Caiib BFM numericals

 Caiib bfm very important:::

Bank Financial Management Numericals

A bak has computed its Tier I capital -Rs. 1000 Crores. Tier-II Capital -Rs 1200 Crores. RWAs for Credit Risk -Rs 15,000 Crores. Capital charge for market risk -Rs 600 Crores. Capital charge for operational risk -Rs 400 Crores.
What would be the bank's total RWAs?

18,889 Crores
21,161 Crores
26,111 Crores
26,141 Crores
Ans -3

Solution : RWAs for Credit Risk = Rs 15,000 Crores RWAs for Market Risk = Rs 600/.09 = Rs 6,667 Crores RWAs for Operational Risk = Rs 400/.09 = Rs 4,444 Crores Total RWAs = 15000+6667+4444 = Rs 26,111 Crores

Tier I Capital = Rs 1,000 Crores Tier II Capital = Rs 1,200 Crores Total Capital = Rs 2,000 Crores Maximum tier II capital that can be taken into account for the purpose of CRAR is 100% of tier I capital. Tier-I CRAR = (Eligible Tier I capital funds) / (Total RWAs) = 1000/26111 = 3.83%. Total CRAR = (Eligible total capital funds) / (Total RWAs) = 2000/26111 = 7.66%.

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A claim of Rs. 49 lacs has been settled by ECGC in favour of a bank against default of Rs. 70 lacs. Subsequently the bank realizes Rs. 15 lacs with the collaterals available to the loan. What will be actual amount settled by ECGC after realization of security by the bank?

Rs. 49 lacs
Rs. 42.5 lacs
Rs. 38.5 lacs
Rs. 34 lacs
Ans -3

Explanation :
ECGC had settled Rs. 49 lacs on default of 70 Lacs (That is 70% of the default amount). But Subsequent to that settlement, Rs. 15 lacs was realised through the security held, So, the claim amount from ECGC should be, 55 Lacs only from ECG

And the ECGC had settled only 70 % of the claim amount. So, the settlement amount will be,

70% of Rs. 55 lacs = 5500000 x 70/100 = 38.5 lacs So, actual amount settled by ECGC = Rs. 38.5 lacs

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Spot Rate -35.6000/6500 Forward 1M=3500/3000 2M=5500/3000 3M=8500/8000 Transit Period -20 days. Exchange Margin -0.15%. Find 2 M Forward Buying Rate.

31.1971
34.1971
31.6976
34.6976
Ans – 4

Explanation :

Bcz, it is having Transit Period -20 days and 2 M Forward, 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.

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What would be the issue price of a CP (Face value of Rs. 100) carrying an interest rate of 10 % and maturity of 1 year expressed as % of notional value?

100
96.15
90.90
92.50
Ans -3

Explanation :

Interest rate = 10 % annual

CPs are issued at discount prices. . So if face value is 100, then

Issue price × (1+10%) = 100 Issue price × 1.10 = 100 Issue price = 100/1.10 = 90.9090 = 90.90

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Asset in doubtful category for 2 years – Rs. 500000/Realization value of security – Rs. 300000/What will be the provision requirement?

Rs. 500000/-
Rs. 320000/-
Rs. 200000/-
Rs. 175000/-
Ans -2
Explanation:

Provision for secured portion of Doubtful Cat for 2 years = 40% Provision for unsecured portion of Doubtful Cat for 2 years = 100%

Here, Secured portion = Rs. 300000 Unsecured portion = Rs. 200000

Provision = (300000 * 40/100) + 200000 = 120000 + 200000 = 320000

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Inflow of USD 200,000.00 by TT for credit to your exporter's account, being advance payment for exports (credit received in Nostro statement received from New York correspondent). What rate you will take to quote to the customer, if the market is 55.21/25?

55.21
55.21-Bank commission
55.25
55.25-Bank commission
Ans -2

Explanation :

It will be purchase of USD from customer for which USD will have to be sold in the market. Say when

USD/Rs is being quoted as 48.09/11, meaning that market buys USD at Rs 48.09 and sells at Rs 48.11.

We shall have to quote rate to the customer on the basis of market buying rate, i.e. 48.09, less our

margin, as applicable, to arrive at the TT Buying Rate applicable for the customer transaction.

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Retirement of import bill for GBP 100,000.00 by TT Margin 0.20%, ignore cash discount/premium, GBP/USD 1.3965/75, USD/INR 55.16/18. Compute Rate for Customer.

76.5480
76.6985
77.1140
77.2682
Ans -4
Explanation :

For retirement of import bill in GBP, we need to buy GBP, to buy GBP we need to give USD and to get USD, we need to buy USD against Rupee, i.e. sell Rupee.

At the given rates, GBP can be bought at 1.3975 USD, while USD can be bought at 55.18. The GBP/INR rate would be 77.1140. (1.3975 x 55.18), at which we can get GBP at market rates. Thus the interbank rate for the transaction can be taken as 77.1140.

Add Margin 0.20% 0.1542.

Rate would be 77.1140 + 0.1542 = 77.2682 for effecting import payment. (Bill Selling Rate).

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Given that Tier I capital is Rs. 500 crores and Tier II capital Rs. 800 crores and further given that RWA for credit risk Rs. 5000 crores, capital charge for market risk and operational risk Rs. 200 crores and Rs. 100 respectively, answer the following questions if the regulatory CAR is 8%. Based on the data given above, answer the following questions.

What are the total risk weighted assets?

Rs. 7250 crores
Rs. 8750 crores
Rs. 9000 crores
Rs. 7800 crores
Ans – 2

RWA of mkt risk =200/.08=2500

RWA ops risk =100/.08=1250

Total RWA = RWA credit risk+ RWA mkt risk+ RWA ops risk

= 5000+2500+1250

= 8750

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Data relating to balance sheet as on 14 Mar 2015 banks reveals its capital at Rs. 1110 cr, Reserve 2150 cr, demand deposit 6500 cr, SB deposit 20500 cr, term deposits from banks 1300 cr, term deposit from public 30800 cr, borrowing from RBI nil, borrowing from other institutions 200 cr, refinance from NABARD 150 cr, bills payable 50 Cr, accrued 20 cr, sub ordinatted debt 200 cr and credit balance in suspense a/c 30 cr (Total Being 63000)

1.Total amt of liabilities not to be included in computing DTLs in RS

3250 cr
3300 cr
4600 cr
4700 cr
Ans -4

(1100+2150+150+1300=4700) In time liabilities capital and reserve + refinance from NABARD + term deposit of banks are not to be included

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2.Total amount of DTL on which CRR is to be maintained

58100 cr
63000 cr
58300 cr
67100 cr
Ans -3

=6500+20500+30800+200+50+20+200+30 =58300 other than those not included while calculating DTL

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3.Bank would require to maintain average CRR amounting to ...... , if the rate of CRR is 5%

2915
2905
1749
3150
Ans -1

5% of amt of DTL that is 58300 and 5% is 2915

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NET WORTH RS. 1500 CRS T1 + T2 CAPITAL RS 3500 CRS RSA RS 22500 CRS RSL RS 21000 CRS DA WT MODIFY DURATION OF ASSETS 1.80 DL WT MODIFY DURATION OF LIABILITY 1.10

DURATION OF GAP FOR BANK IS ESTAMATED AT

0.77
0.73
0.62
NONE
Ans -1

Solution:

DWAP = DA-W*DL = FIRST CALCULATE W=RSL/RSA=21000/22500=.933 = 1.80-.933*1.10 = 0.77

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LEVERAGE RATIO IS

6.43
15
14.33
6.14
Ans -1

LEVERAGE RATIO = RSA/(TIER1+TIERII) 31 = 22500/3500 = 6.428

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MODIFY DURATION OF EQUITY IS

4.97
5.99
3.68
9.56
Ans -2

Modified duration = DGAP*leverage ratio = 0.933*6.43 = 5.99

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Mr. X purchases a put option for 300 shares of A with strike price of Rs. 2000 having maturity after 02 months for Rs. 50. On maturity, shares of A were priced at Rs. 1900. What is the profit/lost for the individual on the transaction (without taking the interest cost and exchange commission into calculation)?

Profit of Rs. 30000
Profit of Rs. 15000
Loss of Rs. 30000
Loss of Rs. 15000
Ans: 2

Explanation.

This is put option, so it is assumed that, He will sell 300 shares of A at a price of 2000 Total value of shares is = 600000

Then he will buy the total shares in the market at a price of 1900. 300 × 1900 = 570000 So profit of 30000 in the transaction. .

But he has to paid Rs. 50 per share to buy put options. =300 × 50 = 15000 Total profit or loss = 600000 -570000 -15000 = 15000

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12% government of India security is quoted at RS 120. If interest rates go down by 1%, the market price of the security will be?

120
133.3
109
140
Ans – 2

Explanation :

Current Yield = Coupon Rate x 100/CMP Current Yield = 12 x 100/120 = 10%

Now, Interest rate goes down by 1% (That is 9%). By applying the same formula, we get : 9 = 12 x 100/CMP CMP = 1200/9 = 133.3

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Case study for calculation of capital for market risk

Bank has paid up capital 100 free res. 300 prov and conti res 200 reveluation of res. of 300 p n c p share 400 subordinate debt 300

r.w.a for credit and operational risk 10000 for market risk 4000 Based on the data given above, answer the following questions.

1.Tier-1 capital ?

900
800
750
610
Ans – 2

.............................................
2.Tier-2 capital ?

900
800
750
610
Ans –4

.............................................
3.Capital fund ?

895
1250
1410
1575
Ans – 3

hint : Formula : Tier 1 + Tier 2

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4.Capital adequacy ratio ?

9%
9.75 %
10.50 %
10.07 %
Ans – 4

CAR = T1+T2/RWA

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5.Minimum capital to support credit and opr. risk ?

900
950
1000
1250
Ans – 1

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Spot Rate -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

33.1971
34.1971
35.1971
36.1971
Ans -3

Solution :

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

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On 15th June, Customer presented a sight bill for USD 100000 for Purchase under L

Transit period is 20 days and Exchange margin is 0.15%. The spot rate is 34.80/90. Forward differentials: July -.65/.57 Aug -1.00/.97 Sep -1.40/1.37 How much amount will be credited to the account of the Exporter?
28.0988
34.0988
40.0988
44.0988
Ans: 2

Solution :

Bill Buying rate will be applied Spot Rate = 34.80 Less discount .65 = 34.15 Less Exchange Margin O.15% i.e. .0512

=34.80-0.60-0.0512 =34.0988

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Inflow of USD 200,000.00 by TT for credit to your exporter's account, being advance payment for exports (credit received in Nostro statement received from New York correspondent). What rate you will take to quote to the customer, if the market is 55.21/25?
55.21
55.21-Bank commission
55.25
55.25-Bank commission
Ans: 2

Explanation :

It will be purchase of USD from customer for which USD will have to be sold in the market. Say when USD/Rs is being quoted as 55.21/25, meaning that market buys USD at Rs 55.21 and sells at Rs 55.25.

We shall have to quote rate to the customer on the basis of market buying rate, i.e. 55.21, less our margin, as applicable, to arrive at the TT Buying Rate applicable for the customer transaction.

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A textile exporter, with estimated export sales of Rs. 300 lacs during the last year and projected sales of Rs.500 lacs for the current year, approaches the bank for granting credit facilities. The bank sanctions following facilities in the account:

PCL/FBP/FUBD/FBN Rs. 100.00 lacs

Sub limits:

PCL (25 % margin on fob value) Rs. 50.00 lacs FBP (10 % margin on bill amount) Rs. 50.00 lacs FUBD (15 % margin on bill amount) Rs. 50.00 lacs FBN (nil margin) Rs. 100.00 lacs.

He gets an order for USD 50,000.00 CF, for exports of textiles-dyed/hand printed, to UK, with shipment to be made by 15.9.2014.

On 2.6.2014 he approaches the bank for releasing PCL against this order of USD 50,000.00. The bank releases the PCL as per terms of sanction.

On 31.8.2014, the exporter submits export documents for USD 48,000.00, against the order for USD 50,000.00. The documents are drawn on 30 days usance

(D/A) as per terms of the order The bank discounts the documents at the days applicable rate, adjusts the PCL outstanding and credits the balance to the exporter's account, after recovering interest up to notional due date. Interest on PCL recovered separately.

The documents are realized on 29.10.2014, value date 27.10.2014, after deduction of foreign bank charges of USD 250.00. The bank adjusts the outstanding post shipment advance allowed against the bill on 31.8.2014.

Bank charges interest at -PCL-8.50 % upto 180 days, and post shipment at 8.50 % upto 90 days and

10.50 % thereafter. Overdue interest is charged at 14.50%. The USD/INR rates were as under:

2.6.2014: Bill Buying 48.20, bill Selling 48.40.

31.08.2014: TT buying 47.92, Bill buying 47.85, TT selling 48.08, Bill selling 48.15., premium for 30 days was quoted as 04/06 paise. Now answer the following:

1. What is the amount that the bank allows as PCL to the exporter against the given export order, considering insurance and freight costs of 12%. (i) Rs. 15,90,600 (ii) Rs. 24,10,000 (iii) Rs. 21,20,800 (iv) Rs. 18,15,000

2. What exchange rate will the bank apply for purchase of the export bill for USD 48,000.00 tendered by the exporter: (i) 47.89 (ii) 47.85 (iii) 47.91 (iv) 47.96

3. What is the amount of post shipment advance allowed by the bank under FUBD. for the bill submitted by the exporter: (i) Rs. 19,54,728 (ii) Rs. 19,52,280 (iii) Rs. 19,53,912 (iv) Rs. 22,98,720

4. What will be the notional due date of the bill submitted by the exporter: (i) 30.10.2014 (ii) 30.9.2014 (iii) 25.10.2014 (iv) 27.10.2014

5. Total interest on the export bill discounted, will be charged up to; (i) notional due date 25.10.2014 (ii) value date of credit 27.10.2014 (iii) date of realisation 30.10.2014 (iv) date of credit to nostro account 29.10.2014

Ans. 1: USD 50,000.00 @ 48.20 = Rs.. 2410000.00 -less 12% for insurance and freight cost i.e Rs. 289,200 = Rs.21,20,800.00 (for value of the order.

Less margin 25% i.e. Rs.530,200.00 balance Rs 15,90,600.00)

Ans. 2: 47.89 -Bill buying rate on 31.8.2008 -47.85 plus 4 paise premium for 30 days, this being a DA bill.

Ans 3: USD 48,000.00 @ 47.96 =Rs. 23,02,080.00, less 15% margin on DA bill, i.e. Rs. 345312.00 = Rs 19,56,768.00

Ans 4: Bill submitted on 31.8.2014-drawn on 30 days DA plus normal transit period of 25 days 31.8.2014 plus 30 days plus 25 days, i.e. total 55 days from 31.3.2014 i.e. 25.10.2014

Ans 5: Interest is charged up to the date the funds have been credited to the banks nostro account, the

effective date of credit is the value date of credit, i.e. 27.10.2014.

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A bank has compiled following data for computing its CRAR as on 30 Sep 2014

Tier I capital 2500 Tier ii capital 2000 RWA for credit risk other than retail assets (include 2000 crores of commercial real estate -35,500 Exposure on retail assets -8,700 Total eligible financial collaterals available for retail assets -1200 Capital charge for general market risk net position -450 Capital charge for specific risk -190 Vertical adjustment -15 Horizontal adjustment -10 Total capital charge for options -70 Gross income for the previous year -495 Gross income for the year before previous year -450 Gross income for 2nd year before previous year -390

Based on the data given above, answer the following questions.

The capital required for credit risk at minimum required rate as per RBI is ......

Rs. 4585 Crores
Rs. 4383 Crores
Rs. 3701 Crores
Rs. 3508 Crores
Ans -3

= 8700-1200=7500 @ 75% =5625 35500+5625=41125 9%= 3701 Crs

Total weighted assets for operational risk is ……

Rs. 4944 Crores
Rs. 4323 Crores
Rs. 9553 Crores
Rs. 7156 Crores
Ans -1

1335/3 =885/.09 =4944

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The CRAR of the bank as on 30th Sept 2013 is ……

7.35 %
8.05 %
9.22 %
10.23 %
Ans -2

41125+9833+4944 = 55902 4500/55902 = 8.049

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The bank compares its tier I CRAR with minimum require tier I CRAR And finds

Its tier I CRAR is more and exceeds requirement by 675 Crs
Its tier I CRAR is more and exceeds requirement by 355 Crs
Its tier I CRAR falls short by Rs 854 Crs
None of these
Ans -3

(As per RBI, Tier I capital adequacy ratio should be atleast 6 %) RWA is 55902 6 % of 55902 = 55902 x 6/100 = 3354. Tier I capital is 2500. So, 3354-2500=854 Tier I capital will be short fall by Rs. 854 Crores.

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A bank’s G sec portfolio has 100 day VaR at 95% confidence level of 4% based on yield What is the worst case scenario over 25 days?

Increase in yield by 0.4%
Decrease in yield by 0.4%
Increase in yield by 2%
Decrease in yield by 2%
Ans -3

Solution :

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 %

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A bond having a McCauley’s duration of 8 Yr is yielding 10% at present. What will be the modified duration?

8.8181
8.2323
7.5353
7.2727
Ans -4

Modified duration is McCauley's duration discounted by one period yield to maturity Here we are talking McCauley's duration is 8 years. Modified duration =McCauley's duration / ( 1 + yield ) = 8 /(1 + 10%) = 8/(1 +0.1) = 8/(1.1) = 7.2727

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What will be the annualized yield of the treasury bill face value Rs. 1 lac with maturity after 85 days which is being traded at Rs 98000/-?

8.59
8.76
8.19
8.26
Ans -2

Explanation : Fv-pp/pp x 365/85 [(100000-98000)/98000) x (365/85) = 8.76

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An exposer of Rs 100 lakhs is backed by lien on fixed deposit of Rs 30 lakhs. There is no maturity mismatch. What should be Hair cut for credit risk mitigation?

70 lakhs
0.70 lakh
0.00 lakh
30 lakhs
Ans -3

Hair cut for collateral under banks FDR is 0.

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What is the risk capital if the traded value is of 200 million and volatility is 8%?

18.67 million
37.28 million
16.00 million
39.12 million
Ans -2

Explanation :

Risk capital = 200 million* 0.08*2.33= 37.28 million

2.33 is the factor to be used while calculating risk capital

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If the YTM is 6% and the coupon rate of 7% is payable semi-annually, the value of the bond to be ? (PVIFA (3%,14)=11.296, PVIF (3%,14)=.661

Rs 1451.72
Rs 1056.36
Rs 1112.84
Rs. 1231.04
Ans -2

Explanation :

Bond valuation=i (PVIFAkd,n) + F (PVIFkd,n) Since, it is semi annually, 1000*7% / 2 = 35. So, 35*11.296 + 1000 * 0.661 = 395.36 + 661 = 1056.36

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ABC co has following data as on 31-03-2015 Value in cr

Paid up capital (for 2 crore share with face value of Rs 10) -20 Reserve -60 Long term Loans -80 PBIDT -50 Paid interest -12 Depreciation -10 Tax -08 Price earning ratio -10

1.On this basis, ans the following qtns

Its net profit would be ......

Rs. 38 Cr
Rs. 40 Cr
Rs. 42 Cr
Rs. 20 Cr
Ans – 4

PBIDT-I-D-T = 50-12-10-8 = 20 cr

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2.Book value of shares of the company as on 31-03-2015

Rs. 10 cr
Rs. 30 cr
Rs. 40 cr
Rs. 80 cr
Ans – 3

Book value of shares = (paid up capital + reserve)/no of shares = (20+60)/2 = 40

............................................. ....
3.The earning per share would be ......

Rs. 40 cr
Rs. 30 cr
Rs. 20cr
Rs. 10cr
Ans – 4

EPS=NPAT/paid up capital* face value = 20/20*10 = 10

......................................................
Market price of the share of the co......

Rs. 50 cr
Rs. 100 cr
Rs. 200 cr
Rs. 300 cr
Ans –2

Market price = PER * EPS = 10*10 = 100

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Data relating to balance sheet as on 14 Mar 2015 banks reveals its capital at Rs 1110 cr, reserve 2150 cr, demand deposit 6500cr,SB deposit 20500 cr, term deposits from banks 1300 cr, term deposit from public 30800 cr, borrowing from RBI nil, borrowing from other institutions 200 cr, refinance from NABARD 150 cr, bills payable 50 Cr, accrued 20 cr, subordinated debt 200 cr and credit balance in suspense a/c 30 cr (Total Being 63000)

Answer the following based on the data given above.

Total amt of liabilities not to be included in computing DTLs in Rs

3250 cr
3300 cr
4600 cr
4700 cr
Ans -4

In time liabilities capital and reserve + refinance from NABARD + term deposit of banks not to be included

1100+2150+150+1300

=4700

.............................................
Total amount of DTL on which CRR is to be maintained

Rs. 58100 cr
Rs. 63000 cr
Rs. 58300 cr
Rs. 67100 cr
Ans – 3

6500+20500+30800+200+50+20+200+30=58300

other than those not included while calculating DTL

.............................................
Bank would required to maintain average CRR amounting to, if the rate of CRR is 5%

2915
2905
1749
3150
Ans – 3

= 5% of 58300

= 2915

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What are the risk weighted assets for market risk?

Rs. 1000 crores
Rs. 1500 crores
Rs. 2000 crores
Rs. 2500 crores
Ans –4

200/.08 =2500

.............................................
What are the risk weighted assets for operational risk?

Rs 1000 Cr
Rs 2000 Cr
Rs 1250 Cr
Rs 2500 Cr
Ans – 3

100/.08 = 1250 Ans

.............................................
What is the Tier-I CRAR?

10.29 %
11.42 %
5.71%
14.85 %
Ans -3

TIER-I CRAR=Eligible tier-1 capital/(Total RWAs) = 500/8750 = 5.71%

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What is the total capital adequacy ratio?

0.1486
0.1111
0.1143
0.1282
Ans –3

Total CRAR = Eligible Total capital/(Total RWAs) = 1000/8750 = 11.42 %

(Remember here tier-II capital does not exceed 100 % of tier-I capital. So, Tier-II of Rs. 500Crore is taken for calculation (500+500=1000).

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If there is an assets of Rs. 120 in the doubtful-I cat and the realization value of security is Rs. 100 only, what will be the provision requirement?

Rs. 40
Rs. 45
Rs. 50
Rs. 60
Ans – 2

Since it a doubtful-I cat asset, so 25% of realization value Rs.100 i.e Rs. 25 and 100% of short Fall that is 120-100=20 so ans will be 20+25=45

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A bond having duration of 8 Yr is yielding 10% at present. If yield increase by .60%, what would be the impact on price of the bond?

Bond price would go up by 4.36%
Bond price would fall by 4.36%
Bond price would go up by 2.82%
Bond price would fall by 2.82%
Ans -2

Modified duration is McCauley's duration discounted by one period yield to maturity Here we are talking McCauley's duration is 8 years. Modified duration =McCauley's duration / ( 1 + yield )

8 /(1 + 10%) = 8/(1 +0.1) = 8/(1.1) = 7.2727

% change in price =-modified duration × yield change

= -7.2727× (0.60%) = (-)4.3636 % = (-) 4.36% ( -)means decrease in price

4.36 % decrease in price. .

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Mr. Raj purchases a call option for 400 shares of A with strike price of Rs. 100 having maturity after 03 months for Rs. 20 and also buy a put option for 200 shares of B with strike price of Rs. 200 having maturity after 03 months for Rs. 30. On maturity, shares of A were priced at Rs. 130 and shares of B were priced at Rs. 180. What is the profit/lost for the individual on the transaction (without taking the interest cost and exchange commission into calculation)?
Profit of Rs. 4000
Profit of Rs. 2000
Loss of Rs. 4000
Loss of Rs. 2000
Ans -2

Explanation.

First one is a call option, so it is assumed that, He will purchase 400 shares of A at a price of 100 Total value of shares is = 40000 Then he will sell the total shares in the market at a price of 130. 400 × 130 = 52000 But he paid the premium for call options @ 20 × 400 = 8000 So profit in this first transaction will be 52000 -40000 -8000 =4000 (Profit of Rs. 4000)

Second one is a put option, so it is assumed that, He will sell 200 shares of A at a price of 200 Total value of shares is = 40000 Then he will buy the total shares in the market at a price of 180. 200 × 180 = 36000 But he has to paid Rs. 30 per share to buy put options. =30 × 200 = 6000

So profit in this transaction will be 40000 -36000 -6000 = -2000 (loss of Rs. 2000)

So taking both the transactions, 4000-2000 = 2000 (Profit of Rs. 2000)

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The balance sheet of x bank provide the following information as on 31 mar 2013 Rs , Cr) capital 1000, reserves-6000, current account deposit 30000, saving bank deposit 3000, term deposit, term deposit 30000 and borrowings 3000 on the assts side the cash -6900, bal with banks-15000, investment-15000, bills purchased =-20000, cash credit-20000, term loans-20000 and fixed assets 3100. Total-100000. Earning assets out of total assets are 90000 cr. Cash credit , bill purchased and investments are affected by change in interest rate. Term loans carry fixed interest rate . SB an d TD are affected by change in interest rate.

1.Rate sensitive assts of the bank are

55000
75000
85000
none
Ans -1

2.A Rate sensitive liabilities of the abnk are

63000
93000
60000
none
Ans -3

3.The above bank has ......

positive gap
negative gap
marginal gap
zero gap
Ans -2

4.Tier-I capital of the bank

1000
7000
10000
none
Ans -2

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A company enjoys cash credit account with a bank. It also has a term loan account with o/s balance of Rs. 15 Crores as on 31-03-2015. The bank has also subscribed to the bonds issued by the borrower company amounting to Rs. 3 Crores. As on 31-03-2015, 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. What will be the amount that will become NPA on account of this company?

Rs. 1.20 Crores
Rs. 4.20 Crores
Rs. 16.20 Crores
Rs. 19.20 Crores
Ans -4
= 15+3+1.20 = 19.20

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If there is an assets of Rs. 150 only in the doubtful-III cat and the realization value of security is Rs. 100 only, what will be the provision requirement.

Rs. 50
Rs. 95
Rs. 110
Rs. 150
Ans – 4

Since it a doubtful-III Cat asset,

100% provision is required for the entire asset.

So, 150 is the right ans.

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If there is an assets of Rs. 120 only in the doubtful-II cat and the realization value of security is Rs. 100 only, what will be the provision requirement ?

Rs. 40
Rs. 50
Rs. 60
Rs. 70
Ans – 3

Since it a doubtful-II Cat asset, so 40% realization value of Rs. 100 i.e Rs.40 and 100% of short Fall that is

120-100=20 so ans will be 40+20=60

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Retirement of import bill for GBP 100,000.00 by TT Margin 0.20%, ignore cash discount/premium, GBP/USD 1.3965/75, USD/INR 55.16/18. Compute Rate for Customer.

76.5480
76.6985
77.1140
77.2682
Ans -4

Explanation :

For retirement of import bill in GBP, we need to buy GBP. To buy GBP we need to give USD and to get USD, we need to buy USD against Rupee, i.e. sell Rupee. At the given rates, GBP can be bought at 1.3975 USD and USD can be bought at Rs. 55.18. The GBP/INR rate would be 77.1140. (1.3975 x 55.18), at which we can get GBP at market rates. Thus the interbank rate for the transaction can be taken as 77.1140. Add Margin 0.20% 0.1542. Rate would be 77.1140 + 0.1542 = 77.2682 for effecting import payment.

(Bill Selling Rate).

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ABC Ltd Option Quotes. Stock Price : Rs. 350

Calls Puts Strike Price Jan Feb March Jan Feb March 300 50 55 ---- 320 36 40 43 3 5 7 340 18 20 21 8 11 - 360 6 9 16 18 21 23 380 4 5 6 -43 -

-A blank means no quotation is available

1. List out the options which are out-of-the-money. 2. What are the relative pros and cons (i.e. risk and reward) of selling a call against the 5000 shares held, using (i) Feb/380 calls versus (ii) March 320/ calls ? 3. Show how to calculate the maximum profit, maximum loss and break-even associated with the strategy of simultaneously buying say March/340 call while selling March/ 360 call?

4. What are the implications for the firm, if for instance, it simultaneously writes March 360 call and buys March 320/put? 5. What should be value of the March/360 call as per the Black-Scholes Model? Assume that t=3 months, risk-free rate is 8 percent and the standard deviation is 0.40 6. What should be the value of the March/360 put if the put-call parity is working? Solution:

1) Calls with strike prices 360 and 380 are out –of –the-money. 2) (i) If the firm sells Feb/380 call on 5000 shares, it will earn a call premium of Rs.25,000 now. The risk

however is that the firm will forfeit the gains that it would have enjoyed if the share price rises above Rs. 380.

(ii) If the firm sells March 320 calls on 5000 shares, it will earn a call premium of Rs.215,000 now. It should however be prepared to forfeit the gains if the share price remains above Rs.320.

3) Let s be the stock price, p1 and p2 the call premia for March/ 340 and March/ 360 calls respectively. When s is greater than 360, both the calls

will be exercised and the profit will be { s-340-p1} – { s-360-p2 } = Rs. 15 The maximum loss will be the initial investment , i.e. p1-p2 = Rs.5 The break even will occur when the gain on purchased call equals the net premium paid

i.e. s-340 = p1 – p2 =5 Therefore s= Rs. 345

4) If the stock price goes below Rs.320, the firm can execute the put option and ensure that its portfolio value does not go below Rs. 320 per share.

However, if stock price goes above Rs. 380, the call will be exercised and the stocks in the portfolio will have to be delivered/ sold to meet the

obligation, thus limiting the upper value of the portfolio to Rs. 380 per share. So long as the share price hovers between R. 320 and Rs. 380, the

firm will lose Rs. 1 (net premium received) per pair of call and put.

5) S0 =350 E =360 t =0.25 r = 0.07 s =0.40

350 (0.40)2 ln + 0.07+ x 0.25 360 2 d1 =0.40 x Ö0.25 = ( -0.0282 + 0.0375) / 0.2 = 0. 0465 d2 = 0.0465 -0.40 v.0.25.. = -0.1535

Using normal distribution table N (0.00) = 1-0.5000 = 0.5000 N (0.05) = 1 – 0.4801 = 0.5199 Therefore N( 0.0465) = 0.5000 + (0.0465/0.0500) x (0.5199 – 0.5000) = 0.5185 N ( -0.20) = 0.4207 N ( -0.15) = 0.4404

Therefore N ( -0.1535) = 0.4207 + ( 0.0465/0.0500) x(0.4404 – 0.4207) = 0.4390 E /ert = 360 / e0.07 x0. 25 = 360 / 1. 01765 = 353.75 C0 = 350 x 0.5185 – 353.75 x 0.4390 = 181.480 – 155.30 = Rs. 26.18

6) If put-call parity is working, we have P0 = C0 – S0 + E/ert Value of the March/360 put = 26.18 -350 + 353.75 = Rs.29.93

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you have given the following information, in summary about the profit & loss a/c of the c bank

Interest earning Rs 120000 cr Other income Rs 1800 cr Profit on sale of fixed assets Rs 120 cr Income from sale of third party products Rs 80 cr

On expenses side Interest expenses are Rs 8200 cr Operating expences Rs 3400 cr Provisions of Rs 1600cr

Answer following

Operating profit for the bank ......

Rs 800cr
4400 cr
2400 cr
2800 cr
Ans -3

Gross income for the purpose of working out capital charge for operational risk under Basel II would be
6000 cr
4400 cr
4000cr
2600cr
Ans -1

Under basic indicator approach the bank would be required to allocate capital for operational risk under Basel-ii based on operations for one year as.

900 cr
600 cr
300 cr d 1200 cr
Ans -1

The risk weighted assets for operational risk under basel-II in the above case would be:

11250 cr
90000 cr
5000 cr
6000 cr
Ans -1

The allocation of capital for market risk under basel-II would be ......

296 cr
592 cr
444 cr
Insufficient data to calculate the capital required
Ans - 4

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Mr. Raj purchases a call option for 500 shares of A with strike price of Rs. 140 having maturity after 03 months at a premium of Rs. 40. On maturity, shares of A were priced at Rs. 180. Taking interest cost @ 12% p.a What is the profit/lost for the individual on the transaction?
Profit of Rs. 20000
Profit of Rs. 600
Loss of Rs. 20600
Loss of Rs. 600
Ans -4
Explanation.

This is call option, so it is assumed that, He will purchase 500 shares of A at a price of 140 Total value of shares is = 70000

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Mr. Raj purchases a call option for 500 shares of A with strike price of Rs. 140 having maturity after 03 months at a premium of Rs. 40. On maturity, shares of A were priced at Rs. 180. Taking interest cost @ 12% p.a What is the profit/lost for the individual on the transaction?

Profit of Rs. 20000
Profit of Rs. 600
Loss of Rs. 20600
Loss of Rs. 600
Ans -4

Explanation.

This is call option, so it is assumed that, He will purchase 500 shares of A at a price of 140 Total value of shares is = 70000

Then he will sell the total shares in the market at a price of 180. 500 × 180 = 90000 So profit of 20000 in the transaction. . But he has to pay the premium for call options. Which is 40 × 500 = 20000 And the fund interest cost will be, 12% p.a So for 03 months 12/4=3%) = 20000 × 3/100 = 600 Total premium + premium cost = 20000 + 600 = 20600

In total, = 20000 -20600 = -600

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An advance of Rs. 400000/-has been declared sub standard on 31/05/2015. It is covered by securities with realizable value of Rs. 250000/-. What will be the total provision in the account as on 31/03/2015?
150000
75000
55000
50000
Ans -2

Explanation :

Sub standard assets will attract provision of 15 % for secured portion and 25 % for unsecured portion.

Please refer “http://rbidocs.rbi.org.in/rdocs/notification/PDFs/62MCIRAC290613.pdf” Page -25, Para – 5.4. So,

= 15% of 250000 + 25% of of 150000

= 37500 + 37500

= 75000

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XYZ Bank’s foreign correspondent maintaining a Nostro Rupee account with XYZ bank, wants to fund his

account by purchase of Rs. 10.00 million, against US dollars. Assuming that the USD/INR interbank market is at 56.2380/2420, what rate would be quoted to the correspondent, ignoring exchange margin?

56.2380
56.2400
56.2420
56.2425
Ans -1

The transaction is to sell Rs 10.00 million, against US dollars, and hence the XYZ Bank would quote the

lower of the two rates, i.e. 56.2380 (Sell low maxim).

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XYZ Bank’s foreign correspondent maintaining a Nostro Rupee account with XYZ bank, wants to fund his

account by purchase of Rs. 10.00 million, against US dollars. Assuming that the USD/INR interbank market is at 56.2380/2420, what rate would be quoted to the correspondent, ignoring exchange margin? Calculate amount of USD XYZ Bank would receive in its USD Nostro account, if the deal is struck.

175438.60
177803.07
177815.71
178571.43
Ans -3

Explanation :

The transaction is to sell Rs 10.00 million, against US dollars. Hence the XYZ Bank would quote the lower of the two rates, i.e. 56.2380. If the deal is struck, the foreign bank would pay Rs. 10000000/56.2380 = USD 177815.71 to XYZ Bank USD Nostro account.

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A bank borrows US $ for 03 months @ 3.0% and swaps the same in to INR for 03 months for deployment in CPs @ 5%. The 3 months premium on US $ is 0.5%.

What is the margin(gain/loss) generated by the bank in the transaction?

2%
3%
1.5%
2.5%
Ans -3

Explanation :

Bank borrows US $ for 3 months @ 3% Same it will invest in CP for 3 months @ 5% So, it gains 2% by interest rate margin here. But when bank repay its borrowing in $, it has pay 0.5% extra because US $ will be costly by 0.5% as US $ is at premium. So it will reduce bank gain by 0.5%. 2.0%-0.5% = 1.5%

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A bond with a coupon rate of 9% maturing in 2015 and trading at Rs 180 will have yield of …...
4%
5%
6%
7%
Ans -2

Explanation :

Current yield = Coupon rate/Prevailing market value

= 9/180= 5%