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%