Free CAIIB Online Mock Test


Bank financial management

1. Which of the following are correct statements?
1
Forward rates are based on tom rate
2
Spot rates are based on forward rates
3
Forward and spot rates are based on each other
4
Forward rates are based on spot rates

Explanation: Forward rates are based on the spot rate, adjusted for the cost of carry and refer to the rate that will be used to deliver a currency, bond or commodity at some future time. So, option(4) is correct.

2. An exporter gets a letter of credit of export of garments to US but the expiry date of the credit falls on January 26, which is a public holiday in such situation the documents for negotiation can be submitted to the negotiat
1
The succeeding working day
2
The succeeding business day
3
The preceding banking day
4
The preceding banking day

Explanation: Preceding banking day is the business day before the business day on which or during which the event that is being spoken of is to occur. In case of national holiday that is Jan 26 from the given question, the documents for negotiation can be submitted to the negotiating bank on the preceding banking day.

3. Among which of the following categories a letter of credit would be categorized where the stipulated conditions cannot be amended unless the beneficiary, the applicant and the opening bank agree?
1
Restricted letter of credit
2
Irrevocable letter of credit
3
Revocable letter of credit
4
Back to back letter of credit

Explanation: In Irrevocable letter of credit, it is not possible to revoked or amended a credit without the agreement of the issuing bank, the confirming bank, and the beneficiary. Form an exporters point of view it is believed to be more beneficial. An irrevocable letter of credit from the issuing bank insures the beneficiary that if the required documents are presented and the terms and conditions are complied with, payment will be made.

4. Payment is received by ADs in the form of special dollar accounts in case of Asian Clearing Union countries. Which of the following is such currency?
1
ACU Dollar only
2
ACU Pound only
3
ACU Euro only
4
ACU dollar/ ACU Euro

Explanation: The Asian Monetary Units (AMUs) is the common unit of account of ACU and is denominated as ACU Dollar and ACU Euro, which is equivalent in value to one US Dollar and one Euro respectively. All instruments of payments under ACU have to be denominated in AMUs. Settlement of such instruments may be made by AD Category-I banks through the ACU Dollar Accounts and ACU Euro Accounts, which should be distinct from the other US Dollar and Euro accounts respectively maintained for non ACU transactions. So, option(4) is correct.

5. Post-shipment credit means:
1
Loan to exporter
2
Exporter against shipment of goods already made and converted in the form of receivables
3
Loan to arrange the shipment
4
A and C

Explanation: Post Shipment Finance is a kind of loan provided by a financial institution to an exporter or seller against a shipment that has already been made and converted in the form of receivables. This type of export finance is granted from the date of extending the credit after shipment of the goods to the realization date of the exporter proceeds. So, option(2) is correct.

6. Which of the following matches in the context of GDR?
1
GDR is governed by international law - False
2
GDR market is global market - False
3
Pricing of GDR is generally in line with the underlying share - True
4
GDR is listed on NSE & BSE in India - True

Explanation: A global depositary receipt (GDR) is a bank certificate issued in more than one country for shares in a foreign company. The shares are held by a foreign branch of an international bank. The shares trade as domestic shares but are offered for sale globally through the various bank branches. Few companies listed on BSE/NSE are also listed on foreign stock exchanges. These are not listed on GDR.

7. While selling foreign exchange to a person, endorsement on the passport:
1
Is mandatory
2
Is requirement of FEMA
3
Can be on the request of the person concerned
4
It is optional on the part of AD and AD cannot be forced

Explanation: There is no compulsion for you to get your passport endorsed with the foreign exchange purchased for travel outside India. Should you desire to get your passport endorsed, the bank/money changer releasing foreign exchange would do it. Since for selling foreign exchange to a person, endorsement on the passport can be on the request of the person concerned. So, option(3) is correct.

8. A person can surrender the unspent foreign exchange:
1
Within 6 months in all cases
2
Within 90 days for traveler cheques and within 180 days for currency notes
3
Within 180 days for traveler cheques and within 180 days for currency notes
4
Within 90 days for traveler cheques and within 90 days for currency notes

Explanation: On return from a foreign trip, travellers are required to surrender unspent foreign exchange held in the form of currency notes and travellers cheques within 180 days of return. However, they are free to retain foreign exchange upto USD 2,000, in the form of foreign currency notes or TCs for future use or credit to their RFC(Domestic) Accounts without any limit. So, option(3) is correct.

9. Which of the following facilities are allowed by EXIM Bank to Banks in India?
1
Supplier
2
Consultancy and technology services
3
Import finance
4
Export bills re-discounting

Explanation: Commercial Banks of India who are authorised to deal in Foreign Exchange can rediscount, their short term export bills with EXIM bank, for an unexpired usance period of not more than 90 days. Export Bills Re-discounting facilities are allowed by EXIM Bank to Banks in India. So, option(4) is correct.

10. ECB can be availed under (a) automatic route (b) approval route (c) normal route (d) special route. Which of these is correct?
1
a, b, d
2
a, b, c
3
a, c, d
4
a, b

Explanation: Under the External Commercial Borrowings (ECB) framework, ECBs can be raised either under the automatic route or under the approval route. For the automatic route, the cases are examined by the Authorised Dealer Category-I (AD Category-I) banks. Under the approval route, the prospective borrowers are required to send their requests to the RBI through their ADs for examination. So, option(4) is correct.

11. Risk based return on investment (RAROC) is the key ratio used in:
1
Credit decisions by a firm
2
Forex decisions
3
Investment decisions
4
All the above type of decisions

Explanation: Risk-adjusted return on capital (RAROC) is a risk-based profitability measurement framework for analysing risk-adjusted financial performance and providing a consistent view of profitability across businesses. It is the key ratio used in investment decisions.

12. Higher the risk based returns on capital (RAROC), _____ the award to the investors and _____ preferable such investment:
1
Higher, less
2
Higher, more
3
Less, higher
4
Less, less

Explanation: Risk-adjusted return on capital (RAROC) is a risk-based profitability measurement framework for analysing risk-adjusted financial performance and providing a consistent view of profitability across businesses.

13. Risk materializes only when earnings deviate adversely. Volatility captures both upside and downside deviations. Which of the following deviation captures possible losses ignoring profit potential?
1
Upside deviation
2
Downside deviation
3
Both of the above
4
None of the above

Explanation: Downside Potential Risk materializes only when earnings deviate adversely. Volatility captures both upside and downside deviations. Downside potential only captures possible losses ignoring profit potential.

14. Banks were required to hold capital equal to which of the following % of the risk weighted value of assets?
1
5%
2
8%
3
10%
4
12%

Explanation: Banks with an international presence are required to hold capital equal to 8% of their risk-weighted assets (RWA). The tier 1 capital ratio = tier 1 capital / all RWA.

15. Strategic and Business risks are included in which of the following?
1
Market risk
2
Supervisory Review Process
3
Market Discipline
4
None of the above

Explanation: The supervisory review process is a central component of the new Capital Requirements Directive (CRD). It is designed to enhance the link between the risks taken on by credit institutions and investment firms, their management of those risks, and the capital they hold.

16. Basel-II accord has 3 pillars. Which of the following pillars is not stated correctly?
1
Minimum Capital requirement
2
Market risk
3
Supervisory review process
4
None of the above

Explanation: Basel-II accord has 3 pillars, namely: The first pillar: Minimum capital requirements; The second pillar: Supervisory review; The third pillar: The Market Discipline

17. A Trading book consists of bank's proprietary positions in financial instruments covering which of the following?
1
Equity
2
Debt securities
3
Derivatives held for trading
4
All the above

Explanation: Trading book

18. Derivatives are over the counter instruments not liquid as market instruments. Which of the following are not derivatives?
1
Interest rate swaps
2
Currency swaps
3
Options
4
None of the above

Explanation: A derivative is an instrument whose value is derived from the value of one or more underlying, which can be commodities, precious metals, currency, bonds, stocks, stocks indices, etc. Four most common examples of derivative instruments are Forwards, Futures, Options and Swaps.

19. Who has the overall responsibility for management of risks?
1
Risk management committee
2
Asset Liability management committee
3
Board of directors
4
Middle office

Explanation: The purpose of the risk management committee of the Board of Directors (the "Board") of Infosys Limited (the "Company") shall be to assist the Board in fulfilling its corporate governance oversight responsibilities with regard to the identification, evaluation and mitigation of strategic, operational, and external environment risks.

20. Who decides the level of credit risk for the bank as a whole keeping in view its profit objective and capital planning?
1
Board of directors
2
Risk management committee
3
Credit policy management
4
Credit risk management department

Explanation: The Board decides the level of credit risk for the bank as a whole keeping in view its profit objective and capital planning. The Risk Management Committee is a Board level Sub-Committee.