CAIIB 2020 Bank Financial Management Mock Tests Set 2

Which of the following is a general criterion for a hedging instrument?


Options are :

  • Sufficient documentation must be provided at the beginning of the process.
  • Must be “highly effective” only in the first year of the hedge's life.
  • Must contain a nonperformance clause that makes performance probable.
  • Must contain one or more underlyings.

Answer :Sufficient documentation must be provided at the beginning of the process.

CAIIB 2020 Bank Financial Management Mock Tests Set 3

A hedge of the exposure to changes in the fair value of a recognized asset or liability, or an unrecognized firm commitment, is classified as a


Options are :

  • Fair value hedge.
  • Cash flow hedge.
  • Foreign currency hedge.
  • Underlying

Answer :Fair value hedge.

The difference between the value of a call option and a put option with the same exercise price is due primarily to:


Options are :

  • The greater liquidity of call options
  • The use of continuous as opposed to discrete discounting
  • The differential between the current stock price and the exercise price in present value terms
  • The effect of dividends on the two securities
  • The volatility of the price of the underlying stock

Answer :The differential between the current stock price and the exercise price in present value terms

Which of the following risks are inherent in an interest rate swap agreement? I. The risk of exchanging a lower interest rate for a higher interest rate. II. The risk of nonperformance by the counterparty to the agreement.


Options are :

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

Answer :Both I and II.

CAIIB 2020 Bank Financial Management Mock Tests Set 4

Derivatives can be used to hedge aggregate risks as reflected in the asset-liability mismatches. In this case, a dynamic management of hedge is necessary' because


Options are :

  • The risks are dynamic
  • New hedging tools arrive in the market
  • The composition of assets and liabilities is always changing
  • A close monitoring of hedge is an RBI requirement

Answer :The composition of assets and liabilities is always changing

Which of the following is a technique used for interest rate risk measurement: I)Repricing Schedules II) Gap Analysis III) Duration IV) DCF


Options are :

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

Answer :Only I,II,III

Palo Alto Industries has a debt-to-equity ratio of 1.6 compared with the industry average of 1.4. This means that the company


Options are :

  • will not experience any difficulty with its creditors.
  • has less liquidity than other firms in the industry.
  • will be viewed as having high creditworthiness.
  • has greater than average financial risk when compared to other firms in its industry.

Answer :has greater than average financial risk when compared to other firms in its industry.

Effective liquidity management by a bank serves which of the following important purposes:? (I)It demonstrates the market place that the bank is safe and therefore capable of repaying its borrowings. (II)It enables bank to meet its prior loan commitments, whether formal or informal. (III)It enables the bank to avoid unprofitable sale of assets. This function permits the bank to avoid sale of assets at fire sale prices, as opposed to going concern values to generate funds. (IV)It lowers the size of the default risk premium the bank must pay for funds.


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

CAIIB 2020 Bank Financial Management Mock Tests Set 5

The estimated benefits from a project are expressed as cash flows instead of income flows because:


Options are :

  • it is simpler to calculate cash flows than income flows.
  • it is cash, not accounting income, that is central to the firm's capital budgeting decision.
  • this is required by the Internal Revenue Service.
  • this is required by the Securities and Exchange Commission

Answer :it is cash, not accounting income, that is central to the firm's capital budgeting decision.

Which of the following are shortcomings of Gap Analysis? I) Gap Analysis does not take account of variation in the characteristics of different positions within a time band. II) Gap Analysis ignores differences in spreads between interest rates that could arise as the level of market interest rates changes (basis risk). III) Gap Analysis does not take into account any changes in the timing to payments that might occur as a result of changes in the interest rate environment. IV) Most gap analyses fail to capture variability in non-interest revenue and expenses, a potentially important source of risk to current income.


Options are :

  • Only I
  • Only I,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 of the following working capital strategies is the most aggressive?


Options are :

  • Making greater use of short term finance and maximizing net short term asset.
  • Making greater use of long term finance and minimizing net short term asset.
  • Making greater use of short term finance and minimizing net short term asset.
  • Making greater use of long term finance and maximizing net short term asset.

Answer :Making greater use of short term finance and minimizing net short term asset.

CAIIB 2020 Bank Financial Management Mock Tests Set 6

A non-performing asset (NPA) causes two-fold impact on the profitability of a bank. Which of the following are correct causes? I) Bank ceases to earn interest on this asset and thus is deprived of its legitimate income from the assets. II) The bank is required to make provisions for this asset, depending on the classification category of the asset and value of security, if any. III) Bank is not able to resold the assets under mortgage/hypothecation IV) The stock price of the banks decreases sharply.


Options are :

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

Answer :I,II

The new and emerging opportunities for credit expansion are:


Options are :

  • Pass through certificate
  • Syndicated loans
  • Project finance
  • All of these

Answer :All of these

Which of the following are components of liabilities in a bank’s balance sheet- I) Advances II) Reserve and surplus III)Deposits IV) Investments


Options are :

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

Answer :Only II,III

CAIIB 2020 Bank Financial Management Mock Tests Set 7

____________  refers to the current or prospective risk to a bank’s capital and earning arising from adverse movements in interest rates that affect banking book positions.


Options are :

  • Interest Rate Risk in Banking Book (IRRBB)
  • Discounted Cash Flow(DCF)
  • Strategic Banking Book Restructuring (SBBR).
  • Alternate Debt Recovery

Answer :Interest Rate Risk in Banking Book (IRRBB)

_________  is a measure of the percentage change in the economic value of a position that will occur, given a small change in the level of interest rates.


Options are :

  • Modified Duration
  • Gap Analysis
  • Repricing Schedules
  • VaR

Answer :Modified Duration

Funding risks arises due to which of the following reason- I) Fraud causing substantial loss II) Systemic risk III) Loss of confidence IV) Liabilities in foreign currencies


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

CAIIB 2020 Bank Financial Management Mock Tests Set 8

The Loan Review Mechanism should focus on:


Options are :

  • Accuracy and timely credit Ratings.
  • Compliance of internal systems and procedures
  • Post sanction monitoring and follow-up
  • All these

Answer :All these

Which of the following are components of Assets in a bank’s balance sheet- I) Advances II) Reserve and surplus III)Deposits IV) Investments


Options are :

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

Answer :Only I,IV

Duration is one of the techniqus for measurement of interest rate risk. Which of the following is/are some of the limitations of Duration technique: I) Estimates derived from a standard duration approach generally focus on just one form of interest rate risk exposure – repricing risk. As a result, they may not reflect interest rate risk arising, for instance, from changes in the relationship among interest rates within a time band (basis risk). II) Because duration approaches typically use an average duration for each time-band, the estimates will not reflect differences in the actual sensitivity of positions that can arise from differences in coupon rates and the timing of payments. III) The simplifying assumptions that underlie the calculation of standard duration mean that the risk of options may not be adequately captured.


Options are :

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

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

If an investor is concerned about interest rate risk, the investor should consider investing in


Options are :

  • Serial bonds.
  • Sinking fund bonds.
  • Convertible bonds.
  • Floating rate bonds

Answer :Floating rate bonds

Derivative instruments are financial instruments or other contracts that must contain


Options are :

  • One or more underlyings, or one or more notional amounts.
  • No initial net investment or smaller net investment than required for similar response contacts.
  • Terms that do not require or permit net settlement or delivery of an asset.
  • All of the above.

Answer :No initial net investment or smaller net investment than required for similar response contacts.

CAIIB 2020 Bank Financial Management Mock Tests Set 9

Strobel Company has a large amount of variable rate financing due in one year. Management is concerned about the possibility of increases in short-term rates. Which of the following would be an effective way of hedging this risk?


Options are :

  • Buy Treasury notes in the futures market.
  • Sell Treasury notes in the futures market.
  • Buy an option to purchase Treasury bonds.
  • Sell an option to purchase Treasury bonds

Answer :Sell Treasury notes in the futures market.

Right to buy at a fixed price on or before a fixed date in an option is called as ......


Options are :

  • Option
  • Call Option
  • Put Option
  • Future Option

Answer :Call Option

Which of the following most accurately describes the maximum price for a currently callable bond?


Options are :

  • It's par value.
  • The call price.
  • The present value of its par value.

Answer :The call price.

CAIIB 2020 Retail Banking Mock Tests Set 1

Libor rates are determined:


Options are :

  • by countries’ central banks.
  • by money market regulators.
  • in the interbank lending market.

Answer :in the interbank lending market.

With which of the following features of a corporate bond issue does an investor most likely face the risk of redemption prior to maturity?


Options are :

  • Serial bonds.
  • Sinking fund.
  • Term maturity structure.

Answer :Sinking fund.

An option may be exercised and the underlying stock may be bought or sold at a price. This price is called as ......


Options are :

  • Buy Price
  • Sale Price
  • Buy or sale price
  • Strike Price

Answer :Strike Price

CAIIB 2020 Retail Banking Mock Tests Set 10

The cost one pay for an option is called as ......


Options are :

  • Charge
  • Premium
  • Discount
  • Margin

Answer :Premium

An investor paid a full price of $1,059.04 each for 100 bonds. The purchase was between coupon dates, and accrued interest was $23.54 per bond. What is each bond’s flat price?


Options are :

  • $1,000.00.
  • $1,035.50.
  • $1,082.58.

Answer :$1,035.50.

A bank expects fall in price of a security if it sells it in the market. What is the risk that the bank is facing?


Options are :

  • Market risk
  • Operational risk
  • Asset liquidation risk
  • Market liquidity risk

Answer :Asset liquidation risk

CAIIB 2020 Bank Financial Management Mock Tests Set 1

The largest component of returns for a 7-year zero-coupon bond yielding 8% and held to maturity is:


Options are :

  • capital gains.
  • interest income.
  • reinvestment income.

Answer :interest income.

An investor buys a buys a 10-year bond with a 6.5% annual coupon and a YTM of 6%. Before the first coupon payment is made, the YTM for the bond decreases to 5.5%. Assuming coupon payments are reinvested at the YTM, the investor’s return when the bond is held to maturity is:


Options are :

  • less than 6.0%.
  • equal to 6.0%.
  • greater than 6.0%.

Answer :less than 6.0%.

Which of the following three bonds (similar except for yield and maturity) has the least Macaulay duration? A bond with:


Options are :

  • 5% yield and 10-year maturity.
  • 5% yield and 20-year maturity.
  • 6% yield and 10-year maturity.

Answer :6% yield and 10-year maturity.

CAIIB 2020 Bank Financial Management Mock Tests Set 10

Date on which the option is automatically exercised is called as ......


Options are :

  • Last date
  • Expiry date
  • Maturity date
  • Final date

Answer :Maturity date

Expected loss can decrease with an increase in a bond’s:


Options are :

  • default risk.
  • loss severity.
  • recovery rate.

Answer :recovery rate.

The implicit Yield for a T-bill of 91 days which is priced at 99.26 is -


Options are :

  • 2.96%
  • 3.82%
  • 4.29%
  • 1.28%

Answer :2.96%

CAIIB 2020 Bank Financial Management Mock Tests Set 11

When the strike price is below the spot price for the call option, the option is ......


Options are :

  • at the money
  • out of money
  • in the money
  • any of the above

Answer :in the money

When the strike price is equal to the spot price for the call option, the option is ......


Options are :

  • at the money
  • out of money
  • in the money
  • any of the above

Answer :at the money

Which of the following statements is least likely a limitation of relying on ratings from credit rating agencies?


Options are :

  • Credit ratings are dynamic.
  • Firm-specific risks are difficult to rate.
  • Credit ratings adjust quickly to changes in bond prices.

Answer :Credit ratings adjust quickly to changes in bond prices.

CAIIB 2020 Bank Financial Management Mock Tests Set 12

Compared to shorter duration bonds, longer duration bonds:


Options are :

  • have smaller bid-ask spreads.
  • are less sensitive to credit spreads.
  • have less certainty regarding future creditworthiness.

Answer :have less certainty regarding future creditworthiness.

Which of the following derivatives is a forward commitment?


Options are :

  • Stock option.
  • Currency swap.
  • Credit default swap.

Answer :Currency swap.

Which of the following statements about exchange-traded derivatives is least accurate? Exchange-traded derivatives:


Options are :

  • are liquid.
  • are standardized contracts.
  • carry significant default risk.

Answer :carry significant default risk.

CAIIB 2020 Bank Financial Management Mock Tests Set 13

A custom agreement to purchase a specific T-bond next Thursday for $1,000 is:


Options are :

  • an option.
  • a futures contract.
  • a forward commitment.

Answer :a forward commitment.

Which of the following are features of Cash management Bills (CMBs)? (I)The announcement of the auction of the Bills is be made by the Reserve Bank of India through separate Press Release issued one day prior to the date of auction. (II)The settlement of the auction is on T+1 basis. (III)The Non-Competitive Bidding Scheme for Treasury Bills is not extended to CMBs. (IV)The Bills are tradable and qualify for ready forward facility.


Options are :

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

Answer :All of the above viz. I,II,III,IV

Comment / Suggestion Section
Point our Mistakes and Post Your Suggestions