CAIIB BFM MIX QUESTION COLLECTION

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1. RAROC FULL form ?
ans- Risk adjusted return on investment

2. zero risk would imply .... variation in net cash flow?
a. no
b.high
c. low

3. Who has the overall responsibility for management of risks?
Ans- The Board of Directors

4. .... is the review committee of line management.
Ans- The committee of seniour level executives

5. ..... characterises the stability or instability of any random variable
Ans- Volatility


6. Investment in Post office time deposit is:
a. Zero risk investment
b. low risk investment
c. medium risk investment
d. high risk investment
Ans- a

7. Zero Risk investment implies:
a. Zero variation in cash flow from investment
b. investment in zero coupon bonds
c. Investment on corporate bonds
d. investment in bank fixed deposit
Ans- a

8. Which of the following statements is correct
a. Higher the rish, higher would be the premium
b. Lower the risk , lower would be the premium
c. lower the risk, higher would be the risk premium
d. none is correct
Ans- a

9. what is the most critical function of Risk Management?
a. Controlling the level of risk to an organization's capacity
b. identification of risks
c. estimating the cost of risks
d. measurement of risk
Ans- a

FORMULA: Volatility over a time horizon,T= Daily Volatility* Sqrt of T

10. If the daily volatility of a stock is 1.5% , the monthly volatility would be..?
Ans- 1.5*SQRT (30)
=1.5*5.48
=8.22

11. Monthly volatility of a stock at 10% , then its daily volatility based on 25 working days in a month is ...?
Ans- 10/sqrt(25)
= 10/5
=2

12. Daily volatility of stock is 0.5%. What is its 10 day volatility?
Ans-0.5*Sqrt(10)
= 0.5*3.16
=1.58

13. Daily volatility of stock is 0.2%. What is its 10 day volatility?
Ans-0.2*Sqrt(10)
= 0.2*3.16
=0.63

14. Daily volatility of stock is 2%. What is its monthly volatility?
Ans-2*Sqrt(30)
= 10.95%

15. Risk can be measured based on...
a. sensitivity
b. volatility
c. downside potential
d. all of these
Ans- d

16. Volatility would be ...if Time Horizon is more.
a. more
b. less
c. equal
d. none of these

17.With volatility , it is possible to estimate... of the target variable with a reasonable accuracy.
a. upside potential
b.downside potential
c both a and b
d none of these
Ans- c

18. Black and Scholes option formula is used to calculate...
a. sensitivity
b. implicit volatility
c. upside potential
d. none of these
Ans- b

19. If the volatility per annum is 25% and the number of trading days per annum is 252, find the volatility per day.
a. 1.58%
b. 1.60%
c. 158
d. 15.8
Ans-a

20. .... is the variability of the price, upward or downward
a. swap
b. deal
c. volatility
d. duration
Ans- c

21. If daily volatility of the exchange rate of a particular currency wer 0.75%, its fortnight volatility would be
a. 3.70%
b. 2.80%
c. 1.4%
d. 7.2%
Ans- b

22. Risks can be mitigated through ...........?
Ans- Diversification

23. A risk is:

(a) related to illness, which does not affect the human life.
(b) related to events which do not affect the profits of the organization.
( c) related to unplanned event with financial consequences resulting in loss.
( d) a certain event, where outcome is known.

Ans-c

24. Risk Management includes all of the following processes except...

a. Risk Monitoring and Control

b. Risk Identification

c. Risk Avoidance

d. Risk Response Planning

Ans- c

............................
1. The banking book is generally not exposed to
a) Liquidity Risk
b)Interest rate risk
c)Credit risk
d)Operational Risk
e)None of these
Ans-e

2. Banking Books does not include which of the following?
a) All deposits and loans
b) All borrowings
c) Capital
d) All of these
Ans- c

3. The banking book does not include.......
a) advances
b) borrowings
c) equities
d) all of these
Ans- c

4. The banking book relates to assets which are....
a) held till maturity and reflected in Balance sheet at acquisition cost.
b) held till maturity and reflected in Banking book at market cost.
c) None of above
d) all of above
Ans- a

5. Banking book exposures are.....
a) Held until maturity and income is booked on accural basis.
b) Held until maturity and income is booked as and when realized.
c) Held for a period and income is booked on accural basis.
d) Held for a period and income is booked as and when realized.
Ans- a

6. Since all assets and liabilities in the banking book are held until maturity, maturity mismatch between assets and liabilities result in excess or shortage of liquidity. This is known as.......risk.
a) market
b) interest
c) operational
d) liquidity
Ans- d

7. Which of the following risks the banking book is Not exposed to ?
1. liquidity
2. market
3. operational
4. credit or default
5. interest

a) only1
b) only2
c) only3
d) both 4 and 5
Ans- b

8. Asset side of the banking book generates .... risk arising from defaults in payments of principal and/or interest by the borrowers.
a) default
b) credit
c)market
d) both a and b
Ans- d

9. select the correct sentence:
a) Banking book is exposed to market risk because it is open to market
b) Banking book is exposed to market risk because it is not open to market
c) Banking book is not exposed to market risk because it is open to market
d) Banking book is not exposed to market risk because it is not open to market
Ans- d

10. Which of the following risks the off balance sheet exposure is Not exposed to ?
1. market
2. liquidity
3. credit or default
4. operational
5. interest

a) only1
b) only3
c) only2 and 4
d) None of these
Ans- d

11. Which of the following is not exposure to off balance sheet?
a) capital
b) swaps
c) futures
d) options
Ans- a

12. Which of the following derivates are the off balance sheet exposure?
a. swaps
b. Futures
c. Forward contracts
d. options

a. a,b,d only
b. a and d only
c. a and c only
d. all of them
ans- d

13. In the financial market, bond prices and yields are....related.
Ans- inversely

14. Financial Risk is defined as:
a) Uncertinities resulting in adverse variation of profitability or outright losses
b) uncertanities that result in outright losses
c) uncertanities in cash flow
d) variations in net cash flow
Ans- d

15. What type of risk conceptualizes in a condition when you are leading a big branch with thousands of customers , the systems(connectivity) have been down for past two days?
a) operational risk
b) capital risk
c) market risk
d) strategic risk
ans- c

16. A branch sanctiones Rs 1 crore loan to a borrower, which of the following risks branch is taking?
1. liquidity
2. Interest rate
3. Market
4. Credit
5. operational

a) all of them
b)1,2, and 3 only
c) 1,4 and 5 only
d) 1,2,4 and 5 only
ans-d

17. Premature payment of a term loan will result in interest rate risk of type
a) basic risk
b) Yield curve risk
c) Embedded option
d) Mismatch risk
ans- c

18. A bank funds its assets from a pool of composite liabilities. apart from credit and operational risks, it faces..
a) Basis risk
b) Mismatch Risk
c) Market Risk
d) liquidity risk
Ans- a

19. Basis risks are type of...
a) Interest Rate risk
b) market Risk
c) credit risk
d) operational risk
Ans- a

20. A bank funds its loans through composite liabilities. in a scenario where interest rate changes across the board the bank immediately stands exposed to
a) Yield curve risk
b. Basis risk
c. Both a and b
d. Neither a nor b
Ans- b

21. When the coasts/ yields of liabilities/assets are linked to a floating rate and there is no simultaneous movement in interest rates, it leads to...
a. real interest rate risk
b. basis risk
c. reinvestment risk
d. volatility risk
ans- b

22. When variation in market interst rate causes the NII to contract, the basis risk would move ... the banks
a. against
b. in favour of
c. no effect
d. none of these
Ans- a

23. When variation in market interst rate causes the NII to expand, the basis risk would move ... the banks
a. against
b. in favour of
c. no effect
d. none of these
Ans- b

24. Yiels Curve risk with respect to different maturity sectors, is a type of...
a) liquidity risk
b) Interest rate risk
c) basis risk
d) market risk
Ans- c

25. Forex risk can be reduced by
a. entering into forward contracts
b. futures
c. derivates of Interest rate swaps
d. both a and b
Ans-d

26. reputation risk is a type of..
a. operational risk
b. market risk
c. Credit risk
d. none of these
Ans-d

27.Poor quality of complaince with regulatory requirements results in ...
a. operational risk
b. market risk
c. Credit risk
d.reputation risk
Ans- a

28. risk of legal or regulatory sanction , financial loss or reputation loss that a bank may suffer as a result of its failure to comply with any or all of the applicable laws, regulations etc. is called as...
a. transaction risk
b. Compliance Risk
c. legal risk
d. systems risk
Ans- b

29. Counterparty Risk is a type of ____
A. Interest Rate Risk
B. Market Risk
C. Credit Risk
D. Operational Risk
Ans- c


...................................

Where the risk results into a banking or financial crisis for the entire system on account of failure of a large bank, it is called:
a) liquidity risk
b) settlement risk
c) systemic risk
d) sovereign risk

A foreign bank (ABC Ltd.) opens a rupee account with a bank's branch in India) This account will be designated in the books of the branch as
(a) Nostro account 
(b) vostro account 
(c) Loro account 
(d) Correspondent account

59 $ is quoted today at Rs.45.90. But it is being quoted at Rs.45.95 for a two-months forward deal. Which of the following is correct for forward?
a) foreign currency is at a premium
b) foreign currency is at a discount 
c) Indian currency is at a premium 
d) none of the above

Which of the following implies Vostro account
(a) Our account with you
(b) Your account with us
(c) His account with them
(d) None of these

Forward rate= spot rate (+)_____________(-)_______________ :
a) discount, commission
b) premium, discount
c) premium, commission
d) discount, premium

When the delivery under a forex deal is completed on the same day i.e. date of contract, the rate is called:
a) TT Rate
b) ready or cash rate
c) Forward Rate 
d) Spot Rate

When a foreign currency is purchased or sold and the units of foreign currency remain constant while of the home currency vary with the changes in the market 
(say 1 dollar= 45.95), such rates arc called:
a) forward rate
b) direct rate
c) cross rate
d) indirect rate
e) spot rate

Which among the following cannot carry on the functions of AD:
a) commercial banks
b) financial institutions
c) RRB/Coop Banks
d) none of the above

Banks function as Authorised dealers for undertaking forex transactions and have to obtain licence from:
a) DGFT& RBI
b) RBI & FEDAI
c) FEDAI, DGFT & RBI
d) none of the above

In foreign exchange transaction, which of the following is the basic buying rate:
a) Bills buying rate
b) TT buying rate
c) Direct rate
d) Indirect rate
e) a and b

Which of the following methods is applied for quoting the foreign exchange rates in India?
a) Cross rates
b) Direct Rate
c) Indirect Rate
d) Buying Rate 
e) Selling rate

An exporter had sent a bill for collection through International Bank Ltd New Delhi to UK against export of books and the importer has paid the bill and deposited the proceeds in an account of International Bank Ltd. opened with a bank in London. What rate wil1 be applied by the International Bank Limited while crediting the export proceeds?
a) TT buying rate
b) Bills buying rate
c) Spot buying rate
d) Forward buying rate
e) any of the above rates

Which of the following does not match with regard to the risk represented:
a) country risk - where a counter party is unable to meet its obligations due to restrictions imposed by the govt. of the country
b) sovereign risk - where the govt. owned companies claiming sovereign status assume-immunity from recovery proceedings
c) Market risk - the risk associated with fluctuations in the market rates of various currencies
d) systemic risk - risk leading to financial crisis on account of failure of a large bank or financial institution

Derivatives are used for
(a) Hedging and trading
(b) Hedging and investment
(c) Trading and investment
(d) ALL of these

Ask price - bid price/ask price =
a) spread
b) margin
c) dealer's spread
d)exchange margin

Dealing room operation consists of
(a) Undertaking market activities
(b) Buck office operations
(c) Mid-office
(d) ALL of them

The exchange rate of foreign currencies varies at which of the following time intervals:
a) day to day
b) minute to minute
c) hour to hour
d) any of the above

If a 7.25% coupon bond is trading for $982.00, it has a current yield of ____________ percent.
A. 7.38
B. 6.53
C. 7.25
D. 8.53
E. 7.18

Under FEMA, the RBI has been authorized to make _____________ to carry out the provisions of the Act.
A. Rules
B. Regulations
C. Acts
D. None

Which of the following statement is true?
A. foreign exchange leads to foreign trade
B. foreign trade leads to foreign exchange
C. no foreign exchange is involved in foreign trade
D. there is no link between foreign trade and foreign exchange

The acronym SWIFT stands for
A. Safety Width in Financial Transactions
B. Society for Worldwide International Financial Transactions
C. Society fro Worldwide Interbank Financial Transactions
D. Swift Worldwide Information for Financial Transactions

 A foreign currency account maintained by a bank abroad is its
A. nostro account
B. vostro account
C. loro account
D. Capital account

When a foreign currency for forward transactions is quoted at discount:

a) the currency is dearer in future
b) the currency is expected to be cheaper in future
c) the currency at same rate in future
d) currency will be available with ease in future 
e) none of the above

Non- resident bank accounts refer to
A. nostro
B. vostro
C. loro
D. toro

From bank's angle, when there is inflow of foreign exchange and out flow of rupees, these transactions are called:
a) purchases
b) remittances
c) sales
d) a or b above
e) a and c

When the delivery under a forex deal take place on a pre-fixed future date and pre-fixed rate, after the spot period, the rate is called:
a) Torn rate
b) ready or cash rate
c) Forward Rate
d) Spot Rate

A letter of credit stipulates that the shipment should be made at the beginning og August 2005. It means, the shipment can be made.
A. only on 1st August 2005.
B. during the first week of August 2005.
C. any date between 1st and 10th of August 2005.
D. before the commencement of April 2005.

A claim of ₹ 60 lacs have been settled by ECGC in favour of a bank against default of ₹ 80 lacs. Subsequently the bank realizes ₹ 20 lacs with the collaterals available to the loan. What is the loss suffered by the bank on this loan? 
a) ₹ 25 lacs 
b) ₹ 20 lacs 
c) ₹ 15 lacs 
d) ₹ 10 lacs

A credit which provides for reinstatement of the amount as and when bills are drawn under it is called.
A. reinstatement credit.
B. reimbursement credit
C. revolving credit.
D. back-to-back credit.

A transferable letter of credit.
A. can be transferred to more than one person even if partial shipment is prohibited.
B. can be transferred to more than one person only if partial shipment is allowed.
C. is one which contains words such as fractionable, assignable, etc.
D. . is transferred free of charge.

What is the maximum period for which a Foreign Currency Non- Resident (PCNR) account can be opened by a bank:
a) five years
b) three years
c) two years
d) one year
e) six months

A claim of ₹ 49 lacs have been settled by ECGC in favour of a bank against default of ₹ 70 lacs. Subsequently the bank realizes ₹ 15 lacs with the collaterals available to the loan. What will be actual amount settled by ECGC after realization of security by the bank?
a) ₹ 49 lacs
b) ₹ 42.5 lacs
c) ₹ 38.5 lacs
d) ₹ 34 lacs

While scrutinizing the documents tendered under a letter of credit, the negotiating bank and issuing bank should apply the doctrine of.

A. strict compliance

B. force majeure.

C. indemnity.

D. major compliance

Exchange Fluctuation Risk of ECGC:

(a) covers all exports payments up to six months period.

(b) covers 100 % exchange fluctuation of Indian exporters.

( c) covers exchange fluctuation above 2% and up to 50% only

(d) covers exchange fluctuation above 2% and up to 35% only.

Which of the following is not a party to a letter of credit:

(a) Advising Bank

(b) Confirming Bank

(c) Governing Bank

(d) Issuing Bank
(e) Reimbursing Bank

INCOTERMS are devised and published by
(a) International Chamber of Commerce
(b) World Bank
(c) World Trade Organization
(d) United Nations

Credit guarantees are on risk sharing basis, means that:
(a) The buyer and seller share the risk of default of any one of them.
(b) The buyer shares the defaulted amount with the insurance company.
(c) The seller shares the risk with the financier.
(d) The financier shares the risk with the insurance company.

General policies of ECGC do not cover:
(a) Commercial dispute between the buyers and the sellers.
(b) Insolvency of the buyer.
( c) Restrictions imposed by buyers country,
( d) Default by buyer to pay for goods already accepted.

Operational Risk does not occur if:
(a) Strike at the port.
(b) Non loading of gods on the desired ship, due to rains.
( c) Delay in supplies by sub-suppliers.
( d) Delay in payment by the buyers.

'Their account with them' refers to what kind of account out of the following:
a) NOSTRO
b) VOSTRO
c) LORO
d) Mirror

The guarantees given by ECGC, to cover loss on advances for incentives receivable by exporters at
pre-shipment stage, is called:
(a) Post-Shipment Export Credit Guarantee.
(b) Packing Credit Guarantee.
( c) Export Production Finance Guarantee.
( d) Export Finance Guarantee

SBI account with CIT! Bank in New York in US$ is called:
a) NOSTRO
b) VOSTRO
c) LORO
d) Mirror

The date from which the marine insurance policy should be effective should be.
A. same as the date of the transport document.
B. same or later than the date of the transport document.
C. same or earlier than the date of the transport document.
D. earlier than the date of the transport document.

A letter of credit is opened for 100 kg of coffee for GBP 800. Documents for 102 kg of coffee for GBP 800 is presented for negotiation.
A. The bill cannot be accepted because quantity exceeds the letter of credit limit.
B. The bill cannot be accepted as the unit price get varied.
C. The bill can be accepted as it is beneficial to the importer.
D. The bill can be accepted since a tolerance of $5% in quantity is allowed under UCP

Country Risk is when the _
(a) buyer or borrower is forbidden by the government to honour his commitment.
(b) Failure of counter party is called liquidity risk.
( c) Settlement Risk arise due to problems related to mismatch of funds or liquidity.
( d) Interest Rate risk arises with favourable movement of interest rates

The responsibility of a negotiating bank is to.
A. verify that it negotiating only bills drawn under credit advised by it.
B. the goods covered by the bill are safe and properly insured.
C. the documents tendered are as per the terms of credit.
D. both 2 and 3 above.

A risk is:
(a) related to illness, which does not affect the human life.
(b) related to events which do not affect the profits of the organization.
( c) related to unplanned event with financial consequences resulting in loss.
( d) a certain event, where outcome is known.