Bankers ZONE ARENA

CAIIB PAPER 2 BFM

LAST DAY SPECIAL

IMPORTANT POINTS TO BE NOTED WHILE MAKING WILD

GUESS:
a) Avoid extreme values like 25 here if options are a) 5 b) 7 c) 25
d 8),
b) If any option is “all of the above/ none of the above” go for
All of the above. Don’t go for None of these, there is 80% chance of
this answer to be correct.
c) Use Elimination method like may be A or B be may C, chances are
you will get correct answer.
d) If option is true or false, then go for true.
e) If nothing works, then go for option B

MOCK TEST ANSWER AFTER 10 QUESTIONS

1. R-returns, fortnightly statement to be submitted to RBI, is
statement of:
a) Sale & Purchase of foreign exchange
b) Sale & purchase of USD & GBP
c) Sale & purchase of USD, GBP, EUR & JPY
 d) Inflow & outflow of foreign exchange
2. The important tool to measure volatility in the market is:
a) Standard Deviation from mean of the variable
b) Duration or Modified Duration
c) Yield Curve
d) VEGA
3. Full-fledged money changers authorized to handle miscellaneous
remittance relating to studies abroad, travel etc., are called:
a) Authorized Dealer Category – I
b) Authorized Dealer Category –
c) II c. Authorized Dealer Category – III
d) Authorized Dealer Category – IV
4. The applicable risk weight the banks need to charge on the
advances sanctioned under Emergency Credit Line Guarantee Scheme
(ECLGS) is:
a) 0.40%
b) 2%
c) 10%
d) Zero percent
5. As part of capital adequacy framework in India, which of the
following is part of Tier-2 capital and at the same time, the 1.25% of
risk weighted assets ceiling is not applicable on that:
a) a provision on standard loans
b) b provision on NPA loans
c) c floating provisions
d) d investment fluctuation reserves
6. The risk weight for a housing loan to individual is ____ where the
loan to value ratio is less than or equal to 80%, irrespective of amount
of loan:
 a) a 25%
b) b 35%
c) c 50%
d) d 75%
7. Duration is a measure of:
a) Currency risk
b) Counterparty risk
c) Interest rate risk
d) MTM Value (Mark to Market)
8. A Govt. of India 10 years bond is held in HTM category. This
exposure may be classified under:
a) Banking Book
b) Trading Book
c) Off balance sheet exposure
d) Term liability
9. As per RBI guidelines the premium of Export Credit Insurance for
Banks Post Shipment (ECIB-PS) Finance:
a) Is to be absorbed by the bank
b) Is to be shared by the bank with the exporter
c) Is charged to the sub supplier
d) Is charged to the exporter’s account
10. In terms of UCP in case of invoices made on CIF basis, the insurance
must be of at least:
a) 100% of CIF Value
b) 100% of FOB Value
c) 110% of CIF Value
d) 115% of CIF Value

Answers: 1d 2a 3b 4d 5d 6b 7d 8a 9a 10c
11. The Liberalized Remittance Scheme for resident Indian would not
include:
a) Gift of $5000 made to sister in UK
b) Remittances for the purpose of donation abroad
c) Remittances for the purpose of flat in Dubai jointly with wife
d) Remittances for fees for education of ward in Nepal
12. Upto what amount an Indian company can send gift abroad to
their client without need to declare the shipment in EDF form:
a) NIL
b) $ 1000
c) INR 5 Lac
d) $ 10000
13. A bank identifies 4 assets A,B,C&D for investment with a view to
reduce the portfolio risk. It has to choose one of them, which of the
following criteria would be most relevant:
a) Risk capital required for each asset
b) Return on risk capital required for that asset.
c) Correlation of the asset with the portfolio
d) Income earned from the asset
14. What TT rate will be applied to a foreign correspondent
maintaining a Vostro account with you to fund Rs.100 Mn. to their
account. Interbank rate for USD/INR is 44.7950 / 8050 and a margin of
0.0050 paisa is to be applied:
a) 44.8100
b) 44.8000
c) 44.7900
d) 44.8450
SOLUTIONS Q.14. Since the bank is to fund rupee account of the
foreign correspondent by converting USD to INR, bank will buy USD at
USD buying rate of 44.7950. ‘BUY LOW SELL HIGH’ --- Margin of 0.0050
will be reduced from the buying rate. Final rate to be applied =
44.7950 – 0.0050 = 44.79 Option ‘c’
15. A 5 year 9% semi-annual bond at market yield of 7.50% has a price
of Rs.106.16 which rises to Rs.107.45 at a yield of 7.20%. What is the
BPV of the bond:
a) Rs.43 per Rs.1000 book value of the bond
b) Rs.4.30 per Rs.1000 book value of the bond
c) Rs.0.43 per Rs.1000 book value of the bond
d) None of these
⮚ BPV is the change in the price of the bond when rate of interest
changes by 1 bps (i.e., by .01%)
⮚ In this case ROI has come down from 7.50 to 7.20, it has changed
by 0.30% (i.e., by 30 bps)
⮚ Price has gone up from Rs.106.16 to 107.45, it has changed by 129
paisa.
⮚ BPV in this case = 129/30 = 4.3 paisa
⮚ 4.3 is the BPV on bond of book value Rs.100/- (since the price is only
106.16 --- it means book value
of the bond is only 100)
⮚ BPV of the bond of book value 1000 = 4.3 x 10 = 43 paisa …. Option
‘c’
16. Trading book exposures are:
a. Held till Maturity and income is booked on accrual basis
b. Held till Maturity and income is booked on ‘when realized’
c. Held for a period and income is booked on accrual basis
d. Held for a period and income is booked on ‘when realized’
17. Hilton Exports submitted on 18 Jan.2016 an usance bill payable 60
days after acceptance. What is the due date of the bill if the bill was
presented to the importer on 27 Jan.2021:
a. 12 Apr. 2016
b. 18 Mar. 2016
c. 27 Mar. 2016
d. 30 Mar. 2016
Sol:17 The bill is payable 60 days after acceptance. It was presented
on 27 Jan.2016. Since acceptance date is not given, date of
presentation will be takes as the date of acceptance. Grace period is
not compulsory for foreign bills, unless grace period is not specifically
mentioned. Due date will be calculated as under …. 27 Jan. 2016 + DA
of 60 days = 87 Jan.2016 is the due date – 31 days of Jan.2016 = 56
Feb.2016 is the due date – 29 days of Feb.2016 = 27 Mar.2016 is the
due date …… Option ‘c’
18. What is the rate to be applied for crystallization of export bills:
a. Bill Buying
b. TT Buying
c. Bill Selling
d. TT Selling
19.. What is the proof of import to be submitted by the importer
a) Bill of Entry
b) Custom invoice
c) BEF 0
d) GR Form
20. In a dealing room parlance the word ‘MINE’ means:
a) Buy
b) Sell
c) Dealer is irritated with opposite counter
d) None of these
Answers: 11d 12a 13d 14c 15c 16d 17c 18d 19a 20a
21. The current price of the specified future contract is
a) spot price
b) market price
c) option price
d) future price
22. The last trading day in case of foreign exchange future contract is
----- is prior to the final settlement date.
a) one day
b) three days
c) four days
d) two days
23. The maxim applied in respect of Direct Quotation is
a) buy low, sell low
b) buy low, sell high
c) buy high, sell low
d) buy high, sell high
24. Under standardized approach for measurement of operational
risk, beta factor for retail banking is…..
a) 12%
b) 15%
c) 18%
d) 20%
25. Counter party risk is embedded mainly in:
a) Forex transactions
b) Credit transactions
c) Liquidity management systems
d) All of the above
26. Which of the following procedures is essential in validating the VaR
estimates.
a) Back Testing
b) Scenario Analysis
c) Stress Testing
d) Once approved by regulators no further validation is required.
27. 51. To hedge the interest rate risk on Rs. 4 million of Treasury
bonds with Rs.100,000 futures contracts, you would need to purchase
a) 4 contracts.
b) 20 contracts.
c) 25 contracts.
d) 40 contracts.
28: Risk of having to compensate for non-receipt of expected cash
flows by a Bank is called:
a) Call risk
b) Funding risk
c) Time risk
d) Credit risk
29. Examples of off-balance-sheet activities include
a) loan sales
b) foreign exchange market transactions
c) trading in financial futures
d) all of the above
30. If a bank sells off all of its assets and pays all of its liabilities, the
amount remaining would be:
a) Net profit.
b) Reserves.
c) Net worth.
 d) Excess reserves.

Answers: 21d 22d 23b 24a 25a 26a 27d 28c 29d 30c
31. A bank's loan loss reserves are:
a) The amount of loans that have defaulted in the past twelve
months.
b) The same as equity capital.
c) An amount the bank sets aside to cover potential losses from
defaulted loans.
d) A liability of the bank since it is a source of funds.
32. Acceptances, endorsements and guarantees are shown as-----
a. other assets
b. contingent liabilities
c. advances
d. other liabilities and provisions
33. Account when becomes NPA, if principal and interest not serviced
beyond 90 days from which date:
a) From end of month in which it become NPA
b) From the date of application during defaulting quarter
c) From 91st day of becoming NPA
d) None of these
34. If an account is doubtful for more than 3 years what is percentage
of provision on secured
portion?
a) 40% on secured & 100% on unsecured
b) 25% on secured & 100% on unsecured
c) 100% Provision both on secured and unsecured.
d) 15% on secured & 100% on unsecured
35. The provision on Standard Asset is kept in the Balance Sheet as
part of:
a) Schedule 11 advances
b) Deduct from Sch. 13 other assets
c) Deduct from Sch. 4 Deposit
d) Other liability and provision.
36. X Co. is consortium account. No credits came to account for last 90
days. But party remitted the money to consortium leader SBI in time,
who in turns not shared with member bank.
a) Account will be NPA treating as non-served in the books of this
Bank.
b) Account will be PA as money received by SBI leader of
consortium.
c) None of above.
d) Both of above.
37. Given loan by your Bank against Govt Guarantee to Govt company.
Loan is overdue for more than 90 days.:
a) Will be treated as NPA.
b) Will be treated as NPA only if guaranteed is invoked and
guarantee is not honoured.
c) Both are true.
d) None are true.
38. Erosion in security value to 50% or more and it was sanctioned just
3 months back:
a) Classify account as Standard asset
b) Classify account as Substandard asset
c) Classify account as Doubtful asset
d) Classify account as Loss asset
39. Erosion in security value leaving value at 10% or less.
a. Classify account as Standard Asset
b. Classify account as Substandard Asset
c. Classify account as Doubtful Asset
d. Classify account as Loss Asset
40. A Collateralised Transaction is one in which
a) A bank is having general lien and right for set off
b) bank has hedge the position in the market
c) banks have a specific lien on the collateral and the
requirements of legal certainty are met.
d) All of the above

Answers: 31c 32b 33b 34c 35d 36a 37b 38c 39d 40c
41. Gone concern capital means
a) Capital to protect bank without triggering bankruptcy of the
bank
b) Special capital build up for absorbing abnormal losses to bank
c) Capital which RBI has to build by issuing bonds
d) Capital to absorb losses only in a situation of liquidation of the
bank
42. Going concern capital means
a) Capital to protect bank without triggering bankruptcy of the
bank
b) Special capital builds up for absorbing abnormal losses to bank
c) Capital which RBI has to build by issuing bonds
d) Capital to absorb losses only in a situation of liquidation of the
bank
43. Capital conservation buffer means capital buffers build up in
a. Stress period
b. Normal times
 c. Contagion times
d. Cataphoric times
44. The term interest rate swap
a. refers to a "single-currency interest rate swap" shortened to
"interest rate swap"
b. involves "counterparties" who make a contractual agreement
to exchange cash flows at periodic intervals
c. can be "fixed-for-floating rate" or "fixed-for-fixed rate"
d. All of the above
45. Which of the following is an agreement to exchange two
currencies on one date and to reverse the transaction at a future date?
a. Interest rate swap
b. Foreign currency swap
c. Total return swap
d. Credit default swap
46. In case of interest rate future contract the underlined bond is -----
a. notional 10 yr 7% bond
b. 7% bond 5 yrs maturity
c. 7.5% bond for more than 15 yr maturity
d. none of these
47. The minimum lots size for interest rate future is
a) 100 bonds
b) 200 bonds
c) 1,000 bonds
d) 2,000 bonds
48. A swap transaction involves
a) purchase of currency
b) sale of currency
c) purchase of currency against sale or forward sale of the currency.
d) simultaneous purchase and sale of one currency against another for
different settlement dates.
49. If you purchase a Rs.100,000 interest-rate futures contract for 105,
and the price of the Treasury securities on the expiration date is 108
a) your profit is Rs.3000.
b) your loss is Rs.3000.
c) your profit is Rs.8000.
d) your loss is Rs.8000.
50. If you sell a Rs.100,000 interest-rate futures contract for 110, and
the price of the Treasury securities on the expiration date is 106
a) your profit is Rs.4000.
b) your loss is Rs.4000.
c) your profit is Rs.6000.
d) your loss is Rs.6000.

Answers: 41d 42a 43a 44d 45b 46a 47d 48d 49a 50a

IMPORTANT
TT transactions are related to NOSTRO accounts
TT Selling rate for purchase contracts
TT Buying rate for sale contracts
All cancellation shall be at bank`s opposite TT rates
HOW TO CALCULATE CROSS RATE

To calculate the cross-exchange rate, you need the bid prices of both currencies
involved when paired with the USD. It’s quite easy when the USD is the base
currency in one pairing and the quote currency in the other pairings. You just have
to multiply the two bid prices with your cross rate calculator to get the cross rate.

For example: In the case of the GBP/CHF. The bid prices are as follows:
GBP/USD=1.5700, USD/CHF=0.9300.

Thus the cross rate (GBP/CHF) will be 1.5700*0.9300=1.4601.

At times, the USD might be the base or quote currency of both pairings. When
this is the case, reciprocal paring is done where one of the currencies is flipped.

For example: When the bid price for EUR-GBP is 1.2440, and the bid price for
USD-GBP is 1.8146, to get the cross rate we simply multiply with our cross rate
calculator, the EUR-USD rate and the USD- GBP rate, that is,
1/1.2440*1.8146=1.4587

In CROSS Rate one currency has to be USD

BID & OFFER PRICE

Bid Price is the maximum price at which a buyer is ready to buy a security.
Whereas Offer Price is the minimum price at which a seller is ready to sell a
security. The Bid Price is the lower price and the Ask price is the higher price. If
you want to buy a stock, a broker will set a higher price than that of the offer price.

The Difference amount between Bid and Ask is known as Bid-Ask Spread
or simply spread.

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Best of luck