CAIIB 2020 Bank Financial Management Mock Tests Set 3

An analyst observes a 5-year, 10% coupon bond with semiannual payments. The face value is ?1,000. How much is each coupon payment?


Options are :

  • ?25.
  • ?50.
  • ?100.

Answer :?50.

CAIIB 2020 Bank Financial Management Mock Tests Set 4

A bond initially does not make periodic payments but instead accrues them over a pre-determined period and then pays a lump sum at the end of that period. The bond subsequently makes regular periodic payments until maturity. Such a bond is best described as a:


Options are :

  • step-up note.
  • deferred-coupon bond.
  • zero-coupon bond.

Answer :deferred-coupon bond.

Three bonds are identical in credit quality and all other respects except the following: Bond X: Noncallable, accelerated sinking fund. Bond Y: Callable, accelerated sinking fund. Bond Z: Noncallable, no sinking fund. The correct order for these three bonds, from highest yield to lowest yield, is:


Options are :

  • Bond Y; Bond Z; Bond X.
  • Bond Y; Bond X; Bond Z.
  • Bond X; Bond Z; Bond Y.

Answer :Bond Y; Bond X; Bond Z.

Every six months a bond pays coupon interest equal to 3% of its par value. This bond is a:


Options are :

  • 6% semiannual coupon bond.
  • 3% semiannual coupon bond.
  • 6% annual coupon bond.

Answer :6% semiannual coupon bond.

CAIIB 2020 Bank Financial Management Mock Tests Set 5

A bond is trading at a premium if its:


Options are :

  • yield is greater than its coupon rate.
  • redemption value is greater than its face value.
  • price is greater than its par value.

Answer :price is greater than its par value.

A 5-year bond with a 10% coupon has a present yield to maturity of 8%. If interest rates remain constant one year from now, the price of the bond will be:


Options are :

  • the same.
  • higher.
  • lower.

Answer :lower.

Current spot rates are as follows: 1-Year: 6.5% 2-Year: 7.0% 3-Year: 9.2% Which of the following statements is most accurate


Options are :

  • For a 3-year annual pay coupon bond, the first coupon can be discounted at 6.5%, the second coupon can be discounted at 7.0%, and the third coupon plus maturity value can be discounted at 9.2% to find the bond's arbitrage-free value.
  • For a 3-year annual pay coupon bond, all cash flows can be discounted at 9.2% to find the bond's arbitrage-free value.
  • The yield to maturity for 3-year annual pay coupon bond can be found by taking the geometric average of the 3 spot rates.

Answer :For a 3-year annual pay coupon bond, the first coupon can be discounted at 6.5%, the second coupon can be discounted at 7.0%, and the third coupon plus maturity value can be discounted at 9.2% to find the bond's arbitrage-free value.

CAIIB 2020 Bank Financial Management Mock Tests Set 6

An investor gathers the following information about a 2-year, annual-pay bond: Par value of ?1,000 Coupon of 4% 1-year spot interest rate is 2% 2-year spot interest rate is 5% Using the above spot rates, the current price of the bond is closest to:


Options are :

  • ?1,000.
  • ?1,010.
  • ?983.

Answer :?983.

The basic purpose of derivative financial instruments is to manage some kind of risk such as all of the following except


Options are :

  • Stock price movements.
  • Interest rate variations.
  • Currency fluctuations.
  • uncollectibility of accounts receivables

Answer :uncollectibility of accounts receivables

Open account when used as a method of payment indicates.


Options are :

  • The transactions are legal
  • the buyer has no money to pay immediately.
  • The seller wants to sell desperately.
  • None of the above.

Answer :None of the above.

CAIIB 2020 Bank Financial Management Mock Tests Set 7

Which of the following statements regarding zero-coupon bonds and spot interest rates is CORRECT?


Options are :

  • Spot interest rates will never vary across the term structure.
  • Price appreciation creates all of the zero-coupon bond's return.
  • If the yield to maturity on a 2-year zero coupon bond is 6%, then the 2-year spot rate is 3%.

Answer :Price appreciation creates all of the zero-coupon bond's return.

For large changes in yield, which of the following statements about using duration to estimate price changes is most accurate?  Duration alone:


Options are :

  • overestimates the increase in price for increases in yield.
  • underestimates the increase in price for decreases in yield.
  • underestimates the increase in price for decreases in yield.

Answer :underestimates the increase in price for decreases in yield.

Suppose the term structure of interest rates makes an instantaneous parallel upward shift of 100 basis points. Which of the following securities experiences the largest change in value? A five-year:


Options are :

  • zero-coupon bond.
  • floating rate bond.
  • coupon bond with a coupon rate of 5%.

Answer :zero-coupon bond.

CAIIB 2020 Bank Financial Management Mock Tests Set 1

What is the principal purpose of Interest Rate Swaps?


Options are :

  • Help borrowers/lenders to switch their borrowings/lendings from fixed to floating rate structures and vice versa
  • Help players maximize interest earnings
  • Help accelerate interest due payments
  • Help the markets increase volumes

Answer :Help borrowers/lenders to switch their borrowings/lendings from fixed to floating rate structures and vice versa

Leveraging implies building up _________


Options are :

  • Large volume of business with relatively large amount of capital
  • Small volume of business on relatively small capital
  • Small volume of business with large capital
  • Large volume of business with relatively small capital

Answer :Large volume of business with relatively small capital

Yield spreads tend to widen when equity market performance is:


Options are :

  • strong.
  • stable.
  • weak.

Answer :weak.

CAIIB 2020 Bank Financial Management Mock Tests Set 10

Options are primarily used a hedge against ____________ fluctuation


Options are :

  • Price
  • Interest Rate
  • Market
  • Duration

Answer :Price

What is Open position?


Options are :

  • Any residual position of a bank at the end of the day-over bought
  • Any residual position of a bank at the end of the day-over sold
  • None of the above
  • 1 & 2 both

Answer :1 & 2 both

Bond X and Bond Y have the same par value, coupon, maturity, and credit rating, but Bond X trades at a higher price than Bond Y. A possible reason for this difference is that:


Options are :

  • Bond X has a higher expected loss in a default.
  • Bond Y has a higher expected recovery rate in a default.
  • the market expects a downgrade to Bond Y's credit rating.

Answer :the market expects a downgrade to Bond Y's credit rating.

CAIIB 2020 Bank Financial Management Mock Tests Set 11

An analyst has stated that, holding all else constant, an increase in the maturity of a coupon bond will increase its interest rate risk, and that a decrease in the coupon rate of a coupon bond will decrease its interest rate risk. The analyst is correct with respect to:


Options are :

  • both of these effects.
  • only one of these effects.
  • neither of these effects.

Answer :only one of these effects.

Holding other factors constant, the interest rate risk of a coupon bond is higher when the bond's:


Options are :

  • coupon rate is higher.
  • yield to maturity is lower.
  • current yield is higher.

Answer :yield to maturity is lower.

A non-callable bond has a modified duration of 7.26. Which of the following is the closest to the approximate price change of the bond with a 25 basis point increase in rates?


Options are :

  • 1.820%.
  • -1.820%.
  • -0.018%.

Answer :-1.820%.

CAIIB 2020 Bank Financial Management Mock Tests Set 12

The following is not a feature of a derivative instrument-


Options are :

  • It is a financial instrument
  • Its use always leads to profit
  • It is executable on a future date
  • Its pay-off is dependent on the value of any other basic variable

Answer :Its use always leads to profit

The following is not a feature of exchange-traded derivative -


Options are :

  • It is a standard size
  • It is available only on specified exchanges
  • The seller is always a bank
  • None of the above

Answer :The seller is always a bank

A bank has entered into an option forward contract with an export customer. That means -


Options are :

  • The bank has the option to accept or not to accept delivery under the contract the customer has the option delivery or not to deliver foreign exchange under the contract
  • The customer has the option to deliver the foreign exchange during the option period
  • The bank has the option to accept foreign exchange under the contract during the option period

Answer :The bank has the option to accept foreign exchange under the contract during the option period

CAIIB 2020 Bank Financial Management Mock Tests Set 13

If the coupon payments are reinvested at the coupon rate during the life of a bond, then the yield to maturity:


Options are :

  • is greater than the realized yield.
  • is less than the realized yield.
  • may be greater or less than the realized yield.

Answer :may be greater or less than the realized yield.

A feature of currency options that distinguishes it from other derivatives is


Options are :

  • It carries premium to be paid upfront
  • It is option to enter into the contract
  • The buyer has only right, but no obligation to execute the contract
  • The seller has the right, but no obligation to execute the contract

Answer :The buyer has only right, but no obligation to execute the contract

Which of the following bonds has the shortest duration? A bond with a:


Options are :

  • 10-year maturity, 10% coupon rate.
  • 10-year maturity, 6% coupon rate.
  • 20-year maturity, 6% coupon rate.

Answer :10-year maturity, 10% coupon rate.

CAIIB 2020 Bank Financial Management Mock Tests Set 14

The following statement with respect to currency option is wrong-


Options are :

  • Call option will be used by exporters
  • Put option gives the buyer the right to sell the foreign currency
  • Foreign currency rupee option is available in India
  • An American option can be executed on any day during its currency

Answer :Call option will be used by exporters

For contingency exposure of foreign exchange, the best derivative that can be used to hedge is


Options are :

  • Forwards
  • Futures
  • Options
  • Swaps

Answer :Options

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