CAIIB 2020 Bank Financial Management Mock Tests Set 4

An investor finds that for a 1% increase in yield to maturity, a bond's price will decrease by 4.21% compared to a 4.45% increase in value for a 1% decline in YTM. If the bond is currently trading at par value, the bond's approximate modified duration is closest to:


Options are :

  • 4.33.
  • 43.30.
  • 8.66.

Answer :4.33.

CAIIB 2020 Bank Financial Management Mock Tests Set 5

Where an option is out of the money –


Options are :

  • The premium will be refunded to the buyer
  • The buyer is unable to take up the contract
  • The seller gains to the extent of the premium received
  • No further purchase by the buyer is permitted

Answer :The seller gains to the extent of the premium received

Any rating below BBB by Standard & Poor’s (S&P) is least likely to be referred to as:


Options are :

  • junk grade.
  • low yield grade.
  • speculative grade.

Answer :low yield grade.

The interest rate of a security is adjusted periodically as per inflation. This is most likely a(n):


Options are :

  • floating rate bond.
  • index-linked bond.
  • inflation rate bond

Answer :index-linked bond.

CAIIB 2020 Bank Financial Management Mock Tests Set 6

The swap arrangement where principal amounts are not exchanged, but only periodical interest payments are made will be a –


Options are :

  • Currency swap
  • Cross currency interest rate swap
  • Interest rate swap
  • Non-financial swap

Answer :Interest rate swap

Inflation-linked bonds are structured in a way that:


Options are :

  • inflation adjustment is made via the coupon payments.
  • inflation adjustment is made via the principal repayment.
  • inflation adjustment is made via the coupon payments, principal repayment, or both.

Answer :inflation adjustment is made via the coupon payments, principal repayment, or both.

Which of the following statements is true?


Options are :

  • Exchange exposure leads to exchange risk
  • Exchange risk leads to exchange exposure
  • Exchange exposure and exchange risk are unrelated
  • None of the above

Answer :Exchange risk leads to exchange exposure

CAIIB 2020 Bank Financial Management Mock Tests Set 7

Libor rates reflect rates at which a select set of banks believe they could borrow unsecured funds from other banks in the London interbank market for different currencies and different borrowing periods ranging from:


Options are :

  • overnight to six months.
  • overnight to one year.
  • overnight to ten years.

Answer :overnight to one year.

Foreign currency exposure can be avoided by –


Options are :

  • Entering into forward contracts
  • denominating the transaction in domestic currency
  • Exposure netting
  • Maintaining foreign currency account

Answer :denominating the transaction in domestic currency

Which of the following statements is the most accurate?


Options are :

  • Interbank offered rates are best described as the rates at which major banks can borrow from other major banks against some form of collateral.
  • Interbank offered rates are best described as the rates at which major banks can issue short-term debt.
  • Interbank offered rates are best described as the rates at which major banks can borrow unsecured funds from other major banks.

Answer :Interbank offered rates are best described as the rates at which major banks can borrow unsecured funds from other major banks.

CAIIB 2020 Bank Financial Management Mock Tests Set 8

A currency exchange rate that is set today for an exchange to be made 90 days in the future is best described as a:


Options are :

  • forward exchange rate.
  • spot exchange rate.
  • real exchange rate.

Answer :forward exchange rate.

CAIIB 2020 Bank Financial Management Mock Tests Set 1

Bank of Madurai issued an LC to Ramaeshwar & Co. The company on receiving goods from the Chinese manufacturer asked the bank not to honour the LC as the goods are not as per Performa invoice which was agreed by both buyer and seller in their contract. The bank should


Options are :

  • Refuse to honour the request of Rameshwar and Co
  • Honour the request of Rameshwar & Co.
  • Bank should ask to settle the issue in International Court of Justice.
  • Honour the request of Rameshwar & Co. in case the Chinese manufacturer refuses to comply with Performa invoice as per contract between buyer and seller

Answer :Refuse to honour the request of Rameshwar and Co

All ECGC policies and financial guarantees are issued on __________


Options are :

  • Risk sharing basis
  • Risk coverage basis
  • Risk migration basis
  • Risk reduction basis

Answer :Risk sharing basis

The spot rate on the New Zealand dollar (NZD) is NZD/USD 1.4286, and the 180-day forward rate is NZD/USD 1.3889. This difference means: (Please note- Rates used are for example purposes only and should not be compared with current prevailing rates)


Options are :

  • interest rates are lower in the United States than in New Zealand.
  • interest rates are higher in the United States than in New Zealand.
  • it takes more NZD to buy one USD in the forward market than in the spot market.

Answer :interest rates are higher in the United States than in New Zealand.

CAIIB 2020 Bank Financial Management Mock Tests Set 10

Mr. Mohapatra, a resident of Puri in Orissa, issued an LC from his bank. On receipt of LC, the exporter dispatched the consignment to Mr. Mohapatra and thereby sending all necessary documents to the issuing bank via negotiating bank. The documents reached Delhi where they were held due to severe cyclone Fani in the state of Orissa. The documents reached Orissa but the operations of issuing bank were severely affected due to the cyclone and was out of operation for 10 days. Since documents were not handed over to Mr. Mohapatra on time, he suffered major loss in the business. Mr. Mohapatra sued the bank over this delay.


Options are :

  • Mr. Mohapatra is correct and bank should reimburse for the losses.
  • Bank is not liable for the losses.
  • Bank will only reimburse 10% of the LC value.
  • Bank will ask Mr. Mohapatra to settle his issue in the court.

Answer :Bank is not liable for the losses.

Assume the spot rate of the Canadian dollar is $.90. If the spot rate one year from now is $.85, the Canadian dollar will have (Please note- Rates used are for example purposes only and should not be compared with current prevailing rates)


Options are :

  • Appreciated by 5.56%.
  • Depreciated by 5.56%.
  • Appreciated by 5.88%.
  • Depreciated by 5.88%.

Answer :Depreciated by 5.56%.

The spot rate for one Australian dollar is US $0.92685 and the 60-day forward rate is US$0.93005. Which one of the following statements is consistent with these facts? (Please note- Rates used are for example purposes only and should not be compared with current prevailing rates)


Options are :

  • The U.S. dollar is trading at a forward discount with respect to the Australian dollar.
  • The U.S. dollar is trading at a forward premium with respect to the Australian dollar.
  • The U.S. dollar has lost purchasing power with respect to the Australian dollar.
  • The U.S. dollar has gained purchasing power with respect to the Australian dollar.

Answer :The U.S. dollar is trading at a forward discount with respect to the Australian dollar.

CAIIB 2020 Bank Financial Management Mock Tests Set 11

What is the effect on prices of Indian imports and exports when the rupee depreciates?


Options are :

  • Import prices and export prices will decrease.
  • Import prices will decrease and export prices will increase.
  • Import prices will increase and export prices will decrease.
  • Import prices and export prices will increase.

Answer :Import prices will increase and export prices will decrease.

Given a spot exchange rate for the U.S. dollar against the pound sterling of 1.4925 and a 90-day forward rate of 1.4775: (Please note- Rates used are for example purposes only and should not be compared with current prevailing rates)


Options are :

  • The forward pound sterling is selling at a discount against the dollar in the forward market.
  • The pound sterling is selling at a discount against the dollar and is undervalued in the forward market.
  • The forward pound sterling is selling at a premium against the dollar in the forward market.
  • The pound sterling is selling at a premium against the dollar and is overvalued in the forward market.

Answer :The forward pound sterling is selling at a discount against the dollar in the forward market.

Exchange Fluctuation Risk of ECGC:


Options are :

  • covers all exports payments up to six months period.
  • covers 100% exchange fluctuation of Indian exporters.
  • covers exchange fluctuation above 2% and up to 50% only.
  • covers exchange fluctuation above 2% and up to 35% only.

Answer :covers exchange fluctuation above 2% and up to 35% only.

CAIIB 2020 Bank Financial Management Mock Tests Set 12

Bank A issues LC dated 1.10.2018, in favour of a beneficiary in UK. The last date of shipment as per LC is 15.10.2018 and last date of negotiation 31.10.2018. The beneficiary presents documents to Bank B, for negotiation on 5.10.2018, with documents evidencing shipment of goods on 30.09.2018, which sends the documents to the opening bank, asking to reimburse as per LC terms. The opening bank, on receipt of documents notices that, the shipment was made on 30.09.2018 and the invoice was dated 02.09.2018, while the inspection certificate, analysis certificate and packing list were dated 25.09.2018. The issuing bank on receipt of documents rejected the documents, notifying discrepancy that documents were dated prior to date of credit.


Options are :

  • The issuing bank has rightly pointed out the discrepancy.
  • There in no discrepancy whatsoever. And issuing bank should accept the Documents.
  • The issuing bank has rightly pointed out the discrepancy but reasoning for rejection is incorrect.
  • Both issuing bank and negotiating banks are at fault of working carelessly and they should compensate both Applicant and beneficiary jointly.

Answer :There in no discrepancy whatsoever. And issuing bank should accept the Documents.

Banks may grant housing loan to non-resident Indians, for acquisition of a residential accommodation in India, subject to which of the following conditions: I)The quantum of loan, margin money and the period of repayment shall be same as applicable for resident Indians. II)The loan amount shall be credited only to NRE/FCNR (B) account. III)The loan shall be fully secured by equitable mortgage of the property proposed to be acquired and if necessary also by lien on the borrower’s other assets in India. IV)Repayment shall be by remittance from abroad or by debit to his NRE/FCNR (B)/NRO account or rental income derived from renting out the property acquired by utilization of the loan.


Options are :

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

Answer :Only I,III,IV

Which of the following is correct Under UCP 600 generic set of rules that applies to all transport documents (other than charter party bills of landing)? I)The document must indicate the name of the carrier and be signed by: (a) the carrier or named agent for or on behalf of the carrier; or (b) the master or named agent for or on behalf of the master. II) Any signature by the carrier, master or agent must be identified as that of the carrier, master or agent. III) Any signature of an agent must indicate whether the agent has signed for or on behalf of the carrier for or on behalf of the master. IV) Name of master is must on all transport documents.


Options are :

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

Answer :Only I,II,III

CAIIB 2020 Bank Financial Management Mock Tests Set 13

In respect of Letter of Credit, Which of the following would be regarded as original document? I)Any document bearing an apparently original signature, mark, stamp, or label of the issuer of the document , unless the document itself indicates that it is not an original. II)Any document that appears to be written, typed, perforated or stamped by the document issuer’s. III) Any document that appears to be on the document issuer’s original stationery IV) Any document that states it is original, unless the statement appears not to apply to the document presented.


Options are :

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

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

In terms of article 3 of UCP 600, if nothing is mentioned, LC will be treated as what type of LC?


Options are :

  • Revocable LC
  • Irrevocable LC
  • Confirmed LC
  • Back to back LC

Answer :Irrevocable LC

The maxim applied in respect of Direct Quotation is


Options are :

  • buy low, sell low
  • buy low, sell high
  • buy high, sell low
  • buy high, sell high

Answer :buy low, sell high

CAIIB 2020 Bank Financial Management Mock Tests Set 14

Article 17 of UCPDC 600 deals with -


Options are :

  • Original Documents
  • Transport Documents
  • Insurance Documents
  • Partial Shipments

Answer :Original Documents

Which of the following is true of foreign exchange markets?


Options are :

  • The futures market is mainly used by hedgers while the forward market is mainly used for speculating.
  • The futures market and the forward market are mainly used for hedging.
  • The futures market is mainly used by speculators while the forward market is mainly used for hedging.
  • The futures market and the forward market are mainly used for speculating.

Answer :The futures market is mainly used by speculators while the forward market is mainly used for hedging.

An LC, covering shipment of 1000 cartons consisting of 15000 pieces of shirts, (readymade garments), from Chennai port to Dubai port, provides that partial shipment is not allowed. The beneficiary hands over 500 cartons of Shirts, to the shipping company on 15.7.2018 and another 500 cartoons on 18.7.2018. The shipping Company issues Bill of Landing for the first 500 cartons on 17.7.2018 and another Bill of Landing covering 500 cartoons on 19.7.2018. Both the consignments are to be shipped by a vessel that is due to leave Chennai port on 21.7.2018. Thus the total goods under the LC, i.e. 1000 cartons, are shipped on a single vessel, but with two Bill of Ladings. The LC issuing bank, on receipt of documents partial shipment, which is not permitted under the Lc. The issuing bank, informs the negotiating bank that goods are held at their disposal and further instructions are awaited.


Options are :

  • The issuing bank is correct in rejecting the documents since these don’t comply with the instruction under Lc.
  • The issuing bank is not correct since all 1000 cartons are sent on the same means of transport and has same journey.
  • The Chennai exporter is at fault of not sending all 1000 cartons under same one BL and thus he should reimburse the importer losses.
  • The negotiating bank should reimburse the applicant since they didn’t check the documents before sending and missed this important error is documents, i.e. two Bill of ladings

Answer :The issuing bank is not correct since all 1000 cartons are sent on the same means of transport and has same journey.

CAIIB 2020 Bank Financial Management Mock Tests Set 2

Forward premium/differential depends upon


Options are :

  • Currencies fluctuation
  • Interest rate differential between two countries
  • Demand & supply of two currencies
  • Stock market returns

Answer :Interest rate differential between two countries

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