CAIIB – PAPER –II -- BANK FINANCIAL MANAGEMENT

RECOLLECTED QUESTIONS

1. Under article 14 of UCP – 600 the reasonable time allowed to an LC opening bank to
examine & to reject the documents is ….
a. Not exceeding 5 business days from the date of receipt of the documents
b. Not exceeding 7 business days from the date of receipt of the documents
c. Not exceeding 5 business days after the date of receipt of the documents
d. Not exceeding 7 business days after the date of receipt of the documents
2. A PIO presently staying in UK wants to place a deposit in GBP for 5 years in India. Which
of the following accounts can be offered to him within the present Exchange Control
regulations…
a. EEFC Term Deposit A/C b. FCNR (B) Term Deposit A/C
c. RFC Term Deposit A/C d. NRE Term Deposit A/C
3. Duration is a measure of ..
a. Currency risk
b. Counterparty risk
c. Interest rate risk
d. MTM Value
4. Interest on NRE rupees fixed deposit for 10 years is linked to …
a. 3 years LIBOR b. 10 years LIBOR
c. 10 years NIFOR d. 10 years BPLR
5. Exchange rates are generally quoted for delivery of currencies …
a. To take place on the date the transaction is done
b. To take place anytime after 1 month from the date the transaction is done
c. To take place on the day next to the date of deal
d. To take place on the 2nd working day of the date of deal
6. 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
7. 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
8. 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
9. Under automatic route, ECB for average maturity of 3 years can be availed upto a
maximum of…
a. USD 10 Mn. b. USD 20 Mn.
c. USD 100 Mn. d. USD 500 Mn.
10. 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
11. 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
12. 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
13. 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
14. A 5 year 9% semiannual 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
15. Interest arbitrage is done by the treasury by using which of the following methods …
a. Borrowing in a foreign currency and deploying in home currency & vice-versa taking
advantage of interest differential
b. Borrowing from RBI at a lower rate & lending to borrower at a higher rate
c. By using derivartive product
d. As treasury make money in other areas of money market they lend to borrower at a
lower rate
16. An exporter can hedge his exchange risk using ….
a. A Call Option
b. A Put Option
c. A Currency Swap
d. Forward Surcharge of Dollars
17. What is the core reason for treasury profit being attractive…
a. They operate in inter bank market & are highly leveraged
b. They have a specialized staff & deal with corporate directly / smartly
c. They operate in completely computerized environment & cost of operation is
negligible
d. They deal in exotic products which are profitable
18. Which is not the component of DTL for the purpose of calculating CRR and SLR for
reserve requirements by bank…
a. Margin money kept for LC & BG etc.
b. Foreign outward remittances in transit
c. Accrued interest balances in suspense a/c etc.
d. Demand & time liabilities in respect of bank’s offshore banking unit
19. Standardized Duration Approach is applicable for computing capital requirement for…
a. Operational Risk b. Market Risk
c. Credit risk d. Liquidity Risk

20. 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
21. Asset side balance sheet management function include…
a. Reserve position management b. Capital management
 c. Long term management d. Loan management
22. Which of the following does not form part of the component of liabilities…
a. Reserve & Surplus b. Deposits
c. Interest accrued but not due on advances
d. Interest accrued but not due on borrowings
23. Fixed assets in a bank’s balance sheet do not include…
a. Immovable property b. Furniture & Fixtures
c. Investment in Govt. Securities d. Motor Vehicle
24. The elements of Tier – I capital do not include…
a. Paid up Capital b. Perpetual Non Cumulative Preference Shares
c. Revaluation Reserves d. Statutory Reserves
25. In a dealing room parlance the word ‘MINE’ means…
a. Buy b. Sell
b. Dealer is irritated with opposite counter d. None of these
26. Which of the following is not a classification of NPAs…
a. Sub Standard b. Loss
c. Standard d. Doubtful
27. The 3 mutually reinforcing pillars of the revised framework of Basel-II do not include…
a. Minimum Capital required b. Market Discipline
c. Supervisory Review & Evaluation Process d. Market Capitalization
28. 15% coupon bond of FV Rs.1000/-, 3 years remaining maturity was bought at Rs.1050/-.
After 1 year you sell the bond when the rate have fallen and the bond’s YTM is 10%.
Bond’s rate of return then would be…
a. 18.7% b. 17.8% c. 16.5% d. 16.6%
29. Which of the following is a Direct Quote:
a. In India : 1US $ = Rs 43.2350
b. In U S A : 1Euro = US $ 1.9200
c. In Germany : 1 DM = US $ 1.2450
d. ‘a’ & ‘b’ e. All of these
30. Market rates : 1 US$ = 42.8450 / 8545
1 EUR = US$ 1.9720 / 40
By selling 100000 Euro, how much Mr.Ram Dass will get….
a. Rs.8459478
b. Rs. 8450907
c. Rs. 8449034
d. None of these
31. Market Quote : 1 EUR = USD$ 1.5780 / 90 : 3 months forward = 110 / 105.
If you have to buy EURO 3 months forward, what would be the rate to buy 1 EURO
a. US$ 1.5890
b. US$ 1.5895
c. US$ 1.5680
d. None of these
32. If the Spot rate is Euro 1 = US $ 1.500 and the interest rate in Europe is higher by 3% p.a
than that in USA, what will, theoretically, be EURO’s 90 days forward rate, assuming 360
days in a year…
a. 1.5112
b. 1.4888
c. 1.5075
d. 1.4925
33. In a dealing room parlance the word ‘YOURS’ means…
a. Buy b. Sell
c. Dealer is unhappy d. None of these
34. How much loan to NRI himself or third parties can be given against the security of FCNR
(FD) & NRE (FD) ….
a. Rs.20/- Lac b. Rs.100/- Lac
c. Rs.200/- Lac d. No limit
35. A Principal only Swap is used to protect…
a. Currency & Interest rate risk
b. Interest rate risk
c. Currency risk
d. Counterparty risk
36. 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’
37. A foreign tourist comes to India and want to get his traveler cheques encashed. What rate will be
applied…
a. Bill Buying b. TT Buying c. TC Selling d. TC Buying
38. Forward exchange rate in treasury parlance refer to projected exchange rate movement in the
foreign exchange market. Is this statement true? …
a. True – it is a projected movement of foreign exchange rates
b. False – it reflects interest rate movement expected
c. It is an exchange traded product
d. We cannot project movement of foreign exchange rates as they are volatile
39. An interest rate swap is…
a. A series of forward rate agreement
b. A swing of interest rate future
c. A charge for investment
d. Protection against change in bank rate
40. Which of the following is not an OTC Contract…
a. Currency Swap
b. Interest rate Swap
c. Forward contract
d. USD/INR future contract
41. Investing long term funds in Commercial Paper may lead to…
a. Increase in NPA
b. Increase in security held to maturity
c. Fall in interest rate income
d. Interest rate mismatch
42. Failure of Banque Herstatt in Germany is a classical example of …
a. Country Risk b. Liquidity Risk
c. Translation Risk d. Settlement Risk
43. A standby credit line help the bank to manage…
a. Credit risk
b. Liquidity risk
c. Interest rate risk
d. Currency risk
44. 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
45. Standby Letter of Credit is that which….
a. Ensures Payment to the exporter upon submission of credit complied DP documents
b. Ensures Acceptance & Payment to the exporter on due date upon submission of credit complied
DA documents
c. Ensures Payment to the exporter if the importer fails to make payment for the goods imported
by him
d. Ensures the payment to the exporter in advance in respect to the goods exported by him
46. 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 – II
c. Authorized Dealer Category – III d. Authorized Dealer Category – IV
47. Which of the following statements is incorrect….
a. Funding liquidity risk arises due to asset / liability mismatch.
b. Asset liquidation risk refers to a situation when a specific asset faces lack of trading liquidity.
c. Market liquidation risk refers to a situation where market faces lack of trading liquidity.
d. Liquidation risk & the liquidity risk are the same.
48. A person who went abroad got foreign exchange from his bank as per his entitlement. Upon return
he had some foreign exchange left with him. It needs to be surrendered to an Authorized Dealer in
how may days…
a. 90 b. 45 c. 180 d. 270
49. SWIFT is ….
a. An inter bank settlement system
b. A cross border clearing mechanism
c. A global inter bank payment system
d. World wide inter banking platform
50. An export bill which was previously purchased by the bank has been returned unpaid. What rate the
bank should apply to recover the money from the customer…
a. Bill Buying b. Bill Selling c. TT Buying d. TT Selling
51. Time Risk is a type of …
a. Liquidity Risk b. Operational Risk
c. Market Risk d. Credit Risk
52. To a traveler proceeding to Libya how much foreign exchange in the form of foreign currency notes
and coins can be released within overall foreign exchange sold to the traveler….
a. USD 3000 b. USD 5000 c. No limit d. Cannot be released in Cash

53. SPOT EURO = $1.3180/90; 1month = 35/32; 2month = 72/70; 3month = 110/107
How much is 1 month forward Buying Rate = 1.3180 - 0.0035 = 1.3145

54. SPOT EURO = $1.3180/90; 1month = 35/32; 2month = 72/70; 3month = 110/107
How much is 1 month forward Selling Rate = 1.3190 - 0.0032 = 1.3158
55. A person returning from abroad, in how many days he should surrender unspent foreign exchange
with him to an Authorised Dealer …..
a. 1 year b. 3 months
c. No need to surrender d. 180 days
56. What is the proof of import to be submitted by the importer ….
a. Bill of Entry b. Custom invoice c. BEF d. GR Form
57. Export bill realization should be done in how many days …
a. 180 days b. 9 months
c. 1 year d. 15 months
58. What is the rate to be applied for crystallization of export bills ….
a. Bill Buying b. TT Buying
c. Bill Selling d. TT Selling
59. If foreign exchange rates are at discount, then forward rates are ….
a. More than the current price
b. Less than the current price
60. What is the full form of IFRS : International Financial Reporting Standards
61. Ramanand Exports submitted a sight bill for USD 40000/- on 18 Jan.2016. What is the due date of
the bill …..
a. 11 Feb.2016 b. 14 Feb.2016
c. 07 Feb.2016 d. Since this demand bill hence there cannot be any due date
62. Ramanand 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.2016 ….
a. 12 Apr. 2016 b. 18 Mar. 2016 c. 27 Mar. 2016 d. 30 Mar. 2016
 ANSWERS

1 c 2 b 3 d 4 a 5 d 6 a 7 a 8 c 9 d 10 d
11 a 12 d 13 c 14 c 15 a 16 b 17 a 18 d 19 b 20 d
21 d 22 c 23 c 24 c 25 a 26 c 27 d 28 b 29 d 30 c
31 d 32 b 33 b 34 d 35 c 36 d 37 d 38 b 39 d 40 b
41 b 42 d 43 b 44 a 45 c 46 b 47 d 48 c 49 c 50 D
51 a 52 b 53 - 54 - 55 d 56 a 57 b 58 d 59 b 60 -
61 a 62 c

SOLUTIONS

Q.13. 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’

Q.14.
 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’

Q.28
a. Bond was purchased at Rs.1050/- with 3 remaining years.
b. It was sold at a certain rate after 1 year with 2 remaining years.
c. YTM after 1 year was 10% i.e., r = 10%.
With r = 10%, Term to maturity (n) = 2 years, Coupon amount = 150, Market price =
150 1150
= ------------- + ---------------- = 136.36 + 950.41 = 1086.77
1 2
1.1 1.1

After 1 year the bond is sold at Rs.1086.77

Amount received on the bond till sale after 1 year...

= Coupon amount (150) + Gain (1086.77 – 1050) = 150 + 36.77 = 186.77

Bond’s rate of return = 186.77 / 1050 = 17.78% = 17.8% Option ‘b’

Q.29
In both ‘a’ & ‘b’ Home Currency varies while Foreign Currency is fixed whereas in ‘c’ Home
Currency is fixed while Foreign Currency varies.
Q.No.30
Multiply buying rate of US$ (42.8450) with buying rate of EUR (1.9720), you,ll get buying rate
of EURO which is = 84.49034

Q.No.31
3 months forward EURO is at discount of 110 / 105. To calculate forward rate discount is reduced
from the spot rate. When you are to buy EURO, it would be the bank’s selling rate which is =
1.5790 – 0.0105 = 1.5685

Q.No.32
Suppose interest on USD is 0%, interest on EURO will be 3%. 1 EURO will earn interest of .0075
Euro after 90 days at 3% and it will become 1.0075, while USD equivalent of 1 EURO, which is
1.50 will not fetch any interest. It will remain at 1.50. After 90 days 1.0075 EURO will be equal to
1.50 USD. 1 EURO will be equal to 1.50/1.0075 = 1.4888 USD
Same result would come if interest on USD is 5% & on EURO is 8%

Q.No.34
RBI has removed the upper ceiling (which used to be Rs.100/- Lac i.e., Rs.1/- Cr.) on 12 Oct.2012.
Banks may sanction Rupee loans in India or foreign currency loans outside India to either the account
holder or a third party to the extent of the balance in the NRE/FCNR (B) account subject to margin
requirements. Facility of premature withdrawal of NRE/FCNR deposits shall not be available where loans
against such deposits are to be availed of.

Q.No.52
Out of the overall foreign exchange being sold to a traveller, exchange in the form of foreign currency notes
and coins may be sold up to the limit indicated below:

i. Travellers proceeding to countries other than Iraq, Libya, Islamic Republic of Iran, Russian Federation
and other Republics of Commonwealth of Independent States - not exceeding USD 3000 or its equivalent.
ii. Travellers proceeding to Iraq or Libya - not exceeding USD 5000 or its equivalent
iii. Travellers proceeding to Islamic Republic of Iran, Russian Federation and other Republics of
Commonwealth of Independent States - full exchange may be released.

Q.No.61
Sight bill is payable NTP. NTP is the time taken for credit to be received in Nostro Account w.e.f
the date of submission of the bill and this 25 days. Counting 25 days from the date of submission
i.e., 18 Jan.2016, due date would be 11 Feb.2016 (14 days of Jan. & 11 days of Feb.) Option ‘a’

Q.No.62
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’