CAIIB 2020 Bank Financial Management Mock Tests Set 8

Quantitative measures of risks can be classified into which of the following categories?


Options are :

  • Based on Sensitivity
  • Based on Volatility
  • Based on Downside Potential
  • All of the above

Answer :All of the above

Risks in banking transactions impact banks in number of ways. Which of the following are correct with respect to impact of risks in banking transactions- I) Banks have to maintain necessary capital, at least as per regulatory requirements. II) There is a probability of loss associated with all risks.


Options are :

  • Only I
  • Only II
  • Both I, II
  • None

Answer :Both I, II

_______ arises from the need to compensate for non-receipt of expected inflows of funds i.e. performing assets turning into non-performing assets; or borrowers not repaying their instalments (EMIs) on due dates.


Options are :

  • Funding Risk
  • Time Risk
  • Call Risk
  • Embedded Option Risk

Answer :Time Risk

CAIIB 2020 Bank Financial Management Mock Tests Set 9

Interest Rate Parity (IRP) implies that:


Options are :

  • Interest rates should change by an equal amount but in the opposite direction to the difference in inflation rates between two countries
  • The difference in interest rates in different currencies for securities of similar risk and maturity should be consistent with the forward rate discount or premium for the foreign currency
  • The interest rates between two countries start in equilibrium, any change in the differential rate of inflation between the two countries tends to be offset over the long-term by an equal but opposite change in the spot exchange rate
  • In the long run real interest rate between two countries will be equal
  • Nominal interest rates in each country are equal to the required real rate plus compensation for expected inflation

Answer :The difference in interest rates in different currencies for securities of similar risk and maturity should be consistent with the forward rate discount or premium for the foreign currency

An investor wants to see how bond prices move with small changes in yield. The measure he will most likely use is:


Options are :

  • Macaulay duration.
  • modified duration.
  • accelerated duration.

Answer :modified duration.

Which of the following statements is true? (1)Banks are not required to strive to achieve a higher ratio than the minimum prescribed above as an effort towards better liquidity risk management. (2)LCR is a ratio of the Stock of HQLA and the Net Cash Outflows over the next 30 calendar days. (3)Basel III framework prescribes two monitoring tools/metrics for better monitoring a bankís liquidity position in addition to the liquidity standards. (4)LCR needs to be monitored only in home currency.


Options are :

  • Only 1
  • Only 2
  • Only 3
  • All of the above viz. 1,2,3,4

Answer :Only 2

CAIIB 2020 Bank Financial Management Mock Tests Set 1

Counterparty risk is:


Options are :

  • The risk of loss when exchange rates change during the period of a financial contract
  • Based on the notional amount of the contract
  • The risk of loss if the other party to a financial contract fails to honor its obligation
  • Present only with exchange-traded options
  • Eliminated by the use of compulsory insurance

Answer :The risk of loss if the other party to a financial contract fails to honor its obligation

The risk of an accounting loss from a financial instrument due to possible failure of another party to perform according to terms of the contract is known as


Options are :

  • Off-balance-sheet risk.
  • Market risk.
  • Credit risk.
  • Investment risk

Answer :Credit risk.

Credit derivatives segregate from the assets through instruments known as and transfer the risk from the owner to another person who is in a position to absorb the credit risk for


Options are :

  • The bad assets, NPAs, commission
  • The credit risk, credit default swaps, a fee
  • Income, warrants, consideration
  • Good assets, securitization, discount

Answer :The credit risk, credit default swaps, a fee

CAIIB 2020 Bank Financial Management Mock Tests Set 10

Which of the following expresses the relationship between risk and return?


Options are :

  • Inverse relationship.
  • Direct relationship.
  • Negative relationship.
  • No relationship.

Answer :Direct relationship.

As per IRB Approach(Internal Rating Based Approach) Capital change computation is a function of- (I) Probability of Default (PD) (II)Loss Given the Default (LGD) (III)Exposure at Default (EAD) (IV)Maturity (M)


Options are :

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

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

Say a portfolio has two bonds A and B with BPVs of ? 675 and ? 205 respectively. The BPV of the portfolio would be the weighted average of BPVs of all the bonds in the portfolio. The portfolio BPV will be (675 + 205)/2 = 440. Now if you intend to reduce the risk of this portfolio which of the following measures is appropriate?


Options are :

  • Add another bond A to the portfolio
  • Add another bond B to the portfolio
  • Add another bond to the portfolio with BPV of ?950
  • all of the above

Answer :Add another bond B to the portfolio

CAIIB 2020 Bank Financial Management Mock Tests Set 11

The risk of loss because of fluctuations in the relative value of foreign currencies is called


Options are :

  • Expropriation risk.
  • Sovereign risk.
  • Multinational beta.
  • Exchange rate risk

Answer :Exchange rate risk

The main objective of the Countercyclical Capital Buffer (CCB) regime is/are-


Options are :

  • It requires banks to build up to buffer of capital in good times which may be used to maintain flow of credit to the real/needy sector in difficult times.
  • It achieves the broader macro-prudential goal of restricting the banking sector from indiscriminate leading in the periods of excess credit growth that have often been associated with the building up of system-wide risk.
  • Both a and b
  • Only b

Answer :Both a and b

The ___________ is considered the main indicator in the CCCB framework in India.


Options are :

  • credit-to-GDP gap
  • incremental C-D ratio
  • Industry Outlook (IO) assessment index
  • interest coverage ratio

Answer :credit-to-GDP gap

CAIIB 2020 Bank Financial Management Mock Tests Set 12

Liquidity risk is reflected as


Options are :

  • Maturity mismatch, cash inflow and outflow
  • Total cash held, receipts and payments
  • Committed lines, lines utilized and unutilized
  • NPAs, total assets and performing loans

Answer :Maturity mismatch, cash inflow and outflow

Market risk management involves finding answer to which of the following questions? I) What are the risks? II) What is the quantum? How much could the price change? What would be the effect on profit and loss? III) How can we monitor and control price risk? IV)        Can we reduce the risk? And, if so, then how?


Options are :

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

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

A branch sanctions Rs 1 crore loan to a borrower, which of the following risks the branch is taking? 1. Liquidity risk 2. Interest rate risk 3. Market risk 4.Credit risk 5.Operational risk


Options are :

  • All of them
  • 1, 2 and 3 only
  • 1, 4 and 5 only
  • 1, 2, 4 and 5 only

Answer :1, 2, 4 and 5 only

CAIIB 2020 Bank Financial Management Mock Tests Set 13

Which of the following is a role of ALCO(Asset-Liability Management Committee)? I) Product pricing for deposits and advances II) Maturity profile and mix of incremental assets and liabilities III) Articulating interest rate view of the bank IV) Risk Management.


Options are :

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

Answer :Only I,II,III

What is the most critical function of Risk Management?


Options are :

  • Measurement of risk
  • Identification of risks
  • Estimating the costs of risk
  • Controlling the level of risk to an organization's capacity

Answer :Controlling the level of risk to an organization's capacity

What kind of risk on settlements is covered by 'Herstatt Risk' for which BCBS was formed?


Options are :

  • Exchange rate risk
  • Time difference risk
  • Interest rate risk
  • None

Answer :Time difference risk

CAIIB 2020 Bank Financial Management Mock Tests Set 14

A bank funds its assets from a pool of composite liabilities. Apart from credit and operational risks, it faces...


Options are :

  • Basis risk
  • Mismatch risk
  • Market risk
  • Liquidity risk

Answer :Basis risk

Documents not stamped properly is what kind of risk?:


Options are :

  • Credit Risk
  • Operational Risk
  • Legal Risk
  • Anyone of the above

Answer :Legal Risk

Value at Risk (VaR) refers to ......


Options are :

  • Measurement or an estimate of potential loss in a position of asset or portfolio of assets over a given level or certainty
  • Maximum probable market loss over a given period of time horizon expressed as a degree of certainty
  • All of the above
  • None of the above

Answer :Maximum probable market loss over a given period of time horizon expressed as a degree of certainty

CAIIB 2020 Bank Financial Management Mock Tests Set 2

A rating model combines financial ratios using reported accounting instruction and equity values to forecast the probability of a company entering bankruptcy within 12 month period This model is known as


Options are :

  • Altmanís Z score model
  • Credit metrics model
  • Credit risk model
  • None of the Above

Answer :Altmanís Z score model

__________ is managing all risks that are associated with all the activities undertaken across the entire organisation.


Options are :

  • Operational Risk Quantification
  • Integrated risk management
  • Operational Risk Management
  • Operational Risk Mitigation

Answer :Integrated risk management

Given that the Macaulay duration of an 8% annual payment bond with a 7% yield is 6.5, which of the following is most likely to be the modified duration?


Options are :

  • 6.02.
  • 6.07.
  • 7.00.
  • 8.65.

Answer :6.07.

CAIIB 2020 Bank Financial Management Mock Tests Set 3

The daily volatility of a stock is 1.5%, the monthly volatility =?


Options are :

  • 8.22
  • 9.36
  • 5.29
  • 1.25

Answer :8.22

Arbitrage prevents:


Options are :

  • market efficiency.
  • earning returns higher than the risk-free rate of return.
  • two assets with identical payoffs from selling at different prices.

Answer :two assets with identical payoffs from selling at different prices.

In risk measurement, the parameter that is used to capture deviation of a target variable due to unit movement of a single market parameter, say 1% change in interest rate is called......


Options are :

  • Downside potential
  • Volatility
  • Sensitivity
  • Mitigation

Answer :Sensitivity

CAIIB 2020 Bank Financial Management Mock Tests Set 4

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