulation and supervision of financial institutions *
27  Powers of supervisors
28  Regulation and supervision of DNFBPs
Operational and Law Enforcement
29 Financial intelligence units *
30 Responsibilities of law enforcement and investigative authorities *
31 Powers of law enforcement and investigative authorities
32  Cash couriers *
General Requirements
33  Statistics
34  Guidance and feedback

Sanctions

35  Sanctions

G – INTERNATIONAL COOPERATION

36 International instruments
37  Mutual legal assistance
38 Mutual legal assistance: freezing and confiscation *
39  Extradition
40 Other forms of international cooperation

CAIIB elective selection

CAIIB Elective selection

1 Corporate Banking

Aspirants working in Corporate Banking section should take this paper. Also persons working in new Private Sector Banks are also recommended to take this paper.

Difficulty: Moderate Tough

2 Retail Banking Universal paper for CAIIB aspirants. Many bankers are feeling that this is the easiest subject to pass. Because most of the concepts in this subject are already familiar to us. So it is easy to study and understand the concepts. Recommended for bankers who wants to clear the exam with the motive of increment and promotion.

Difficulty: Comparatively easier than all papers but question can also be made tough.

3 Rural Banking People who are working in the RRB and want to purse their career in RRB must take this as there elective. Also bankers who has strong desire to serve the rural regions and will be working more than one year in rural areas can also take this subject. If you know about agriculture and its related government schemes related to it, then appear for this paper.

Difficulty: Tough

4 International Banking This is an important sector/department of the commercial banks. So persons who has strong desire to work in International Banking Division should prefer this paper as their elective. Banker’s working in Forex Branches also recommended for this elective. For bankers who wants to have vertical growth in their banking career can also take this paper.

Difficulty: Toughest of all but good for banking career.

5 Co-Operative Banking Must for persons working in cooperative banks. Others please stay away from this paper.

Difficulty: Moderate

6 Financial Advising Persons who has good knowledge in finance or has finance degree must take this paper. Can be taken by persons who want to clear CAIIB for increment and promotion because of easy to understand concepts.

Difficulty: Tougher than retail banking but easier than all.

7 Human Resources Management Must for persons completed MBA in HRM. Others please stay away.

Difficulty: Moderate for MBA in HRM and Tough for others.

8 Information Technology Techies and persons having computer knowledge should take this paper. Others stay away from it. Nowadays importance of IT oriented products are increasing day-by-day.

EASY: Easy for techies. Slightly tough for others.

9 Risk Management This is an important and specialized sector/department of the commercial banks. So persons who has strong desire to work and persons working in Risk Management should take this paper as their optional

Difficulty: Slightly easier than International Banking paper and tougher than all.

10 Central Banking If your want to know about RBI then take this subject.

Difficulty: Tougher than Retail Banking paper and easier than all. If you want to clear CAIIB only for increment you can try. But you should have decent economics knowledge.1

11 Treasury Management This is an important and specialized sector/department of the commercial banks. So persons who has strong desire to work and persons working in Treasury should take this paper as their optional

Difficulty: Slightly easier than International Banking paper and tougher than all.

Working capital

CONCEPT OF WORKING CAPITAL :

                       Working Capital is defined as the excess of current assets over current liabilities. It is the same as net current
assets. It represents the investment of a company's funds in assets which are expected to be realised within a relatively short period of time. It is not
an investment in an asset with a long life but, as the name implies, represents funds which are continually in use and are turned over many times in a
year. It is capital used to finance production, to support levels of stock and to provide credit for customers. The three main current assets are stock,
debtors and cash. They can be funded by short-term finance, i.e. current liabilities, or by medium and long-term finance in case of permanent
current assets or core current assets.
Components of Working Capital :The firm's Working Capital may be viewed as being comprised of two components:
1. Permanent working capital: These funds represent the current assets required on a continuing basis over the entire year. it represents the
amount of cash, receivables and inventory maintained as a minimum, to carry on operations at any time, as a safety measure.
2.Variable working capital: These funds represent additional assets required at different times during the operating year. Added inventory must
be maintained to support the peak selling periods. Receivables increase and must be financed following periods of high sales. Extra cash may be
needed to pay for increased supplies preceding high activity.
Working Capital Cycle :Working Capital cycle is the length of time that elapses between the company's outlay on raw materials, Wages and other
expenditures and the inflow.of cash from the sale of the goods. The length of the cycle depends upon(I) stock of raw material required to be held.
(ii) The work in process which depends on the process involved in manufacturing or processing the raw material.
(iii) Credit required to be provided to the purchasers.
Longer the working capital cycle, the more is the working capital requirement i.e. need for maintaining the current assets.
Working capital & Net working Capital Working capital (or gross working capital) refers to the amount of total current assets.
Liquid surplus or net working capital refers to the surplus of long term sources over long term uses as per RBI prescription (also
calculated by banks as difference between current assets and current liabilities). It is desirable, that the net working capital
should be positive which would signify liquidity and availability of. Adequate working funds. If in a particular case, the net working
capital is negative, the difference will be called the working capital deficit.
The working capital can also be classified as:
a Permanent working capital which is minimum amount of current assets necessary for carrying out operations for a
period.
b Fluctuating working capital : Additional assets required at different times during an operating period due to cyclic factors.
c Seasonal working capital means requirement for additional current assets due to seasonal nature of the industry.
d Adhoc working capital : Additional funds for meeting the needs arising out of special circumstances e.g. execution of special order,
delay in receipt of payment of receivables.
e Working capital term loan : A long term loan given to meet the working capital margin needs of a borrower. The concept was
introduced by. Tandon Committee.
f Working capital gap = total current assets less other current liabilities. It is financed by net working capital and bank finance for
working capital (called MPBF).
SUMMARY - WORKING CAPITAL TERMS
Particulars Classification
Working capital Current assets such as cash, stocks, book-debts, other current assets
Net capital working Current assets — current liabilities OR Long term sources — long term uses
Working gap capital Current assets — current liabilities (other than bank borrowing — i.e. OCL)
Working limits capital Bank facilities needed to purchase current assets. These facilities are cash credit,
overdraft, bills purchase/discounting, pre-shipment or post-shipment loans etc.
Factors which determine the working capital The following factors determine the overall working capital levels of the
industrial units: Policies for production, Manufacturing process, Credit Policy of the unit, Pace of turnover , Seasonality
Process for assessment of working capital requirements Generally there are three methods followed by banks for assessing working
capital of a firm i.e. (i) traditional method suggested under Tandon Committee, (ii) turnover method suggested by Nayak Committee
and (iii) cash budget method followed in case of seasonal industries.
Methods of Assessing Bank Finance
Holding Norms based Method of Assessment of Bank Finance Various steps used in the
process include following
(a) Deciding on the level of turnover: : in case of existing units, past performance can help in ascertaining projected turnover. In
case of new enterprise, it is based on production capacity, proposed market share, availability of raw materials, industry norms etc.
(b) Assessment of Gross working capital: This is sum total of various components of working capital
(i) inventory: For assessment of stock levels of raw material, work in process and finished goods, information like lead
time, minimum order quantity, location and number of suppliers, percentage of imported material, manufacturing process etc are
considered. Industry norms may be helpful in this regard.
(ii) Receivables/bills: it can be assessed easily. It is governed by market practice relating to a particular business.
(iii) Other Current assets: A reasonable estimate of other current assets like cash level, advance to suppliers, advance tax
payment etc is calculated. Sources of Meeting Working Capital Requirement
(i) Own sources: This represents available net working capital. Further, as the estimate of limits is based on the projected balance sheet at the
end of the current accounting year, some internal accruals are also taken into account. Bank may stipulate additional NWC if available NWC and
anticipated internal accruals are not enough to maintain desired current ratio.
(ii) Suppliers's credit based on market practice
(iii) Other current liabilities like salary payable, advance from customers etc.
(iv) Bank Finance
Cash Budget Method
In any economic activity there will be outflows to meet the expenses of production and inflows from the sale of output. Any firm requires
working capital from the bank to meet the gap between these inflows and outflows. Therefore, under this method, cash flows are projected on
monthly or quarterly basis to ascertain the deficit. Bank finance will be equal to cash deficit. This method is used while financing seasonal
industries like tea, sugar, service oriented industries like software, Non banking finance companies, construction contracts.
Turnover Method:
 This method was suggested by Nayak Committee. This method is to be applied in the case of working capital limits up to Rs 5 crore in the case of
Small Manufacturing enterprises and up to Rs 2 crore in other cases. This method is simple in nature. According to this method, working capital
requirement is equal to 25% of the accepted projected annual sales; bank finance is 20% of the projected annual sales or 80% of the
working capital requirements and margin is 5% of the projected annual sales or 20% of the working capital requirements. For
example, if the current sales are Rs 400 lac, projected growth is 25%, then projected annual sale will be Rs 500 lac. Accordingly, working
capital requirement will be Rs 125 lac, bank finance Rs 100 lac and borrower's margin Rs 25 lac. However, actual drawing power will be allowed as per
security available. if net working capital available with the borrower (i.e. borrower's margin) is more than 5% of the projected annual sale, the limits
can be adjusted accordingly.
The requirement as per this method is minimum assuming working capital cycle of the unit at 3 months. If working capital cycle is more, Bank may
consider higher requirement depending on the business of the borrower.
Turnover Method (Nayak Committee) It is used where the aggregate fund-based working capital credit limits are upto Rs. 500 lac from the
banking system. Working capital : Minimum 25% of the projected turnover (or 3 months's sale).
Working capital limits : Minimum of 20% of projected annual turnover after satisfying about reasonableness of the projected annual turnover.
Borrowers' margin : 5% of projected turnover. If it is higher than 5%, the bank limits can be fixed at a lower level than 20%.
The margin proportionately increases with increase in period of operating cycle (ratio of margin to bank finance should be 1:4.
Calculation of working capital
Estimated sale turnover (projected sale) Rs.80 lac
Minimum Working Capital @ 25% estimated sales (which represents 03 months' sales) Rs.20 lac
Contribution of borrower @ 5% Rs.4 lac
Minimum Bank credit for working capital @ 20% of projected sales Rs.16 lac
Traditional method
As per traditional method (Tandon Committee), the level of working capital is determined both by the length of the
operating cycle and the size of the sales. The method is applicable to working capital limits above Rs.5 lac. In a circular dated
04.11.97, RBI withdrew the mandatory application of this method and allowed banks to use their own method.
The total of anticipated level of current assets calculated on the basis of estimated sales and by applying the norms for inventory and
receivables, is the level of working capital. The amount of bank limit, can be determined as under :
a: Assess the level of net working capital
(surplus of long term sources over long term uses) available, which normally should not be less than 25% of total current assets.
Work out bank finance to be sanctioned being gap of total current assets less NWC and other current liabilities.

Re collected question IT SECURITY 25/08/2019

Re collected question IT SECURITY 25/08/2019

Salami technique
Trapdoors
Bit glass
Tread , vulnerability & tread vector
3 basic principle of
Information
Natting
Bank role in environmental security
Difference between cryptography& ..
Unit test & white box text
Azure cloud belongs to which company - Microsoft
COBIT
Clouds
CISO reporting
CISO responsibility
Root kit
Backup in banks
RBI role other than as a regular
Multiplexer
Switch
ATM jackpotting
Perimeter access
Use of library in software
Excluded  Events in RTI ACT
Vsat
VIOP eve dropping
Checker maker in banks
Scavenger
Port no 23
SOX
27001&27002
Middle man attack
DMZ
SINGLE POINT OF FAILURE
SQL
RTO& rpo
Hot warm cold site
PGP
Mac & IP address
Digital forensics
Escrow arrangements
Blade server
Load balancing
RFID & bar coding
Metal detectors
IPS & ids
More questions on physical movements of hardware

These r the topics from which questions were asked . For 1 & 2 mark questions , options r quite confusing and need a double thought before answering.

Cleared IT SECURITY with 57 marks .. its 5 th certifications in a row AML KYC, Bcdsi, msme , Prevention cybercrime.
Next trying for CAIIB

Thanks Srinivas sir ,,

ADR and GDR

Depository Receipts like ADR, GDR..

ADRs –American Depository Receipts
American Depository Receipts are Receipts or Certificates issued by US
Bank representing specified number of shares of non-US Companies. Defined as under:
These are issued in capital market of USA alone. These represent securities of companies of other countries.
These securities are traded in US market. The US Bank is depository in this case. ADR is the evidence of ownership of the underlying shares. Unsponsored ADRs
It is the arrangement initiated by US brokers. US Depository banks create
such ADRs. The depository has to Register ADRs with SEC (Security
Exchange Commission). Sponsored ADRs
Issuing Company initiates the process. It promotes the company‟s ADRs in
the USA. It chooses single Depository bank. Registration with SEC is not
compulsory. However, unregistered ADRs are not listed in US exchanges. GDRs – Global Depository Receipts
Global Depository Receipt is a Dollar denominated instrument with
following features:
1. Traded in Stock exchanges of Europe. 2. Represents shares of other countries. 3. Depository bank in Europe acquires these shares and issues
“Receipts” to investors. 4. GDRs do-not carry voting rights. 5. Dividend is paid in local currency and there is no exchange risk for
the issuing company. 6. Issuing Co. collects proceeds in foreign currency which can be used
locally for meeting Foreign exchange requirements of Import. 7. GDRS are normally listed on “Luxembourg Exchange “ and traded
in OTC market London and private placement in USA. 8. It can be converted in underlying shares.
IDRs – Indian Deposits Receipts
Indian Depository Receipts are traded in local exchanges and represent
security of Overseas Companies. CDF (Currency Declaration Form)
CDF is required to be submitted by the person on his arrival to India at the
Airport to the custom Authorities in the following cases:
1. If aggregate of Foreign Exchange including foreign currency/TCs
exceeds USD 10000 or its equivalent. 2. If aggregate value of currency notes (cash portion) exceeds USD
5000 or its equivalent. Form A1 and
Form A2
Form A1 is meant for remittance abroad to settle imports obligations. It is
not required if value of imports is up to USD 5000. Form A2 is meant for remittance abroad on account of any purpose other
than Imports. It is not required if remittance is up to USD 25000. LIBOR Rate London Interbank Offering rate is the rate fixed at 11 am (London time) at
which top 16 banks in London offer to lend funds in interbank markets.

https://iibfadda.blogspot.com/2018/08/depository-receipts-like-adr.html?m=0

Components of credit management

Components of credit management:::

The components include (1) Loan policy of the bank (2) Appraisal (3) Delivery (4) Control and Monitoring (5) Rehabilitation and
recovery (6) Credit risk management (7) Refinance.
1. Loan policy : Each bank formulates its own policy for sanction of credit proposals. The policy normally provides for (a) exposure
limits for individual and group borrowers (b) exposure limits for different sectors (c) discretionary powers at various levels within the
bank.
2. Appraisal : It done on the basis of credit history, financial status, market report of the borrower, the prospects of economic
activity being financed. The objective of the appraisal is find answers to following important questions:
a. Whether the borrower is creditworthy and what he is going to do with the bank money
b. What are the prospects of the economic activity to be conducted profitably
c. What are the prospects of repayment of the loan by the borrower.
d. What security will be available to the bank, to recover the loan, in case of need
3. Delivery : This includes formalities relating to loan documentation, creation of charge over securities and formal disbursement of
the loan.
4. Control and monitoring : It involves post-sanction follow with a view to ensure that the conditions of the loan are being complied
with and the economic activity is as planned at the time of sanction. It also involves monitoring the recovery of loan as per schedule
fixed.
5. Recovery or rehabilitation : If an economic activity faces some problem and borrower is unable to repay the loan, the bank may
have to go for re-structuring of the loan. If the normal operations are not possible with rehabilitation etc., bank may have to initiate
recovery action including sale of securities.
6. Credit risk management : Bank has to follow the best practices for credit risk management that include identification of risk,
quantification of risk, pricing of risk, mitigation of risk etc.
7. Refinance : It assumes importance when there is tight liquidity situation. It can be availed from institutions such as NABARD, SIDBI,
RBI, NHB etc. on the basis of eligible loans.

Treasury management mcqs

Treasury Management::

1 The significance of Treasury operations in Asset Liability management is:

a) It operates in financial markets directly.

b) Treasury is a link between core banking functions and market operations

c) Treasury identifies and monitors the market risk d) All of these

2_ How the Treasury operations are useful in minimizing Asset Liability mismatch?

a) Through uses of derivatives

b) Use of new products

c) Through Bridging the liquidity and rate sensitivity gaps d) All of these

3 Which of the following statements is correct?

a) Trading in securities is exposed to market risk

b) At times the Risks are compensatory in nature and help to minimize the mismatches.

c) Options can be economic only in marketable size d) All of these

4. Treasury operations also help in effective monitoring and implementation of Asset

Liability management process in view of the:

a) Credit instruments can be replaced by Treasury instruments

b) Treasury products are more liquid.

c) Treasury operations monitor exchange rate and interest rate movements

d) All of these

5. Which of the following statements is not correct regarding Treasury operations in

Asset Liability management process?

a) Derivatives can be widely used in Treasury operations

b) Derivatives increases liquidity risk

c) The capital requirement for derivative operations is small.

d) Derivatives replicate market Movements.

6. Asset Liability mismatches can be reduced through use of derivatives in Treasury

operations because:

a) Derivatives can be used to hedge high value transactions

b) It can also minimize aggregate risk in Asset liability mismatches

c) (a) and (b) both d) None of these

7 Suppose a Bank is fundingmedium term loan of 3 years with deposits having

average maturity of 3 months as short term deposits or borrowings are cheaper than

3 years deposits. what would be the consequences and what a bank should do?

a) Bank would resort to short term resources to increase the spread.

b) The (a) above will have liquidity risk

c) This will also have interest Risk since every time the deposits would be priced.

d) The Bank should swap 3 month interest rate into a fixed rate for 3 years.

8. Suppose a Bank prices the 3 month deposit at 91 day T-Bill + 1% and swap rate of

the loan yield T-Bill+3%. What is the impact?

a) Fixed interest of the loan is swapped into floating rate

b) Bank has a spread of 2%

c) The Risk is protected during the period of loan. d) All of these

9. Suppose a Bank borrows US dollars at 3% and lends in domestic market at 8.5%.

The Bank pays forward premium of 1.5% to cover exchange Risk. What is the overall impact?

a) The Bank earns a spread of 2% without any exchange Risk.

b) A bank through Treasury operations can supplement domestic liquidity.

c) The above process is known as arbitrage. d) All of these

10. A Bank under the Treasury operations can buy call options to protect foreign

currency obligations as under:

a) This will help the Bank to protect rupee value of foreign currency receipts and payments

b) The Bank will gain if the spot rate of call option on the exercise date is more favourable than the strike

price of the option.

c) (a) and (b) both d) none of the above

11. Which of the followings is relevant when interest rate is linked to the rate of

Compiled by Sanjay Kumar Trivedy, ChiefManager, Canara Bank, Shrigonda,Ahmed Nagar, Maharashtra 67 | P a g e

inflation?

a) Index linked Bonds b) Treasury Bonds

c) Corporate Debt Instruments d) All of these

12. The significance of index linked bonds is:

a) It provides protection against inflation rate rise.

b) It is inbuilt in the process.

c) (a) and (b) both d) None of these

13. Suppose a Bank- issues 7 year Bond with a put option at the end of 31-6 year. What

does it signify?

a) It is as good as 3 year investment

b) The investment becomes more liquid

c) (a) and (b) both d) None of these

14. The limitations of Derivatives are:

a) If interest rate on deposits and loans are not based on benchmar-k

rates interest rate swaps may not be that useful.

b) The product prices may not move in line with market rates.

c) The Treasury operations may not provide perfect hedge. d) All of these

15'. Which of the followings is correct?

a) Treasury operations are concerned with market risk

b) Treasury operations has no link with the credit risk

c) Credit risk in Treasury operations are contained by exposure limits

d) All the above

16. Why the corporate prefer to issue debt paper than to Bank credit?

a) The cost of debt paper is much lower

b) The procedure is easy

c) (a) and (b) both d) None of these

17. A Bank may prefer to invest in corporate Bonds because:

a) Bbnd is more liquid Asset

b) Bond has an easy exit

c) Bond can be sold at discount d) All of these

18. Which of the following is not credit substitute?

a) Commercial paper b) Mortgage loan

c) Corporate bond d) Certificate of Deposit

19. The difference between a Bond and loan is:

a) The loan has normally fixed rate of interest. Bond price is dependent on Market interest rate movements.

Bonds are more liquid

Yield to maturity value can be known easily in a bond d) All of these

What is securitization?

A process which converts conventional credit into tradable Treasury Assets.

Credi t receivabl es of the Bank can be conver ted into Bonds i .e. .pass through

certificates

These certificates can be traded in the market

The advantages of securitization for a Bank is:

It provides liquidity to the issuing Bank

The Bank capital does not get blocked

Securitization proceeds can be used for fresh lending

22. Which of the following loans cannot be securitized?

a) Long term loans b) Short term loans

c) Medium term loans d) Retail loans

23. Which of the followings is true?

a) Surplus funds with the banks can be invested in pass through certificates

b) This will be indirect expansion of credit portfolio

c) (a) and (b) both d) None of these

24. The features of credit derivatives are:

a) It segregates credit Risk from loan

b) The Risk is transferred from the owner of the Asset to another person for a fee.

a) Allof these

d) All of these

Compiled by Sanjay Kumar Trivedy, ChiefManager, Canara Bank, Shrigonda,Ahmed Nagar, Maharashtra 68 | P a g e

c) The instrument is known as credit linked certificates d) All of these

25. The constituents of a credit Derivatives are:

a) Protection Buyer b) Protection Seller

c) Reference Asset d) All of these

26. The process of credit Derivative involves:

a) The protection seller guarantees payment of principal and interest or both of the Asset owned by the

protection Buyer in case of credit default.

b) The protection Buyer pays a premium to the protection Seller

c) (a) and (b) both d) None of these

27. The advantages of credit Derivatives are:

a) It helps the issuer to diversity the credit risk

b) The capital can be used more efficiently

c) Credit Derivative is a transferable instrument d) All of these

28. What is transfer pricing under Treasury operations?

a) It is the process of fixing the cost of resources and return on Assets of a Bank in rational manner.

b) The Treasury buys and sells deposits and loans of Bank. -

c) The price fixed by the treasury becomes the basis for assessing profitability of a Bank

d) All the above

29. The parameters for fixing price by a Treasury are:

a) Market interest rate

b) Cost of hedging market Risk

c) Cost of maintaining reserve assets of the Bank d) All of these

30. Which of the following statements is correct regarding transfer pricing under Treasury operations?

a) If Bank procures deposit at 7% but the Treasury buys at a lower cost, the difference being the cost would be borne by the

Bank.

b) If the Bank lends at higher rate and sells the loan to Treasury at lower rate, the Balance being risk premium

would be the income for the Bank.

c) (a) and (b) both d) None of these

31. An integrated Riskmanagement policy under Asset Liabilitymanagement should focus on: a) Riskmeasurement andmonitoring b) Risk

Neutralisation, c) Product pricing d) All of these

32. Liquidity policy survival prescribe: a) Minimum liquidity to be maintained b) Funding of Reserve Assets c) Exposure limit

to money market d) All of these

33. The derivative Policy should consist:

a) Capital Allocation b) Restrictions on Derivative Trading

c) Exposure limits d) All of these

34. The investment policy should contain:

a) Permissible investments b) SLR and non SLR investments

c) Private placement d) All of these

35. The investment policy need not contain:

a) Derivative Trading b) Trading in Securities and Repos

c) Valuation and Accounting policy d) Classification of Investments

36. The composite Risk policy under Treasury operations should include the following:

a) Norms for Merchant and Trading positions b) Securities Trading

c) Exposure limits d) All of these

37. Composite Risk policy should also contain the following:

a) Intra-day and overnight positions b) Stop loss limits

c) Valuation of Trading positions d) All of these

38. Transfer pricing policy shduld prescribe:

a) Spread to be retained by the Treasury

b) Segregation of Administrative and Hedging cost

c) Allocation of cost d) All of these

39. According to RBI, policy of Investment and Risk should be supplemented with:

a) Prevention of money laundering policy

b) Hedging policy for customer Risk_ c) (a) and (b) -d) None of these

40. Which of the following are essential requirements for formulation of policy

guidelines?

a) It should be approved by the Board

b) It should comply with the guidelines of RBI and SEBI

c) It should follow current market practices d) All of these

41. Which of the followings is correct?

a) All policies should be reviewed annually

b) A copy of the policy guidelines needs to be filed with RBI

c) (a) and (b) both d) None of above

42. A Run of the Bank signifies:

a) A situation where depositors lose confidence and start withdrawing their balances.

b) A Bank running in continuous loss

c) A Bank where non-performing Assets level is high. d) All of these

43. Liquefiable securities are:

a) Securities that can be readily sold in the secondary market.

b) Securities that have easy liquidity

c) Short term securities d) All of these

44. What is Sensitivity Ratio?

a) Extent of interest sensitive Assets

b).Ratio of interest rate sensitive Assets to interest rate sensitive Liabilities

c) -(a) and (b) both d) All of these

45. Risk appetite is:

a) The capacity and willingness to absorb losses on account of market Risk.

b) The extent of Risk involved in securities c) (a) & (b) d) All of these

46. Which of the followings is correct?

a) Special purpose vehicle is formed exclusively to handle securities paper on behalf of sponsoring Bank.

b) Hedging policy is a document which specifies extent of coverage of foreign currency obligations.

c) Self regulatory organizations formulate market related code of conduct

d) All of the above

47. Liquidity policy of a Bank should contain:

a) Contingent funding

b) Inter-Bank committed credit lines

c) (a) and (b) both d) All of these

ANS: 1 D 2 D 3 D 4 D 5 B 6 C 7 D 8 D 9 D 10 C

11 A 12 C 13 C 14 D 15 D 16 A 17 D 18 B 19 D 20 D

21 D 22 B 23 C 24 D 25 D 26 C 27 D 28 D 29 D 30 C

31 C 32 D 33 D 34 D 35 D 36 D 37 D 38 D 39 C 40 D

41 C 42 A 43 A 44 B 45 A 46 B 47 C

CCP recollected yesterday 25.08.2019

CCP exam
Recollected topics :-

Bep 5 sums
Working capital 5 sums
 Lc 5 sums
 Commercial paper 5
Ecgc 1 sum
Debt equity ratio
Waiting to accomplish my 2nd dream
( Sureshot 40-50 marks - Both theory and practical questions)
IRAC norms
Different ratios/accountancy
All methods of lending
Provisioning requirements
Letter of credit/BG
Priority sector lending

annual imports 2200 lakhs

freight 120 lakhs
insurance 80 lakhs
customs duty 300 lakhs
Total 2700
EOQ 500 LAKHS

LEAD TIME 25 +5 days
USANCE 4 MONTHS

CALCULATE NO OF LC'S REQUIRED
LC FREQUENCY
LC AMOUNT


One numerical 5marks on letter of credit,               one 5 marks questions on working capital,.              one 5 marks on balance sheet,  one case study 5 marks on  CP,.                                  one 5 markscase study on priority sector lending certificates (PSLCs).                           One 5 marks Question on Break even point

Dpg and green clause lc

Prevention Cyber crime and fraud yesterday recollected questions

Prevention of cyber crime and fraud management" - 25.08.2019 Recollected Questions
Crime Defined in IPC 1860
Threat vector
John Doe order
IT Amendment Act 2008 section 66 F cyber terrorism
Cyber stalking
IT act section 66 D cyber cheating
Stuxnet
Phising
Digital signature
Tailgating
Masquerading
Shoulder surfing
Dumpster diving
Man in the middle attack
Rootkit
Script kiddie
Blue hat hackers
Phreaking
Cyber risk insurance
Symmetric encryption
Digital footprints
Locard's exchange principle - taking and leaving
IMEI
Internet of things
BPSS
Brute Force attack
Rupay card
PCI DSS
3D Secure
Stylometry
Disgruntled employees
Salami attack
Net neutrality
CERT in
I4C
Boss Linux
Steganography

External Borrowings & Concepts :

External Borrowings & Concepts :
External Commercial Borrowings (ECB): It is the borrowings by the Corporates and Financial Institutions from
International markets. ECBs include Commercial Bank loans, Buyer's Credit, Supplier's Credit, Securitized Instruments
such as Floating Rate Notes, Fixed Rate Bonds etc. ECBs are usually available at interest rate of 100 to 400 basis points
above LIBOR (London Inter Bank Offered Rate).
American Depository Receipt (ADR): It is a negotiable certificate of ownership in the shares of non-American
Company that trades in an American Stock Exchange. ADRs make it convenient for Americans to invest in foreign
companies as ADRs carry prices and dividends in dollars, and can be traded on the US stock exchanges like the shares of
US based companies.
Special Drawing Rights (SDR): It is the International Monetary Fund's own currency. The value of SDRs is set relative to a
basket of major currencies. It is used only among governments and IMF for balance of payments settlement.
Global Depository Receipt (GDR): These are the instruments through, which the Indian companies raise their
resources from international markets. It is a negotiable certificate issued by a depositary company (normally an
investment bank) representing the beneficial interest in shares of another company whose shares are deposited with the
depository. It is a Dollar denominated instrument, traded on Stock Exchange in Europe or USA or both and represents
publicly traded specified number of local currency equity shares of the issuing Company.
Foreign Direct Investment (FDI): An investment which is made directly on the production facilities (either by buying a
company or by establishing new operations of an existing company) of a country by a foreign source, usually a foreign
company. These investments are more enduring than foreign investment in shares and bonds.
Masala Bonds: Recently, the RBI has permitted banks to raise capital through "Masala Bonds" in the overseas market in
Indian Rupee. RBI's proactive steps acknowledged the potential of the market and issuance of these bonds from banks
will help broaden and deepen the market for making the product more sustainable in the long run as a financing option. It
definitely paves the way to develop the overseas market for rupee denominated bonds and enable the banks to shore-up
their capital requirements (Tier-I & II) for financing infrastructure and affordable housing projects.
Derivatives: A credit derivative derives its value from the credit quality of the underlying loan or bond or any other
financial obligation of an underlying company. The underlying asset can be equity, index, foreign exchange (forex),
commodity or any other asset. Derivative products initially emerged as hedging devices against fluctuations in commodity
prices and commodity-linked derivatives remained the sole form of such products for almost three hundred years. The
financial derivatives have become very popular in the recent years. Credit Derivatives are financial instruments designed to
transfer credit risk from the person / entity exposed to that risk to a person / entity who is willing to take on that risk.
SWAP refers to exchange of one asset or liability for a comparable asset or liability for the purpose of lengthening or
shortening maturities or raising or lowering coupon rates to maximize revenue or minimize financing costs. This may entail
selling one securities issue and buying another in foreign currency; it may entail buying a currency on the spot market and
simultaneously selling it forward. There are various types of SWAPs such as Equity swap, Currency swap, Credit swaps,
Commodity swaps, Interest rate swaps etc. These can be used to create unfunded exposures to an underlying asset since
counterparties can earn the profit or loss from actions in price without having to post the
notional amount in cash or collateral. Swaps can be used to hedge certain risks such as interest rate risk or to wonder on changes
in the expected direction of underlying prices.
Futures & Options: An agreement to buy or sell a fixed quantity of a particular commodity, currency or security for
delivery on a fixed date in the future at a fixed price. Unlike an 'option', a 'futures' contract involves a definite purchase or
sale and not an option to buy or sell. It may entail potential unlimited loss. However, Futures provide an opportunity to
those who must purchase goods regularly to hedge against changes in prices. An arrangement where the rate is fixed in
advance for the purchase or sale of foreign currency at a future date is called forward contract. Option is a contract,
which gives the holder the right but not the obligation. A call and put option is a right to buy and sell the underlying
product respectively.
Factoring and Forfeiting: Factoring is a method where by the factor undertakes to collect the debt assigned by exporter
where as international forfeiting is a method whereby the exporter sells the export bills to the forfeiter for cash. Forfeiting
is resorted to for export of capital goods on medium terms and long-term credit, whereas the factoring is mainly short-term
trade finance. In respect of forfeiting, the guarantee by the importer's banker is normally insisted upon whereas in
factoring such guarantee by the importers banker is usually not stipulated. Forfeiting is without recourse to the seller
(exporter), while factoring is undertaken both with and without recourse to the seller.

Types of endorsements

Types of Endorsements:-

1)     Blank Endorsements: section 16(1) it means endorser only signs his name with adding any words or directions this endorsement makes the instrument payable to bearer.

2)     Endorsement in Full: - The endorser added the name of endorsee specifically.

3)     Conditional Endorsement: Here the endorser puts some conditions for endorsee Here the binding of conditions is between endorsee and endorser only. 

4)     San recourse Endorsement: - Endorser added the words without recourse to me.

5)     Facultative Endorsement: - Where an endorser waives the condition of notice of dishonour.

6)     Endorsement on Bearer Cheque: - The endorsement on bearer cheque is meaning less as the cheque once bearer is always bear.

Crossing:-

General Crossing (Sec.123): Two parallel transverse lines on the face of instruments with or without word ‘Not negotiable’. It is direction to the paying bank that do not pay the cheque across the counter.

Special Crossing (Sec.124): In addition of general crossing the cheque bears the name of collecting bank either with or without the words ‘Not negotiable’.

Collection of cheques:-

Section 131: a banker who has in good faith and without negligence received payment for a customer of a cheque (not available for B/E and P/N) crossed generally or specially.  The present section gives protection provided following conditions are fulfilled…

a)    The bank must have acted in good faith and without negligence.

b)    Bank has received the payment as an agent for collection.

c)    Bank has collected the cheque in the duly introduced account of customer only.

d)    The cheque collected must be crossed.

Payment of cheques:-

Liability of drawee (paying banker): It is obligation of the banker to honour the cheques of a customer provided there is sufficient balance and the cheque is otherwise in order.  Section 31 of NI act provides that “The Drawee of a cheque:

a)    Must have sufficient funds in the account.

b)    Properly applicable to the payment of such cheque.

c)    Must pay the cheque when duly required to do so.

d)    In default of such payment, must compensate the drawer for any loss or damage.

Protection for paying banker in case of cheque:-

Regularity of endorsement Section 85(1): Paying banker’s liability is to ensure the regularity of the endorsement and is not concerned with genuineness of endorsement.  The genuineness of endorsement is the liability of collecting banker.  Therefore, protection is available to the paying banker in case of forged endorsements.

Payment in due course (Section-10):-

a)    In accordance with the apparent tenor of the instrument.

b)    In good faith and without negligence.

c)    To the person in possession of the instrument.

d)    Under the circumstances which do not afford a reasonable ground for believing that he is not entitled to receive the payment of the amount mentioned therein.

When bank should not pay:-

a)    The death of the drawer in case of individual’s account terminates the contractual relationship.

b)    Insane customers: in case of insanity.

c)    Insolvent drawers: The bank should stop the operation of such account as if drawer adjudged insolvent and balance in the account vested with official receiver/assignee.

d)    Countermanded by drawer: on receipt of valid stop payment instruction by the drawer.

e)    Others: when a cheque is post dated, with insufficient balance in the account, cheque is of doubtful legality, or cheque is irregular, ambiguous, materially altered or stale etc.

Dishonour of cheques (Sec. 138-147):-

The payee or holder in due course should give notice to drawer within 30 days of return of cheque with the reason “Insufficient balance” and demanding payment within 15 days of his receiving information of dishonour. Drawee can make payment within 15 days of the receipt of notice and only if he fails to do so prosecution could take place.  The complaint is to be made with in one month of the cause of action arising that is expiry of the notice period.

Punishments:

a)    Summary proceedings: fine up to Rs. 5000/- and imprisonment up to one year or both.

b)    Regular proceedings: fine up to the double the amount of cheque or imprisonment up to 2 years or both.

Review for certified treasury professional exam

Review for certified treasury professional exam

Having today cleared the written exam on certified treasury professional ,all I that I gathered  and felt during the course of my preparation was that,there is dearth of proper and adequate information available on the subject ,either maybe due to not many candidates appear for this particular exam or may be those who have previously cleared were not too active in sharing their wisdom and experiences centering around the exam .

1.As bankers we are subjected to quite elongated working hours .As such it is always not possible for us to go through the entire book page by page.Although it is advisable to read the entire book to gain knowledge,but at this point of time our main focus should be on clearing the exam.Also do remember that no matter how much theoretical knowledge one gains from book ,one still needs to start afresh and from scratch upon being posted in treasury department as nothing will come close to practical work ex and that is where one will get real flavour of treasury with due respect to bookish theory.
2.If unable to go through entire book ,put special focus on the following chapters -Liquidity Management,Money Market instrument(specifically CP,CD both theory and numerical) ,Repo (numerals and theory),T bills,Call and Term money .Most questions from Money market asked from CP ,Repo,CD and call money.
3.Under capital market chapter read ECB  mainly.
4.Read FRA  very well both theory and numerical,mainly numerical and if required take help of YouTube.FRA numericals  are must do.
5.Chapter on Options and Future should be read in utmost detail and if time permits then Swaps mainly IRS.
6.Fixed Income Duration Convexity Time Value of money chapter should be properly read .Have clarity on Bond theorem and specifically Bond price yield relation,YTM ,Duration,Convexity,Bond numerical like Bond price,Modified Duration calculation,convexity, effect on portfolio due to Bond price /yield increase or decrease numerical.This particular chapter on Fixed income Duration Time value of money is very  very important.
7.Other than above if time permits go through Basic forex numerical on bill/TT buying selling,rate to be quoted to exporter/importer ,dealer code of conduct,Types of auction and when issued mkt,role of front mid and back office.
8. Go through numerical on Repo at the backside  of the book and on  calculation Yield and price of T bills given on the back side of the book.These are very important and 6-7 questions are normally asked  on these topics frequently.

That’s it from my side friends.Hope I could be of some help to you all.Thanks again to Srinivas Sir for his untiring efforts towards this forum and his contribution in helping fellow aspirants in clearing these exams   and if I can recollect anything else , I will share over here in due course of time.
Take care...


By Mr.Kumar deep