CAIIB 2020 Bank Financial Management Mock Tests Set 14

The basic analytical models for ALM analysis and scientific decision making does not include


Options are :

  • GAP Analysis Model
  • Black Scholes Model
  • Scenario Analysis Model
  • Value at Risk Model

Answer :Black Scholes Model

For the purpose of ALM, the investments in SLR Securities are considered as


Options are :

  • Liquid as they are in Government securities
  • Illiquid due to lack of depth in secondary market
  • Excluded category
  • Liquid to the extent of defined percentage

Answer :Illiquid due to lack of depth in secondary market

For SMA-0, Basis of classification is - (I)Principal or interest payment not overdue for more than 30 days but account showing signs of incipient stress (II)Principal or interest payment overdue between 31 – 60 days (III) Principal or interest payment overdue between 61 – 90 days (IV) Principal or interest payment overdue between 91 – 120 days


Options are :

  • Only I
  • Only II
  • Only III
  • Only IV

Answer :Only I

CAIIB 2020 Bank Financial Management Mock Tests Set 2

Which of the following better describes Risk Adjusted Return on Capital (RAROC)?


Options are :

  • RAROC allocates a capital charge to a transaction or a line of business at an amount equal to the minimum expected loss
  • The RAROC process estimates the asset value that may prevail in the best-case scenario
  • RAROC allows one to compare two businesses with different risk (volatility of returns) profiles
  • Using a hurdle rate, a borrower can use the RAROC principle to set the target pricing on a relationship or a transaction

Answer :RAROC allows one to compare two businesses with different risk (volatility of returns) profiles

While calculating the buckets into which the fund's flow are to be grouped under ALM


Options are :

  • The time buckets are exactly the same for arriving at liquidity risk and interest rate risk
  • The near time buckets are narrower under interest rate risk because of sensitivity involved
  • The near time buckets are narrower under liquidity risk because of sensitivity involved
  • The concept of time bucket arises only for liquidity risk management because flows cannot be bucketed interest rate wise

Answer :The near time buckets are narrower under liquidity risk because of sensitivity involved

____ is the process of restructuring large ticket loans where the project is up and running.


Options are :

  • S4A
  • SA4
  • 4SA
  • SSSA

Answer :S4A

CAIIB 2020 Bank Financial Management Mock Tests Set 3

Which pair fills up the below sentence correctly? (Module-D: Balance Sheet Management) The _____ the value of ‘duration’, the _____ sensitive is the price of that asset or liability to changes in _______.


Options are :

  • Larger, more, interest rates
  • Lower, higher, interest rates
  • Larger, less, interest rates
  • Lower, more, value

Answer :Larger, more, interest rates

For SMA-1, Basis of classification is - (I)Principal or interest payment not overdue for more than 30 days but account showing signs of incipient stress (II)Principal or interest payment overdue between 31 – 60 days (III) Principal or interest payment overdue between 61 – 90 days (IV) Principal or interest payment overdue between 91 – 120 days


Options are :

  • Only I
  • Only II
  • Only III
  • Only IV

Answer :Only II

The concept of Asset Liability management has assumed significance to banks because


Options are :

  • The types of risks faced by banks have widened both in depth and breadth
  • Of the deregulation implemented by the Central Banking authorities
  • Of the huge growth of banking system resulting in bloated book size
  • There is larger movement of capital funds across borders leading to globalization

Answer :Of the deregulation implemented by the Central Banking authorities

CAIIB 2020 Bank Financial Management Mock Tests Set 4

Time risk arises due to which of the following reason- I)Severe deterioration in the asset quality II)Standard assets turning into non-performing assets and/or borrowers’ defaulting to repay as per the terms of repayment III)Temporary problems in recovery IV)Time involved in managing liquidity


Options are :

  • Only I
  • Only III,IV
  • Only I,II,III
  • all of the above viz I,II,III,IV

Answer :all of the above viz I,II,III,IV

Which one of the following is not a part of the three pillars on which the ALM process rests?


Options are :

  • ALM Information Systems
  • ALM Organization
  • ALM Process
  • ALM Regulatory Guidelines

Answer :ALM Regulatory Guidelines

As per RBI, All the assets and liabilities are classified into ____  time buckets


Options are :

  • 10
  • 11
  • 12
  • 13

Answer :10

CAIIB 2020 Bank Financial Management Mock Tests Set 5

The difference between Rate Sensitive Assets and Rate Sensitive Liabilities for each time bucket is known as the Gap and as Bank’s ALM head, you have created a large Gap.


Options are :

  • The Bank is in a position to benefit from declining interest rates by having a negative Gap
  • The Bank is in a position to benefit from rising interest rates by having a negative Gap
  • The Bank is in a position to benefit from declining interest rates by having a positive Gap
  • The Gap does not necessarily indicate the profit or loss due to movement in interest rate

Answer :The Bank is in a position to benefit from declining interest rates by having a negative Gap

Demand deposits


Options are :

  • Have the same amount of withdrawal risk as do interest-bearing transaction accounts
  • Have less withdrawal risk than do interest-bearing transaction accounts
  • Have more withdrawal risk than do money market demand accounts. Have less withdrawal risk than do money market demand accounts
  • Have the same amount of withdrawal risk as do money market go to practice material demand accounts

Answer :Have more withdrawal risk than do money market demand accounts. Have less withdrawal risk than do money market demand accounts

For SMA-2, Basis of classification is - (I)Principal or interest payment not overdue for more than 30 days but account showing signs of incipient stress (II)Principal or interest payment overdue between 31 – 60 days (III) Principal or interest payment overdue between 61 – 90 days (IV) Principal or interest payment overdue between 91 – 120 days


Options are :

  • Only I
  • Only II
  • Only III
  • Only IV

Answer :Only III

CAIIB 2020 Bank Financial Management Mock Tests Set 6

Which of the following is an appropriate change to make on a bank's balance sheet when repricing gap is negative and interest rates are expected to rise?


Options are :

  • Restructure the bank’s liabilities by replacing floating rate borrowings with fixed-rate borrowings.
  • Restructure the bank’s liabilities by replacing fixed-rate certificate of deposits with floating rate of deposits.
  • Restructure the bank’s assets by replacing floating rate mortgage loans with fixed rate corporate loans.
  • Restructure the bank’s assets by replacing floating rate corporate loans with floating rate mortgage loans.
  • None of the above answers

Answer :Restructure the bank’s liabilities by replacing floating rate borrowings with fixed-rate borrowings.

________ allows banks to convert their debt or loans into equity holding in a defaulting company, change management if needed and also find a suitable buyer for the company or its assets so that the Bank can recover its dues.


Options are :

  • Strategic Debt Restructuring
  • Debt Reconstruction
  • Debt Recovery Management
  • Alternate Debt Recovery

Answer :Strategic Debt Restructuring

An advance account becomes NPA at the end of a given year. Which of the following debits made in the previous year need not be reversed or provided for


Options are :

  • interest accrued on the account
  • Interest realized in the account
  • Renewal charges debited in the account
  • Legal charges debited in the account

Answer :Interest realized in the account

CAIIB 2020 Bank Financial Management Mock Tests Set 7

Provisioning Coverage Ratio (PCR) is essentially the ratio of ______ to _________ and indicates the extent of funds a bank has kept aside to cover loan losses.


Options are :

  • provisioning , net non-performing assets
  • provisioning , gross non-performing assets
  • gross non-performing assets, provisioning
  • net non-performing assets, provisioning

Answer :provisioning , gross non-performing assets

A consortium account with bank ‘A’ has been classified by another member bank as NPA. The bank ‘A’


Options are :

  • Must classify the account as NPA
  • The bank may not classify the account as NPA but treat it as out of order
  • The bank would decide on the classification based on its recovery performance
  • None of these

Answer :The bank would decide on the classification based on its recovery performance

As per IBC 2016 Insolvency and Bankruptcy Code 2016, Who will get first priority in case of liquidation of a company.


Options are :

  • Worker’ salaries for up to 24 months
  • Bank’s Debt
  • Government’s liabilities
  • Local body dues.

Answer :Worker’ salaries for up to 24 months

CAIIB 2020 Bank Financial Management Mock Tests Set 1

Which of the following factors may affect a bank’s liquidity- (I) A decline in earnings (II)An increase in non-performing assets (III)Deposit concentrations (IV)Downgrading by rating agencies


Options are :

  • Only I,II
  • Only III,IV
  • Only III
  • all of the above viz I,II,III,IV

Answer :all of the above viz I,II,III,IV

Prime asset to total asset ratio is tracked in measuring liquidity under stock approach. Prime asset refers to 


Options are :

  • Cash and gold
  • Loans extended to AAA rated companies
  • Government securities
  • Cash and balances with bank including central bank

Answer :Cash and balances with bank including central bank

_______ comparison of future cash inflows to its future cash outflows over a series of specified period.


Options are :

  • Contingency Planning
  • Maturity Ladder
  • Liquidity Bucket
  • Discounted Cash Flows

Answer :Maturity Ladder

CAIIB 2020 Bank Financial Management Mock Tests Set 10

Contingency planning in managing liquidity refers to


Options are :

  • Plan of action in managing funding requirement under bank-specific Crisis
  • Plan of action in managing funding requirement under normal market conditions
  • Plan of action in managing funding requirement under general market crisis.
  • Both a and c

Answer :Both a and c

To provide funds to satisfy its funding needs, a bank must perform one or a combination of which of the following: (I)Dispose of liquid assets (II)Increase short-term borrowings (III) Decrease holdings of less liquid assets (IV) Increase liabilities of a term nature


Options are :

  • Only I,II,III
  • Only III,IV
  • Only IV
  • all of the above viz I,II,III,IV

Answer :all of the above viz I,II,III,IV

All banks must have interest rate risk measurement systems that capture all material sources of interest rate risk and that assess the effects of rate changes on both earning and economic value. Measurement systems should: I)Assess all material interest rate risk associated with a bank’s assets, liabilities, and OBS positions II) predict future NPAs III) Have well-documented assumptions and parameters IV) Utilise generally accepted financial concepts and risk measurement techniques


Options are :

  • Only I
  • Only I,III,IV
  • Only I,II,III
  • all of the above viz I,II,III,IV

Answer :Only I,III,IV

CAIIB 2020 Bank Financial Management Mock Tests Set 11

How are earnings per share calculated?


Options are :

  • Use the income statement to determine earnings after taxes (net income) and divide by the previous period's earnings after taxes. Then subtract 1 from the previously calculated value.
  • Use the income statement to determine earnings after taxes (net income) and divide by the number of common shares outstanding.
  • Use the income statement to determine earnings after taxes (net income) and divide by the number of common and preferred shares outstanding.
  • Use the income statement to determine earnings after taxes (net income) and divide by the forecasted period's earnings after taxes. Then subtract 1 from the previously calculated value

Answer :Use the income statement to determine earnings after taxes (net income) and divide by the number of common shares outstanding.

In order to reduce the menace of NPAs, RBI/Government of India has come out with several measures. Which of the following is NOT one of those measures:? (I)Bills Reconciliation Act, 2017(BRA) (II)Payments and Settlement Act, 2007(PSA) (III)Scheme for Sustainable Structuring of Stressed Assets (S4A). (IV)Insolvency and Bankruptcy Code, 2016 (IBC).


Options are :

  • Only I,II
  • Only III,IV
  • Only III
  • Only IV

Answer :Only I,II

Which of the following is correct w.r.t. negative or liability-sensitive gap:


Options are :

  • A negative or liability-sensitive gap occurs when liabilities exceed assets (including OBS positions) in a given time band.
  • Due to negative gap ,an increase in market interest rates could cause a decline in net interest income.
  • only a
  • both a and b

Answer :both a and b

CAIIB 2020 Bank Financial Management Mock Tests Set 12

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