INDIAN BANKING RADAR (IBR) - CAIIB BFM MODEL PAPER — PREMIUM PRACTICE SERIES

VOL. 1 | BANK FINANCIAL MANAGEMENT (BFM)

IBR KNOWLEDGE HUB | CAIIB EXAMINATION PREPARATION

🎯 TARGET: CAIIB Aspirants • Bank Officers • Treasury Professionals • Banking Faculty

📝 20 MCQs | ⏱️ Suggested Time: 25 Minutes | 🎓 Difficulty: Exam Standard

Intelligence for Bankers. Insight for Decision-Makers.

📘 MODEL TEST — BANK FINANCIAL MANAGEMENT

Instructions

Attempt all 20 questions.

Select the single best answer from options A–E.

Each question carries equal weight in this practice test.

The answer key and selected calculation checks are provided at the end.

This is an original IBR practice paper, not an official IIBF question paper or a collection of previous-year questions.

Q1. A bank quotes the USD/INR spot rate at ₹83.20 and the three-month forward rate at ₹83.80. Using simple annualisation and a 360-day year, the approximate annualised forward premium on the US dollar is:

A. 1.44%

B. 2.50%

C. 2.88%

D. 3.25%

E. 3.75%

Q2. An Indian importer must pay USD 200,000 after three months. The bank quotes a three-month forward selling rate of ₹84.10 per US dollar. Ignoring charges, the rupee amount payable under the forward contract is:

A. ₹1,62,00,000

B. ₹1,68,20,000

C. ₹1,70,00,000

D. ₹1,72,20,000

E. ₹1,84,10,000

Q3. A bank has a modified duration of 4.5 years for a bond portfolio. If market yields increase by 0.50 percentage points, the approximate percentage change in the portfolio's value, ignoring convexity, is:

A. A decrease of 0.50%

B. A decrease of 2.25%

C. An increase of 2.25%

D. A decrease of 4.50%

E. An increase of 4.50%

Q4. A bank has risk-weighted assets of ₹8,000 crore and eligible total regulatory capital of ₹960 crore. Its capital adequacy ratio is:

A. 8%

B. 10%

C. 11%

D. 12%

E. 15%

Q5. A bank's high-quality liquid assets (HQLA) are ₹1,200 crore. Its projected total net cash outflows over the next 30 calendar days are ₹1,000 crore. Its Liquidity Coverage Ratio (LCR), based on these figures, is:

A. 80%

B. 90%

C. 100%

D. 110%

E. 120%

Q6. An Indian bank has purchased USD 5 million from a customer and has not yet covered the resulting position. The USD/INR rate subsequently rises by ₹0.40 per dollar. Ignoring all other exposures and costs, the approximate mark-to-market gain on the unhedged position is:

A. ₹2 lakh

B. ₹10 lakh

C. ₹20 lakh

D. ₹40 lakh

E. ₹50 lakh

Q7. A bank enters into a plain-vanilla interest rate swap under which it pays a fixed rate and receives a floating rate. If market interest rates rise, the swap's value to the bank will generally:

A. Increase, because the floating-rate receipts become more valuable relative to the fixed payments

B. Decrease, because fixed-rate payments rise automatically

C. Remain unchanged under all market conditions

D. Become zero immediately

E. Depend only on the notional principal, irrespective of interest rates

Q8. Which of the following best distinguishes a forward contract from an exchange-traded futures contract:

A. A forward contract is always exchange-traded

B. Futures contracts never require margins

C. Forward contracts are always settled daily through a clearing house

D. Futures contracts cannot be used for hedging

E. Forwards are generally customised OTC contracts, whereas futures are standardised and generally marked to market daily

Q9. A bank has ₹500 crore of assets and ₹450 crore of liabilities. Its net worth, based on these figures, is:

A. ₹25 crore

B. ₹50 crore

C. ₹75 crore

D. ₹450 crore

E. ₹950 crore

Q10. A bank's assets are predominantly long-term fixed-rate loans, while a substantial part of its liabilities consists of short-term deposits that reprice frequently. If interest rates rise sharply, which risk is of greatest immediate concern, all else being equal:

A. Equity price risk only

B. Commodity price risk only

C. Settlement risk only

D. Interest rate risk arising from repricing and maturity mismatches

E. Sovereign transfer risk only

Q11. An Indian bank's treasury department receives the following interbank quotations:

Bank X: USD/INR = ₹83.40 / ₹83.45

Bank Y: USD/INR = ₹83.50 / ₹83.55

If the bank buys USD 1 million from Bank X at its ask rate and immediately sells the dollars to Bank Y at its bid rate, the gross arbitrage result, before transaction costs, is:

A. A loss of ₹50,000

B. A gain of ₹1,00,000

C. A gain of ₹50,000

D. No arbitrage profit

E. A loss of ₹1,00,000

Q12. A bank has ₹600 crore of available stable funding and ₹500 crore of required stable funding. Its Net Stable Funding Ratio (NSFR), based on these figures, is:

A. 83.33%

B. 100%

C. 110%

D. 120%

E. 125%

Q13. Which of the following best describes a currency swap:

A. An agreement to exchange only the daily spot exchange rate

B. An arrangement involving exchanges of cash flows in different currencies and, commonly, exchanges of principal

C. A facility that eliminates all credit risk automatically

D. A transaction restricted exclusively to the domestic call money market

E. A contract that cannot involve interest payments

Q14. An exporter expects to receive USD 100,000 after three months. To protect against a fall in the USD/INR exchange rate, the exporter should ordinarily:

A. Buy US dollars forward

B. Buy a USD call option without considering the premium or hedge objective

C. Borrow additional US dollars without any other action

D. Sell US dollars forward

E. Take an unhedged long position in US dollars

Q15. A bank's trading portfolio has a one-day Value at Risk (VaR) of ₹5 crore at a 99% confidence level, based on a specified model and historical conditions. The correct interpretation is:

A. The portfolio cannot lose more than ₹5 crore on any day

B. The bank will incur a loss of exactly ₹5 crore every 100 trading days

C. Under the model assumptions, the one-day loss is expected to exceed ₹5 crore on approximately 1% of days

D. The portfolio has a guaranteed annual return of 99%

E. The maximum possible loss over one year is ₹5 crore

Q16. Under the Basel framework, which of the following correctly identifies the three pillars of Basel II:

A. Minimum capital requirements, supervisory review, and market discipline

B. Capital allocation, deposit insurance, and monetary policy

C. Liquidity coverage, deposit mobilisation, and credit appraisal

D. Internal audit, statutory audit, and concurrent audit

E. Risk transfer, loan recovery, and provisioning

Q17. A bank has ₹100 crore of exposure to a corporate borrower. The applicable risk weight is 100%, and the minimum total capital requirement for this question is assumed to be 9% of risk-weighted assets. Ignoring buffers and any additional requirements, the minimum capital attributable to this exposure is:

A. ₹4.5 crore

B. ₹6 crore

C. ₹8 crore

D. ₹9 crore

E. ₹12 crore

Q18. A bank's Asset-Liability Management Committee (ALCO) identifies a negative cumulative liquidity gap in a particular short-term maturity bucket. This indicates that:

A. Contractual inflows necessarily exceed outflows in that bucket

B. Expected cash outflows exceed expected cash inflows in that bucket, creating a potential funding requirement

C. The bank has no interest rate risk

D. The bank's capital adequacy ratio must be below the regulatory minimum

E. All assets in that bucket are non-performing

Q19. Which of the following statements about a put option on a bond is generally correct, assuming standard option terminology:

A. The buyer is obligated to purchase the bond at the strike price

B. The seller of the option has no obligations under any circumstances

C. The option's value is always zero when interest rates rise

D. A put option gives its buyer the right, but not the obligation, to sell the underlying bond at the strike price, subject to the contract terms

E. A put option guarantees a profit irrespective of the premium paid

Q20. A bank is evaluating two lending portfolios with identical expected returns but different risk profiles. Portfolio A has a higher economic capital requirement than Portfolio B. Assuming the same measure of risk-adjusted return and consistent capital allocation, which statement is most appropriate:

A. Portfolio A must have a higher return on risk-adjusted capital

B. Economic capital is irrelevant to risk-adjusted performance

C. Portfolio A must have lower expected credit losses in all circumstances

D. Both portfolios necessarily have identical risk-adjusted profitability

E. Portfolio B will generally have a higher risk-adjusted return on capital if the same return is divided by a lower economic capital requirement

✅ ANSWER KEY

Q1.C

Q2.B

Q3.B

Q4.D

Q5.E

Q6.C

Q7.A

Q8.E

Q9.B

Q10.D

Q11.C

Q12.D

Q13.B

Q14.D

Q15.C

Q16.A

Q17.D

Q18.B

Q19.D

Q20.E

📊 SELECTED NUMERICAL VERIFICATION

Q1. Annualised forward premium

[ \frac{83.80-83.20}{83.20}\times\frac{360}{90}\times100 \approx 2.88% ]

Correct answer: C

Q2. Import payment under forward contract

USD 200,000 × ₹84.10 = ₹1,68,20,000.

Correct answer: B

Q3. Approximate bond price change

[ \frac{\Delta P}{P}\approx-D_{\mathrm{mod}}\times\Delta y ]

= −4.5 × 0.005 = −2.25%.

Correct answer: B

Q4. Capital adequacy ratio

₹960 crore ÷ ₹8,000 crore × 100 = 12%.

Correct answer: D

Q5. Liquidity Coverage Ratio

₹1,200 crore ÷ ₹1,000 crore × 100 = 120%.

Correct answer: E

Q6. Foreign exchange mark-to-market gain

USD 5 million × ₹0.40 = ₹20 lakh.

Correct answer: C

Q11. Gross arbitrage gain

(₹83.50 − ₹83.45) × USD 1 million = ₹50,000.

Correct answer: C

Q12. Net Stable Funding Ratio

₹600 crore ÷ ₹500 crore × 100 = 120%.

Correct answer: D

Q17. Hypothetical capital requirement

₹100 crore × 100% risk weight × 9% = ₹9 crore.

Correct answer: D

The figures and assumptions stated in each numerical question are for practice. Regulatory capital requirements and liquidity rules must be checked against the applicable current RBI directions and prescribed IIBF material.

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DISCLAIMER: This is an original educational practice paper created for Indian Banking Radar. It is not an official IIBF examination paper. Candidates should refer to the current IIBF syllabus, prescribed study material and applicable regulatory directions for examination preparation.