CAIIB 2020 Bank Financial Management Mock Tests Set 1

A gold-mining company expects to sell 10,000 ounces of gold 6 months from today. The revenue risk of selling the gold can be hedged by -


Options are :

  • Selling the gold in the spot market 6 months from today.
  • Buying a gold futures contract for 10,000 ounces today that expires in 6 months.
  • Selling a gold futures contract for 10,000 ounces today that expires in 6 months
  • Buying a gold futures contract for 5,000 ounces today that expires in 6 months and
  • selling a gold futures contract for 5,000 ounces today that expires in 6 months.

Answer :Selling a gold futures contract for 10,000 ounces today that expires in 6 months

CAIIB 2020 Bank Financial Management Mock Tests Set 10

Derivatives are financial instruments that derive their value from changes in a benchmark based on any of the following except


Options are :

  • Stock prices.
  • Mortgage and currency rates.
  • Commodity prices.
  • Discounts on accounts receivable

Answer :Discounts on accounts receivable

Which of the following statements is (are) true regarding derivative financial instruments? I. Derivative financial instruments should be measured at fair value and reported in the balance sheet as assets or liabilities. II. Gains and losses on derivative instruments not designated as hedging activities should be reported and recognized in earnings in the period of the change in fair value.


Options are :

  • I only.
  • II only.
  • Both I and II.
  • Neither I nor II

Answer :Both I and II.

Interest rate swaps are:


Options are :

  • highly regulated.
  • equivalent to a series of forward contracts.
  • contracts to exchange one asset for another.

Answer :equivalent to a series of forward contracts.

CAIIB 2020 Bank Financial Management Mock Tests Set 11

A call option is:


Options are :

  • the right to sell at a specific price.
  • the right to buy at a specific price.
  • an obligation to buy at a certain price.

Answer :the right to buy at a specific price.

Notice money refers to placement of funds for period not exceeding ...


Options are :

  • overnight
  • two days
  • 7 days
  • 14 days

Answer :14 days

The interest rate differential is added to the spot rate of


Options are :

  • Low interest yielding currency
  • High interest yielding currency
  • Both
  • None of these

Answer :Low interest yielding currency

CAIIB 2020 Bank Financial Management Mock Tests Set 12

Derivatives are least likely to:


Options are :

  • improve liquidity.
  • provide price information.
  • prevent arbitrage.

Answer :prevent arbitrage.

Call money refers to placement of fund ...


Options are :

  • same day
  • overnight
  • next day
  • Two days

Answer :overnight

For a forward contract on an asset that has no costs or benefits from holding it to have zero value at initiation, the arbitrage-free forward price must equal:


Options are :

  • the expected future spot price.
  • the future value of the current spot price.
  • the present value of the expected future spot price.

Answer :the future value of the current spot price.

CAIIB 2020 Bank Financial Management Mock Tests Set 13

The underlying asset of a derivative is most likely to have a convenience yield when the asset:


Options are :

  • is difficult to sell short.
  • pays interest or dividends.
  • must be stored and insured.

Answer :is difficult to sell short.

For the price of a futures contract to be greater than the price of an otherwise equivalent forward contract, interest rates must be:


Options are :

  • uncorrelated with futures prices.
  • positively correlated with futures prices.
  • negatively correlated with futures prices.

Answer :positively correlated with futures prices.

The difference between a fixed-for-floating swap and an equivalent series of forward contracts is that:


Options are :

  • the payment dates would be unlikely to match.
  • all the fixed-rate payments in a swap are equal.
  • the floating-rate payments in a swap are unknown.

Answer :all the fixed-rate payments in a swap are equal.

CAIIB 2020 Bank Financial Management Mock Tests Set 14

At expiration, the exercise value of a put option:


Options are :

  • is positive if the underlying asset price is less than the exercise price.
  • is zero only if the underlying asset price is equal to the exercise price.
  • is negative if the underlying asset price is greater than the exercise price.

Answer :is positive if the underlying asset price is less than the exercise price.

Which of the following derivatives are the off-balance sheet exposure? a. Swaps b. Futures c. Forward contracts d. Options


Options are :

  • a,b, & d only
  • b & d only
  • a & c only
  • All of them

Answer :All of them

If Floating interest rates based on one benchmark is swapped with floating interest rates based on another benchmark, it is called as ......Swaps.


Options are :

  • Financial
  • Coupon
  • Currency
  • Index

Answer :Index

CAIIB 2020 Bank Financial Management Mock Tests Set 2

A call option sells for $4 on a $25 stock with a strike price of $30. Which of the following statements is least accurate?


Options are :

  • At expiration, the buyer of the call will not make a profit unless the stock’s price exceeds $30.
  • At expiration, the writer of the call will only experience a net loss if the price of the stock exceeds $34.
  • A covered call position at these prices has a maximum gain of $9 and the maximum loss of the stock price less the premium.

Answer :At expiration, the buyer of the call will not make a profit unless the stock’s price exceeds $30.

Which of the following is the riskiest single-option transaction?


Options are :

  • Writing a call.
  • Buying a put.
  • Writing a put.

Answer :Writing a call.

If Fixed interest rates are swapped with floating interest rates, it is called as ......Swaps.


Options are :

  • Financial
  • Coupon
  • Currency
  • Interest

Answer :Coupon

CAIIB 2020 Bank Financial Management Mock Tests Set 3

An investor will likely exercise a put option when the price of the stock is:


Options are :

  • above the strike price.
  • below the strike price plus the premium.
  • below the strike price.

Answer :below the strike price.

At expiration, the value of a call option must equal:


Options are :

  • the larger of the strike price less the stock price or zero.
  • the stock price minus the strike price, or arbitrage will occur.
  • the larger of zero, or the stock’s price less the strike price.

Answer :the larger of zero, or the stock’s price less the strike price.

A bond is quoted at 96.25 bid and 96.75 ask. Based only on this information, this bond is most likely:


Options are :

  • a corporate bond.
  • non-investment grade.
  • relatively illiquid.

Answer :relatively illiquid.

CAIIB 2020 Bank Financial Management Mock Tests Set 4

If the price of the underlying is greater than the strike or exercise price of the underlying, the call option is


Options are :

  • At the money.
  • In the money.
  • On the money.
  • Out of the money.

Answer :In the money.

Consider counterparties A, B, and C, which are members of a derivatives exchange. A is short a derivatives position with B, and B is short the same derivatives position with C. Replacing these two positions with a single position between A and C is an example of:


Options are :

  • direct clearing.
  • bilateral clearing.
  • complete clearing.
  • clearing ring

Answer :clearing ring

Which of the following are the roles played by Treasury? I) Liquidity Management II) Proprietary positions III) Risk Management IV) HR Management


Options are :

  • Only I,II
  • Only II,III
  • Only I,II,III
  • All of the above viz. I,II,III,IV

Answer :Only I,II,III

CAIIB 2020 Bank Financial Management Mock Tests Set 5

Hedging is used by companies to:


Options are :

  • Decrease the variability of tax paid
  • Decrease the spread between spot and forward market quotes
  • Increase the variability of expected cash flows
  • Decrease the variability of expected cash flows
  • Increase the variability of tax paid

Answer :Decrease the variability of expected cash flows

Which of the following functions is least likely performed by an exchange?


Options are :

  • Derivatives contract design and specifying contract terms.
  • Price negotiation through a bilateral process.
  • Limiting access to approved firms and individuals.
  • Reporting transaction prices to trading participants and data vendors.

Answer :Price negotiation through a bilateral process.

Which of the following is not a distinguishing characteristic of a derivative instrument?


Options are :

  • Terms that require or permit net settlement.
  • Must be “highly effective” throughout its life.
  • No initial net investment.
  • One or more underlying and notional amounts.

Answer :Must be “highly effective” throughout its life.

CAIIB 2020 Bank Financial Management Mock Tests Set 6

How forward rates are calculated?


Options are :

  • By adding a mark up to spot rates
  • By adding premium or discount to spot rates
  • By deducting premium or discount from spot rates
  • By adding premium to and deducting discount from spot rates

Answer :By adding premium to and deducting discount from spot rates

Financial instruments sometimes contain features that separately meet the definition of a derivative instrument. These features are classified as


Options are :

  • Swaptions.
  • Notional amounts.
  • Embedded derivative instruments.
  • Underlyings

Answer :Embedded derivative instruments.

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