CAIIB 2020 Bank Financial Management Mock Tests Set 9

A decrease in the risk-free rate of interest will:


Options are :

  • increase put and call option prices.
  • decrease put option prices and increase call option prices.
  • increase put option prices and decrease call option prices.

Answer :increase put option prices and decrease call option prices.

Given that Tier I capital is ? 500 crores and Tier II capital ? 800 crores and further given that RWA for credit risk ? 5000 crores, capital charge for market risk and operational risk ? 200 crores and ? 100 respectively, answer the following questions if the regulatory CAR is 8%. What are the total risk-weighted assets?


Options are :

  • ?7250 crores
  • ? 8750 crores
  • ? 9000 crores
  • ? 7800 crores

Answer :? 8750 crores

What is meant by rating migration?


Options are :

  • Changing rating agency
  • Changing the rating model
  • Changes in rating over a period when rated on same model
  • Changes in fee to rating agencies

Answer :Changes in rating over a period when rated on same model

CAIIB 2020 Retail Banking Mock Tests Set 1

The main components of market risk are _________ i) Liquidity risk  ii) Interest rate risk  iii) Currency risk From the above, choose the correct answer from the options given below:


Options are :

  • (i) only
  • (i) and (ii)
  • (ii) only
  • (i), (ii) and (iii)

Answer :(i), (ii) and (iii)

Given that Tier I capital is ? 500 crores and Tier II capital ? 800 crores and further given that RWA for credit risk ? 5000 crores, capital charge for market risk and operational risk ? 200 crores and ? 100 respectively, answer the following questions if the regulatory CAR is 8%. What is the risk-weighted assets for operational risk?


Options are :

  • ? 1250 crores
  • ? 1500 crores
  • ? 800 crores
  • ? 2000 crores

Answer :? 1250 crores

CRAR is _________


Options are :

  • Tier I capital / Total RWAs
  • Tier II capital / Total RWAs
  • Regulatory Capital / Total RWAs
  • Tier I and II capital/ Total Assets

Answer :Regulatory Capital / Total RWAs

CAIIB 2020 Bank Financial Management Mock Tests Set 1

Given that Tier I capital is ? 500 crores and Tier II capital ? 800 crores and further given that RWA for credit risk ? 5000 crores, capital charge for market risk and operational risk ? 200 crores and ? 100 respectively, answer the following questions if the regulatory CAR is 8%. What is the total CRAR?


Options are :

  • 0.1486
  • 0.1111
  • 0.1143
  • 0.1282

Answer :0.1486

Which of the following is Systemic Risk?


Options are :

  • Failure of the whole banking system
  • Strategic Risk
  • System Risk
  • Regulatory Risk

Answer :Failure of the whole banking system

_________implies factoring risks into pricing through capital charge and loss probabilities.


Options are :

  • Risk Pricing.
  • Risk Monitoring.
  • Risk Identification.
  • Risk Measurement.

Answer :Risk Pricing.

CAIIB 2020 Bank Financial Management Mock Tests Set 10

Which measure of duration should be matched to the bondholder's investment horizon so that reinvestment risk and market price risk offset each other?


Options are :

  • Effective duration.
  • Macaulay duration.
  • Modified duration.

Answer :Macaulay duration.

The _________ of banks arises mainly from funding of long-term assets by short-term liabilities.


Options are :

  • Liquidity Risk
  • Interest Rate Risk
  • Market Risk
  • Operational Risk

Answer :Liquidity Risk

While borrowing for long term on floating rate basis, the interest risk is –


Options are :

  • The interest rate may fall in the market in future
  • The interest rate may increase in the market in future
  • The loan may not be renewed, if the interest rate falls in the market
  • None of the above

Answer :The interest rate may increase in the market in future

CAIIB 2020 Bank Financial Management Mock Tests Set 11

An Interest rate swap helps the user to –


Options are :

  • Fix the cost of borrowing
  • Reduce the Cost of Borrowing
  • Cover Exchange Risk
  • Avail Tax Benefit

Answer :Reduce the Cost of Borrowing

Which of the following are the advantages of Integrated risk management- I)Aligns the strategic aspects of risk with day-to-day operational activities. II)Facilitates greater transparency for investors and regulators. III)Enhances revenue and earnings growth. IV)Controls downside risk potential.


Options are :

  • Only I
  • 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

Tingley's Chocolate must purchase coca to make its products. The company is concerned that prices may rise prior to building inventory for Diwali sales. Analysts project that price per ton could vary from ?65,000 to ? 90,000. A September futures contract can be obtained with a ? 78,000 purchase price. What is Tingley's risk in this situation?


Options are :

  • Coca prices will rise above ? 78,000 and Tingley will purchase its coca at a price of ? 78,000.
  • Coca prices will decline below ? 78,000 and Tingley will have to purchase coca at ? 78,000.
  • Coca prices will hit ? 78,000 and the contract was a waste of time.
  • Tingley has no risk in this situation.

Answer :Coca prices will decline below ? 78,000 and Tingley will have to purchase coca at ? 78,000.

CAIIB 2020 Bank Financial Management Mock Tests Set 12

A bank has computed its Tier l capital - ? 1000 Cr. Tier-ll Capital - ? 1200 Cr. RWAs for Credit Risk - ? 19,000 Cr. Capital charge for market risk - ? 450 Cr. Capital charge for operational risk - ? 550 Cr. Assume CAR as 9%. What would be the bank's total RWAs?


Options are :

  • 14,257 Cr
  • 23,176 Cr
  • 26,111 Cr
  • 30,111 Cr

Answer :30,111 Cr

Under the Basic Indicator Approach, banks must hold capital for operational risk equal to


Options are :

  • The average over the previous five years of a fixed percentage of positive annual gross income
  • The average over the previous three years of a fixed percentage of positive annual gross income
  • The previous year's positive annual gross income
  • The average over the previous three years' annual gross income

Answer :The average over the previous three years of a fixed percentage of positive annual gross income

The interest rate risk to a bank has two perspectives viz:


Options are :

  • earnings perspective which is immediate impact of changes in interest rates on reported profits
  • earnings perspective which is immediate impact of changes in bank's Market Value of Equity
  • economic value perspective which is immediate impact of changes in interest rates on reported profits
  • economic value perspective which is long-range impact of changes in interest rates on reported profits

Answer :earnings perspective which is immediate impact of changes in interest rates on reported profits

CAIIB 2020 Bank Financial Management Mock Tests Set 13

The Basel Committee has progressively published rules regarding capital requirements. Mark the correct statement among the following.


Options are :

  • Basel I focused only on market risks
  • Basel II includes credit, market and financial risks
  • Basel III capital regulation has been fully implemented in India from April 1, 2013 in phases
  • Basel III lays more focus on quality, consistency & transparency of the capital base

Answer :Basel III lays more focus on quality, consistency & transparency of the capital base

While calculating interest rate risk, the concept of Gap refers to the following


Options are :

  • The difference between Assets and Liabilities for each time bucket
  • The difference between Rate Sensitive Assets and Rate Sensitive Liabilities for each time bucket
  • The difference between Rate Sensitive Assets and Rate Sensitive Liabilities for the aggregate of all time buckets
  • The sum total of Rate Sensitive Assets and Rate Sensitive Liabilities

Answer :The difference between Rate Sensitive Assets and Rate Sensitive Liabilities for each time bucket

What is basis risk in the context of interest rate risk?


Options are :

  • The risk of interest rate of different assets & liabilities changing in different magnitude
  • The risk of interest rate of the assets & liabilities moving in different magnitude in opposite direction with a net loss possibility
  • The risk of interest rate of different assets, liabilities and off-balance sheet items changing in different magnitude
  • The risk of reference interest rate used for valuation of different assets, liabilities and off-balance sheet items changing

Answer :The risk of interest rate of different assets, liabilities and off-balance sheet items changing in different magnitude

CAIIB 2020 Bank Financial Management Mock Tests Set 14

Arbitrage is the advantage of?


Options are :

  • Difference in products in two markets
  • Difference in prices in two markets
  • Difference in people in two markets
  • Difference in time in two markets

Answer :Difference in prices in two markets

If the VaR on an asset is $ 100 million at a one-week, 95% confidence level, it means


Options are :

  • There is a only a 5% chance that the value of the asset will drop more than $ 100 million over any given week
  • That the value of the asset will drop more than $ 100 million over any given week
  • There is a only a 5% chance that the value of the asset will drop more than $ 5 million over any given week
  • During the next week, the assets will fall in value by $ 100 million

Answer :There is a only a 5% chance that the value of the asset will drop more than $ 100 million over any given week

Which of the following rankings of liabilities is correct if they are ranked by withdrawal risk from riskiest to least risky?


Options are :

  • Demand deposits; money market demand accounts;- certificates of deposit
  • Federal funds; demand deposits; certificates of deposit
  • Repurchase agreements; money market demand accounts; certificates of deposit
  • Certificates of deposit; federal funds; demand deposits
  • Passbook savings accounts; money market demand accounts; certificates of deposit

Answer :Demand deposits; money market demand accounts;- certificates of deposit

CAIIB 2020 Bank Financial Management Mock Tests Set 2

What is the fundamental reason why depository institutions are subjected to bank run risk?


Options are :

  • DIs typically have high leverage.
  • DIs typically take excessive risks.
  • Deposit contract typically implies a ‘first come, first served' principle.
  • Depositors go to practice material are typically paid based on the value of the bank and their shares in the total deposits.
  • None of the above.

Answer :Deposit contract typically implies a ‘first come, first served' principle.

What are major mechanisms to deal with sovereign risk exposure?


Options are :

  • Debt-for-equity swap
  • Loan sales
  • Multi-year restructuring of loans
  • Loan-for-bond swap
  • all of the above

Answer :all of the above

________ arises from the need to replace net outflows due to unanticipated withdrawal/non-renewal of deposits (wholesale and retail)/premature closure of term deposits


Options are :

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

Answer :Funding Risk

CAIIB 2020 Bank Financial Management Mock Tests Set 3

Which of the following situations pose a reinvestment risk for a financial institution?


Options are :

  • A financial institution issues $10 million of liabilities of one-year maturity to finance the purchase of $10 million of assets with a two-year maturity.
  • A financial institution issues $10 million of liabilities of two-year maturity to finance the purchase of $10 million of assets with a two-year maturity.
  • A financial institution issues to practice material issues $10 million of liabilities of three-year maturity to finance the purchase of $10 million of assets with a two-year maturity.
  • A financial institution matches the maturity of its assets and liabilities.

Answer :A financial institution issues to practice material issues $10 million of liabilities of three-year maturity to finance the purchase of $10 million of assets with a two-year maturity.

An FI that funds long-term fixed-rate loans with at-call variable rate deposits exposes itself to:


Options are :

  • liquidity risk, Credit risk, and interest-rate risk.
  • liquidity risk, Credit risk, market risk and interest-rate risk.
  • Credit risk, market risk and interest-rate risk.
  • Liquidity risk, foreign exchange rate risk, and interest-rate risk.

Answer :liquidity risk, Credit risk, and interest-rate risk.

In constructing the operational risk capital requirement for a bank, risks are aggregated for:


Options are :

  • commercial and retail banking.
  • investment banking and asset management.
  • each of the seven risk types and eight business lines that are relevant.
  • only those business lines that generate at least 20% of the gross revenue of the bank.

Answer :each of the seven risk types and eight business lines that are relevant.

CAIIB 2020 Bank Financial Management Mock Tests Set 4

Comment / Suggestion Section
Point our Mistakes and Post Your Suggestions