BFM Module C Quiz

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SAMPLE QUESTION S FOR
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BANK FINANCIAL MANAGEMENT
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INDEX
S No. Topic Page No
1 General Information 3
2 Syllabus 6
3 Important Question 8
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CAIIB GENERAL INFORMATION
S NO. Mandatory Paper Elective Papers: Candidates may select

any option they like.
1 Advanced Bank Human Resources Management
Management
2 Advanced Business & Risk Management

Financial Management
3 Banking Regulations and Information Technology & Digital Banking

Business Laws
4 Bank Financial Management Central Banking
5 Rural Banking
 Only current bank employees who have passed the JAIIB exam are eligible to
take the CAIIB exam.
 Exams for the CAIIB are only offered online.
 Normally, the exam is held twice a year on Sundays in May/June and
November/December.
 The exam will take two hours to complete.
Examination Pattern:
 There will be 100 objective-type multiple-choice Question s on the Question

paper, worth 100 marks. Some of the Question s will be based on case studies or
case lets. The quantity of Question s required for a subject, however, may be
changed by the Institute.
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 In certain CAIIB subjects, there might be numerical Question s for which there
are no available Answers. The candidate must key in the Answer to these
Question s, which will not follow the MCQ format.
 Negative points won't be awarded for incorrect responses.
 Exam Question s will include the following:
a. Knowledge evaluation
b. Knowledge of concepts
c. Logical and analytical explanation
d. Solving problems
e. Examining case
Passing Requirements:
 50 out of 100 is the minimum score required to pass the subject.
 Candidates will also be considered to have finished if they receive at least 45 marks
in each subject and an overall score of 50% in all exam subjects in a single attempt.
The Test.
 Until the allotted time for passing the test expires, candidates may keep their credits
for the subjects they have successfully attempted.
 Note: A candidate may take the CAIIB exam five times, but only if they register for
the exam and complete it within three years of the date of registration, whichever
comes first. It is not necessary for these five attempts to occur one after the other.
 The "Class of Pass" requirements:
 First Class: Pass all subjects in the FIRST PHYSICAL ATTEMPT with an aggregate score
of 60% or higher.
 First Class with Distinction: 60% or higher in each category overall and 70% or higher
in every participant in the FIRST ACTUAL ATTEMPT.
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 Only "Pass Class" will be awarded to candidates who have been granted exemption
in one or more subjects.
 Deadline for Guidelines and Significant Developments Ahead of Exams:
 The Institute will only take into consideration instructions/guidelines issued by the
regulator(s) and significant developments in banking and finance up to December 31
for the purpose of including them in the Question papers for the exams that will be
administered from February to July of each calendar year.
 Important developments in banking and finance up to June 30th, as well as

instructions/guidelines issued by the regulator(s), will only be taken into
consideration for inclusion in the Question papers for the exams that the Institute
will administer from August to January of each year.
➤ Exam Fees
An overview Fee
First attempt fee 5000
Second attempt fee 1300
Third attempt fee 1300
Fourth attempt fee 1300
Fifth attempt fee 1300
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SYLLABUS
The booklet contains information on the suggested syllabus, which is indicative. Though
Question s can address any pertinent topic under the subject, candidates must study all topics
falling within the purview of the subject in Question due to the professional nature of
examinations.
Even though those topics may not have been explicitly covered in the syllabus, candidates
taking the exam should especially get ready to respond to Question s about current events
that may arise under the various subjects covered in the exam.
MODULE C: TREASURY MANAGEMENT

 Introduction to Treasury Management
o The Concept; Functions of Integrated Treasury; The Process of Globalisation; Evolving Role
of Treasury as Profit Centre; Organisation of Treasury
 Treasury Products
o Products of Foreign Exchange Markets; Money Market Products; Securities Market

Products; Domestic and Global Markets
 International Equity and Debt Products
o Regulatory Environment; Global Depository Receipts; Indian Depository Receipts; External

Commercial Borrowings; Trade Credits; Rupee Denominated Bonds
 Funding and Regulatory Aspects
o Reserve Assets: CRR and SLR; The Liquidity Adjustment Facility (LAF); Payment and
Settlement Systems
 Treasury Risk Management

o Supervision and Control of Treasury; Market Risk and Credit Risk; Risk Measures: VaR and
Duration; Use of Derivatives in Risk Management
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 Derivative Products
o Derivatives and the Treasury; OTC and Exchange Traded Products; Forwards, Options,
Futures and Swaps; Interest Rate and Currency Swaps; Developments in Indian Markets
and RBI Guidelines on Risk Exposure
 Treasury and Asset-Liability Management

o Meaning of Asset-Liability Management (ALM), Liquidity Risk and Interest Rate Risk, Role
of treasury in ALM, Use of derivatives in ALM, Credit risks and Credit Derivatives, Transfer
pricing, Policy Environment
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CHAPTER 19-: Introduction to Treasury Management

1. What is the primary focus of Treasury D. Conducting fraud investigations
Management based on the traditional view?
A. Investing in long-term projects Answer: C. Meeting reserve requirements
B. Managing day-to-day cash requirements such as CRR & SLR
C. Maximizing shareholder dividends
D. Conducting market research 5. What is the primary responsibility of the
Treasury regarding the Cash Reserve Ratio
Answer: B. Managing day-to-day cash (CRR) with the Reserve Bank of India?
requirements A. Conducting market research
B. Holding minimum cash balances required
2. In Treasury Management, what is one of C. Investing in long-term projects
the responsibilities related to surplus funds? D. Managing customer service operations
A. Investing in speculative stocks
B. Holding onto surplus funds indefinitely Answer: B. Holding minimum cash balances
C. Deploying surplus funds generated from required
operations
D. Distributing surplus funds among 6. What is the primary function of the
shareholders Treasury concerning the Statutory Liquidity
Ratio (SLR)?
Answer: C. Deploying surplus funds A. Conducting fraud investigations
generated from operations B. Investing funds in speculative stocks
C. Investing funds in approved securities
3. What is one of the purposes of sourcing D. Marketing new financial products
funds in Treasury Management?
A. Funding long-term capital projects Answer: C. Investing funds in approved
B. Enhancing executive salaries securities
C. Funding employee training programs
D. Bridging occasional gaps in cash flow 7. How is the Treasury function traditionally
characterized in terms of organizational
Answer: D. Bridging occasional gaps in cash structure?
flow A. As a profit center
B. As a research and development hub
4. In the context of a bank, what is the C. As a service center
Treasury responsible for regarding reserve D. As an administrative office
requirements?
A. Marketing new financial products Answer: C. As a service center
B. Managing customer service operations
C. Meeting reserve requirements such as CRR
& SLR
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8. How has the scope of Treasury expanded A. Conducting market research

due to economic reforms and deregulation of B. Managing customer service operations
markets in India since the 90s? C. Providing guidance on product pricing and
A. By focusing solely on liquidity management strategic investments
B. By becoming a profit center with trading D. Investing in speculative stocks
activities
C. By limiting its functions to service-oriented Answer: C. Providing guidance on product
tasks pricing and strategic investments
D. By reducing its involvement in investment
activities 12. How does the Treasury's constant
exposure to markets benefit Asset-Liability
Answer: B. By becoming a profit center with Management (ALM)?
trading and investment activity A. By limiting involvement in market activities
B. By avoiding market interactions
9. What is the primary role of the Treasury in C. By maximizing employee turnover
connecting a bank's core activities with D. By advising on internal decisions and
financial markets? strategic investments
A. Conducting market research
B. Managing customer service operations Answer: D. By advising on internal decisions
C. Continuously accessing markets for and strategic investments
lending, borrowing, investing, and trading
D. Focusing solely on deposit-taking 13. How has the structure of the investment
in securities and foreign exchange business
Answer: C. Continuously accessing markets changed in Indian banks since the late 90s?
for lending, borrowing, investing, and trading A. It has been eliminated from the banking
sector
10. Why is managing market risk an integral B. It has become a separate department from
part of Treasury functions? Treasury
A. To maximize shareholder dividends C. It has merged into an integrated Treasury
B. To enhance executive salaries D. It operates independently of the banking
C. Because Treasury interacts with financial system
markets
D. To minimize employee turnover Answer: C. It has merged into an integrated
Treasury
Answer: C. Because Treasury interacts with
financial markets
11. In Asset-Liability Management (ALM),

what is the Treasury's role in advising the
management of the bank?
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14. What is the primary focus of Treasury in A. Only the capital account
terms of fund maturity? B. Only the current account
A. Dealing with long-term funds C. Both current and capital accounts
B. Managing funds with more than a one-year D. Only the trade account
maturity
C. Handling funds with less than a one-year Answer: C. Both current and capital accounts
maturity
D. Focusing exclusively on medium-term 18. What is the primary focus of the current
funds account in the balance of payments?
A. Cross-border movement of capital
Answer: C. Handling funds with less than a B. Import and export of goods and services
one-year maturity C. Investment transactions
D. International loans
15. Regarding the SLR requirement, what is
the exception to Treasury's dealing with Answer: B. Import and export of goods and
short-term funds? services
A. There is no exception; all funds are short-
term 19. What does current account convertibility
B. Investment in some securities held to refer to?
maturity exceeding one year A. The ability to freely invest in international
C. Dealing with long-term foreign exchange markets
transactions B. The freedom to convert local currency into
D. Avoiding any investment in securities foreign currency for any transaction
C. The exclusive focus on current transactions
Answer: B. Investment in some securities in the account
held to maturity exceeding one year D. The limitation on converting local currency
into foreign currency
16. What does the Risk Management function
of Treasury cover? Answer: B. The freedom to convert local
A. Only short-term assets and liabilities currency into foreign currency for any
B. Underlying assets and liabilities across transaction
short, medium, and long-term maturities
C. Exclusively long-term assets and liabilities
D. Managing customer service operations
Answer: B. Underlying assets and liabilities

across short, medium, and long-term
maturities
17. What does the balance of payments

account consist of in terms of accounts?
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20. What does capital account convertibility 23. In the Indian context, what reforms have
entail? contributed to the convertibility of the Rupee
A. The freedom to conduct investment on the capital account?
transactions without any constraints A. Strict control by the Reserve Bank
B. The restriction on international loans B. Deregulation of interest rates
C. The limitation on cross-border movement C. Relaxations in foreign direct investment
of capital (FDI) and external commercial borrowings
D. The exclusive focus on capital transactions (ECB)
in the account D. Limitations on overseas direct investment
(ODI)
Answer: A. The freedom to conduct
investment transactions without any Answer: C. Relaxations in foreign direct
constraints investment (FDI) and external commercial
borrowings (ECB)
21. In a banking setup, what does an
Integrated Treasury refer to? 24. How have banks gained access to foreign
A. Separate departments for money market, currency funds in the context of integrated
securities market, and foreign exchange Treasury?
operations A. Through strict control by the Reserve Bank
B. The integration of money market, B. Through limitations on overseas borrowing
securities market, and foreign exchange C. Through off-shore operations, NRI
operations deposits, and external commercial
C. Exclusive focus on money market borrowings (ECB)
operations D. Through exclusive reliance on resident
D. Independent functioning of money market foreign currency accounts
and securities market
Answer: C. Through off-shore operations, NRI
Answer: B. The integration of money market, deposits, and external commercial
securities market, and foreign exchange borrowings (ECB)
operations
25. How has globalization contributed to the
22. What is the key factor leading to the integration of treasuries?
establishment of Integrated Treasury in the A. By limiting access to various sectors
Indian banking context? B. By reducing the need for liquidity
A. Strict regulations on interest rates C. By increasing the independence of
B. Deregulation of interest rates treasuries
C. Limitations on foreign exchange operations D. By facilitating operation across various
D. Exclusive focus on securities market sectors and currency markets
Answer: B. Deregulation of interest rates Answer: D. By facilitating operation across

various sectors and currency markets
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26. What is the primary motivation for an Answer: C. Directly with the Treasury
Integrated Treasury to operate across various
sectors and currency markets? 30. What term is used to describe the
A. To restrict liquidity needs Treasury's transactions with customers in the
B. To minimize market operations context of large corporate clients?
C. In search of higher returns and mobilizing
low-cost funds A. Retail business
D. To avoid dealing with market risks B. Merchant business
C. Corporate trading
Answer: C. In search of higher returns and D. Functional transactions
mobilizing low-cost funds
Answer: B. Merchant business
27. Why is there a need for a common
approach in managing market operations 31. Why is the term "merchant business"
across different currencies? used to distinguish Treasury transactions
A. To minimize competition from the bank's own trading and investment
B. To simplify paperwork activities?
C. To address the commonality of cash flows A. To emphasize the exclusivity of
D. To avoid interaction with different markets transactions
B. To highlight the role of functional
Answer: C. To address the commonality of departments
cash flows C. To signify a focus on retail clients
D. To distinguish transactions with customers
28. What is generally referred to as market from the bank's internal activities
risk when operating in different currencies
and dealing with various segments of debt Answer: D. To distinguish transactions with
and equity markets? customers from the bank's internal activities
A. Regulatory risk
B. Currency and interest rate risks 32. What do corporate customers with their
C. Operational risk own treasury departments expect from the
D. Counterparty risk bank in areas such as hedging export
receivables and raising foreign currency
Answer: B. Currency and interest rate risks loans?
A. Exclusive focus on retail services
29. How do large corporate clients prefer to B. Limited involvement in overseas
interact with the Treasury in modern banking investments
practices? C. Integrated services from the bank
A. Through bank branches only D. Independent management of financial
B. Via other functional departments transactions
C. Directly with the Treasury
D. Exclusively through online platforms Answer: C. Integrated services from the bank
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33. What is identified as one of the driving Answer: A. Asset-Liability Management

forces of Integrated Treasury?
A. Exclusive focus on retail services 37. What are the three distinct roles of
B. Integrated Cash Flow Management Treasury?
C. Independence from global resources A. Asset Management, Liability Management,
D. Limited involvement in risk management and Risk Management
B. Liquidity Management, Proprietary
Answer: B. Integrated Cash Flow Positions, and Risk Management
Management C. Investment Management, Trading, and
Compliance
34. What is one of the summarized functions D. Customer Service, Accounting, and
of Integrated Treasury related to meeting Advisory Services
regulatory requirements?
A. Optimizing profit in the forex market Answer: B. Liquidity Management,
B. Efficient merchant services Proprietary Positions, and Risk Management
C. Global cash management
D. Meeting reserve requirements (CRR and 38. What is one of the responsibilities of
SLR) Treasury in terms of Liquidity Management?
A. Trading in long-term financial instruments
Answer: D. Meeting reserve requirements B. Managing short-term funds across
(CRR and SLR) currencies
C. Complying with regulatory requirements
35. What is included in the efficient merchant for customer service
services provided by Integrated Treasury? D. Maximizing shareholder dividends
A. Exclusive focus on retail services
B. Foreign exchange (forex) and advisory Answer: B. Managing short-term funds
services across currencies
C. Limited involvement in global cash
management 39. In the context of Proprietary Positions,
D. Independence from market opportunities what does Treasury contribute to the bank's
profits?
Answer: B. Foreign exchange (forex) and A. Managing customer service operations
advisory services B. Trading in currencies, securities, and other
financial instruments
36. In the summarized functions of Integrated C. Compliance with regulatory requirements
Treasury, what does "ALM" stand for? D. Maximizing shareholder dividends
A. Asset-Liability Management
B. Advisory and Liquidity Management Answer: B. Trading in currencies, securities,
C. Advanced Lending Mechanism and other financial instruments
D. Accurate Liability Measurement
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40. What does ALM stand for, and how does 43. Before integration, how were merchant
Treasury aid management in this context? business and investment assets managed in
A. Asset-Liability Management; by maximizing banks?
shareholder dividends
B. Advanced Lending Mechanism; by A. Through a separate investment
managing long-term funds department
C. Asset-Liability Management; by bridging B. Through the money market
asset-liability mismatches C. As part of the core banking activity
D. Advisory and Liquidity Management; by D. Through an integrated treasury
providing derivative tools
Answer: A. Through a separate investment
Answer: C. Asset-Liability Management; by department
bridging asset-liability mismatches
44. What opportunity did the wider scope of
41. What was the conventional role of integrated treasury offer banks?
Treasury before the integration of treasuries A. To limit profits from core banking activities
in different markets? B. To generate surpluses and supplement
A. Profit Center focused on core banking profits from core banking activity
activity C. To restrict activities to the money market
B. Service Center attending to cash flow D. To operate independently from the foreign
requirements exchange market
C. Investment Center managing foreign
exchange Answer: B. To generate surpluses and
D. Money Market operating independently supplement profits from its core banking
activity
Answer: B. Service Center attending to cash
flow requirements 45. Why are Treasury profits considered
attractive in the inter-bank markets?
42. How did the integrated treasury evolve to A. Treasury operates with high credit risk
become a profit center? B. Treasury requires significant capital
A. By limiting its activities to the money allocation
market C. Inter-bank markets are almost free of
B. By supplementing profits from core credit risk
banking activity D. Treasury profits are subject to high
C. By outsourcing its services to external operational costs
entities
D. By excluding merchant business from its Answer: C. Inter-bank markets are almost
functions free of credit risk
Answer: B. By supplementing profits from its
core banking activity
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46. What is one reason Treasury profits are 50. What constitutes a significant part of the
attractive due to leverage? profit for the bank in Foreign Exchange
A. High capital allocation Business?
B. Low leverage compared to equity A. Interest income
C. Treasury activity being low-risk B. Trading profits
D. Treasury activity being highly leveraged C. Spread between buy rate and sell rate
D. Treasury product sales
Answer: D. Treasury activity being highly
leveraged Answer: C. Spread between buy rate and sell
rate
47. Why is the return on capital potentially
high in Treasury activities? 51. What is a primary activity in Foreign
A. Treasury trades in narrow spreads Exchange Business that contributes to
B. Operational costs are high Treasury profits?
C. Treasury requires significant equity A. Maintaining a stock of foreign currency for
D. Leverage is not utilized in Treasury merchant business
operations B. Buying and selling foreign currency to
customers
Answer: A. Treasury trades in narrow spreads C. Exclusive focus on inter-bank transactions
D. Ignoring inter-bank market transactions
48. What contributes to the low operational
costs in Treasury compared to branch Answer: B. Buying and selling foreign
banking? currency to customers
A. Treasury engages in low-value transactions
B. Treasury requires a large number of staff 52. Why do banks generally not maintain a
C. Treasury operates in high-risk markets stock of foreign currency for merchant
D. Treasury is run by a few specialist staff business in Foreign Exchange?
engaged in high-value transactions A. It is more convenient to buy and sell from
the interbank market
Answer: D. Treasury is run by a few specialist B. It minimizes foreign exchange profits
staff engaged in high-value transactions C. It increases operational costs
D. It limits the scope of Treasury activities
49. What is a major source of other income
for banks in Treasury, according to Answer: A. It is more convenient to buy and
conventional sources of profit? sell from the interbank market
A. Retail banking
B. Foreign Exchange Business
C. Wholesale banking
D. Real estate transactions
Answer: B. Foreign Exchange Business

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53. What is an open position in banking? Answer: B. By paying Head Office (HO)
A. Any position held by a bank during the day interest receivable
B. A residual position at the end of the day,
either overbought or oversold 57. What was the conventional operation of
C. A position maintained by dealers overnight banks in the money market?
D. Any position held by a bank for more than A. Focusing on long-term investments
a week B. Lending surplus funds and borrowing when
required
Answer: B. A residual position at the end of C. Ignoring funds from deposits
the day, either overbought or oversold D. Borrowing exclusively from the inter-bank
market
54. What risk is associated with an open
position? Answer: B. Lending surplus funds and
A. Operational risk borrowing when required
B. Interest rate risk
C. Exchange risk 58. Why was interest on funds lent in the
D. Credit risk money market not considered a significant
source of profit for banks?
Answer: C. Exchange risk A. Funds in the money market come from
deposits
55. What is the basic function of a bank B. Banks rarely lend in the money market
branch, according to the Transfer Price C. The interest cost is higher than the interest
Mechanism concept? earned
A. To minimize operational costs D. Banks only borrow funds in the money
B. To serve as a profit center by accepting market
deposits for lending
C. To focus on foreign exchange operations Answer: C. The interest cost is higher than
D. To act as an advisory center for clients the interest earned
Answer: B. To serve as a profit center by 59. What mechanism do banks use to know
accepting deposits for lending the cost of funds received from branches in
the money market?
56. How is the loss compensated for branches A. Transfer Pricing Mechanism
that have more business in deposits than B. Investment Activity
advances, according to the Transfer Price C. Borrowing from the inter-bank market
Mechanism? D. Strategic Asset Investment
A. By reducing operational costs
B. By paying Head Office (HO) interest Answer: A. Transfer Pricing Mechanism
receivable
C. By minimizing advances
D. By ignoring the loss
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60. What recent phenomenon has influenced B. Money Market Deals, Trading, and
banks to become more active in investing in Investment Activity
non-government securities? C. Foreign Exchange Business, Money Market
A. The development of the corporate debt Deals, and Investment Activity
market D. Treasury Products, Interest Arbitrage, and
B. The removal of restrictions on bank Money Market Deals
investments by RBI
C. The dematerialization of securities in the Answer: C. Foreign Exchange Business,
late 90s Money Market Deals, and Investment Activity
D. Focusing solely on strategic assets
64. What continues to be the primary source
Answer: A. The development of the of income for bank treasuries?
corporate debt market A. Investment Activity
B. Treasury Products
61. What are the contemporary sources of C. Trading
profit? D. Buying and selling foreign exchange to
A. Retail banking and foreign exchange customers
B. Interest Arbitrage, Trading, and Treasury
Products Answer: D. Buying and selling foreign
C. Real estate transactions and investments exchange to customers
D. Advisory services and money market deals
65. How are Treasury profits increasingly
Answer: B. Interest Arbitrage, Trading, and derived?
Treasury Products A. By focusing solely on customer
requirements
62. What is mentioned as the primary source B. By meeting reserve requirements of the
of income for bank treasuries? bank
A. Real estate transactions C. From market operations involving buying,
B. Money market lending selling, borrowing, and lending
C. Buying and selling foreign exchange to D. By avoiding proprietary positions
customers
D. Investments in government securities Answer: C. From market operations involving
buying, selling, borrowing, and lending
Answer: C. Buying and selling foreign
exchange to customers
63. What are the conventional sources of

profit for Treasury?
A. Interest Arbitrage, Trading, and Treasury
Products
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66. What is the primary intention behind A. By avoiding currency and security markets
taking proprietary positions in market B. By borrowing in Rupee and lending in USD
operations? in the inter-bank market
A. Meeting customer requirements C. By focusing solely on domestic interest
B. Meeting reserve requirements of the bank rates
C. Generating profits D. By not participating in short-term fund
D. Introducing new products investments
Answer: C. Generating profits Answer: B. By borrowing in Rupee and

lending in USD in the inter-bank market
67. What has widened the range of services
offered to customers by the bank? 71. What opportunity does the development
A. Focusing solely on customer requirements of the futures market offer to the Treasury?
B. Avoiding proprietary positions A. Avoiding market instruments
C. Introduction of new products B. Arbitraging between OTC and futures
D. Meeting reserve requirements of the bank markets
C. Eliminating the need for commercial paper
Answer: C. Introduction of new products D. Restricting activities to treasury bills
68. What is Treasury not solely focused on Answer: B. Arbitraging between OTC and
when taking proprietary positions for market futures markets
operations?
72. What variety of money market
A. Meeting customer requirements instruments does the Treasury use to
B. Generating profits optimize return on funds?
C. Meeting reserve requirements of the bank A. Treasury Products
D. Avoiding market operations B. Foreign exchange derivatives
C. Commercial paper, certificates of deposit,
Answer: A. Meeting customer requirements treasury bills, and CBLO
D. Securities trading
69. From which contemporary source do
Treasury profits mainly arise? Answer: C. Commercial paper, certificates of
A. Foreign Exchange Business deposit, treasury bills, and CBLO
B. Interest Arbitrage
C. Trading in securities
D. Treasury Products
Answer: B. Interest Arbitrage
70. How does the Treasury operate in Interest

Arbitrage?
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73. What is the nature of trading? B. To avoid managing liquidity

A. Speculative activity based on interest rates C. To minimize exposure to the debt market
B. Hedging against currency fluctuations D. To limit their participation in equity
C. Profitable through holding assets long-term markets
D. Profitable based on favorable price
movements Answer: A. To meet the SLR requirement
Answer: D. Profitable based on favorable
price movements 78. What is the most liquid segment of the
debt market that bank treasuries are active
74. In the context of currency trading, what in?
does "going long" mean? A. Corporate bonds
A. Selling currency B. Municipal bonds
B. Buying currency C. Government securities (G-sec)
C. Swapping currencies D. Equity market
D. Holding currency positions
Answer: C. Government securities (G-sec)
Answer: B. Buying currency
79. In which market are Government
75. What activity is permitted for banks securities (G-sec) traded?
holding an AD1 (Authorized Dealer 1) license? A. Forex market
A. Only domestic currency trading B. National Stock Exchange (NSE)
B. Only long-term investment C. Wholesale Debt Market (WDM) of National
C. Currency trading within pre-set limits Stock Exchange
D. No currency trading activities D. Money market
Answer: C. Currency trading within pre-set Answer: C. Wholesale Debt Market (WDM) of
limits National Stock Exchange
76. How can Treasury benefit from changes in 80. Despite volatility, why is equity trading
forward rate movements in currency trading? considered highly profitable in rising stock
A. By holding currency positions markets?
B. By swapping currencies A. Due to lower transaction costs
C. By taking proprietary positions in securities B. Due to steady economic growth
D. By going short (selling currency) C. Due to reduced liquidity
D. Due to lower risks in equity markets
Answer: B. By swapping currencies
Answer: B. Due to steady economic growth
77. Why are bank treasuries fairly aggressive
in buying and selling Government securities
(G-sec)?
A. To meet the SLR requirement
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81. What is an area almost exclusive to the A. Retail banking services

banking sector? B. Real estate transactions
A. Real estate transactions C. Derivatives and structured products
B. Trading in credit instruments D. Equity trading services
C. Foreign exchange business
D. Retail banking Answer: C. Derivatives and structured
products
Answer: B. Trading in credit instruments
86. Why do large corporates have an appetite
82. What are the credit instruments available for new products from the Treasury?
in the mentioned segment? A. To increase interest costs
A. Government securities B. To minimize currency risk
B. Pass-through certificates C. To avoid hedging interest rate risks
C. Corporate bonds D. To limit their exposure to new products
D. Equity shares
Answer: B. To minimize currency risk
Answer: B. Pass-through certificates
87. What is an example of a product that a
83. What risk are Treasuries open to when company may buy from the Treasury to fix
trading in currencies and securities? the interest rate for commercial paper they
A. Operational risk plan to issue?
B. Market risk or price risk A. Treasury bills
C. Credit risk B. Forward Rate Agreement (FRA)
D. Liquidity risk C. Certificates of deposit
D. Currency swap
Answer: B. Market risk or price risk
Answer: B. Forward Rate Agreement (FRA)
84. How do bank treasuries minimize losses
from market risk? 88. How does the Treasury help corporate
A. By avoiding trading in currencies and customers reduce currency and interest rate
securities risks?
B. By strict risk management controls A. By offering retail banking services
C. By ignoring risk management B. By limiting exposure to new products
D. By limiting trading activities C. By providing real estate transactions
D. By offering a currency swap to convert
Answer: B. By strict risk management floating rate USD loans into Rupee loans with
controls fixed interest rates
85. What additional services, apart from Answer: D. By offering a currency swap to
foreign exchange, does the Treasury sell to convert floating rate USD loans into Rupee
corporate customers? loans with fixed interest rates
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89. How is the Treasury typically organized C. No accounting system

within a bank? D. A centralized accounting system for the
A. As an independent entity outside the bank entire bank
B. As a separate company affiliated with the
bank Answer: B. A separate accounting system
C. As a Department of the bank with its own P&L and GL accounts
D. As a Retail branch of the bank
93. What additional advantage does a
Answer: C. As a Department of the bank specialized Treasury branch have?
A. It has no advantage over a Treasury
90. What advantage does the branch status of department
the Treasury have? B. It can act as an Authorized Dealer for
A. Easier coordination with related foreign exchange business
departments at the head office C. It cannot participate in clearing and
B. Independence from the bank's accounting settlement systems
system D. It reports directly to the CFO
C. Limited autonomy in decision-making
D. Reduced communication with other bank Answer: B. It can act as an Authorized Dealer
branches for foreign exchange business
Answer: A. Easier coordination with related 94. Why is a Treasury Branch considered the
departments at the head office preferred form of organization in the context
of integrated treasury operations?
91. Why is the branch status preferred for the A. It has limited functions compared to a
Treasury's organization? Treasury department
A. To limit autonomy B. It has a separate accounting system
B. To avoid coordination with related C. It can act as an Authorized Dealer for
departments foreign exchange business and participate in
C. To maintain books of accounts clearing and settlement systems directly
independently D. It has a centralized accounting system for
D. To operate as a separate legal entity the entire bank
Answer: C. To maintain books of accounts Answer: C. It can act as an Authorized Dealer

independently for foreign exchange business and participate
in clearing and settlement systems directly
92. What does the Treasury typically have, to
ensure autonomy in its functions?
A. A shared accounting system with other
departments
B. A separate accounting system with its own
P&L and GL accounts
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95. Who can be the head of Treasury? Answer: C. Buying and selling in the markets
A. Any bank employee
B. The CFO or CEO of the bank 100. What markets do the Dealers in the
C. An external consultant Dealing Room specialize in?
D. The Chief Financial Officer (CFO) A. Only one market
B. All markets
Answer: B. The CFO or CEO of the bank C. Securities market only
D. Foreign exchange market only
96. What designation might the head of
Treasury have? Answer: B. All markets
A. Manager
B. Chief Treasury Officer (CTO) 101. What is the purpose of having a separate
C. Junior Executive corporate dealer in the Treasury?
D. Branch Manager A. To manage ALM risks
B. To exclusively attend to major corporate
Answer: B. Chief Treasury Officer (CTO) customers/merchant business
C. To handle administrative tasks
97. How is the Treasury segregated into D. To report directly to the CFO
divisions?
A. Two in divisions Answer: B. To exclusively attend to major
B. Four main divisions corporate customers/merchant business
C. Three main divisions
D. Five main divisions 102. In larger banks, what does the ALM desk
in the Treasury exclusively manage?
Answer: C. Three main divisions A. Securities market risks
B. Foreign exchange market risks
98. Who is in charge of the Dealing Room or C. ALM risks
Front Office? D. Money market risks
A. Chief Financial Officer (CFO)
B. Chief Dealer Answer: C. ALM risks
C. Chief Risk Officer (CRO)
D. Chief Executive Officer (CEO) 103. What is the Securities Market divided
into?
Answer: B. Chief Dealer A. Tertiary and quaternary markets
B. Primary and secondary markets
99. What is the role of the Chief Dealer and C. Forex and equity markets
the Dealers in the Dealing Room? D. Wholesale and retail markets
A. Handling administrative tasks
B. Managing risk Answer: B. Primary and secondary markets
C. Buying and selling in the markets
D. Reporting directly to the CFO
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104. What does the Securities dealer in the Answer: C. Nostro accounts, funding and
Treasury typically deal with? security accounts, and Demat accounts
A. Both primary and secondary markets
B. Only primary market 108. Why is settlement considered a key
C. Only secondary market function of the Back Office?
D. Forex market A. To prepare deals slips
B. To manage ALM risks
Answer: C. Only secondary market C. To ensure adequate margin money with
Clearing Corporation of India (CCIL)
105. What is the primary responsibility of the D. To facilitate payments and receipts on the
Back Office or Treasury Administration? value date
A. Buying and selling in the markets
B. Verification and settlement of deals Answer: D. To facilitate payments and
concluded by the dealers receipts on the value date
C. Managing ALM risks
D. Dealing with major corporate customers 109. Why is it mandatory to have a total
segregation between Front Office and Back
Answer: B. Verification and settlement of Office?
deals concluded by the dealers A. To increase financial losses for the bank
B. To facilitate communication between the
106. How does the Back Office verify the two offices
deals concluded by the dealers? C. To improve the bank's reputation
A. By preparing deals slips D. To enhance risk management
B. By independently confirming deals with
counterparties Answer: C. To improve the bank's reputation
C. By ignoring the confirmation received from
counterparties 110. What is the primary role of the Mid-
D. By handling administrative tasks office (Risk Management)?
A. Buying and selling in the markets
Answer: B. By independently confirming B. Providing information to the management
deals with counterparties (MIS) and implementing risk management
systems
107. What accounts does the Back Office C. Verifying and settling deals concluded by
maintain? the dealers
A. Only Nostro accounts D. Maintaining Nostro accounts
B. Only Demat accounts
C. Nostro accounts, funding and security Answer: B. Providing information to the
accounts, and Demat accounts management (MIS) and implementing risk
D. Only funding and security accounts management systems
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111. What key parameters of performance D. Within the Back Office

does the Mid-office report to the
management? Answer: C. Directly under the ALCO
A. Exposure limits and stop-loss limits
B. Deals slips and confirmation documents 115. What role does the Mid Office play in the
C. Nostro accounts and Demat accounts day-to-day management of the Treasury?
D. Funding and security accounts A. Actively involved in day-to-day
management
Answer: A. Exposure limits and stop-loss B. No involvement in day-to-day management
limits C. Coordinates with the Back Office
D. Manages the Front Office
112. In smaller banks, what additional
function may the Mid-office perform? Answer: B. No involvement in day-to-day
A. Verifying and settling deals concluded by management
the dealers
B. Dealing with major corporate customers 116. What expertise is recommended for the
C. Acting as an Authorized Dealer for foreign members of the Mid Office, as per RBI
exchange business guidelines?
D. Functioning as ALM Support Group A. Only market risk management experts
B. Only economists
Answer: D. Functioning as ALM Support C. Only statisticians
Group D. Experts in market risk management,
economists, statisticians, and general bankers
113. What expertise is recommended for the
members of the Mid Office, as per RBI Answer: D. Experts in market risk
guidelines? management, economists, statisticians, and
A. Only market risk management experts general bankers
B. Only economists
C. Only statisticians 117. Where is the Mid Office functionally
D. Experts in market risk management, placed, according to RBI guidelines?
economists, statisticians, and general bankers A. Directly under the Treasury Department
B. Under the branch manager
Answer: D. Experts in market risk C. Directly under the ALCO
management, economists, statisticians, and D. Within the Back Office
general bankers
Answer: C. Directly under the ALCO
114. Where is the Mid Office functionally
placed, according to RBI guidelines?
A. Directly under the Treasury Department
B. Under the branch manager
C. Directly under the ALCO
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118. What role does the Mid Office play in the

day-to-day management of the Treasury?
A. Actively involved in day-to-day

management
B. No involvement in day-to-day management
C. Coordinates with the Back Office
D. Manages the Front Office
Answer: B. No involvement in day-to-day

management
119. What is the role of the Mid Office in

relation to market risk exposures?
A. Execute daily market transactions

B. Aggregate total market risk exposures
C. Manage liquidity risks
D. Facilitate investment proposals
Answer: B. Aggregate total market risk

exposures
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CHAPTER 20-: Treasury Products

1. What is the primary characteristic of the 5. Which currency is mentioned as partially
foreign exchange market? convertible?
a. Illiquid market a. USD
b. Volatile market b. EUR
c. Most liquid market c. JPY
d. Stable market d. INR
Answer: c. Most liquid market Answer: d. INR
6. Why is the market for USD/INR considered

2. Which currencies are mentioned as
fairly liquid despite the Indian Rupee being
examples of free currencies?
partially convertible?
a. CNY, AUD, CAD, NZD
a. Strict exchange controls
b. USD, EUR, GBP, JPY
b. Large domestic market and high growth
c. INR, BRL, ZAR, TRY
rate of the economy
d. AED, SGD, HKD, SEK
c. Limited demand for USD
d. Low growth rate of the economy
Answer: b. USD, EUR, GBP, JPY
Answer: b. Large domestic market and high
3. What is the significance of free currencies growth rate of the economy
in the foreign exchange market?
a. Limited demand 7. What is a notable feature of the Foreign
b. Limited liquidity Exchange Market mentioned in the passage
c. Readily bought and sold regarding its transactions?
d. Strict exchange controls a. Offline transactions
b. Transparent transactions
Answer: c. Readily bought and sold c. Physical transactions
d. Localized transactions
4. What determines the liquidity of currencies
that are not fully convertible? Answer: b. Transparent transactions
a. Size and stage of development of the
domestic market 8. Why is the Foreign Exchange Market
b. Strict exchange controls considered a virtual market?
c. Limited demand a. Limited availability of currencies
d. Low growth rate of the economy b. Lack of online platforms
c. Physical boundaries
Answer: a. Size and stage of development of d. Absence of physical boundaries
the domestic market
Answer: d. Absence of physical boundaries
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9. What is the primary limitation for currency a. Same day as the trade date
trades in the Foreign Exchange Market? b. Two working days from the trade date
a. International regulations c. One working day from the trade date
b. Currency availability d. Three working days from the trade date
c. Domestic regulation or convertibility
d. Timezone differences Answer: b. Two working days from the trade
date
Answer: c. Domestic regulation or
convertibility 14. What is the spot settlement date for a
trade that occurred on 01-04-2020?
10. How are most transactions conducted in a. 01-04-2020
the Foreign Exchange Market? b. 02-04-2020
a. Over-the-counter c. 03-04-2020
b. In-person at physical locations d. 04-04-2020
c. Through telecommunication
d. Online across time zones in electronic Answer: c. 03-04-2020
medium
15. Besides spot settlement in two working
Answer: d. Online across time zones in days, currencies may also be traded for
electronic medium settlement on the same day. What is this type
of settlement known as?
11. In the context of the Foreign Exchange a. Tomorrow (TOM)
Market, what role do internet sites play? b. Ready (TOD)
a. Provide entertainment c. Forward
b. Facilitate currency conversion d. Cash
c. Offer trading platforms
d. Conduct physical transactions Answer: b. Ready (TOD)
Answer: c. Offer trading platforms
16. If a currency trade is settled on the next
12. 6. Where can customers deal in foreign working day, what is this type of settlement
exchange online? referred to as?
a. Bank branches a. Forward
b. Local markets b. Spot
c. Physical exchange offices c. Tomorrow (TOM)
d. Bank websites and trading platforms d. Ready (TOD)
Answer: d. Bank websites and trading Answer: c. Tomorrow (TOM)

platforms
13. In spot trades, when does the settlement

typically take place?
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17. On which date is the spot rate applicable Answer: b. Demand and supply of base
for a trade conducted on 01-04-2020? currency (e.g., US$) and overnight interest
a. 01-04-2020 rate differentials
b. 02-04-2020
c. 03-04-2020 21. What does a discount to the spot rate
d. 04-04-2020 mean for the buyer of the currency?
a. More favorable rate
Answer: c. 03-04-2020 b. Neutral impact
c. Less favorable rate
18. 6. What type of rates are quoted by d. No impact on the buyer
default for spot trades in the Foreign
Exchange Market? Answer: c. Less favorable rate
a. Forward rates
b. Ready rates 22. What is the primary focus of forward rates
c. Spot rates in the foreign exchange market?
d. Tomorrow rates a. Current transactions
b. Past transactions
Answer: c. Spot rates c. Future transactions
d. Historical data
19. What characterizes the TOD and TOM
rates in comparison to the spot rate? Answer: c. Future transactions
a. TOD and TOM rates are higher than the
spot rate 23. How are exchange rates for forward sale
b. TOD and TOM rates are the same as the or forward purchase quoted in the market?
spot rate a. On the settlement date
c. TOD and TOM rates are quoted at a b. On the trade date
discount to the spot rate c. On the spot date
d. TOD and TOM rates are not affected by the d. On the forward date
spot rate
Answer: b. On the trade date
Answer: c. TOD and TOM rates are quoted at
a discount to the spot rate 24. 6. What term is used to describe
transactions between the buyer and seller for
20. In an integrated market, what primarily forward purchase or sale of currency?
determines the premium or discount charged a. Spot contracts
on a currency? b. Ready contracts
a. Central bank policies c. Forward contracts
b. Demand and supply of base currency (e.g., d. Immediate contracts
US$) and overnight interest rate differentials
c. Forward rates Answer: c. Forward contracts
d. Market speculation
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25. In the context of forward contracts, who d. Avoiding currency transactions

can be potential counterparties for the
Treasury? Answer: b. Making a profit out of price
a. Only other treasuries movements
b. Only individuals
c. Customers (merchant business) and/or 29. Besides banks, who else may be
banks (inter-bank market) counterparties for the Treasury when
d. Central banks only entering into forward contracts with
customers?
Answer: c. Customers (merchant business) a. Only government agencies
and/or banks (inter-bank market) b. Only individual investors
c. Other treasuries
26. How do customers, such as importers and d. Merchants and businesses
exporters, manage their currency risk? Answer: d. Merchants and businesses
a. By investing in foreign stocks
b. By entering into forward contracts with 30. 6. What type of position does the
their respective banks Treasury take in the inter-bank market to
c. By relying on government support cover its customer exposure?
d. By avoiding international transactions a. Same position as the customer
b. Opposite position to the customer
Answer: b. By entering into forward c. Neutral position
contracts with their respective banks d. Random position
27. How does the Treasury cover its customer Answer: b. Opposite position to the
exposure in the forward contracts? customer
a. By investing in foreign assets
b. By taking reverse/opposite positions in the 31. What do forward exchange rates primarily
inter-bank market not represent?
c. By increasing currency risk a. Past rate movements
d. By avoiding forward contracts b. Current market conditions
c. Projected rate movements into the future
Answer: b. By taking reverse/opposite d. Historical rate averages
positions in the inter-bank market
Answer: c. Projected rate movements into
the future
28. What is the purpose mentioned for which
the Treasury may enter into forward
contracts, aside from covering customer
exposure?
a. Hedging against currency risk
b. Making a profit out of price movements
c. Reducing market volatility
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32. How are forward exchange rates 36. 6. In the case of the Rupee, what factor
determined? influences forward exchange rates more than
a. Based on historical averages interest rate differentials due to its partial
b. Projected rate movements in the market convertibility?
c. Interest rate differentials of two currencies a. Historical averages
d. Random fluctuations in the market b. Demand for forward contracts
c. Projected rate movements
Answer: c. Interest rate differentials of two
d. Market volatility
currencies
33. What is added to the spot exchange rate
Answer: b. Demand for forward contracts
to calculate the forward rate for a low-
37. What are the primary products in the
interest-yielding currency?
foreign exchange market?
a. Forward premium
a. Swaps and forwards
b. Forward discount
b. Options and futures
c. Spot premium
c. Spot and forward transactions
d. Spot discount
d. Currency and commodity trading
Answer: a. Forward premium
Answer: c. Spot and forward transactions
34. How does the interest rate differential
38. How is a swap transaction?
impact the calculation of forward exchange
a. An exchange of cash for commodities
rates for high-interest-yielding currencies?
b. A combination of two spot transactions
a. Added to the spot rate
c. A combination of spot and forward
b. Subtracted from the spot rate
transactions
c. Has no impact on the calculation
d. A combination of two forward transactions
d. Doubles the spot rate
Answer: c. A combination of spot and
Answer: b. Subtracted from the spot rate
forward transactions
35. When do forward rates fully reflect
39. What is another way to describe a swap
interest rate differentials according to the
transaction?
passage?
a. A currency conversion
a. In perfect markets with fully convertible
b. An interest rate differential
currencies
c. An exchange of cashflows
b. In markets with low liquidity
d. A stock market transaction
c. In markets with high volatility
d. In markets with strict exchange controls
Answer: c. An exchange of cashflows
Answer: a. In perfect markets with fully
convertible currencies
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40. What constitutes a USD/INR swap? 44. How is the inter-bank market subdivided
a. Buying USD in the spot market and selling in terms of money market products?
the same amount in the forward market a. Long-term market and short-term market
b. Buying INR in the spot market and selling b. Call money, notice money, and term money
the same amount in the forward market market
c. Selling USD in the spot market and buying c. Domestic market and international market
the same amount in the forward market d. Primary market and secondary market
d. Selling INR in the spot market and buying
the same amount in the forward market Answer: b. Call money, notice money, and
term money market
Answer: a. Buying USD in the spot market
and selling the same amount in the forward 45. What is the characteristic maturity period
market for funds in the money markets?
a. Over two years
41. How is the swap route typically used? b. Not exceeding one year
a. For speculative trading c. Exactly one year
b. For currency conversion d. Varies between one to five years
c. For funding requirements Answer: b. Not exceeding one year
d. For commodity trading
46. How is call money?
Answer: c. For funding requirements a. Lending and borrowing for 15 days to 1
year
42. 6. In the context of a USD/INR swap deal, b. Lending and borrowing for 2 days to 14
what profit opportunity? days
a. Currency speculation c. Lending and borrowing for exactly one year
b. Interest rate arbitrage d. Lending and borrowing for 1 day
c. Commodity trading
d. Spot market trading Answer: d. Lending and borrowing for 1 day
Answer: b. Interest rate arbitrage 47. What is the characteristic maturity period
for notice money?
43. What is the primary characteristic of a. Not exceeding one day
money markets? b. Lending and borrowing for exactly one year
a. Long-term investment opportunities c. 2 days to 14 days
b. Raising and deploying short-term resources d. Over two years
c. Exclusively dealing with currencies
Answer: c. 2 days to 14 days
d. Maturity exceeding one year
Answer: b. Raising and deploying short-term

resources
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48. How is term money? b. Benchmark rate for overnight interest rate
a. Lending and borrowing for exactly one year swaps
b. Lending and borrowing for 2 days to 14 c. Long-term investment rate
days d. Indicator for currency exchange rates
c. Lending and borrowing for 15 days to 1
year Answer: b. Benchmark rate for overnight
d. Lending and borrowing for more than one interest rate swaps
year
53. When was the participation of non-bank
Answer: c. Lending and borrowing for 15
players, such as financial institutions and
days to 1 year
mutual funds, phased out from the call
money market?
49. What does the term "Call Money" refer to
a. August 6, 2000
in the financial?
b. August 6, 2005
a. Long-term investments
c. August 6, 2010
b. Overnight placements
d. August 6, 2015
c. Fixed deposits
d. Term loans
Answer: b. August 6, 2005
Answer: b. Overnight placements
50. When do funds borrowed through call 54. 6. Who can participate in the call money
money need to be repaid? market after the phasing out of non-bank
a. After a week players?
b. On the next working day a. Banks, primary dealers, and co-operative
c. After one month banks (excluding land development banks)
d. After three months b. Only land development banks
c. Financial institutions and mutual funds
Answer: b. On the next working day d. Non-bank players and credit unions
51. What do call money rates indicate in the Answer: a. Banks, primary dealers, and co-
inter-bank market? operative banks (excluding land development
a. Future interest rates banks)
b. Liquidity available in the market
c. Exchange rates
d. Credit risk of banks
Answer: b. Liquidity available in the market
52. What is the Overnight Mumbai Interbank

Offered Rate (O/N MIBOR) used as?
a. Fixed deposit rate
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55. What role does a Primary Dealer (PD) play Answer: b. Up to 25% of capital fund
in the financial market?
a. A firm that buys and sells stocks 59. What is the maximum average borrowing
b. A firm that buys and sells government limit for scheduled commercial banks in a
securities directly from the government fortnight?
c. A firm that lends money to the public a. 75% of capital fund
d. A firm that manages mutual funds b. 100% of capital fund
c. 125% of capital fund
Answer: b. A firm that buys and sells d. 150% of capital fund
government securities directly from the
government Answer: b. 100% of capital fund
56. How does the notice money market differ 60. 6. What is the maximum borrowing limit
from the call money market in terms of on any particular day of the fortnight for
transaction duration? scheduled commercial banks?
a. Notice money has a shorter transaction a. 100% of capital fund
period b. 125% of capital fund
b. Call money has a shorter transaction period c. 150% of capital fund
c. Both have the same transaction duration d. 200% of capital fund
d. Notice money has a longer transaction
period Answer: c. 150% of capital fund
Answer: d. Notice money has a longer 61. What is the maximum prudential limit for
transaction period borrowing in a fortnight for scheduled
commercial banks?
57. What is the period of notice money a. 75% of capital fund
transactions? b. 100% of capital fund
a. Up to 1 day c. 125% of capital fund
b. 2 days to 14 days d. 150% of capital fund
c. Up to 7 days
d. 15 days to 1 year Answer: b. 100% of capital fund
Answer: b. 2 days to 14 days 62. What is the maximum limit for borrowing
on any particular day of the fortnight for
58. What are the prudential limits for scheduled commercial banks?
scheduled commercial banks in terms of a. 100% of capital fund
average lending in a fortnight? b. 125% of capital fund
a. Up to 10% of capital fund c. 150% of capital fund
b. Up to 25% of capital fund d. 200% of capital fund
c. Up to 50% of capital fund
d. Up to 75% of capital fund Answer: c. 150% of capital fund
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67. What is the typical duration of placements

63. What is the prudential limit for average in the term money market?
borrowing for co-operative banks in the a. Up to 14 days
money markets on a daily basis? b. 1 month to 6 months
a. 1% of aggregated deposit c. Up to 1 month
b. 2% of aggregated deposit d. Over 1 year
c. 5% of aggregated deposit
d. No limit Answer: b. 1 month to 6 months
Answer: b. 2% of aggregated deposit 68. What does the term money market
primarily cater to in the financial system?
64. Is there any limit on the average lending a. Long-term investments
for co-operative banks in the money markets? b. Placement of funds with banks for periods
a. Yes, 5% of aggregated deposit exceeding 14 days but not exceeding 1 year
b. No limit c. Overnight transactions
c. Yes, 2% of aggregated deposit d. Equity trading
d. Yes, 10% of aggregated deposit
Answer: b. Placement of funds with banks
Answer: b. No limit for periods exceeding 14 days but not
exceeding 1 year
65. What is the maximum prudential limit for
borrowing on a daily average basis for 69. What range do term money placements
Primary Dealers (PDs)? typically cover?
a. 150% of Net Owned Funds (NOF) a. 6 months to 1 year
b. 200% of Net Owned Funds (NOF) b. 1 week to 1 month
c. 225% of Net Owned Funds (NOF) c. 1 month to 6 months
d. 250% of Net Owned Funds (NOF) d. 2 years to 5 years
Answer: c. 225% of Net Owned Funds (NOF) Answer: c. 1 month to 6 months
66. 6. What is the maximum prudential limit 70. What is considered the risk-free market in
for lending on a daily average basis for the financial system?
Primary Dealers (PDs)? a. Stock market
a. 15% of Net Owned Funds (NOF) b. Real estate market
b. 20% of Net Owned Funds (NOF) c. Inter-bank market
c. 25% of Net Owned Funds (NOF) d. Foreign exchange market
d. 30% of Net Owned Funds (NOF)
Answer: c. Inter-bank market
Answer: c. 25% of Net Owned Funds (NOF)
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71. What does the inter-bank market signal 75. What is the current percentage of bank's
first in the financial system? demand and time liabilities stipulated by RBI
a. Stock market trends for the Cash Reserve Ratio (CRR)?
b. Changes in money supply and liquidity a. 1%
c. Interest rate fluctuations b. 3%
d. Foreign exchange rates c. 5%
Answer: b. Changes in money supply and d. 10%
liquidity
Answer: b. 3%
72. 6. What is the most widely accepted
benchmark rate for floating-rate debt paper 76. Does the RBI pay interest on CRR balances
and overnight interest rate swaps? held by banks?
a. Call money rate a. Yes
b. Term money rate b. No
c. Fixed deposit rate c. It depends on the bank's performance
d. Overnight Mumbai Inter-bank Offered Rate d. Only for public sector banks
(O/N MIBOR)
Answer: b. No
Answer: d. Overnight Mumbai Inter-bank
Offered Rate (O/N MIBOR) 77. Besides inter-bank markets, where else do
bank treasuries extend their operations?
73. Where does the treasury typically invest a. Foreign exchange markets
surplus cash in the money market? b. Long-term government bonds
a. Long-term investments c. Short-term investment paper issued by
b. Inter-bank markets government, financial institutions, and
c. Real estate companies
d. Foreign exchange markets d. Cryptocurrency markets
Answer: b. Inter-bank markets Answer: c. Short-term investment paper

issued by government, financial institutions,
74. What is the purpose of the Cash Reserve and companies
Ratio (CRR)?
a. To determine interest rates 78. 6. Which of the following is NOT
b. To influence liquidity in the market mentioned as a security mainly dealt with for
c. To regulate foreign exchange rates placement of short-term funds?
d. To manage inflation a. Treasury Bills
b. Cash Management Bills (CMBs)
Answer: b. To influence liquidity in the c. Long-term government bonds
market d. Certificate of Deposit (CD)
Answer: c. Long-term government bonds

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79. What is the characteristic feature of the d. Commercial Market Bonds

interest on Treasury Bills (T-Bills)?
a. Fixed interest rate Answer: b. Cash Management Bills
b. Variable interest rate
c. Interest paid at maturity 84. 6. What is the primary feature of Treasury
d. Interest is by way of discount Bills that is?
a. Interest paid at maturity
Answer: d. Interest is by way of discount b. Fixed interest rate
c. Issued by private companies
80. Who issues Treasury Bills in India? d. Priced below Rs. 100 due to discount
a. Reserve Bank of India (RBI)
b. Ministry of Finance Answer: d. Priced below Rs. 100 due to
c. Securities and Exchange Board of India discount
(SEBI)
d. State Governments 85. How is the yield of a Treasury Bill (T-Bill)
calculated?
Answer: a. Reserve Bank of India (RBI) a. (FV - MV) * 365 / 91
b. (FV - MV) * 91 / 365
81. What are the maturity periods for c. (FV + MV) * 365 / 91
Treasury Bills? d. (FV + MV) * 91 / 365
a. 30 days, 60 days, 90 days Answer: a. (FV - MV) * 365 / 91
b. 91 days, 182 days, 364 days
c. 180 days, 270 days, 360 days 86. What does the formula for T-Bill yield represent?
d. 1 year, 2 years, 3 years a. Simple interest
b. Compound interest
Answer: b. 91 days, 182 days, 364 days c. Annualized yield
d. Maturity value
82. How is the interest on Treasury Bills
calculated? Answer: c. Annualized yield
a. Simple interest
b. Compound interest 87. What is the simplicity yield of a T-Bill priced at
c. Interest is paid at maturity 99.26?
d. By way of discount a. 97% per annum
b. 0.74% per annum
Answer: d. By way of discount c. 94% per annum
d. 48% per annum
83. What does CMB stand for in the context
of money market instruments? Answer: a. 97% per annum
a. Centralized Banking Method
b. Cash Management Bills
c. Certificate of Monetary Balance
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88. Who are the main participants in the auction 92. With whom does FIMMDA collaborate to
process for T-Bills? publish benchmark T-bill yields?
a. Banks and primary dealers a. Securities and Exchange Board of India
b. Financial institutions and mutual funds (SEBI)
c. Corporates and business entities b. Ministry of Finance
d. Individuals and retail investors c. Reserve Bank of India (RBI)
d. Reuters
Answer: a. Banks and primary dealers
Answer: d. Reuters
89. Is the auction process for T-Bills open to all
players in the financial markets? 93. What is the primary platform for holding
a. Yes, only to banks T-bills?
b. No, only to primary dealers a. Physical certificates
c. No, only to financial institutions b. Demat accounts
d. Yes, including financial institutions, mutual funds, c. SGL account (Subsidiary General Ledger
corporates, and individuals account)
d. Centralized Depository System (CDS)
Answer: d. Yes, including financial
institutions, mutual funds, corporates, and Answer: c. SGL account (Subsidiary General
individuals Ledger account)
90. 6. How often are 91-day T-Bills issued? 94. How is the secondary market settlement of T-
a. Monthly bills conducted?
b. Weekly a. Through physical delivery
c. Fortnightly b. Through Clearing Corporation of India Ltd. (CCIL)
d. Quarterly c. Through direct bank transactions
d. Through an auction process
Answer: b. Weekly on each Wednesday
Answer: b. Through Clearing Corporation of India
91. What does FIMMDA stand for? Ltd. (CCIL)
a. Fixed Income Money Management and
Derivatives Association 95. What was the purpose of introducing Cash
b. Financial Instruments Market and Management Bills (CMBs)?
Derivatives Association a. Long-term government financing
c. Fixed Income Money Market and b. To meet the temporary cash flow mismatches of
Derivatives Association of India the Government
d. Foreign Investment and Money Market c. To stabilize foreign exchange rates
Derivatives Association d. To regulate interest rates
Answer: c. Fixed Income Money Market and Answer: b. To meet the temporary cash flow
Derivatives Association of India mismatches of the Government
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96. 6. What character do Cash Management Bills 100. What is the settlement basis for CMB
(CMBs) have? auctions?
a. Standard, interest-bearing instruments a. T+2 basis
b. Non-standard, discounted instruments with b. T+1 basis
maturities less than 91 days c. T-1 basis
c. Fully convertible instruments d. T+3 basis
d. Fixed-rate instruments
Answer: b. T+1 basis
Answer: b. Non-standard, discounted instruments
with maturities less than 91 days 101. Is the Non-Competitive Bidding Scheme,
applicable to Treasury Bills, extended to Cash
97. What is the maximum tenure of Cash Management Bills (CMBs)?
Management Bills (CMBs)? a. Yes
a. 91 days b. No
b. 120 days c. Only in special circumstances
c. 180 days d. It depends on the auction demand
d. 365 days
Answer: b. No
Answer: a. 91 days
102. 6. What facility do Cash Management
98. How are Cash Management Bills (CMBs) Bills (CMBs) qualify for?
issued, similar to Treasury Bills? a. Loan facility
a. At face value b. Insurance facility
b. At a premium c. Ready forward facility (Repo, MSF, and
c. At par Reverse Repo facility)
d. At a discount d. Foreign exchange facility
Answer: d. At a discount Answer: c. Ready forward facility (Repo,

MSF, and Reverse Repo facility)
99. How is the announcement of the auction
of CMBs made? 103. What is the minimum maturity period
a. Through advertisements in newspapers for Commercial Paper (CP)?
b. Through separate Press Release issued by a. 1 day
the Reserve Bank of India (RBI) b. 3 days
c. Through social media platforms c. 7 days
d. Through government circulars d. 14 days
Answer: b. Through separate Press Release Answer: c. 7 days

issued by the Reserve Bank of India (RBI)
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104. What is the maximum maturity period 108. 6. What is the primary characteristic of
for Commercial Paper (CP)? Commercial Paper (CP)?
a. 6 months a. Long-term debt instrument
b. 9 months b. Minimum maturity of 30 days
c. 1 year c. Issued by individuals only
d. 18 months d. Short-term debt paper with a maximum
maturity of 1 year
Answer: c. 1 year
Answer: d. Short-term debt paper with a
105. Who is eligible to issue Commercial maximum maturity of 1 year
Paper (CP)?
a. Only government entities 109. What is the minimum credit rating
b. Corporates, primary dealers, and financial required for a company to issue Commercial
institutions Paper (CP), as per RBI guidelines?
c. Only banks a. B1
d. Individual investors b. A2
c. A3
Answer: b. Corporates, primary dealers, and d. A4
financial institutions
Answer: c. A3
106. What is the minimum amount of 110. What is the minimum tangible net worth
Commercial Paper (CP) that can be issued? required for a company, as per the RBI
a. 1 Lac guidelines for issuing CP?
b. 2 Lac a. Rs. 2 crores
c. 5 Lac b. Rs. 3 crores
d. 10 Lac c. Rs. 4 crores
d. Rs. 5 crores
Answer: c. 5 Lac
Answer: c. Rs. 4 crores
107. Who governs the issue of CP and
prescribes market practices? 111. According to RBI guidelines, what is a
a. Ministry of Finance prerequisite for a company to issue
b. Securities and Exchange Board of India Commercial Paper (CP)?
(SEBI) a. Ownership by government entities
c. Fixed Income Money Market and b. Sanctioned working capital limit by banks
Derivatives Association of India (FIMMDA) or financial institutions
d. Reserve Bank of India (RBI) c. Minimum market capitalization
d. Listing on the stock exchange
Answer: c. Fixed Income Money Market and
Derivatives Association of India (FIMMDA) Answer: b. Sanctioned working capital limit
by banks or financial institutions
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112. What asset classification should the b. Two weeks

borrowing account of a company be under, as c. One month
per RBI guidelines? d. Three months
a. Substandard asset
b. Non-performing asset (NPA) Answer: b. Two weeks
c. Standard asset
d. Doubtful asset 117. Can CP be issued in parts on different
dates?
Answer: c. Standard asset a. No, each issue must have a single date
b. Yes, but each CP must have a different
113. According to RBI guidelines, what is the maturity date
minimum amount for the issuance of c. Yes, and each CP can have the same
Commercial Paper (CP)? maturity date
a. Rs. 1 lakh d. No, each issue must have a different date
b. Rs. 2 lakhs
c. Rs. 3 lakhs Answer: c. Yes, and each CP can have the
d. Rs. 5 lakhs same maturity date
Answer: d. Rs. 5 lakhs 118. How is each issue of CP treated?

114. 6. In what form are most Commercial a. As a renewal
Papers (CPs) issued? b. As a single issuance
a. Physical form c. As a separate and fresh issue
b. Electronic form d. As a continuous offering
c. Indemnity form
d. In-kind form Answer: c. As a separate and fresh issue
Answer: c. Indemnity form 119. What is the primary reason for the
relatively low credit risk associated with CP?
115. Who serves as the issuing and paying a. It is backed by government guarantees
authority (IPA) for Commercial Paper (CP)? b. It has a long maturity period
a. Securities and Exchange Board of India c. It is issued by large corporations
(SEBI) d. Its short-term nature and minimum credit
b. Reserve Bank of India (RBI) rating requirement
c. The company issuing the CP
d. A bank Answer: d. Its short-term nature and
minimum credit rating requirement
Answer: d. A bank
116. What is the time frame within which the

total amount of CP should be raised?
a. One week
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120. In what form is CP issued? 124. What is the primary reason for the
a. Electronic form secondary market of CP being fairly active?
b. Physical form a. Government intervention
c. Promissory note for a discounted amount b. High credit risk
d. Equity shares c. Tradable nature and benchmark rates
d. Lack of liquidity risk
Answer: c. Promissory note for a discounted
amount Answer: c. Tradable nature and benchmark
rates
121. In what form is Commercial Paper (CP)
issued for trading? 125. Within how many minutes should all OTC
a. Physical form trades in CP be reported?
b. Electronic form a. 30 minutes
c. Demat form b. 1 hour
d. Promissory note form c. 15 minutes
d. 45 minutes
Answer: c. Demat form
Answer: c. 15 minutes
122. How is the purchase and sale of CP 126. 6. What is the minimum period that
typically facilitated for investors? must elapse before an issuer can buy back CP
a. Through direct transactions with issuing after the date of issue?
companies a. 3 days
b. Through physical certificates b. 5 days
c. Through the depository participant (DP) c. 7 days
accounts of investors d. 10 days
d. Through government agencies
Answer: c. 7 days
Answer: c. Through the depository
participant (DP) accounts of investors 127. Who issues Certificates of Deposit (CD)?
a. Government entities
123. Why do banks tend to invest in CP b. Banks or eligible financial institutions (FIs)
through the treasury? c. Commercial paper agencies
a. To control the CP market d. Individuals
b. To minimize credit risk, earn higher yields,
and avoid liquidity risk Answer: b. Banks or eligible financial
c. To support government initiatives institutions (FIs)
d. To have direct control over CP issuance
128. How does a Certificate of Deposit (CD)
Answer: b. To minimize credit risk, earn differ from a deposit receipt?
higher yields, and avoid liquidity risk a. CD has a longer maturity period
b. CD is not negotiable
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c. CD generally bears higher interest rates and Answer: c. Either in demat form or in
is a negotiable instrument physical form as promissory notes
d. CD is not rated by credit rating agencies
133. Why is a Certificate of Deposit (CD)
Answer: c. CD generally bears higher interest considered an investment vehicle for
rates and is a negotiable instrument corporates and banks?
a. It offers high-interest rates
129. What is the minimum amount required b. It is issued by government entities
for a deposit to be considered a Certificate of c. It is a negotiable instrument
Deposit (CD)? d. It has a long maturity period
a. Rs. 50,000
b. Rs. 1 lakh Answer: c. It is a negotiable instrument
c. Rs. 2 lakhs
d. Rs. 5 lakhs 134. Can banks sanction loans against CDs or
permit premature closure of CDs?
Answer: b. Rs. 1 lakh a. Yes, in both cases
130. What is the minimum period of maturity b. No, in both cases
for a CD issued by banks? c. Yes, for loans but no for premature closure
a. 3 days d. No, for loans but yes for premature closure
b. 1 month
c. 7 days Answer: b. No, in both cases
d. 1 year
135. When do banks find the secondary
Answer: c. 7 days market for CDs attractive?
a. When liquidity conditions are tight
131. Can financial institutions (FIs) issue CDs b. When interest rates are low
for a period exceeding 3 years? c. When there is high demand for CDs
a. Yes d. When there is government intervention
b. No
c. Only with RBI approval Answer: a. When liquidity conditions are
d. Only if the interest rates are fixed tight
Answer: a. Yes 136. How may CDs be issued?

a. At a premium on face value
132. 6. How can CDs be issued? b. At a discount on face value
a. Only in physical form c. At face value only
b. Only in demat form d. At par with interest rates
c. Either in demat form or in physical form as
promissory notes Answer: b. At a discount on face value
d. Only through government approval
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137. What reserve requirements do banks a. 25%

have to maintain on the issue price of CDs? b. 18%
a. No reserve requirements c. 40%
b. Only Cash Reserve Ratio (CRR) d. 30%
c. Both Cash Reserve Ratio (CRR) and
Statutory Liquidity Ratio (SLR) Answer: b. 18%
d. Only Statutory Liquidity Ratio (SLR)
141. What amendment was made to the
Answer: c. Both Cash Reserve Ratio (CRR) Banking Regulation Act of 1949 in 2007
and Statutory Liquidity Ratio (SLR) regarding SLR?
a. SLR was abolished
138. 6. How soon should OTC trades in CDs be b. SLR was fixed at 25%
reported, and through which platform? c. RBI was given the authority to stipulate SLR
a. Within 30 minutes to the Financial Market below 25%
Trade Reporting and Confirmation Platform d. SLR was increased to 40%
(F-TRAC)
b. Within 15 minutes to the Financial Market Answer: c. RBI was given the authority to
Trade Reporting and Confirmation Platform stipulate SLR below 25%
(F-TRAC)
c. Within 1 hour to the Clearcorp Dealing 142. What is the maximum cap for SLR?
System (India) Ltd. (CDSIL) a. 25%
d. Within 45 minutes to the Clearcorp Dealing b. 30%
System (India) Ltd. (CDSIL) c. 40%
d. No maximum cap
Answer: b. Within 15 minutes to the
Financial Market Trade Reporting and Answer: c. 40%
Confirmation Platform (F-TRAC)
143. Apart from Government Securities, what
139. What is the primary purpose of investing other approved securities can banks invest in
in Government Securities by the treasury? to fulfill SLR requirements?
a. To maximize profits a. Corporate Debt Paper
b. To comply with the Statutory Liquidity b. Equities
Ratio (SLR) c. Priority sector bonds issued by SIDBI and
c. To control inflation NABARD
d. To fund government projects d. Convertible Bonds
Answer: b. To comply with the Statutory Answer: c. Priority sector bonds issued by
Liquidity Ratio (SLR) SIDBI and NABARD
140. What is the current SLR percentage of a

bank's demand and time liabilities (DTL)?
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144. 6. What is the minimum SLR level 148. How is the interest on the face value of
stipulated earlier under the Banking bonds paid?
Regulation Act of 1949? a. Monthly
a. 20% b. Annually
b. 25% c. At maturity
c. 15% d. At coupon rate during auctions
d. 10%
Answer: d. At coupon rate during auctions
Answer: b. 25%
149. What is the minimum value of bonds?
145. Who issues Government Securities in a. Rs. 5,000
India? b. Rs. 10,000
a. Ministry of Finance c. Rs. 20,000
b. Public Debt Office of Reserve Bank of India d. Rs. 50,000
c. Securities and Exchange Board of India
(SEBI) Answer: b. Rs. 10,000
d. Ministry of Economic Affairs
150. 6. How does RBI determine the price of
Answer: b. Public Debt Office of Reserve bonds in auctions?
Bank of India a. Fixed price
b. Market-driven price
146. How are Government Securities sold to c. Random allocation
the public? d. Price set by Ministry of Finance
a. Direct sale through banks
b. Online platforms Answer: b. Market-driven price
c. Through auctions conducted by RBI
d. Over-the-counter (OTC) transactions 151. What actively influences the price and
yield of government securities in the
Answer: c. Through auctions conducted by secondary market?
RBI a. Face value
b. Coupon rate
147. Which entities may issue State c. Demand for bonds
Development Bonds? d. Maturity period
a. State governments
b. Public Debt Office of Reserve Bank of India Answer: c. Demand for bonds
c. Ministry of Finance
d. Securities and Exchange Board of India
(SEBI)
Answer: a. State governments

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152. How does the yield on bonds differ from c. Securities and Exchange Board of India
the coupon rate of interest? (SEBI)
a. The yield is always higher than the coupon d. Public Debt Office
rate
b. The yield is always lower than the coupon Answer: b. Reserve Bank of India (RBI)
rate
c. The yield and coupon rate are the same 156. 6. What is the purpose of the
d. The yield depends on the face value government using securities in Open Market
Operations (OMO)?
Answer: b. The yield is always lower than a. To maximize profits
the coupon rate b. To control inflation
c. To influence interest rates by managing
153. What is the current yield of a 10-year G- liquidity
sec, as per the passage, with a coupon rate of d. To finance government expenses
6.35% and priced at Rs. 90.60? Answer: c. To influence interest rates by
a. 6.35% managing liquidity
b. 7.72%
c. 10.00% 157. What term is used to describe the
d. 50% central bank's actions of buying and selling
government securities in the open market to
Answer: b. 7.72% manage liquidity?
a. Liquidity Exchange
154. What does the Open Market Operations b. Open Market Operations (OMO)
(OMO) involve? c. Treasury Management
a. Direct borrowing from public d. Securities Trading
b. Selling government securities to absorb
liquidity Answer: b. Open Market Operations (OMO)
c. Buying back securities to infuse liquidity
d. Issuing new securities to control interest 158. In which category of a bank's investment
rates portfolio are securities mainly held for
investment purposes placed?
Answer: b. Selling government securities to a. Trading Book (Trade)
absorb liquidity and c. Buying back securities b. Available for Sale (AFS)
to infuse liquidity c. Held for Trading (HFT)
d. Banking Book (Investment)
155. Who acts as the issuing and paying
agency for government securities in Open Answer: d. Banking Book (Investment)
Market Operations (OMO)?
a. Ministry of Finance 159. Which type of securities are actively
b. Reserve Bank of India (RBI) traded and marked-to-market regularly for
accounting purposes?
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a. Held till Maturity (HTM) Answer: c. Buy and sell in anticipation of

b. Available for Sale (AFS) price changes
c. Held for Trading (HFT)
d. Long-term Investments 163. What term is used to describe the
central bank's actions of buying and selling
Answer: c. Held for Trading (HFT) government securities in the open market to
manage liquidity?
160. What is the primary characteristic of a. Liquidity Exchange
securities classified under Held for Trading b. Open Market Operations (OMO)
(HFT)? c. Treasury Management
a. Held mainly for investment purposes d. Securities Trading
b. Actively traded and marked-to-market
regularly Answer: b. Open Market Operations (OMO)
c. Held until maturity with no trading
activities 164. In which category of a bank's investment
d. Placed under the Banking Book portfolio are securities mainly held for
investment purposes placed?
Answer: b. Actively traded and marked-to- a. Trading Book (Trade)
market regularly b. Available for Sale (AFS)
c. Held for Trading (HFT)
161. What types of securities consist of d. Banking Book (Investment)
tradable securities and are placed under the
Trading Book? Answer: d. Banking Book (Investment)
a. Held till Maturity (HTM)
b. Available for Sale (AFS) and Held for 165. Which type of securities are actively
Trading (HFT) traded and marked-to-market regularly for
c. Long-term Investments accounting purposes?
d. Banking Book (Investment) a. Held till Maturity (HTM)
b. Available for Sale (AFS)
Answer: b. Available for Sale (AFS) and Held c. Held for Trading (HFT)
for Trading (HFT) d. Long-term Investments
162. 6. What do banks and institutional Answer: c. Held for Trading (HFT)
investors actively do with government
securities under Held for Trading (HFT)?
a. Hold until maturity
b. Mark-to-market for accounting purposes
c. Buy and sell in anticipation of price changes
d. Place them in the Banking Book
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166. What is the primary characteristic of d. Exchange rates

securities classified under Held for Trading Answer: c. Inflation, GDP growth, and other
(HFT)? economic indicators
a. Held mainly for investment purposes
b. Actively traded and marked-to-market 170. How do yields and prices of securities
regularly typically behave in relation to each other?
c. Held until maturity with no trading a. Yields and prices move in the same
activities direction
d. Placed under the Banking Book b. Yields and prices are unrelated
c. Prices fall when yields rise, and vice versa
Answer: b. Actively traded and marked-to- d. Prices and yields always rise together
market regularly
Answer: c. Prices fall when yields rise, and
167. What types of securities consist of
vice versa
tradable securities and are placed under the
Trading Book?
171. When was trading in Interest Rate
a. Held till Maturity (HTM)
Futures (IRFs) on a notional coupon-bearing
b. Available for Sale (AFS) and Held for
10-Year Government of India (GoI) Security
Trading (HFT)
introduced?
c. Long-term Investments
a. August 2000
d. Banking Book (Investment)
b. August 2005
Answer: b. Available for Sale (AFS) and Held c. August 2009
for Trading (HFT) d. August 2013
168. 6. What do banks and institutional Answer: c. August 2009

investors actively do with government
securities under Held for Trading (HFT)? 172. What underlying securities were allowed
a. Hold until maturity for trading in Interest Rate Futures (IRFs) by
b. Mark-to-market for accounting purposes RBI in December 2013?
c. Buy and sell in anticipation of price changes a. 10-Year Government of India (GoI) Security
d. Place them in the Banking Book only
b. 91-Day Treasury Bills and 2-year, 5-year,
Answer: c. Buy and sell in anticipation of and 10-year coupon-bearing notional GoI
price changes securities
c. Corporate bonds
169. What economic indicators form the basis d. Municipal bonds
for the view on prices and interest rates in the
securities market? Answer: b. 91-Day Treasury Bills and 2-year,
a. Stock market indices 5-year, and 10-year coupon-bearing notional
b. Unemployment rates GoI securities
c. Inflation, GDP growth, and other economic
indicators
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173. How does the interest rate futures 177. What are the types of coupons
market contribute to the development of mentioned in relation to the bonds issued by
debt markets? RBI?
a. By increasing inflation a. Fixed rate only
b. By influencing exchange rates b. Step-up coupons or coupons linked to
c. By activating interest rate movements inflation index, or floating rate coupons
d. By providing a trading platform for c. Variable rate only
derivative instruments d. No coupons
Answer: d. By providing a trading platform Answer: b. Step-up coupons or coupons

for derivative instruments linked to inflation index, or floating rate
174. 6. What is the primary role of the G-sec coupons
market in the development of debt markets?
a. To regulate stock exchanges 178. What does STRIPS stand for in the
b. To determine currency values context of the securities market?
c. To develop interest rate futures a. Securities Trading in Profitable Stocks
d. To contribute to the development of debt b. Separate Trading of Registered Interest and
markets Principal Securities
c. Structured Trading of Interest and Principal
Answer: d. To contribute to the Securities
development of debt markets d. Securities Trading in Progressive Stocks
175. What role do G-sec yields play in the Answer: b. Separate Trading of Registered
securities market? Interest and Principal Securities
a. Regulate stock prices
b. Set benchmark rates for corporate bonds 179. How are the principal and interest
c. Determine exchange rates treated in STRIPS (Separate Trading of
d. Control inflation Registered Interest and Principal Securities)?
a. Traded together as a bundled security
Answer: b. Set benchmark rates for b. Traded as separate zero-coupon securities
corporate bonds c. Exclusively traded on international markets
d. Not traded individually
176. What is the range of maturities for bonds
issued by RBI? Answer: b. Traded as separate zero-coupon
a. 6 months to 10 years securities
b. 1 year to 30 years
c. 5 years to 20 years
d. 2 years to 15 years
Answer: b. 1 year to 30 years

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180. 6. What is the purpose of issuing STRIPS? d. It has a shorter maturity period
a. To control inflation
b. To regulate interest rates Answer: b. It is tradable
c. To provide a trading platform for
derivatives 184. What category do Tier-2 capital bonds
d. To trade principal and interest as separate issued by banks fall under?
securities a. Government securities
b. Corporate Debt Paper
Answer: d. To trade principal and interest as c. Equity shares
separate securities d. Non-tradable securities
Answer: b. Corporate Debt Paper

181. What is Corporate Debt Paper in the
context of security market products?
185. Why do treasuries find Corporate Debt
a. Short-term loans provided by corporations
Paper attractive as an investment?
b. Medium and long-term bonds and
a. It has a low yield
debentures issued by corporates and financial
b. It is riskier than government securities
institutions
c. Yield on bonds and debentures is higher
c. Equity shares issued by corporates
than government securities
d. Government-issued securities
d. It is a short-term investment
Answer: b. Medium and long-term bonds
Answer: c. Yield on bonds and debentures is
and debentures issued by corporates and higher than government securities
financial institutions
186. Why is most of the corporate debt paper
182. Why is Corporate Debt Paper referred to
issued in demat form?
as non-SLR securities?
a. It has higher interest rates
a. It has no maturity date
b. It is a regulatory requirement
b. It does not require credit ratings
c. It reduces credit risk
c. It is ineligible for meeting SLR requirement
d. It increases liquidity in the secondary
of banks
market
d. It has a low yield
Answer: b. It is a regulatory requirement
Answer: c. It is ineligible for meeting SLR
requirement of banks
187. What is the key factor influencing the
yield on corporate debt paper?
183. What distinguishes Corporate Debt a. Maturity period
Paper from government securities and other b. Credit quality
approved securities?
c. Government regulations
a. It has a higher yield
d. Market demand
b. It is tradable
c. It is exempt from taxes
Answer: b. Credit quality
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a. Government guarantee
188. Why are banks allowed to invest only in b. Mortgage or floating charge on assets
demat securities, including corporate debt c. Convertibility feature
paper? d. No security is required
a. To reduce market liquidity
b. To ensure transparency and ease of trading Answer: b. Mortgage or floating charge on
c. To discourage investment in corporate debt assets
d. To increase credit risk
193. What legal requirement ensures that
Answer: b. To ensure transparency and ease debentures issued by companies are secured
of trading in India?
a. Securities Law
189. What is the relationship between credit b. Banking Regulations
risk and yield on corporate debt paper? c. Company Law
a. Inverse relationship d. Consumer Protection Act
b. Direct relationship
c. No relationship Answer: c. Company Law
d. Random relationship
194. Are bonds issued by public sector
Answer: b. Direct relationship companies guaranteed by the government by
default?
190. What is the purpose of credit ratings for a. Yes
most debt issues? b. No
a. To determine the maturity period c. Only if explicitly mentioned in the terms
b. To evaluate market demand d. Bonds cannot be issued by public sector
c. To assess credit quality companies
d. To regulate government policies
Answer: c. Only if explicitly mentioned in the
Answer: c. To assess credit quality terms
191. What is the primary distinction between 195. How are debentures transferred?
debentures and bonds in the Indian context? a. Through negotiation
a. Issuer type b. By endorsement and delivery
b. Security backing c. Through registration only
c. Maturity period d. Both a and b
d. Convertibility feature
Answer: c. Through registration only
Answer: a. Issuer type
192. How are debentures typically secured in

practice?
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196. 6. What is the key difference between Answer: b. Collateralised Obligations

convertible debentures and non-convertible
debentures (NCD)? 200. 10. Which term is commonly used for
a. Security backing bonds with put/call options and step-up
b. Maturity period coupons?
c. Convertibility feature a. Zero Coupon Bonds
d. Issuer type b. Deep Discount Bonds
c. Callable Bonds
Answer: c. Convertibility feature d. Perpetual Bonds
197. 7. In the context of non-convertible Answer: c. Callable Bonds

corporate debt paper, what term is
commonly used as a convenient 1 Why might bonds with put/call options and
nomenclature? step-up coupons offer higher interest in the
a. Notes early stages?
b. Securities a. To encourage early redemption
c. Bonds b. To discourage early redemption
d. Commercial Paper c. To maintain a fixed interest rate
d. None of the above
Answer: c. Bonds
Answer: a. To encourage early redemption
198. 8. What is the purpose of incorporating
put/call options, convertibility, and other 201. What is a key feature of convertible
features in bond structures? bonds that distinguishes them from
a. To increase the original maturity traditional bonds?
b. To reduce marketability a. They have a fixed maturity date
c. To enhance marketability and reduce the b. Bondholders have the option to convert
cost of issue them into equity
d. To make the bonds riskier c. They always offer higher coupons
d. They cannot be traded in the secondary
Answer: c. To enhance marketability and market
reduce the cost of issue
Answer: b. Bondholders have the option to
199. 9. What type of bonds are secured by convert them into equity
stocks or other collateral instead of
mortgages?
a. Convertible Bonds
b. Collateralised Obligations
c. Zero Coupon Bonds
d. Deep Discount Bonds
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202. When can bondholders typically exercise

their option to convert convertible bonds into Answer: c. They decrease (get diluted)
equity?
a. Only at maturity 206. What is the primary source of influence
b. Only during a fixed period on stock prices in the equity market?
c. Both at a fixed date and during a fixed a. Government policies
period b. Market sentiment
d. Whenever they choose c. Social media trends
d. Fundamentals of the company
Answer: c. Both at a fixed date and during a
fixed period Answer: d. Fundamentals of the company
203. What is the benefit to the issuer 207. How are equities typically traded in the
company when bondholders convert Indian stock market?
convertible bonds into equity? a. Over-the-counter (OTC)
a. Higher coupon payments b. Auction-based system
b. Strengthening of equity base without debt c. Call-based system
repayment d. Electronic platform (screen-based trading)
c. Reduction in stock price
d. Extension of the maturity date Answer: d. Electronic platform (screen-
based trading)
Answer: b. Strengthening of equity base
without debt repayment 208. What role does SEBI play in the Indian
stock market?
204. How does the coupon rate on a. Stock trading
convertible bonds typically compare to non- b. Market regulation
convertible bonds of similar credit standing? c. Fund management
a. Higher d. Banking operations
b. Lower Answer: b. Market regulation
c. Equal
d. Unrelated 209. Why are bank treasuries generally
cautious when investing in equities?
Answer: b. Lower a. Lack of market liquidity
b. High transaction costs
205. What happens to the equity holdings of c. Risks involved in equity trading
existing shareholders if convertible bonds are d. Government restrictions
converted into equity?
a. They remain unchanged Answer: c. Risks involved in equity trading
b. They increase
c. They decrease (get diluted)
d. They become non-transferable
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210. What is the significance of the Bombay c. Risks involved in equity trading
Stock Exchange (BSE) and National Stock d. Government restrictions
Exchange (NSE) in India?
a. They are regulatory bodies Answer: c. Risks involved in equity trading
b. They are government agencies
c. They are leading stock exchanges 215. What is the significance of the Bombay
d. They are investment banks Stock Exchange (BSE) and National Stock
Exchange (NSE) in India?
Answer: c. They are leading stock exchanges a. They are regulatory bodies
b. They are government agencies
211. What is the primary source of influence c. They are leading stock exchanges
on stock prices in the equity market? d. They are investment banks
a. Government policies
b. Market sentiment Answer: c. They are leading stock exchanges
c. Social media trends
d. Fundamentals of the company 216. What are the major derivative products
available in the market?
Answer: d. Fundamentals of the company a. Call options and put options
b. Stock futures and stock options
212. How are equities typically traded in the c. Treasury bills and commercial paper
Indian stock market? d. Corporate bonds and debentures
a. Over-the-counter (OTC)
b. Auction-based system Answer: b. Stock futures and stock options
c. Call-based system
d. Electronic platform (screen-based trading) 217. Why have derivative products become
highly popular in the market?
Answer: d. Electronic platform (screen- a. They offer guaranteed returns
based trading) b. They are low-risk investments
213. What role does SEBI play in the Indian c. Suitable for long-term investments
stock market? d. Effective for risk management and
a. Stock trading speculation
b. Market regulation
c. Fund management Answer: d. Effective for risk management
d. Banking operations and speculation
Answer: b. Market regulation 218. Who are the major investors in the
domestic market, including the stock market?
214. Why are bank treasuries generally a. Individuals and small businesses
cautious when investing in equities? b. Bank treasuries
a. Lack of market liquidity
b. High transaction costs
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c. Foreign institutional investors, mutual

funds, insurance companies, and private fund
managers
d. Government agencies
Answer: c. Foreign institutional investors,

mutual funds, insurance companies, and
private fund managers
219. Why are bank treasuries not leading

investors in stock markets?
a. Lack of interest
b. High volatility in stock prices
c. Government restrictions
d. Prudential ceiling on capital market
exposures
Answer: d. Prudential ceiling on capital

market exposures
220. What is the preferred investment choice

for banks?
a. Stock markets
b. Derivative markets
c. Low-risk investments
d. Government securities
Answer: d. Government securities

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CHAPTER 21-: International Equity and Debt Products

1. What does FDI stand for? 5. How can the application for FDI under the
a) Foreign Portfolio Investments Government route be made?
b) Foreign Direct Investments a) Through the stock exchange
c) Financial Development Initiatives b) Through the Foreign Investment
d) Foreign Investment Facilitation Facilitation Portal
c) Directly to the Reserve Bank of India
Answer: b) Foreign Direct Investments d) Through a joint venture agreement
2. How does a foreign company typically Answer: b) Through the Foreign Investment
invest in India through FDI? Facilitation Portal
a) By purchasing government bonds
b) By acquiring shares in the stock market 6. What distinguishes Foreign Portfolio
c) By setting up a wholly-owned subsidiary or Investments (FPI) from FDI?
entering into a joint venture a) FPI involves setting up subsidiaries, while
d) By lending money to Indian companies FDI does not
b) FPI involves investments in financial assets,
Answer: c) By setting up a wholly-owned while FDI involves direct ownership in
subsidiary or entering into a joint venture businesses
c) FPI and FDI are interchangeable terms
3. What is the Automatic route in FDI? d) FPI requires government approval, while
a) A route that requires government approval FDI does not
b) A route that allows FDI without prior
approval by the government Answer: b) FPI involves investments in
c) A route for portfolio investments only financial assets, while FDI involves direct
d) A route exclusively for joint ventures ownership in businesses
Answer: b) A route that allows FDI without 7. What does the term "Capital Instruments"
prior approval by the government include?
a) Currency notes and coins
4. When is the Government route in FDI b) Equity shares, debentures, preference
applicable? shares, and share warrants
a) Always c) Bank loans
b) Only in emergencies d) Real estate investments
c) When investing in the stock market
d) When prior approval by the government is Answer: b) Equity shares, debentures,
needed preference shares, and share warrants
Answer: d) When prior approval by the

government is needed
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8. What is Post issue paid up capital? d) To supply capital that cannot be met with
a) The total capital invested by foreign internal sources alone
entities
b) The paid-up share capital after the issuance Answer: d) To supply capital that cannot be
of discussed shares met with internal sources alone
c) The initial capital invested in a company
d) The total market capitalization of a 12. What are the two most regular foreign
company investments?
a) Currency trading and real estate
Answer: b) The paid-up share capital after investments
the issuance of discussed shares b) Foreign Exchange Reserves and Sovereign
Wealth Funds
9. How is the post issue paid-up share capital c) Foreign Direct Investments (FDI) and
calculated in the given example? Foreign Portfolio Investments (FPI)
a) INR 70,000 d) Equity investments and commodity trading
b) INR 100,000
c) INR 1,30,000 Answer: c) Foreign Direct Investments (FDI)
d) INR 30,000 and Foreign Portfolio Investments (FPI)
Answer: c) INR 1,30,000 13. What does FII stand?

a) Foreign Institutional Investments
10. What does "Fully diluted basis" refer to? b) Foreign Institutional Investors
a) The total number of common shares c) Foreign Investment Institutions
outstanding before any conversion d) Financial Investment Initiatives
b) The maximum number of shares a
company can issue Answer: b) Foreign Institutional Investors
c) The total number of common shares
outstanding after all possible conversions 14. Which types of institutional investors are
d) The number of shares held by foreign included in the FII group?
investors a) Commercial banks and insurance
companies
Answer: c) The total number of common b) Hedge funds, mutual funds, and pension
shares outstanding after all possible funds
conversions c) Real estate investment trusts (REITs) only
d) Venture capital firms
11. Why do foreign investments become
important in developing countries like India? Answer: b) Hedge funds, mutual funds, and
a) To increase domestic production pension funds
b) To meet the total capital requirements
from internal sources alone
c) To reduce unemployment
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15. In which market do FIIs typically engage? Answer: c) When the investment is in a
a) Primary market listed Indian company's post issue paid-up
b) Tertiary market equity capital above 10%
c) Secondary market
d) Quaternary market 19. What does FPI stand for?
a) Foreign Paid Investments
Answer: c) Secondary market b) Foreign Portfolio Investments
c) Financial Portfolio Initiatives
16. What is the regulatory body that FIIs need
d) Foreign Portfolio Initiators
to register with to participate in the markets?
a) RBI (Reserve Bank of India)
Answer: b) Foreign Portfolio Investments
b) SEBI (Securities and Exchange Board of
India)
20. How is the 10% limit for foreign portfolio
c) FEMA (Foreign Exchange Management Act)
investors applied?
d) Ministry of Finance
a) It is applicable to each foreign portfolio
Answer: b) SEBI (Securities and Exchange investor or an investor group
Board of India) b) It is applicable to all foreign portfolio
investors collectively
17. How is foreign investment in India c) It is not applicable to foreign portfolio
regulated? investors
a) Companies Act, 2013 d) It is applicable only to individual investors
b) Securities Contract (Regulation) Act, 1956
c) Foreign Exchange Management Act, 1999 Answer: a) It is applicable to each foreign
(FEMA) portfolio investor or an investor group
d) Reserve Bank of India Act, 1934
21. What is the condition for an investment to
Answer: c) Foreign Exchange Management qualify as Foreign Portfolio Investment (FPI) in
Act, 1999 (FEMA) a listed Indian company?
a) The investment must be more than 10% of
18. When does an investment qualify as the post issue paid-up equity capital
Foreign Direct Investment (FDI) in a listed b) The investment must be less than 10% of
Indian company? the post issue paid-up equity capital on a fully
a) When the investment is in an unlisted diluted basis
Indian company c) The investment must be exactly 10% of the
b) When the investment is in a listed Indian paid-up value of each series of capital
company's equity below 10% instruments
c) When the investment is in a listed Indian d) The investment must be in an unlisted
company's post issue paid-up equity capital Indian company
above 10%
d) When the investment is in the primary Answer: b) The investment must be less
market than 10% of the post issue paid-up equity
capital on a fully diluted basis
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22. What is a Foreign Portfolio Investor (FPI)? Answer: c) The person must hold a valid
a) A foreign investment consultant certificate of registration from SEBI.
b) A person investing in the primary market
c) An individual investor from a foreign 25. What is the primary requirement for an
country investment to be considered as Foreign
d) A person registered in accordance with Investment?
SEBI Regulations a) The investment must be in a non-
repatriable form
Answer: d) A person registered in b) The investment must be in non-capital
accordance with the SEBI Regulations instruments
c) The investment must be made by a
23. What is the status of a Foreign resident of India
Institutional Investor (FII) under the Securities d) The investment must be on a repatriable
Exchange Board of India (FPI) Regulations, basis in capital instruments of an Indian
2014? company or to the capital of an LLP
a) FIIs are not recognized under the new
regulations Answer: d) The investment must be on a
b) FIIs are considered as separate entities repatriable basis in capital instruments of an
from FPIs Indian company or to the capital of an LLP
c) FIIs are automatically deemed as FPIs until
the expiry of three years from the enactment 26. Which of the following sectors is
of the FPI Regulations prohibited for foreign investment?
d) FIIs are required to re-register under the a) Real Estate Business
new regulations b) Manufacturing of Cigars
c) Trading in Transferable Development Rights
Answer: c) FIIs are automatically deemed as (TDRs)
FPIs until the expiry of three years from the d) All of the above
enactment of the FPI Regulations
Answer: d) All of the above
24. What is the primary requirement for a
person to be considered a Foreign Portfolio 27. What is prohibited in the Manufacturing
Investor (FPI)? of Cigars, cheroots, cigarillos, and cigarettes,
a) The person must be a resident of India of tobacco or of tobacco substitutes?
b) The person must be registered under the a) Foreign investment in other activities
SEBI (Foreign Institutional Investors) related to these products
Regulations, 1995 b) Manufacturing of the products mentioned
c) The person must hold a valid certificate of c) Trading in tobacco products
registration from SEBI d) Exporting tobacco products
d) The person must have a minimum
investment threshold Answer: b) Manufacturing of the products
mentioned
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28. Which sector/activity is NOT open to c) China and Japan

private sector investment? d) Nepal and Bhutan
a) Online lotteries
b) Railway operations Answer: a) Bangladesh and Pakistan
c) Trading in Transferable Development Rights 32. What is the requirement for a person who
(TDRs) is a citizen of Pakistan or an entity
d) Real Estate Business incorporated in Pakistan to invest in
Answer: b) Railway operations sectors/activities other than defence, space,
and atomic energy?
29. What does the term "repatriable" mean in a) No requirement, they can invest freely
the context of Foreign Investment? b) Prior approval from the Reserve Bank of
a) The investment cannot be withdrawn India
b) The investment can be withdrawn but not c) Prior approval from the Ministry of Finance
transferred outside India d) Prior Government approval
c) The investment can be withdrawn and Answer: d) Prior Government approval
transferred outside India
d) The investment can only be transferred 33. In addition to defence, space, and atomic
within India energy, what other sectors/activities are
prohibited for investment by a person who is
Answer: c) The investment can be a citizen of Pakistan or an entity incorporated
withdrawn and transferred outside India in Pakistan?
a) Manufacturing
30. What is prohibited regarding foreign b) Information Technology
technology collaboration for Lottery Business c) Agriculture
and Gambling and Betting activities? d) Sectors/activities prohibited for foreign
a) Licensing for franchise and trademark only investment
b) Any form of foreign technology
Answer: d) Sectors/activities prohibited for
collaboration
foreign investment
c) Brand name and management contract
only 34. What does the term "foreign technology
d) Licensing for franchise, trademark, brand collaboration" include?
name, and management contract a) Only licensing for franchise and trademark
b) Licensing for franchise, trademark, and
Answer: b) Any form of foreign technology brand name
collaboration c) Brand name and management contract
d) Any form of collaboration related to
31. For which countries does any investment technology
by a person require prior Government
approval? Answer: d) Any form of collaboration related
a) Bangladesh and Pakistan to technology
b) Afghanistan and Sri Lanka
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35. What is the additional requirement for a 39. What entity holds the underlying shares
person who is a citizen of Bangladesh or of an Indian company on behalf of the
Pakistan to invest in India? Overseas Depository for GDRs?
a) Approval from the Ministry of External a) Foreign Custodian
Affairs b) Indian Custodian
b) Prior approval from the Reserve Bank of c) Overseas Bank
India d) Indian Bank
c) Approval from the Ministry of Commerce
and Industry Answer: b) Indian Custodian
d) Prior Government approval
40. How is the exchange risk on GDRs
Answer: d) Prior Government approval handled?
a) It is borne by the Indian company
36. What do GDRs represent in the context b) It is shared between the Indian company
provided? and the overseas investor
a) Global Depository Regulations c) It is borne by the overseas investor
b) Government Depository Receipts d) It is managed by SEBI
c) Global Depository Receipts
d) General Depository Requirements Answer: c) It is borne by the overseas
investor
Answer: c) Global Depository Receipts
41. How does the issuance of GDRs affect the
37. What do GDR holders have the right to do Debt Equity Ratio of the issuing company?
with their receipts? a) It increases the Debt Equity Ratio
a) Redeem them for foreign currency b) It decreases the Debt Equity Ratio
b) Convert them into a specified number of c) It has no impact on the Debt Equity Ratio
equity shares of an Indian company d) It depends on the market conditions
c) Trade them in the Indian stock market
d) Use them as collateral for loans Answer: c) It has no impact on the Debt
Equity Ratio
Answer: b) Convert them into a specified
number of equity shares of an Indian 42. How is the dividend paid out to GDR
company holders?
a) In the currency of the country where the
38. Where are GDRs issued and traded? GDR is issued
a) Exclusively in the Indian market b) In foreign currency
b) In overseas markets c) In Indian Rupees
c) In both Indian and overseas markets d) In the currency of the issuing company
d) Only on the stock exchange
Answer: c) In Indian Rupees
Answer: b) In overseas markets
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43. Who is entitled to voting rights for GDRs? Answer: c) Both conversion of ADRs/GDRs
a) Indian Custodian into underlying domestic shares and vice
b) GDR holders versa
c) Overseas Depository
d) SEBI 47. When is reissuance of ADR/GDR
permitted under the scheme?
Answer: c) Overseas Depository a) At any time
b) Only if ADRs/GDRs have not been
44. What does "Two-Way Fungibility" mean in redeemed into underlying shares
the context of ADRs/GDRs? c) Only if ADRs/GDRs have been redeemed
a) A process of converting ADRs into GDRs into underlying shares and sold in the
b) The ability to convert ADRs/GDRs into domestic market
underlying domestic shares and vice versa d) Only if there is an increase in the total
c) A method of issuing additional ADRs/GDRs outstanding shares
d) The automatic redemption of ADRs/GDRs
Answer: c) Only if ADRs/GDRs have been
Answer: b) The ability to convert ADRs/GDRs redeemed into underlying shares and sold in
into underlying domestic shares and vice the domestic market
versa
48. Where are American Depository Receipts
45. Who operates the limited two-way (ADRs) traded?
fungibility scheme for ADRs/GDRs? a) Only in India
a) Ministry of Finance b) Only in the United States
b) SEBI registered Stock Broker c) In the United States and other overseas
c) Reserve Bank of India markets
d) Ministry of Commerce and Industry d) Only in European markets
Answer: b) SEBI registered Stock Broker Answer: b) Only in the United States
46. What is permitted under the limited two- 49. What is GAAP in the context of ADRs?
way fungibility scheme? a) Generally Accepted Accounting Principles
a) Conversion of ADRs/GDRs into underlying b) General Approval for ADR Practices
domestic shares only c) Global Accounting and Auditing Procedures
b) Conversion of underlying domestic shares d) Generally Acknowledged Accounting
into ADRs/GDRs only Protocols
c) Both conversion of ADRs/GDRs into
underlying domestic shares and vice versa Answer: a) Generally Accepted Accounting
d) Reissuance of ADRs/GDRs without any Principles
limits
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50. Who can issue Indian Depository Receipts c) Foreign institutional investors (FPI), Non-
(IDRs)? Resident Indians (NRI), and Overseas Citizens
a) Only Indian companies of India (OCI)
b) Only foreign companies d) Only the issuer company
c) Both Indian and foreign companies
d) Only government entities Answer: c) Foreign institutional investors
(FPI), Non-Resident Indians (NRI), and
Answer: c) Both Indian and foreign Overseas Citizens of India (OCI)
companies
54. From where can NRIs or OCIs invest in
IDRs?
51. What regulatory rules should the issue of
a) Savings accounts in India
IDRs comply with?
b) NRE/ FCNR(B) accounts maintained in
a) Companies (Registration of Foreign
accordance with the Foreign Exchange
Companies) Rules, 2014 only
Management (Deposit) Regulations, 2016
b) Securities and Exchange Board of India
c) Fixed deposit accounts in India
(Issue of Capital and Disclosure
d) Foreign currency accounts outside India
Requirements) Regulations, 2009 only
c) Both Companies (Registration of Foreign Answer: b) NRE/ FCNR(B) accounts
Companies) Rules, 2014 and Securities and maintained in accordance with the Foreign
Exchange Board of India (Issue of Capital and Exchange Management (Deposit) Regulations,
Disclosure Requirements) Regulations, 2009 2016
d) Reserve Bank of India guidelines
55. What is the overall cap for raising capital
Answer: c) Both Companies (Registration of by the issuance of IDRs by eligible foreign
Foreign Companies) Rules, 2014 and companies in Indian markets?
Securities and Exchange Board of India (Issue a) USD 1 billion
of Capital and Disclosure Requirements) b) USD 3 billion
Regulations, 2009 c) USD 5 billion
d) USD 10 billion
52. In what currency are IDRs denominated?
a) US Dollars Answer: c) USD 5 billion
b) Euros
56. Who monitors the overall cap for raising
c) Indian Rupees
capital through IDRs by eligible foreign
d) British Pounds
companies in Indian markets?
Answer: c) Indian Rupees a) Reserve Bank of India
b) Ministry of Finance
53. Who can purchase, hold, or sell IDRs? c) Securities and Exchange Board of India
a) Only Indian residents (SEBI)
b) Only foreign institutional investors (FPI) d) Ministry of Commerce and Industry
Answer: c) Securities and Exchange Board of
India (SEBI)
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57. What regulatory framework governs the 60. Who can hold the underlying shares for a
redemption/conversion of IDRs into period of 30 days from the date of conversion
underlying equity shares? of IDRs into underlying shares?
a) Companies Act, 2013 a) Indian Mutual Funds registered with SEBI
b) Securities and Exchange Board of India b) Listed Indian companies
(SEBI) Regulations c) Other persons resident in India, including
c) Foreign Exchange Management (Transfer or resident individuals
Issue of any Foreign Security) Regulations, d) Foreign Portfolio Investors (FPIs)
2004
d) Reserve Bank of India Act, 1934 Answer: c) Other persons resident in India,
including resident individuals
Answer: c) Foreign Exchange Management
(Transfer or Issue of any Foreign Security) 61. Which entities are exempted from FEMA
Regulations, 2004 provisions on the holding of underlying shares
upon redemption of IDRs?
58. When can IDRs be redeemed into a) Listed Indian companies
underlying equity shares? b) Indian Mutual Funds registered with SEBI
a) After six months from the date of issue c) Foreign Portfolio Investors (FPIs)
b) Before the expiry of one year from the date d) Other persons resident in India, including
of issue resident individuals
c) After the expiry of one year from the date
of issue Answer: c) Foreign Portfolio Investors (FPIs)
d) Immediately upon issue
62. What is the purpose for which other
Answer: c) After the expiry of one year from persons resident in India, including resident
the date of issue individuals, are allowed to hold the
underlying shares?
59. What is permissible under the limited a) Long-term investment
two-way fungibility of IDRs for listed Indian b) Only for the purpose of sale within 30 days
companies? from the date of conversion
a) Only selling of the underlying shares c) For dividend collection
b) Only holding of the underlying shares d) For voting rights
c) Both selling and holding of the underlying
shares Answer: b) Only for the purpose of sale
d) Neither selling nor holding of the within 30 days from the date of conversion
underlying shares
Answer: c) Both selling and holding of the

underlying shares
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63. What are External Commercial Borrowings c) Entities eligible to raise any freely
(ECBs)? convertible foreign currency ECBs and
a) Borrowings by the government from registered entities engaged in micro-finance
international financial institutions activities
b) Commercial loans raised by eligible d) Only Indian banks
resident entities from recognized non-
resident entities Answer: c) Entities eligible to raise any freely
c) Loans provided by foreign banks to Indian convertible foreign currency ECBs and
companies registered entities engaged in micro-finance
d) Bonds issued by the Indian government in activities
foreign currency
67. What is the minimum average maturity
Answer: b) Commercial loans raised by period (MAMP) for ECBs?
eligible resident entities from recognized non- a) 1 year
resident entities b) 2 years
c) 3 years
64. In which currency can ECBs be raised? d) 5 years
a) Only in Indian Rupees (INR)
b) Only in any freely convertible foreign Answer: c) 3 years
currency
c) In both any freely convertible foreign 68. Who can be recognized lenders for ECBs?
currency and Indian Rupees (INR) a) Only individuals as lenders
d) Only in Euro b) Only foreign branches/subsidiaries of
Indian banks
Answer: c) In both any freely convertible c) Multilateral and Regional Financial
foreign currency and Indian Rupees (INR) Institutions, individuals as lenders, and
foreign branches/subsidiaries of Indian banks
65. What is FCCB in the context of ECBs? d) Only entities from FATF compliant
a) Foreign Credit and Currency Bonds countries
b) Fully Convertible Commercial Bonds
c) Foreign Currency Convertible Bonds Answer: c) Multilateral and Regional
d) Fully Compulsorily Convertible Bonds Financial Institutions, individuals as lenders,
and foreign branches/subsidiaries of Indian
Answer: c) Foreign Currency Convertible banks
Bonds
66. Which entities are eligible to raise ECBs?

a) Only entities eligible to receive Foreign
Direct Investment (FDI)
b) Only entities engaged in micro-finance
activities
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69. What is the Minimum Average Maturity c) Benchmark rate plus 450 bps spread
Period (MAMP) for ECBs raised by d) Benchmark rate plus 600 bps spread
manufacturing companies up to USD 50
million or its equivalent per financial year? Answer: a) Benchmark rate plus 500 bps
a) 1 year spread
b) 3 years
c) 5 years 73. Until when is the enhanced all-in-cost
d) 7 years ceiling available for ECBs raised till December
31, 2022?
Answer: a) 1 year a) March 31, 2023
b) June 30, 2023
70. What is the MAMP for ECBs raised from c) December 31, 2023
foreign equity holders for working capital d) March 31, 2024
purposes, general corporate purposes, or
repayment of rupee loans? Answer: a) March 31, 2023
a) 1 year
b) 3 years 74. What is the maximum prepayment
c) 5 years charge/penal interest for ECBs in case of
d) 7 years default or breach of covenants?
a) 1% over and above contracted rate of
Answer: c) 5 years interest
b) 2% over and above contracted rate of
71. For which category of ECBs is the MAMP interest
10 years? c) 3% over and above contracted rate of
a) ECB raised by manufacturing companies up interest
to USD 50 million d) 4% over and above contracted rate of
b) ECB raised for working capital purposes or interest
general corporate purposes
c) ECB raised for repayment of Rupee loans Answer: b) 2% over and above contracted
availed domestically for purposes other than rate of interest
capital expenditure
d) ECB raised for repayment of Rupee loans 75. Which activity is included in the negative
availed domestically for capital expenditure list for end use of ECB proceeds?
Answer: c) ECB raised for repayment of a) Real estate activities
Rupee loans availed domestically for purposes b) Investment in capital market
other than capital expenditure c) Equity investment
d) All of the above
72. What is the All-in-Cost ceiling per annum
for new ECBs? Answer: d) All of the above
a) Benchmark rate plus 500 bps spread
b) Benchmark rate plus 550 bps spread
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76. At what exchange rate can the currency of c) 3 years

Foreign Currency (FCY) ECB be changed into d) 5 years
Indian Rupee (INR ECB)?
a) The rate prevailing on the date of Answer: b) 1 year
agreement
b) The lowest rate on the date of agreement 80. What is the maximum ECB liability-equity
c) The highest rate on the date of agreement ratio for FCY denominated ECB raised from a
d) The rate prevailing on the date of direct foreign equity holder under the
settlement automatic route?
a) 5:1
Answer: a) The rate prevailing on the date of b) 7:1
agreement c) 10:1
d) 12:1
77. What is the requirement for infrastructure
space companies regarding hedging their ECB Answer: b) 7:1
exposure?
a) Hedging is optional 81. What is the limit for raising ECB under the
b) Hedge 30% of ECB exposure automatic route for all eligible borrowers?
c) Hedge 50% of ECB exposure a) USD 500 million
d) Hedge 70% of ECB exposure if the average b) USD 750 million
maturity is less than 5 years c) USD 1 billion
d) USD 2 billion
Answer: d) Hedge 70% of ECB exposure if
the average maturity is less than 5 years Answer: b) USD 750 million
78. How should the financial hedge for all 82. What is the increased limit for the
exposures on account of ECB be initiated? automatic route for External Commercial
a) At the end of the ECB tenor Borrowings (ECBs) available till December 31,
b) After one year from the creation of the 2022?
liability a) USD 500 million
c) From the time of each exposure, i.e., the b) USD 750 million
day the liability is created c) USD 1 billion
d) After the ECB has been fully utilized d) USD 1.5 billion
Answer: c) From the time of each exposure, Answer: d) USD 1.5 billion
i.e., the day the liability is created
79. What is the minimum tenor required for

the financial hedge according to the hedging
provisions?
a) 6 months
b) 1 year
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83. Until when is the increased limit for the c) Credits extended by overseas suppliers for
automatic route applicable for raising ECBs? imports
a) March 31, 2023 d) Tax credits for international transactions
b) June 30, 2023
Answer: c) Credits extended by overseas
c) December 31, 2022
d) March 31, 2024 suppliers for imports
Answer: c) December 31, 2022 87. What is the permissible maturity period
84. What is the stance regarding the issuance for Trade Credits for imports under the
of guarantees by Indian banks, All India framework?
Financial Institutions, and NBFCs in relation to a) As prescribed in the Foreign Trade Policy
ECBs? b) 180 days
a) Issuance of guarantees is permitted c) 365 days
without restrictions d) 730 days
b) Issuance of guarantees is not permitted
Answer: a) As prescribed in the Foreign
c) Issuance of guarantees is allowed only for
Trade Policy
FCY denominated ECBs
d) Issuance of guarantees is allowed with the
88. What are the two forms of Trade Credits
approval of RBI
(TC) mentioned in the framework?
a) Foreign Currency Convertible Bonds
Answer: b) Issuance of guarantees is not
(FCCBs) and Equity-Linked Debentures (ELDs)
permitted
b) Buyers' credit and sellers' credit
c) Foreign Direct Investment (FDI) and Foreign
85. Can financial intermediaries, including
Portfolio Investment (FPI)
Indian banks and NBFCs, invest in Foreign
d) Trade Receivables Financing and Inventory
Currency Convertible Bonds (FCCBs) or
Financing
Foreign Currency Exchangeable Bonds
(FCEBs)? Answer: b) Buyers' credit and sellers' credit
a) Yes, without any restrictions
b) Yes, with the approval of RBI 89. Who is considered an eligible borrower
c) No, under any circumstances for Trade Credits in the context of imports
d) Only if the bonds are listed on Indian stock into India?
exchanges a) Any person worldwide
b) Person resident in India acting as an
Answer: c) No, under any circumstances importer
c) Foreign suppliers only
86. What do Trade Credits (TC) refer to in the d) Any individual or company involved in
context of foreign trade? international trade
a) Import taxes imposed by the government
b) Credits extended by domestic suppliers for Answer: b) Person resident in India acting as
imports an importer
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90. In what currencies can Trade Credits for c) Foreign branches of Indian banks
imports into India be raised according to the d) Both a and c
framework?
a) Only in Indian Rupees (INR) Answer: b) Supplier of goods located outside
b) Only in any freely convertible foreign India
currency (FCY denominated TC)
c) In both any freely convertible foreign 94. Which entities are recognized lenders for
currency and Indian Rupees (INR buyers' credit in the TC framework?
denominated TC) a) Banks and financial institutions
d) Only in Euro b) Foreign equity holder(s) located outside
India
Answer: c) In both any freely convertible c) Financial institutions in International
foreign currency and Indian Rupees (INR Financial Services Centres (IFSCs) located in
denominated TC) India
d) All of the above
91. What is the maximum amount per import
transaction under the Automatic Route for Answer: d) All of the above
Trade Credits?
a) $30 Million 95. What is the maximum period for non-
b) $50 Million capital goods under the Trade Credits
c) $100 Million framework?
d) $150 Million for oil/gas refining & a) Up to 1 year
marketing, airline, and shipping companies b) Up to 2 years
c) Up to 3 years
Answer: b) $50 Million d) Up to 5 years
92. When is RBI approval required for Trade Answer: a) Up to 1 year

Credits under the Automatic Route?
a) For any amount above $30 Million 96. What is the all-in-cost ceiling per annum
b) For any amount above $50 Million for INR denominated Trade Credits with a
c) For any amount above $100 Million new benchmark rate?
d) For any amount above $150 Million a) Benchmark rate + 250 bps spread
b) Benchmark rate + 300 bps spread
Answer: b) For any amount above $50 c) Benchmark rate + 350 bps spread
Million d) Benchmark rate + 400 bps spread
93. Who are the recognized lenders for Answer: a) Benchmark rate + 250 bps spread
suppliers' credit in the Trade Credits (TC)
framework?
a) Banks and financial institutions
b) Supplier of goods located outside India
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97. When can the exchange rate change of instruments for Tier II capital, and Financing
currency of FCY Trade Credit (TC) into INR TC of infrastructure and affordable housing
be done?
a) Only at the end of the TC tenor 100. What does the term "eligible amount"
b) At any time during the TC tenor refer to in the context of issuing Perpetual
c) At the exchange rate prevailing on the date Debt Instruments (PDI) in foreign currency?
of the agreement or at a lower rate with a) Total Additional Tier 1 Capital
consent b) Total Risk Weighted Assets (RWAs)
d) At the exchange rate prevailing on the date c) The higher of 1.5% of Risk Weighted Assets
of settlement (RWAs) or Total Additional Tier 1 Capital
d) The lower of 1.5% of Risk Weighted Assets
Answer: c) At the exchange rate prevailing (RWAs) and Total Additional Tier 1 Capital
on the date of the agreement or at a lower
rate with consent Answer: c) The higher of 1.5% of Risk
Weighted Assets (RWAs) or Total Additional
98. What is the status of changing the Tier 1 Capital
currency from INR to any freely convertible
foreign currency under the Trade Credits 101. What is the maximum percentage of the
framework? "eligible amount" that can be issued in
a) Permitted freely foreign currency and/or in rupee
b) Permitted with RBI approval denominated bonds overseas?
c) Not permitted a) 25%
d) Permitted only for capital goods b) 49%
transactions c) 75%
d) 100%
Answer: c) Not permitted
Answer: b) 49%
99. For what purposes did the RBI permit
banks to issue Rupee Denominated Bonds 102. What type of capital do Perpetual Debt
overseas according to the circular dated Instruments (PDIs) issued in foreign currency
November 3, 2016? qualify for inclusion as under the Basel III
a) Financing of international trade Capital Regulations?
b) Financing of education and healthcare a) Tier I capital
c) Perpetual Debt Instruments (PDI) for Basel b) Tier II capital
III Capital Regulations, Debt capital c) Additional Tier I capital
instruments for Tier II capital, and Financing d) Additional Tier II capital
of infrastructure and affordable housing
d) All of the above Answer: c) Additional Tier I capital
Answer: c) Perpetual Debt Instruments (PDI)

for Basel III Capital Regulations, Debt capital
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CHAPTER 22-: Funding and Regulatory Aspects

Question 1: What does Reserve Money consist b) By reducing the importance of currency in
of, and how is it impounded by RBI? circulation
a) It consists of currency in circulation only, and it c) By limiting the lending capacity of commercial
is impounded through open market operations. banks
b) It consists of money impounded by banks, and d) By promoting open market operations
it is impounded through statutory liquidity ratio.
c) It consists of money impounded by RBI through Answer: c) By limiting the lending capacity of
cash reserve ratio (CRR). commercial banks
d) It consists of foreign exchange reserves, and it
is impounded through repo rate adjustments. Question 5: What are the Reserve Assets used
for, besides controlling liquidity?
Answer: c) It consists of money impounded by a) Providing interest-free loans to the
RBI through cash reserve ratio (CRR). government
b) Cushioning the impact of economic recessions
Question 2: What is the purpose of Reserve c) Fulfilling the foreign exchange needs of
Assets held by RBI? commercial banks
a) To provide loans to commercial banks d) Meeting statutory requirements and providing
b) To comply with the Basel III regulations a cushion to the banks
c) To control the liquidity in the system and meet
statutory requirements like CRR and SLR Answer: d) Meeting statutory requirements and
d) To invest in equity markets providing a cushion to the banks
Answer: c) To control the liquidity in the system Question 6: What changes were made to the
and meet statutory requirements like CRR and limits of Cash Reserve Ratio (CRR) as per the
SLR amendment to the Act in 2006?
a) The minimum CRR limit was removed, and the
Question 3: What is the minimum and maximum maximum CRR limit was set at 10%.
Cash Reserve Ratio (CRR) as defined under the b) Both the minimum and maximum CRR limits
Reserve Bank of India Act of 1934? were removed, giving RBI discretion in stipulating
a) Minimum CRR: 1%, Maximum CRR: 10% CRR.
b) Minimum CRR: 5%, Maximum CRR: 15% c) The minimum CRR limit was increased, and the
c) Minimum CRR: 3%, Maximum CRR: 20% maximum CRR limit was removed.
d) Minimum CRR: 2%, Maximum CRR: 18% d) Both the minimum and maximum CRR limits
were set at 5%.
Answer: c) Minimum CRR: 3%, Maximum CRR:
20% Answer: b) Both the minimum and maximum
CRR limits were removed, giving RBI discretion in
Question 4: How does the Cash Reserve Ratio stipulating CRR.
(CRR) contribute to reducing the multiplier
effect?
a) By increasing the importance of currency in
circulation
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Question 7: How does the amendment to the c) To reduce the impact of economic recessions
Banking Regulation Act of 1949 impact the d) To decrease the overall liquidity in the banking
Statutory Liquidity Ratio (SLR) limits? system
a) The minimum SLR limit was increased, and the
maximum SLR limit was removed. Answer: b) To provide greater flexibility to RBI in
b) Both the minimum and maximum SLR limits regulating liquidity
were removed, allowing greater flexibility to RBI.
c) The minimum SLR limit was removed, and the Question 11: What is the primary purpose of
maximum SLR limit was increased. CRR and SLR prescriptions for banks?
d) Both the minimum and maximum SLR limits a) To encourage banks to invest in riskier assets
were increased. b) To provide a cushion for banks in case of
economic downturns
Answer: b) Both the minimum and maximum c) To restrict the flow of funds in the economy
SLR limits were removed, allowing greater d) To determine the interest rates for loans
flexibility to RBI.
Answer: b) To provide a cushion for banks in
Question 8: What is the current status of the case of economic downturns
minimum and maximum Cash Reserve Ratio
(CRR) limits after the 2006 amendment? Question 12: When does the RBI act as a Lender
a) CRR Minimum: No Limit, CRR Maximum: 15% of Last Resort?
b) CRR Minimum: 5%, CRR Maximum: No Limit a) When a bank has excess liquidity
c) CRR Minimum: No Limit, CRR Maximum: 20% b) When a bank is in distress due to a shortage of
d) CRR Minimum: 3%, CRR Maximum: No Limit liquidity
c) When a bank faces high interest rates
Answer: a) CRR Minimum: No Limit, CRR d) When a bank is highly profitable
Maximum: 15%
Answer: b) When a bank is in distress due to a
Question 9: What is the current status of the shortage of liquidity
minimum and maximum Statutory Liquidity Ratio
(SLR) limits after the amendment to the Banking Question 13: In the context of banks, what does
Regulation Act of 1949? "lender of last resort" mean?
a) SLR Minimum: 30%, SLR Maximum: 35% a) RBI lends to banks at the highest interest rates
b) SLR Minimum: 25%, SLR Maximum: 40% b) RBI lends to banks only in extreme cases when
c) SLR Minimum: No Limit, SLR Maximum: 45% no other options are available
d) SLR Minimum: 20%, SLR Maximum: No Limit c) RBI lends to banks regardless of their financial
health
Answer: c) SLR Minimum: No Limit, SLR d) RBI lends to banks at the lowest interest rates
Maximum: 40%
Answer: b) RBI lends to banks only in extreme
Question 10: What is the purpose of removing cases when no other options are available
the minimum requirement for SLR as per the
amendment to the Banking Regulation Act?
a) To encourage banks to hold more liquid assets
b) To provide greater flexibility to RBI in
regulating liquidity
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Question 14: How does an excess of liquidity in a) Release of liquidity

the banking system impact the economy? b) Infusion of liquidity
a) It leads to inflation c) Impounding of cash resources
b) It results in high-interest rates d) Decrease in interest rates
c) It causes a depreciation of the Rupee exchange
rate Answer: c) Impounding of cash resources
d) It has no impact on the economy
Question 19: How does a decrease in CRR and
Answer: a) It leads to inflation SLR requirements affect the banking system?
a) Release of liquidity
Question 15: What is the potential impact of a b) Infusion of liquidity
shortage of liquidity in the banking system? c) Increase in interest rates
a) High interest rates d) Impounding of cash resources
b) Deflation
c) Appreciation of the Rupee exchange rate Answer: a) Release of liquidity
d) Lower inflation rates
Question 20: What is the primary responsibility
Answer: a) High interest rates of the treasury regarding CRR and SLR?
a) Generating profits for the bank
Question 16: What is the primary purpose of b) Ensuring a fixed exchange rate
RBI's calibration of interest rates and exchange c) Meeting the CRR and SLR requirements of the
rates? bank
a) To ensure a fixed exchange rate d) Controlling inflation
b) To align with the projected growth rate of the
economy Answer: c) Meeting the CRR and SLR
c) To control inflation only requirements of the bank
d) To stabilize the stock market
Question 21: What is the prescribed frequency
Answer: b) To align with the projected growth for submitting the relevant information on CRR
rate of the economy and SLR to RBI?
a) Monthly
Question 17: What are the two most important b) Quarterly
instruments in the hands of RBI to directly c) Annually
control money supply? d) Fortnightly
a) Repo rate and reverse repo rate
b) CRR and SLR Answer: d) Fortnightly
c) Base rate and marginal cost of funds-based
lending rate (MCLR)
d) Bank rate and prime lending rate (PLR)
Answer: b) CRR and SLR
Question 18: What is the impact of an increase

in CRR and SLR requirements on the banking
system?
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Question 22: What penalties may a bank face for Question 27: Which of the following is NOT
default or shortfall in meeting CRR and SLR exempted from maintaining Cash Reserve Ratio
requirements? (CRR) for Scheduled Commercial Banks?
a) Lower interest rates a) Liabilities to the banking system in India
b) Reduced taxation b) Credit balances in ACU (US$) Accounts
c) Serious penalties from RBI c) Demand and Time Liabilities in respect of
d) Increased credit ratings Offshore Banking Units (OBUs)
d) Loans and advances to customers
Answer: c) Serious penalties from RBI
Answer: d) Loans and advances to customers
Question 23: Currently, what is the Cash Reserve
Ratio (CRR) as a percentage of Net Demand and Question 28: What does ACU stand for in the
Time Liabilities (NDTL)? context of exempted liabilities from CRR?
a) 10% a) Asian Clearing Union
b) 15% b) Automatic Credit Union
c) 18% c) Association of Currency Users
d) 20% d) Accounts Control Unit
Answer: c) 18% Answer: a) Asian Clearing Union
Question 25: When are the CRR and SLR rates Question 29: What is exempted from both Cash
calculated for banks? Reserve Ratio (CRR) and Statutory Liquidity Ratio
a) First day of the month (SLR)?
b) Last Friday of the second preceding fortnight a) Liabilities in respect of International Financial
c) Every Sunday Services Centre (IFSC) Banking Units (IBUs)
d) Last day of the financial year b) Foreign exchange reserves
c) Loans and advances
Answer: b) Last Friday of the second preceding d) Demand deposits
fortnight
Answer: a) Liabilities in respect of International
Question 26: What are the main components of Financial Services Centre (IFSC) Banking Units
Demand and Time Liabilities (DTL)? (IBUs)
a) Loans and advances
b) Fixed assets Question 30: What is the exemption criteria for
c) Foreign exchange reserves maintaining CRR for Minimum Eligible Credit (EC)
d) Demand deposits, time deposits, overseas and outstanding long-term Bonds (LB)?
borrowings, foreign outward remittances in a) Maximum of EC and LB
transit, and other demand and time liabilities b) Minimum of Eligible Credit (EC) and
outstanding long-term Bonds (LB)
Answer: d) Demand deposits, time deposits, c) Average of EC and LB
overseas borrowings, foreign outward d) Sum of EC and LB
remittances in transit, and other demand and
time liabilities Answer: b) Minimum of Eligible Credit (EC) and
outstanding long-term Bonds (LB)
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Question 31: Which of the following is NOT subsidy in the context of exemptions from NDTL
included in Net Demand and Time Liabilities stipulation?
(NDTL) stipulation for CRR and SLR? a) To meet the CRR requirements
a) Reserves b) To facilitate claims received from DICGC, ECGC,
b) Claims received from DICGC, ECGC, Insurance Insurance Company, etc.
Company, Court Receiver, etc. c) Kept in Subsidy Reserve Fund account in the
c) Income flows received in advance name of Self-Help Groups
d) Bill rediscounted by a bank with eligible d) Subsidy released by Central/State Government
financial institutions kept in a zero per cent fixed deposit account
Answer: a) Reserves Answer: c) Kept in Subsidy Reserve Fund account

in the name of Self-Help Groups
Question 32: What is the purpose of Banker's
Acceptance Facility (BAF)? Question 35: Which of the following is included
a) Guarantees the payment of income flows in Net Demand and Time Liabilities (NDTL)
received in advance stipulation?
b) Functions like a post-dated check for large a) Claims received from DICGC
transactions b) Unrealized gain/loss arising from derivatives
c) Ensures the utilization of limits under the transaction under the trading portfolio
Bankers' Acceptance Facility c) Net income tax provision
d) Acts as collateral for outstanding long-term d) Refinance availed from RBI and apex financial
Bonds (LB) institutions
Answer: b) Functions like a post-dated check for Answer: b) Unrealized gain/loss arising from
large transactions derivatives transaction under the trading
portfolio
Question 33: Which subsidy is NOT considered
for Net Demand and Time Liabilities (NDTL) Question 36: What is the primary purpose of Bill
stipulation? Rediscounting?
a) Subsidy released by Central/State Government a) Facilitating the exchange of currency notes
kept in a zero per cent fixed deposit account b) Discounting negotiable debt instruments for
b) Subsidy released by NABARD under the first time
Investment Subsidy Scheme for c) Redeeming matured bills of exchange
Construction/Renovation/Expansion of Rural d) Discounting negotiable debt instruments for
Godowns the second time
c) DRDA subsidy kept in Subsidy Reserve Fund
account in the name of Self-Help Groups Answer: d) Discounting negotiable debt
d) Subsidy released by RBI for refinancing instruments for the second time
purposes
Answer: d) Subsidy released by RBI for

refinancing purposes
Question 34: What is the primary function of

District Rural Development Agency (DRDA)
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Question 37: How often is the Cash Reserve c) Real estate

Ratio (CRR) calculated? d) Approved securities
a) Daily
b) Weekly Answer: d) Approved securities
c) Fortnightly
d) Monthly Question 42: What is the purpose of Cash
Balances maintained for the Cash Reserve Ratio
Answer: c) Fortnightly (CRR)?
a) To earn interest
Question 38: What is the time lag for calculating b) To meet daily operational expenses
CRR based on Demand and Time Liabilities (DTL)? c) To meet statutory liquidity requirements
a) One day d) To cover potential losses
b) One week
c) One fortnight Answer: b) To meet daily operational expenses
d) One month
Question 43: Which of the following is NOT
Answer: c) One fortnight
considered an approved security for SLR
purposes?
Question 39: What is the minimum requirement
a) Dated securities of the Government of India
for daily cash balances in terms of the amount
b) Treasury Bills of the Government of India
required for CRR?
c) Corporate bonds
a) 80%
d) State Development Loans (SDLs) of the State
b) 85%
Governments
c) 90%
d) 95%
Answer: c) Corporate bonds
Answer: c) 90%
Question 44: What may happen if a bank
Question 40: Which liabilities are excluded from defaults in maintaining CRR and SLR?
both Cash Reserve Ratio (CRR) and Statutory a) Higher interest rates
Liquidity Ratio (SLR) stipulations? b) Attraction of heavy penalties from RBI
a) Liabilities arising from credit balances in ACU c) Increase in money supply
(US$) Accounts d) Expansion of credit facilities
b) Liabilities in respect of the bank’s International
Financial Services Centre (IFSC) Banking Units Answer: b) Attraction of heavy penalties from
(IBUs) RBI
c) Overseas borrowings
d) Claims received from DICGC, ECGC, Insurance Question 45: How does an increase in the
Company, etc. reserve ratios (CRR and SLR) affect money
supply?
Answer: d) Claims received from DICGC, ECGC, a) It increases money supply
Insurance Company, etc. b) It has no impact on money supply
c) It decreases money supply
Question 41: What assets can be considered as d) It stabilizes money supply
part of the Statutory Liquidity Ratio (SLR)?
a) Demand deposits Answer: c) It decreases money supply
b) Equity shares
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Question 46: What is the impact of a reduction b) 4.50%

in the Cash Reserve Ratio (CRR) on the money c) 5.50%
market? d) 6.50%
a) It decreases money supply
b) It has no impact on money supply Answer: b) 4.50%
c) It increases money supply
d) It stabilizes money supply Question 51: What is the primary purpose of the
Liquidity Adjustment Facility (LAF)?
Answer: c) It increases money supply a) To manage long-term liquidity in the market
b) To control inflation
Question 47: How does the money supply, c) To monitor day-to-day liquidity in the market
influenced by CRR and SLR, affect interest rates d) To regulate interest rates
and exchange rates?
a) It has no impact on interest rates and Answer: c) To monitor day-to-day liquidity in the
exchange rates market
b) It decreases interest rates and exchange rates
c) It increases interest rates and exchange rates Question 52: How does the Liquidity Adjustment
d) It stabilizes interest rates and exchange rates Facility (LAF) manage liquidity through the Repo
instrument?
Answer: c) It increases interest rates and a) By lending funds to the banking sector
exchange rates b) By accepting deposits from banks
c) By purchasing government securities
Question 48: What is the primary objective of d) By increasing the Cash Reserve Ratio (CRR)
the monetary policy of RBI?
a) To maximize economic growth Answer: a) By lending funds to the banking
b) To control inflation and stabilize financial sector
markets
c) To regulate fiscal policies Question 53: What is the role of Reverse Repo in
d) To manage the trade balance the Liquidity Adjustment Facility (LAF)?
a) Lending funds to the banking sector
Answer: b) To control inflation and stabilize b) Accepting deposits from banks
financial markets c) Borrowing funds from the banking sector
d) Purchasing government securities
Question 49: How often does the RBI review and
announce changes in CRR and SLR rates? Answer: c) Borrowing funds from the banking
a) Monthly sector
b) Quarterly
c) Annually Question 54: In the context of LAF, what does
d) Biannually Repo stand for?
a) Repurchase Option
Answer: b) Quarterly
b) Reserve Purchase Order
c) Repayment Obligation
Question 50: As of September 2022, what is the
d) Repurchase Agreement
current Cash Reserve Ratio (CRR) percentage set
by RBI?
Answer: d) Repurchase Agreement
a) 3.50%
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c) RBI repurchases the securities from the bank

Question 55: How often is the Liquidity d) RBI returns the securities to the bank
Adjustment Facility (LAF) typically used by the
RBI? Answer: c) RBI repurchases the securities from
a) Daily the bank
b) Weekly
c) Monthly Question 60: What is the purpose of conducting
d) Annually Repo/Reverse Repo auctions daily for overnight
funds?
Answer: a) Daily a) To purchase government securities
b) To sell government securities with an
Question 56: What is the primary purpose of a agreement to repurchase
Repo transaction? c) To manage day-to-day liquidity in the market
a) To purchase government securities d) To regulate long-term interest rates
b) To sell government securities with an
agreement to repurchase Answer: c) To manage day-to-day liquidity in the
c) To lend funds to other banks market
d) To borrow funds from other banks
Question 61: What is the purpose of the Variable
Answer: b) To sell government securities with an Rate Repo (Term Repo) introduced by RBI?
agreement to repurchase a) To provide long-term funds to banks
b) To manage day-to-day liquidity through fixed-
Question 57: What is the primary purpose of a rate transactions
Reverse Repo transaction? c) To phase out the Export Credit Refinance
a) To purchase government securities facility
b) To sell government securities with an d) To provide liquidity for specified periods (7
agreement to repurchase days, 14 days, and 28 days)
c) To lend funds to other banks
d) To borrow funds from other banks Answer: d) To provide liquidity for specified
periods (7 days, 14 days, and 28 days)
Answer: a) To purchase government securities
Question 62: What is the maximum limit fixed by
Question 58: What is the minimum bid amount RBI for the Variable Rate Repo window?
for bids submitted in a Repo auction? a) 0.25% of NDTL
a) Rs. 1 crore b) 0.5% of NDTL
b) Rs. 2 crore c) 0.75% of NDTL
c) Rs. 5 crore d) 1.0% of NDTL
d) Rs. 10 crore
Answer: c) 0.75% of NDTL
Answer: c) Rs. 5 crore
Question 59: In a Repo transaction with the RBI,

what happens after the fixed period expires?
a) RBI holds the securities permanently
b) RBI sells the securities to other banks
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Question 63: What does the Reverse Repo rate Question 67: On any particular day of the
represent in the corridor set by RBI? fortnight, what is the maximum limit for lending
a) The minimum rate at which banks can borrow by a bank in terms of its capital fund?
overnight funds from RBI a) 40% of capital fund
b) The maximum rate at which banks can earn on b) 30% of capital fund
excess funds c) 50% of capital fund
c) The fixed rate at which banks can borrow d) 25% of capital fund
overnight funds
d) The rate at which RBI lends to the government Answer: c) 50% of capital fund
Answer: a) The minimum rate at which banks Question 68: What is the maximum limit for
can borrow overnight funds from RBI average borrowing by a bank in a fortnight in
terms of its capital fund?
Question 64: What is the purpose of the Call a) 80% of capital fund
Money market? b) 90% of capital fund
a) Lending and borrowing for 1 day c) 100% of capital fund
b) Lending and borrowing for 2 days to 14 days d) 75% of capital fund
c) Lending and borrowing for 15 days to 1 year
d) To provide long-term funds to banks Answer: c) 100% of capital fund
Answer: a) Lending and borrowing for 1 day Question 69: On any particular day of the
fortnight, what is the maximum limit for
Question 65: What action did RBI take in the first borrowing by a bank in terms of its capital fund?
quarter of 2003 to consolidate its control over a) 110% of capital fund
the inter-bank market? b) 120% of capital fund
a) Imposed a ceiling on call money lending and c) 125% of capital fund
borrowing by banks d) 105% of capital fund
b) Removed the ceiling on call money lending and
borrowing by banks Answer: c) 125% of capital fund
c) Introduced the Variable Rate Repo window
d) Phased out the Export Credit Refinance facility Question 70: How does the LAF framework limit
the lending and borrowing activities of banks in
Answer: a) Imposed a ceiling on call money the inter-bank market?
lending and borrowing by banks a) There is no limit imposed on lending and
borrowing activities
Question 66: What is the maximum limit for b) It imposes a ceiling on both average and daily
average lending by a bank in a fortnight in terms lending and borrowing activities
of its capital fund? c) Only average lending is limited, daily lending
a) 30% of capital fund has no restriction
b) 40% of capital fund d) Only daily borrowing is limited, average
c) 25% of capital fund borrowing has no restriction
d) 50% of capital fund
Answer: b) It imposes a ceiling on both average
Answer: c) 25% of capital fund and daily lending and borrowing activities
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Question 71: What does STP stand for in the c) Front, Middle, and Back office, and General
context of financial transactions? Ledger
a) Simple Transaction Protocol d) Only the middle office
b) Secure Transaction Process
c) Straight-through Processing Answer: c) Front, Middle, and Back office, and
d) Systematic Transaction Platform General Ledger
Answer: c) Straight-through Processing Question 76: What role do payment and

settlement systems play in the development of
Question 72: What does STP automate in the financial markets?
context of financial transactions? a) They hinder the development of financial
a) Only the front office markets
b) Only the back office b) They have no impact on the development of
c) End-to-end processing of transactions financial markets
d) Only the middle office c) They play a vital role in the development of
financial markets
Answer: c) End-to-end processing of transactions d) They are irrelevant to financial markets
Question 73: What is the purpose of using STP in Answer: c) They play a vital role in the
financial transactions? development of financial markets
a) To increase manual intervention
b) To introduce delays in processing Question 77: What does "settlement" refer to in
c) To automate and streamline the entire the context of payment and settlement systems?
transaction process a) Inter-bank payments
d) To complicate the workflow b) Receipt of payments on behalf of customers
c) Payment and receipt in exchange of securities
Answer: c) To automate and streamline the or foreign exchange
entire transaction process d) Operational costs in clearing houses
Question 74: How is STP defined in the context Answer: c) Payment and receipt in exchange of
of financial transactions? securities or foreign exchange
a) Sequential transaction processing
b) Electronically capturing and processing Question 78: How were inter-bank payments
transactions in one pass traditionally handled?
c) Manual transaction processing a) Instantly through electronic systems
d) Random transaction processing b) Through net settlement in clearing houses
c) In real-time through online platforms
Answer: b) Electronically capturing and d) Through manual processing
processing transactions in one pass
Answer: b) Through net settlement in clearing
Question 75: Which elements of the work-flow houses
does STP control in financial transactions?
a) Only the front office
b) Only the back office
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Question 79: What were the challenges

associated with traditional inter-bank payments? Answer: c) Payments above Rs. 2 lakhs
a) Expensive delays and counterparty risks
b) Instant processing with no challenges Question 85: What do banks need to maintain to
c) Low operational costs participate in RTGS throughout the day?
d) Efficient clearing through paper-based systems a) Adequate physical currency
b) Adequate gold reserves
Answer: a) Expensive delays and counterparty c) Adequate funds with RBI
risks d) Adequate foreign exchange reserves
Question 81: When was the Real-Time Gross Answer: c) Adequate funds with RBI
Settlement System (RTGS) fully activated by RBI?
a) October 2000 Question 86: How does RBI address the shortfall
b) October 2004 in funds during the day in RTGS?
c) October 2008 a) By providing physical currency to banks
d) October 2012 b) By providing gold reserves to banks
c) By providing intra-day liquidity through
Answer: b) October 2004 automatic repo
d) By halting RTGS transactions for the day
Question 82: How does RTGS differ from
traditional clearing systems? Answer: c) By providing intra-day liquidity
a) It involves net settlement of cheques through automatic repo
b) It is a paper-based clearing system
c) Settlements are on a gross basis rather than Question 87: Who developed the Indian
day-end net settlement Financial Network (INFINET)?
d) It is a slower version of traditional clearing a) Reserve Bank of India (RBI)
b) Indian Banks' Association (IBA)
Answer: c) Settlements are on a gross basis c) Institute for Development and Research in
rather than day-end net settlement Banking Technology (IDRBT)
d) Securities and Exchange Board of India (SEBI)
Question 83: What is the minimum amount for
transactions under RTGS? Answer: c) Institute for Development and
a) Rs. 10,000 Research in Banking Technology (IDRBT)
b) Rs. 1 lakh
c) Rs. 2 lakhs Question 88: What is the primary purpose of
d) Rs. 5 lakhs INFINET?
a) International fund transfer
Answer: c) Rs. 2 lakhs b) Secure communication backbone for the
banking and financial sectors
Question 84: What type of payments are settled c) Cryptocurrency development
instantly under RTGS? d) Stock market trading platform
a) Payments below Rs. 50,000
b) Inter-bank payments only Answer: b) Secure communication backbone for
c) Payments above Rs. 2 lakhs the banking and financial sectors
d) Payments made through cheque clearing
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Question 89: What messaging system is Question 93: Which entities are eligible for NDS
facilitated by INFINET for domestic fund membership?
transfers? a) Only banks
a) SWIFT b) Banks, primary dealers, mutual funds, financial
b) Cryptocurrency messaging institutions, and insurance companies
c) NEFT c) Only financial institutions
d) Structured Financial Messaging System (SFMS) d) Only primary dealers
Answer: d) Structured Financial Messaging Answer: b) Banks, primary dealers, mutual

System (SFMS) funds, financial institutions, and insurance
companies
Question 90: What is the function of Negotiated
Dealing System (NDS)? Question 94: What kind of trading does NDS-OM
a) Facilitating dealing in government securities support?
and money market instruments a) Only quote-driven mechanism
b) International currency exchange b) Only auction-based trading
c) Retail banking operations c) Both quote-driven mechanism and auction-
d) SWIFT messaging for banks based trading
d) Only telephone-based trading
Answer: a) Facilitating dealing in government
Answer: c) Both quote-driven mechanism and
securities and money market instruments
auction-based trading
Question 91: What was the primary objective of
introducing the Negotiated Dealing System (NDS)
Question 95: What is the primary feature of
by RBI in February 2002?
anonymous order matching in the NDS-OM
a) Facilitate international currency exchange
system?
b) Automate electronic reporting and settlement
a) Full disclosure of counter-party identity
processes
b) Strict order priority based on volume
c) Establish a cryptocurrency trading platform
c) The identity of the counter-party is not
d) Develop a real-time gross settlement system
disclosed until the offered price/volume is
accepted
Answer: b) Automate electronic reporting and
d) Real-time gross settlement for every
settlement processes
transaction
Question 92: What is the purpose of NDS-OM Answer: c) The identity of the counter-party is
(Negotiated Dealing System - order matching not disclosed until the offered price/volume is
system)? accepted
a) To provide cryptocurrency trading services
b) To facilitate retail banking operations Question 96: How does the NDS-OM system
c) Anonymous order matching system for trading prioritize orders?
in Government securities a) Randomly
d) To automate SWIFT messaging b) Based on alphabetical order
c) Strictly on price/time priority
Answer: c) Anonymous order matching system d) Based on counter-party's credit rating
for trading in Government securities
Answer: c) Strictly on price/time priority
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Question 97: What percentage of dealings in Answer: c) Facilitating delivery vs. payment
Government securities takes place on NDS (DVP) for secondary market deals in equity and
through screen-based trading? debt paper
a) Less than 50%
b) Around 60% Question 101: What is the primary advantage of
c) Over 80% funds transfer and securities transfer taking place
d) Exactly 75% simultaneously on electronic platforms?
a) Increased settlement risk
Answer: c) Over 80% b) Elimination of settlement risk
c) Delayed transaction processing
Question 98: What is the role of CCIL (Clearing d) Higher operational costs
Corporation of India Limited) in the context of
NDS-OM? Answer: b) Elimination of settlement risk
a) CCIL facilitates international currency
exchange Question 102: What is the purpose of the
b) CCIL handles physical delivery of cheques National Electronic Funds Transfer (NEFT) system
c) CCIL is involved in the clearing of securities, introduced by RBI?
repo trades, and trades in CBLO a) Eliminating online payments
d) CCIL operates the NDS-OM system b) Facilitating interbank and intrabank
remittances on the same day
Answer: c) CCIL is involved in the clearing of c) Encouraging the use of physical cheques
securities, repo trades, and trades in CBLO d) Enhancing settlement risk
Question 99: What is the primary purpose of Answer: b) Facilitating interbank and intrabank
FXClear, a Forex dealing system developed by remittances on the same day
CCIL?
a) Handling physical delivery of foreign currencies Question 103: How does the implementation of
b) Providing straight-through processing for Core Banking Solutions (CBS) enhance fund
equity transactions transfer capabilities for banks?
c) Facilitating foreign exchange transactions, a) Restricts fund transfer to specific branches
including USD/INR and cross currencies b) Enables anytime-anywhere fund transfer
d) Offering credit rating services for banks c) Increases transaction delays
d) Limits internal transfers
Answer: c) Facilitating foreign exchange
transactions, including USD/INR and cross Answer: b) Enables anytime-anywhere fund
currencies transfer
Question 100: What role do depository

institutions like NSDL and CSDL play in the
secondary market deals?
a) Providing foreign exchange services
b) Offering credit facilities to banks
c) Facilitating delivery vs. payment (DVP) for
secondary market deals in equity and debt paper
d) Clearing inter-bank transactions
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Question 104: What is the purpose of the Board Question 108: What does M3 include in the
for Regulation and Supervision of Payment and measurement of money supply?
Settlement Systems constituted by RBI? a) Currency in circulation and demand deposits
a) Facilitating fund transfer b) Currency in circulation, demand and time
b) Reducing the sophistication of payment deposits with banks, and post office saving
systems deposits
c) Enhancing the complexity of payment systems c) Only currency in circulation
d) Regulating and supervising payment and d) Fixed-term deposits with banks
settlement systems
Answer: b) Currency in circulation, demand and
Answer: d) Regulating and supervising payment time deposits with banks, and post office saving
and settlement systems deposits
Question 105: Who is the Note Issuing Authority Question 109: What is M1 in the context of
in India, directly controlling the currency in money supply?
circulation? a) Money supply measured by the central bank
a) Finance Ministry b) The total currency in circulation
b) Reserve Bank of India (RBI) c) Narrow money or the cash component of
c) State Bank of India (SBI) money supply
d) Indian Ministry of External Affairs d) The total value of time deposits in banks
Answer: b) Reserve Bank of India (RBI) Answer: c) Narrow money or the cash
component of money supply
Question 106: What is the direct control of the
Reserve Bank of India over the currency in Question 110: How is the money multiplier
circulation called? effect related to the creation of money in the
a) Currency Governance banking system?
b) Currency Oversight a) It leads to a decrease in money supply
c) Currency Directives b) It is unrelated to the creation of money
d) Currency Control c) It is the process of money creation through
relending and depositing
Answer: c) Currency Control d) It causes a fixed ratio between currency in
circulation and bank deposits
Question 107: What is the money multiplier
effect? Answer: c) It is the process of money creation
a) The increase in currency printing by the RBI through relending and depositing
b) The chain of relending and creating new
deposits by banks Question 111: What does M3 include as part of
c) The decrease in the money supply by financial its sources?
institutions a) Currency in circulation and demand deposits
d) The fixed ratio between currency in circulation b) Credit availed by the public and the
and bank deposits government, and net foreign currency assets of
RBI and the banking system
Answer: b) The chain of relending and creating c) Only currency in circulation
new deposits by banks d) Fixed-term deposits with banks
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Answer: c) To control the rate of inflation and

Answer: b) Credit availed by the public and the ensure stability of financial markets
government, and net foreign currency assets of
RBI and the banking system Question 115: How does the multiplier effect
impact the importance of currency in circulation?
Question 112: What percentage of the money a) It increases the importance of currency in
supply is represented by the cash component circulation
(M1) for the fiscal year 2016-17? b) It has no impact on the importance of currency
a) Around 10% in circulation
b) Around 21% c) It reduces the importance of currency in
c) Around 40% circulation
d) Around 75% d) It stabilizes the importance of currency in
circulation
Answer: b) Around 21%
Question 113: How is the Money Multiplier Answer: c) It reduces the importance of currency
calculated? in circulation
a) M1/M3
b) M3/M1 Question 116: What must RBI exercise full
c) M3 - M1 control over to achieve the twin objectives of
d) M1 + M3 controlling inflation and ensuring financial
Answer: b) M3/M1 market stability?
a) Government expenditure
Question 114: What is the aim of the monetary b) Foreign exchange rates
policy of RBI? c) Money supply (M3)
a) To control fiscal deficit d) Stock market indices
b) To achieve high economic growth
c) To control the rate of inflation and ensure Answer: c) Money supply (M3)
stability of financial markets
d) To promote international trade
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CHAPTER 23-: Treasury Risk Management

1. Why does treasury risk management a) Loan risk is limited to the principal and
assume importance? interest, while treasury risk is unlimited
a) Because treasury activities are risk-free b) Loans are not secured by tangible assets,
b) Due to the generation of profits from unlike treasury risk
market opportunities and the presence of c) Loans involve higher leverage than treasury
market risk at every step risk
c) Because treasury is not responsible for d) Treasury risk is capped by the amount
balance sheet management invested
d) None of the above
Answer: a) Loan risk is limited to the
Answer: b) Due to the generation of profits principal and interest, while treasury risk is
from market opportunities and the presence unlimited
of market risk at every step
5. What is a significant characteristic of
2. What is the first concern in treasury risk treasury funding?
management? a) High capital requirement
a) Market saturation b) Low leverage
b) Low leverage in treasury business c) No need for risk capital allocation
c) The sensitivity of bank management to d) Direct investment of funds
treasury risk arising from high leverage
d) Lack of market opportunities Answer: b) Low leverage
Answer: c) The sensitivity of bank 6. How much foreign exchange value can the
management to treasury risk arising from treasury buy and sell without direct
high leverage investment of funds?
a) Rs. 50 crore
3. Why is the risk of losing capital higher in b) Rs. 100 crore
treasury compared to the credit business? c) Rs. 1 crore
a) Treasury has lower leverage d) Rs. 10 crore
b) Treasury is more risk-averse
c) The risk arises from high leverage in Answer: b) Rs. 100 crore
treasury business
d) Credit business involves higher market risk
Answer: c) The risk arises from high leverage

in treasury business
4. How is the risk in loans different from
treasury risk?
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7. What is the potential loss to the bank in Answer: c) Enormous losses to the bank
case of an adverse movement of the
exchange rate by Rs. 1? 11. Why are losses in treasury business
a) Rs. 5 crore considered more critical?
b) Rs. 10 crore a) They are long-term losses
c) Over Rs. 1 crore b) They materialize in the short term, and no
d) Rs. 50 crore corrective action is possible once transactions
are confirmed
Answer: c) Over Rs. 1 crore c) They are easily reversible
d) They have minimal impact on the bank's
8. What is a management concern regarding capital
treasury transactions?
a) Small size of transactions Answer: b) They materialize in the short
b) Large size of transactions done at the sole term, and no corrective action is possible
discretion of the Treasurer once transactions are confirmed
c) No delegation of limits to the Treasurer
d) Need for specific approval for each market 12. In which market, particularly, do profits or
deal losses on traded deals materialize almost
instantaneously?
Answer: b) Large size of transactions done at a) Real estate market
the sole discretion of the Treasurer b) Stock market
c) Foreign exchange market
9. How are limits for treasury transactions d) Commodity market
managed?
a) Limits are set after each transaction Answer: c) Foreign exchange market
b) Limits are not delegated to the Treasurer
c) Limits are delegated in advance to the 13. Why are traders generally not allowed to
Treasurer hold open positions for a long time in treasury
d) Specific approval is needed for each market activities?
deal a) To increase the risk of loss
b) To maximize profits
Answer: c) Limits are delegated in advance c) As a regulatory requirement
to the Treasurer d) To minimize the impact of market risk
10. What is the consequence if the Treasurer Answer: d) To minimize the impact of
makes an error of judgment in treasury market risk
activities?
a) No impact on the bank
b) Minimal loss to the bank
c) Enormous losses to the bank
d) Temporary setback for the bank
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14. What is the source of risk in treasury 18. What is closely connected to market risk
activities? in the context of a bank's management?
a) Variation in interest rates a) Credit risk
b) Variation in the market price of currency or b) Asset Liability Management (ALM)
security c) Operational risk
c) Credit risk of loan assets d) Liquidity risk
d) Operational risk
Answer: b) Asset Liability Management
Answer: b) Variation in the market price of (ALM)
currency or security
19. How are treasury risks primarily
15. What is the term used to describe the managed?
variability of prices, whether upward or a) Through speculative measures
downward? b) Through reactive measures
a) Volatility c) Through conventional control and
b) Stability supervisory measures
c) Consistency d) Through market interventions
d) Predictability
Answer: c) Through conventional control
Answer: a) Volatility and supervisory measures
16. What is the term for the variability of 20. How are treasury risks primarily
exchange rates in the context of currency? managed?
a) Interest rate volatility a) Through speculative measures
b) Market risk b) Through conventional control and
c) Currency risk supervisory measures
d) Exchange rate volatility c) Through reactive measures
d) Through market interventions
Answer: d) Exchange rate volatility
Answer: b) Through conventional control
17. In the case of bonds, what is the term for and supervisory measures
the variability of prices related to interest
rates?
a) Currency risk
b) Interest rate volatility
c) Liquidity risk
d) Market risk
Answer: b) Interest rate volatility

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21. What are the three parts into which the 25. What is considered the most important
treasury is divided for organizational internal control in the context of treasury risk
controls? management?
a) Left, Right, and Center a) Profit and loss statements
b) Front office, back office, and mid office b) Position limits and stop-loss limits
c) Upper, Middle, and Lower c) Market trends analysis
d) Risk, Compliance, and Audit d) Regulatory compliance
Answer: b) Front office, back office, and mid Answer: b) Position limits and stop-loss
office limits
22. What do organizational controls refer to 26. On whom are the limits imposed in the
in the context of treasury risk management? context of internal controls for treasury risk
a) Profit and loss statements management?
b) Checks and balances within the system a) Bank customers
c) Market trends analysis b) Regulatory authorities
d) Regulatory compliance c) Dealers trading in foreign exchange and
securities
Answer: b) Checks and balances within the d) Front office executives
system
Answer: c) Dealers trading in foreign
23. What is the purpose of Exposure Ceiling in exchange and securities
managing treasury risks?
a) To maximize exposure 27. Why are trading limits imposed by
b) To eliminate exposure management in the treasury department?
c) To set a limit on the acceptable level of risk a) To encourage higher trading
exposure b) To maximize profits in all market conditions
d) To increase trading positions c) To avoid or contain losses in adverse
market conditions
Answer: c) To set a limit on the acceptable d) To eliminate the need for risk management
level of risk exposure
Answer: c) To avoid or contain losses in
24. Which office is responsible for the checks adverse market conditions
and balances within the treasury system?
a) Front office
b) Back office
c) Mid office
d) Regulatory office
Answer: c) Mid office

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28. In the context of foreign exchange trading d) There is a potential loss due to currency
limits, what is the purpose of "Limit on deal mismatch
size"?
a) To encourage larger transactions Answer: c) There is a potential loss if the
b) To set a maximum value for buy/sell USD does not appreciate
transactions
c) To eliminate trading limits 32. What is the 'carry' cost mentioned in the
d) To allow unlimited open positions passage regarding open positions?
a) The cost of trading
Answer: b) To set a maximum value for b) The interest lost on the USD funds or
buy/sell transactions minimal interest during the holding period
c) The cost of holding currency
29. What is the purpose of "Stop-loss limits" d) The profit gained from open positions
in the context of treasury risk management?
a) To encourage taking more risks Answer: b) The interest lost on the USD
b) To prevent losses in adverse market funds or minimal interest during the holding
conditions period
c) To set a limit on the total trading volume
d) To eliminate position limits 33. Why does the Treasury take forward
positions?
Answer: b) To prevent losses in adverse a) To maximize losses
market conditions b) To eliminate position limits
c) To prevent losses
30. What do "open positions" refer to in the d) Expecting a rise or fall in the exchange rate
context of treasury risk management?
a) Closed trading positions Answer: d) Expecting a rise or fall in the
b) Matched buy/sell positions exchange rate
c) Positions with potential losses
d) Unmatched buy/sell positions 34. How are limits on open or unmatched
positions defined in foreign exchange trade?
Answer: d) Unmatched buy/sell positions a) Morning and evening limits
b) Daylight and overnight limits
31. What is the potential issue with holding c) Weekly and monthly limits
an open position where the Treasury buys d) Long and short-term limits
USD1 million with the intention to sell when
the USD appreciates against the Rupee? Answer: b) Daylight and overnight limits
a) There is no potential issue
b) There is a potential loss if the USD
appreciates
c) There is a potential loss if the USD does not
appreciate
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35. How do overnight limits compare to c) It is only considered in USD

daylight limits in the context of treasury risk d) It is aggregated based on the spot
management? exchange rate
a) Overnight limits are larger
b) Overnight limits are the same as daylight Answer: b) It is first translated into USD at
limits the day-end rate and then converted into
c) Overnight limits are smaller Rupees
d) Overnight limits are irrelevant
39. In a swap deal, why is it considered a
Answer: c) Overnight limits are smaller matched deal?
a) The dealer is experienced
36. Why are overnight limits smaller b) There is no exchange risk
compared to daylight limits? c) The deal involves multiple currencies
a) Forex market activity is lower during the d) The delivery is at different points in time
night
b) Dealers may continue to hold positions for Answer: b) There is no exchange risk
the next day, and the market is less actively
monitored 40. What do stop-loss limits represent in the
c) To encourage more trading during the night context of controlling trading operations?
d) To minimize losses during the night a) A starting point for trading
b) An endpoint for trading operations
Answer: b) Dealers may continue to hold c) A guideline for maximizing profits
positions for the next day, and the market is d) A measure of market volatility
less actively monitored
Answer: b) An endpoint for trading
37. How are position limits prescribed in operations
treasury risk management?
a) Only in USD 41. What is the purpose of a dealer waiting
b) Currency-wise and for aggregate positions until the market turns around before closing
expressed in Rupees an open position?
c) Only in Rupees a) To maximize losses
d) Only for daylight positions b) To minimize losses
c) To increase market volatility
Answer: b) Currency-wise and for aggregate d) To eliminate position limits
positions expressed in Rupees
Answer: b) To minimize losses
38. How is the net position aggregated for the
purpose of position limits?
a) The net position is not considered
b) It is first translated into USD at the day-end
rate and then converted into Rupees
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42. What is the added risk mentioned in the Answer: c) To protect the bank from credit
passage regarding waiting for the market to risk/counter-party risk
turn around?
a) The market may not be active 46. What is credit risk in treasury?
b) The market correction may not take place a) Market risk
as anticipated, leading to continued losses b) Operational risk
c) The market may become more volatile c) Counter-party risk
d) There is no added risk d) Concentration risk
Answer: b) The market correction may not Answer: c) Counter-party risk

take place as anticipated, leading to
continued losses 47. How is credit risk in treasury split in terms
of default risk?
43. How do stop-loss limits prevent dealers a) Settlement risk
from waiting indefinitely? b) Concentration risk
a) By increasing market volatility c) Defaultrisk is split into default risk and
b) By minimizing losses settlement risk
c) By limiting losses to an acceptable level set d) Market risk
by management
d) By allowing unlimited waiting Answer: c) Default risk is split into default
risk and settlement risk
Answer: c) By limiting losses to an
acceptable level set by management 48. What is default risk in treasury when the
bank lends in the money market?
44. How are stop-loss limits prescribed? a) The risk of currency fluctuation
a) Only per deal b) The risk of interest rate changes
b) Only per month c) The risk that the borrowing bank may fail to
c) Per deal, per day, per month, and an repay the amount on the due date
aggregate loss limit per year d) The risk of market volatility
d) Only per day
Answer: c) The risk that the borrowing bank
Answer: c) Per deal, per day, per month, and may fail to repay the amount on the due date
an aggregate loss limit per year
45. Why are exposure ceiling limits put in

place in treasury risk management?
a) To encourage higher exposure
b) To minimize exposure
c) To protect the bank from credit
risk/counter-party risk
d) To eliminate exposure
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49. Why is it not prudent for Treasury to lend 53. How is delivery of government securities
its entire surplus to a single bank or a handful settled against payment?
of banks? a) Through centralized clearing mechanisms
a) To maximize profits b) Through bilateral agreements between
b) To minimize exposure banks
c) To eliminate credit risk c) Through simultaneous debit and credit in
d) To avoid concentration risk securities and funding accounts with RBI
d) Through physical delivery of securities
Answer: d) To avoid concentration risk
Answer: c) Through simultaneous debit and
50. What does settlement risk in treasury credit in securities and funding accounts with
refer to? RBI
a) Market risk
b) Credit risk 54. What mechanism is mentioned for the
c) The possible failure of the counterparty to exchange of non-SLR or corporate securities
deliver/settle their part of the transaction in the context of settlement risk?
d) Operational risk a) SGL mechanism
b) DvP mechanism
Answer: c) The possible failure of the c) CCIL mechanism
counterparty to deliver/settle their part of d) Bilateral mechanism
the transaction
Answer: c) CCIL mechanism
51. What does DvP stand for in the context of
settlement risk? 55. Why do bank treasuries use derivatives?
a) Demand versus Payment a) To maximize profits
b) Delivery versus Payment b) To minimize risk, including Asset Liability
c) Dealer versus Partner Management (ALM) risks
d) Date versus Price c) To eliminate risk
d) To cater to the requirements of the clients
Answer: b) Delivery versus Payment
Answer: b) To minimize risk, including Asset
52. Why is it not always possible to achieve Liability Management (ALM) risks
the DvP mode in transactions?
a) Due to lack of market opportunities
b) Due to physical barriers, such as different
time zones
c) Due to government regulations
d) Due to the absence of counterparty risk
Answer: b) Due to physical barriers, such as

different time zones
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56. What is the second chief purpose of using Answer: c) A product with a derived value
derivatives? from an underlying asset/market/exposure
a) To trade and take trading positions in
derivative products 60. What is the primary consideration when
b) To maximize risk exposure banks structure a derivative product for an
c) To regulate RBI policies individual client?
d) To cater to the requirements of the clients, a) Market trends
especially corporate customers b) The client's risk appetite, transaction size,
and maturity requirements
Answer: d) To cater to the requirements of c) Regulatory requirements
the clients, especially corporate customers d) The bank's risk exposure
57. What is the third chief purpose of using Answer: b) The client's risk appetite,
derivatives? transaction size, and maturity requirements
a) To maximize risk
b) To trade and take trading positions in 61. What are derivative products that can be
derivative products directly negotiated and obtained from banks
c) To cater to the requirements of the clients and investment institutions known as?
d) To regulate RBI policies a) Standardized derivatives
b) Exchange traded derivatives
Answer: b) To trade and take trading c) Over-the-Counter (OTC) products
positions in derivative products d) Currency futures
58. What is the regulation status of Rupee Answer: c) Over-the-Counter (OTC) products
derivatives?
a) They are unregulated 62. What characterizes exchange traded
b) They are regulated by market forces derivatives?
c) They are regulated by the RBI a) They are customized for individual clients
d) They are not allowed b) They are traded directly with banks
c) They are standardized contracts traded on
Answer: c) They are regulated by the RBI a futures exchange
d) They have no specified sum or period
59. What is the definition of a derivative?
a) A financial instrument with independent Answer: c) They are standardized contracts
value traded on a futures exchange
b) A market product
c) A product with a derived value from an
underlying asset/market/exposure
d) An independent market index
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63. What is a forward contract traded on a 67. What is the primary difference between
futures exchange called? larger banks and other banks regarding the
a) Standardized contract use of futures traded on exchanges?
b) Exchange traded contract a) Larger banks do not use futures traded on
c) OTC contract exchanges
d) Futures contract b) Larger banks are market makers and cover
their residual positions in futures
Answer: d) Futures contract c) Smaller banks use futures traded on
64. What types of products are included in exchanges
exchange traded derivatives? d) Smaller banks do not use derivatives
a) Only currency futures
b) Only interest rate futures Answer: b) Larger banks are market makers
c) Currency futures, interest rate futures, and cover their residual positions in futures
commodity futures, stock and index futures,
and options 68. How do OTC derivative products relate to
d) Only commodity futures exchange traded prices?
a) OTC prices are always higher than
Answer: c) Currency futures, interest rate exchange traded prices
futures, commodity futures, stock and index b) OTC prices are always lower than exchange
futures, and options traded prices
c) OTC derivative products largely reflect
65. What types of derivative products are exchange traded prices
mostly used by Bank Treasuries and corporate d) OTC prices have no relation to exchange
customers? traded prices
a) Exchange traded derivatives
b) Standardized derivatives Answer: c) OTC derivative products largely
c) Over-the-Counter (OTC) products such as reflect exchange traded prices
forward contracts, options, and swaps
d) Commodity futures
Answer: c) Over-the-Counter (OTC) products

such as forward contracts, options, and swaps
66. Which banks typically cover their residual

positions in futures traded on exchanges?
a) Smaller banks
b) Market makers
c) Corporate banks
d) Investment banks
Answer: b) Market makers

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CHAPTER 24-: Derivative Products

1. What are derivatives in India primarily used d) Hedging derivatives, Speculative
for? derivatives, and Investment derivatives
a) Maximizing profits
b) Hedging underlying currency, interest rate, Answer: b) Forward contracts, Options, and
and commodity risks Swaps
c) Speculative trading
d) Promoting market volatility 5. What is a forward contract?
a) A contract to deliver foreign currency on a
Answer: b) Hedging underlying currency, future date at a fixed exchange rate
interest rate, and commodity risks b) A standardized contract traded on a
futures exchange
2. In the futures market in India, who can c) A contract exclusively for non-resident
freely participate in trading currency and entities
interest rate derivatives? d) A contract for speculative trading
a) Only authorized banks
b) Individuals, corporates, and other entities Answer: a) A contract to deliver foreign
c) Only non-resident entities currency on a future date at a fixed exchange
d) Only individuals rate
Answer: b) Individuals, corporates, and 6. How does a forward purchase contract

other entities protect importers?
a) By maximizing profits
3. What is the primary focus of the discussion b) By eliminating currency risks
in the passage regarding derivatives? c) By hedging against the appreciation of
a) Commodity derivatives Rupee
b) Currency and interest rate derivatives d) By protecting against the depreciation of
c) Equity derivatives Rupee
d) Non-resident entity derivatives
Answer: d) By protecting against the
Answer: b) Currency and interest rate depreciation of Rupee
derivatives
4. What are the three basic kinds of

derivatives?
a) Options, Swaps, and Futures
b) Forward contracts, Options, and Swaps
c) Currency derivatives, Interest rate
derivatives, and Commodity derivatives
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7. Besides hedging against currency risks in c) Whichever is worse to the client or

cross-currency deals, what is another use of favorable to the bank
forward purchase or sale contracts? d) Both a and b
a) Maximizing currency risks
b) Speculative trading Answer: c) Whichever is worse to the client
c) Eliminating currency risks or favorable to the bank
d) Protecting against the appreciation of
Rupee 11. What does the forward rate represent?
a) The spot rate
Answer: c) Eliminating currency risks b) The interest rate differential of the two
currencies
8. What happens if the delivery of currency is c) The market rate
not given or taken as per the contract terms d) The premium rate
on the expiry date?
a) The contract is extended automatically Answer: b) The interest rate differential of
b) The contract will be cancelled the two currencies
c) The counterparty is obligated to deliver the
currency 12. How is the forward rate related to the
d) The forward rate is adjusted spot rate?
a) They are always the same
Answer: b) The contract will be cancelled, b) The forward rate is always lower than the
and the difference between spot rate and spot rate
forward rate will be credited to or recovered c) The forward rate is either at premium or
from the counterparty. discount to the spot rate
d) The forward rate is independent of the
9. What is a forward option? spot rate
a) An option to buy or sell a forward contract
b) An option to cancel a forward contract Answer: c) The forward rate is either at
c) An option to deliver currency within a premium or discount to the spot rate
month before the expiry date
d) An option to extend the delivery period 13. What affects the forward exchange rate of
USD/INR?
Answer: c) An option to deliver currency a) Only risk-free interest rates
within a month before the expiry date b) Supply and demand for forward dollars
c) Government regulations
10. What does the forward premium d) Market movements
(discount) quoted by the bank in a forward
option depend on? Answer: b) Supply and demand for forward
a) The start date of the option period dollars
b) The end date of the option period
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14. In the context of USD/INR, what does it 17. Why is the forward exchange rate of
mean when the Rupee is at a discount to the USD/INR not always equal to the difference
Dollar? between risk-free interest rates?
a) The Rupee is stronger than the Dollar a) Because USD/INR is fully convertible
b) The Rupee is weaker than the Dollar b) Because of market demand
c) The interest rate of the Rupee is higher c) Because of government regulations
than the interest rate of the Dollar d) Because Rupee is not yet fully convertible
d) The interest rate of the Rupee is lower than
the interest rate of the Dollar Answer: d) Because Rupee is not yet fully
convertible
Answer: c) The interest rate of the Rupee is
higher than the interest rate of the Dollar 18. How is a currency at a premium or
discount in relation to the interest rate?
15. How does the forward EURO relate to the a) A currency carrying a higher interest rate is
interest rates of EURO and USD? at a premium
a) Forward EURO is always at a premium to b) A currency carrying a higher interest rate is
USD at a discount
b) Forward EURO is always at a discount to c) Interest rate has no impact on whether a
USD currency is at a premium or discount
c) The relationship depends on the specific d) The interest rate is the same for all
interest rates currencies
d) The forward rate is always the same as the
spot rate Answer: a) A currency carrying a higher
interest rate is at a premium
Answer: b) Forward EURO is at a discount to
USD 19. What advantage does a forward contract
offer as a hedging instrument?
16. What determines the forward premium or a) It guarantees maximum profit
discount in the case of freely convertible b) It allows unlimited gains from market
currencies? movements
c) It achieves zero risk by fixing the value of
a) Market demand forward dollars
b) Exchange rate movements d) It eliminates market demand
c) The difference between risk-free interest
rates of the two currencies Answer: c) It achieves zero risk by fixing the
d) Government regulations value of forward dollars
Answer: c) The difference between risk-free

interest rates of the two currencies
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20. What is the disadvantage known as Answer: b) Buy an underlying product

"opportunity cost" in the context of a forward
contract? 24. What is the equivalent of a Call option in
a) The cost of entering into a forward contract terms of buying and selling?
b) The cost of market movements a) Buy (3)
c) The benefit of market rate, if it is better b) Sell (4)
than the contracted rate, on the date of c) Both Buy (3) and Sell (4)
utilization d) Neither Buy (3) nor Sell (4)
d) The cost of government regulations
Answer: a) Buy (3)
Answer: c) The benefit of market rate, if it is
better than the contracted rate, on the date 25. What does the expiry date of an option
of utilization refer to?
a) The date when the option is created
21. What is the primary characteristic of b) The date when the underlying product is
options contracts ? bought or sold
a) Both parties have a right and an obligation c) The specified future date or period when
b) The buyer has a right but no obligation to the option can be exercised
exercise the contract d) The date when the strike price is decided
c) The buyer and seller both have an
obligation Answer: c) The specified future date or
d) The buyer has an obligation but no right period when the option can be exercised
Answer: b) The buyer has a right but no 26. How are options divided based on their
obligation to exercise the contract mode of settlement?
a) By strike price
22. How many types of options are? b) By expiry date
a) Three c) By mode of exercise
b) Two d) By type of currency
c) Four
d) Five Answer: c) By mode of exercise
Answer: b) Two
23. What does a Call option give the holder

the right to do?
a) Sell an underlying product
b) Buy an underlying product
c) Hold the contract without exercising it
d) Cancel the contract
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27. What is the characteristic of an American Answer: b) Only European type options
Type Settlement option?
a) It can only be exercised on the expiry date 31. In the scenario where the market rate on
b) It can be exercised any time before the the expiry date is 108, what will the option
expiry date holder most likely do?
c) It can be exercised only after the expiry a) Exercise the put option
date b) Not exercise the put option
d) It cannot be exercised c) Exercise the call option
d) Exercise both put and call options
Answer: b) It can be exercised any time
before the expiry date Answer: b) Not exercise the put option
28. Why is the American option prohibited 32. What is the market rate and option rate
after the sub-prime crisis in 2008/2009? for USD/JPY when the exchange rate on the
a) Due to its complexity expiry date is 108?
b) Due to its popularity
c) Due to market regulations a) Market: USD/JPY=108, Option:
d) The passage does not provide information USD/JPY=105 (no put)
on the reason b) Market: USD/JPY=105, Option:
USD/JPY=108
Answer: d) The passage does not provide c) Market: USD/JPY=108, Option:
information on the reason USD/JPY=108
d) Market: USD/JPY=105, Option:
29. What is the characteristic of a European USD/JPY=105
Type Settlement option?
a) It can only be exercised on the expiry date Answer: a) Market: USD/JPY=108, Option:
b) It can be exercised any time before the USD/JPY=105 (no put)
expiry date
c) It can be exercised only after the expiry 33. In the scenario where the exchange rate
date on the expiry date is 100, what will the option
d) It cannot be exercised buyer most likely do?
a) Not exercise the put option
Answer: a) It can only be exercised on the b) Exercise the put option
expiry date c) Exercise the call option
d) Exercise both put and call options
30. What type of options is used in India?
a) Only American type options Answer: b) Exercise the put option
b) Only European type options
c) Both American and European type options
d) Neither American nor European type
options
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34. What does it mean when the option is net c) When the spot rate is higher than the
settled in the latter case? forward rate
a) The option is automatically exercised d) When the option is exercised
b) The option is cancelled
c) The counter-party pays the holder 5 yen Answer: a) When the strike price is the same
per dollar as the forward rate on the start date
d) The holder pays the counter-party 5 yen
per dollar 38. When is an option considered in-the-
money (ITM) for a call option?
Answer: c) The counter-party pays the a) When the strike price is less than the
holder 5 yen per dollar forward rate
b) When the strike price is more than the
35. What is the difference between the strike forward rate
price and the spot rate in the latter case? c) When the strike price is the same as the
a) 3 yen per dollar forward rate
b) 5 yen per dollar d) When the option is exercised
c) 8 yen per dollar
d) 100 yen per dollar Answer: a) When the strike price is less than
the forward rate
Answer: b) 5 yen per dollar
36. When is an option considered to be at- 39. When is an option considered out-of-
the-money (ATM)? money (OTM) for a put option?
a) When the strike price is less than the
a) When the strike price is higher than the forward rate
spot price b) When the strike price is more than the
b) When the strike price is lower than the forward rate
forward rate c) When the strike price is the same as the
c) When the strike price is the same as the forward rate
spot price d) When the option is exercised
d) When the strike price is the same as the
forward rate Answer: b) When the strike price is more
than the forward rate
Answer: c) When the strike price is the same
as the spot price
37. In the context of a European option, when

is an option considered at-the-money?
a) When the strike price is the same as the
forward rate on the start date
b) When the strike price is better than the
market price
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40. In simple terms, what does it mean when 44. Which type of options, do not have any
an option is in-the-money (ITM)? intrinsic value?
a) The strike price is better than the market a) In-the-money (ITM) options
price b) At-the-money (ATM) options
b) The option is exercised automatically c) Out-of-the-money (OTM) options
c) The strike price is worse than the market d) Both ATM and OTM options
price
d) The option is not exercised Answer: d) Both ATM and OTM options
Answer: a) The strike price is better than the 45. In the given example, what is the intrinsic
market price value of a Call Option with a strike price of
105 and a spot rate of 108?
41. What are the two components of an a) 0
option premium? b) -3
a) Intrinsic value and market value c) 5
b) Intrinsic value and time value d) It is not provided in the passage
c) Market value and time value
d) Strike price and spot rate Answer: c) 5
Answer: b) Intrinsic value and time value 46. What is the formula for calculating the
time value of an option?
42. How is the intrinsic value of an in-the- a) Intrinsic value - Option price
money (ITM) option calculated? b) Option price - Intrinsic value
a) By subtracting the strike price from the c) Intrinsic value + Option price
current forward rate d) Option price + Intrinsic value
b) By adding the strike price and current
forward rate Answer: b) Option price - Intrinsic value
c) By multiplying the strike price and current
forward rate 47. When is the time value of an option
d) By dividing the strike price by the current maximum?
forward rate
a) For in-the-money (ITM) options
Answer: a) By subtracting the strike price b) For at-the-money (ATM) options
from the current forward rate c) For out-of-the-money (OTM) options
d) The time value is the same for all types of
43. Can the intrinsic value be negative? options
a) Yes
b) No Answer: b) For at-the-money (ATM) options
Answer: b) No
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48. What happens to the time value as the c) The price of an option is much smaller than
option becomes more in-the-money (ITM) or the notional value
out-of-the-money (OTM)? d) Options have low leverage
a) It increases
b) It decreases Answer: c) The price of an option is much
c) It remains the same smaller than the notional value
d) It becomes negative
52. In an options transaction, who pays the
Answer: b) It decreases premium?
49. What is a significant feature of options a) The seller

mentioned in the passage regarding the b) Both the buyer and the seller
buyer's right? c) The buyer
a) The buyer has the obligation to exercise d) The exchange
the option
b) The buyer has the right and obligation to Answer: c) The buyer
exercise the option
c) The buyer has the right but no obligation to 53. What factors determine the premium of
exercise the option an option?
d) The buyer's profit potential is limited a) Notional value and market demand
b) Volatility, maturity, interest rates, and
Answer: c) The buyer has the right but no strike price
obligation to exercise the option c) Only intrinsic value
d) Time value and market supply
50. What is a significant feature of options
mentioned in the passage regarding the Answer: b) Volatility, maturity, interest
seller's obligation? rates, and strike price
a) The seller is not obliged to buy/sell to the
holder of the option 54. How does the premium of an option
b) The seller's potential loss is limited change with the volatility of the markets,
c) The seller is obliged to buy/sell to the maturity, and intrinsic value?
holder of the option at the market price a) It decreases
d) The seller's potential loss is unlimited b) It remains constant
c) It increases
Answer: d) The seller's potential loss is d) It becomes negative
unlimited
Answer: c) It increases
51. Why do traders and speculators find
options attractive?
a) Options have a high notional value
b) Options require large investments
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55. According to the passage, which options b) Options and insurance serve the same
are generally costlier? purpose
a) In-the-money (ITM) options c) Options are a type of insurance against
b) Out-of-the-money (OTM) options price movements
c) Both ITM and OTM options have the same d) Insurance is more effective than options
cost
d) The cost is not mentioned in the passage Answer: c) Options are a type of insurance
against price movements
Answer: a) In-the-money (ITM) options
60. How does an exporter benefit from the
56. How is a put option on USD related to a movement of the exchange rate?
call option on JPY? a) By wanting the local currency to appreciate
a) They are unrelated b) By wanting the local currency to depreciate
b) They have the same strike price c) By having no preference for the movement
c) They are two separate transactions of the local currency
d) A put option on USD is also a call option on d) By avoiding currency movements
JPY
Answer: b) By wanting the local currency to
Answer: d) A put option on USD is also a call depreciate
option on JPY
61. What does the bank do as an intermediary
57. How is an option on a bond described? in the context of the passage?
a) Put option on a bond a) Buys call options from the exporter
b) Call option on a bond b) Sells put options to the exporter and call
c) Bond option options to the importer
d) Both put and call options on a bond c) Sells put options to both the exporter and
importer
Answer: b) Call option on a bond d) Buys call options from the importer
58. What is the primary use of options? Answer: b) Sells put options to the exporter
a) Speculation on market movements and call options to the importer
b) Generating income through premiums
c) Hedging against price fluctuations
d) Trading for short-term profits
Answer: c) Hedging against price

fluctuations
59. How is the use of options compared to

insurance in the passage?
a) They are unrelated concepts
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62. What is a stock option? Answer: c) It is a simple product without any

a) The right to buy or sell currency at the conditionality
strike price
b) The right to buy or sell equity of a company 66. What are exotic options?
at the strike price a) Simple, plain vanilla options
c) The right to buy or sell commodities at the b) Complex structured products combining
strike price different types of options
d) The right to buy or sell real estate at the c) Options with no risk involved
strike price d) Options suitable for hedging market risk
Answer: b) The right to buy or sell equity of
a company at the strike price Answer: b) Complex structured products
combining different types of options
63. In the context of a stock option, when
would the option holder prefer not to 67. Why are exotic options considered highly
exercise the option? risky?
a) When the stock price is below the strike a) Because they are plain vanilla options
price b) Because they are suitable for hedging
b) When the stock price is above the strike market risk
price c) Because they bundle together different
c) When the stock price is the same as the risks
strike price d) Because they have fixed conditions
d) When the stock option expires
Answer: c) Because they bundle together
Answer: b) When the stock price is above different risks
the strike price
68. What is the primary purpose of exotic
64. What is a plain vanilla option? options?
a) An option with complex conditions a) Hedging market risk
b) An option with no conditionality b) Speculative trading
c) An option on commodities c) Protection against exchange risk
d) An option with a fixed expiry date d) Simplicity in trading
Answer: b) An option with no conditionality Answer: b) Speculative trading
65. Why is a plain vanilla option described as

ideal for hedging?
a) It is a complex product
b) It has variable conditions
c) It is a simple product without any
conditionality
d) It is suitable for speculative trading
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69. What is the key characteristic of futures a) Settlement in futures contracts is based on
contracts? market prices, while options involve fixed
a) Customizable sizes prices
b) Variable settlement dates b) Settlement in options is based on market
c) Standard sizes and fixed settlement dates prices, while futures contracts involve fixed
d) Non-standardized terms prices
Answer: c) Standard sizes and fixed c) Both options and futures contracts have
settlement dates variable settlement methods
d) Settlement in futures contracts is not
70. What distinguishes financial futures from necessary
commodity futures?
Answer: a) Settlement in futures contracts is
a) Commodity futures involve agricultural based on market prices, while options involve
products, while financial futures involve fixed prices
currencies and stocks
b) Financial futures are traded on a futures 73. What is the consequence for the buyer if
exchange, while commodity futures are the market price is less than the contracted
traded on a stock exchange price in a futures contract?
c) Commodity futures are of standard sizes, a) The buyer receives a profit
while financial futures are of variable sizes b) The buyer bears the loss
d) Financial futures involve currencies, c) The buyer can choose not to execute the
interest rates, and equity prices, while contract
commodity futures involve metals and oil d) The buyer can negotiate a new settlement
date
Answer: d) Financial futures involve
currencies, interest rates, and equity prices, Answer: b) The buyer bears the loss
while commodity futures involve metals and
oil 74. What distinguishes futures contracts from
forward contracts?
71. In currency futures, which major a) The absence of counterparty risk
currencies are mentioned as traded in terms b) Actively traded on the exchange
of USD? c) Settlement in Rupees for USD contracts
a) EURO, JPY, and AUD d) Fixed contract size
b) GBP, AUD, and CAD
c) EUR, GBP, and JPY Answer: b) Actively traded on the exchange
d) AUD, CAD, and JPY
Answer: c) EUR, GBP, and JPY
72. How is the settlement in futures contracts

different from options?
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75. What is a key feature of futures contracts Answer: b) Treasury bills are risk-free
in terms of counterparty risk? instruments indicating interest rate
a) High counterparty risk movements
b) Absence of counterparty risk
c) Limited counterparty involvement 79. When was the Rupee interest rate futures
d) Counterparty risk shared by buyers and market originally launched in India?
sellers a) 2009
b) 2008
Answer: b) Absence of counterparty risk c) 2003
d) 2010
76. When did the futures market for USD/INR
commence in India? Answer: c) 2003
a) August 2009
b) August 2008 80. Why did the initial attempt to launch the
c) August 2010 Rupee interest rate futures market fail?
d) August 2011
a) Lack of regulatory support
Answer: b) August 2008 b) Inadequate contract size
c) Market instability
77. What is the contract size denoting in the d) Unavailability of standardized contracts
case of currency futures in India?
a) USD 500 Answer: b) Inadequate contract size
b) USD 1,000
c) USD 10,000 81. When was the Rupee interest rate futures
d) USD 100,000 market relaunched in India?
a) August 2009
Answer: b) USD 1,000 b) August 2008
c) August 2010
78. Why are interest rate futures considered d) August 2011
popular instruments for hedging interest rate
risk? Answer: a) August 2009
a) They are actively traded on the stock
market 82. What is the contract size for Rupee
b) Treasury bills are risk-free instruments interest rate futures in India?
indicating interest rate movements a) Rs. 1 lac
c) They involve a fixed contract size b) Rs. 2 lacs
d) They have a direct relationship with bond c) Rs. 5 lacs
prices d) Rs. 10 lacs
Answer: b) Rs. 2 lacs

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83. Why might an exporter need to purchase a) Seller of the swap

several contracts to hedge an underlying b) Buyer of the swap
exposure fully in the Rupee interest rate c) Receiver of the swap
futures market? d) LIBOR rate payer
a) Large contract sizes
b) High premium costs Answer: b) Buyer of the swap
c) Standardized contract size
d) Low market volatility 88. What is the purpose of a benchmark rate
in an interest rate swap?
Answer: c) Standardized contract size a) To determine the notional amount
b) To link the floating interest rate
84. What is an interest rate swap? c) To calculate fixed interest payments
a) A fixed-rate loan d) To measure market volatility
b) An exchange of cash flow
c) A government bond Answer: b) To link the floating interest rate
d) A currency exchange 89. What is MIFOR?
a) A commodity index
Answer: b) An exchange of cash flow b) A stock market index
c) A benchmark rate for term lending
85. What does the notional amount of an d) A foreign currency exchange rate
interest rate swap represent?
a) Actual cash exchanged Answer: c) A benchmark rate for term
b) The fixed interest rate lending
c) The underlying asset or liability
d) The market benchmark rate 90. What does MIFOR consist of?
a) MIBOR and LIBOR
Answer: c) The underlying asset or liability b) MIBOR and forward premium of USD/INR
c) CPI and WPI
86. What is the purpose of an interest rate d) RBI and SEBI
swap?
a) To exchange currencies Answer: b) MIBOR and forward premium of
b) To speculate on interest rate movements USD/INR
c) To shift the basis of interest rate calculation
d) To trade commodities 91. Who announces the MIFOR rate daily?
a) RBI
Answer: c) To shift the basis of interest rate b) SEBI
calculation c) Reuters
d) Bloomberg
87. In an interest rate swap, what is the fixed
rate payer commonly referred to as? Answer: c) Reuters
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92. For what purpose is MIFOR particularly 96. What is the characteristic of coupon
suitable? swaps?
a) Stock trading
b) Foreign currency borrowings swapped into a) Fixed rate in one currency exchanged for a
Rupees floating rate in another
c) Agricultural loans b) Paying interest in a foreign currency
d) Corporate mergers c) Swaps with built-in options
d) Only plain vanilla type swaps
Answer: b) Foreign currency borrowings
swapped into Rupees Answer: a) Fixed rate in one currency
exchanged for a floating rate in another
93. How is MIFOR used in the market?
a) Exclusively for corporate dealings 97. What are swaps with built-in options
b) As a benchmark rate for all financial known as?
transactions a) Quanto swaps
c) Limited to inter-bank dealings as permitted b) Coupon swaps
by RBI c) Plain Vanilla Interest Rate Swaps
d) Only for commodity trading d) Swaptions
Answer: c) Limited to inter-bank dealings as Answer: d) Swaptions

permitted by RBI
98. What type of interest rate swaps are
94. 6. What is a floating-to-floating rate swap permitted in the Indian Rupee market?
also known as? a) Quanto swaps
a) Fixed-for-floating swap b) Only plain vanilla type swaps
b) LIBOR swap c) Coupon swaps
c) Basis swap d) Swaptions
d) MIFOR swap
Answer: b) Only plain vanilla type swaps
Answer: c) Basis swap
95. What do Quanto swaps involve?

a) Paying interest in a foreign currency
b) Exchanging fixed and floating rates
c) Trading commodities
d) Utilizing options in swaps
Answer: a) Paying interest in a foreign

currency
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99. What is a characteristic of Plain Vanilla Answer: b) IRS is for multiple periodical
Interest Rate Swaps? interest payments
a) Exchanging fixed payment for fixed
payment 103. In the given example, what is XYZ Ltd.
b) Exchanging floating payment for floating worried about after 3 months?
payment a) Currency exchange rates
c) Exchanging fixed payment for floating b) Fluctuations in the stock market
payment c) Changes in interest rates
d) Exchanging foreign currency d) Commodity prices
Answer: c) Exchanging fixed payment for Answer: c) Changes in interest rates

floating payment
104. When XYZ Ltd. contacts the FRA bank,
100. Why might a client use an interest rate what rate are they seeking to secure?
swap to convert fixed rate borrowing into a) The current rate
floating rate borrowing? b) The rate after 3 months
a) To speculate on interest rate movements c) The average rate
b) To meet working capital requirements d) The highest rate
c) To trade in the foreign exchange market
d) To invest in commodities Answer: b) The rate after 3 months
Answer: b) To meet working capital 105. What does XYZ Ltd. want to achieve by
requirements booking an FRA?
a) Speculate on interest rate movements
101. What is a Forward Rate Agreement (FRA) b) Secure a fixed interest rate for the next 6
designed for? months
c) Invest in commodities
a) Multiple periodical interest payments d) Participate in stock trading
b) Single future interest payment
c) Currency exchange Answer: b) Secure a fixed interest rate for
d) Stock trading the next 6 months
Answer: b) Single future interest payment 106. In the notation "FRA 3*9", what does the
"3" represent?
102. How is an FRA different from an Interest a) The fixed interest rate
Rate Swap (IRS)? b) The period before the interest rate is fixed
a) IRS covers single future interest payments c) The total period for which the rate is fixed
b) IRS is for multiple periodical interest d) The variable interest rate
payments
c) IRS is for currency exchange Answer: b) The period before the interest
d) IRS is for stock trading rate is fixed
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107. If an FRA is denoted as "FRA 6*9 at 12%", 111. When is the floating rate (LIBOR) for an
what does it mean? interest rate payment period usually decided?
a) On the first day of the interest payment
a) The rate is fixed for 6 months at 12% period
b) The rate is fixed for 9 months at 6% b) At the end of the interest payment period
c) The rate is variable for 6 months, then fixed c) On the last day of the previous period
at 12% for the next 3 months d) One day after the end of the interest
d) The rate is variable for 9 months payment period
Answer: c) The rate is variable for 6 months, Answer: c) On the last day of the previous
then fixed at 12% for the next 3 months period
108. How does the FRA bank compensate XYZ 112. In the given context, when does the
Ltd. in Case 1 (r=12%)? interest settlement take place?
a) XYZ Ltd. pays 2% PA to the FRA bank a) On the first day of the interest payment
b) FRA bank pays 2% PA to XYZ Ltd. period
c) No compensation is exchanged b) At the end of the interest payment period
d) XYZ Ltd. pays 12% PA to the FRA bank c) One day before the last day of the previous
period
Answer: b) FRA bank pays 2% PA to XYZ Ltd. d) At the beginning of the interest payment
period
109. In Example 2, why does the entity want
to fix the interest rate for 29th June now? Answer: d) At the beginning of the interest
a) To speculate on interest rate movements payment period
b) To participate in stock trading
c) To avoid fluctuations in LIBOR 113. What is the market convention for
d) To secure a variable interest rate interest settlement in the provided
illustration?
Answer: c) To avoid fluctuations in LIBOR a) Interest is paid at the beginning of the
period
110. What does the term "6/12 FRA" or "6*12 b) Interest is paid at the end of the period
FRA" indicate? c) Interest is paid one day before the end of
a) Fixed interest rate for 6 months the period
b) Variable interest rate for 6 months d) Interest is paid one day after the end of the
c) Fixed interest rate for 12 months period
d) Fixing the interest rate 6 months in
advance for the next 6-month period Answer: a) Interest is paid at the beginning
Answer: d) Fixing the interest rate 6 months of the period
in advance for the next 6-month period
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114. How does the effective rate remain the Answer: a) Principal Only Swap (POS)
same despite interest being paid at the
beginning of the period? 118. In the context of a Currency Swap, what
is the meaning of a "currency mismatch"?
a) It is not affected by the timing of interest a) Matching the currencies in the swap
payment b) A situation where a loan is denominated in
b) The interest is discounted for the period a different currency from the revenue
c) The LIBOR rate is constant throughout the c) Equalizing the interest rates in the swap
period d) Swapping currency obligations only
d) The interest is paid in installments
Answer: b) A situation where a loan is
Answer: b) The interest is discounted for the denominated in a different currency from the
period revenue
115. What is the purpose of discounting the 119. When is a Coupon Only Swap (COS) used
interest for the period in advance? in a Currency Swap?
a) To increase the effective interest rate
b) To decrease the effective interest rate a) When only the principal is hedged
c) To align with market conventions b) When only the interest rate is hedged
d) To match the LIBOR rate c) When both principal and interest rate are
hedged together
Answer: c) To align with market conventions d) When there is no need for currency
hedging
116. What is the primary purpose of a
Currency Swap? Answer: b) When only the interest rate is
hedged
a) Exchange of goods and services
b) Elimination of currency risk 120. Why might two parties engage in a
c) Speculation on currency movements Currency Swap involving different currencies?
d) Arbitrage opportunities
a) To create an arbitrage opportunity
Answer: b) Elimination of currency risk b) To speculate on currency movements
c) To raise funds at lower interest rates in
117. What type of swap is it when only the their respective domestic currencies
currency is hedged without considering d) To synchronize interest rates in
interest rates? international markets
a) Principal Only Swap (POS)
b) Coupon Only Swap (COS) Answer: c) To raise funds at lower interest
c) Currency Interest Swap (CIS) rates in their respective domestic currencies
d) Rate Only Swap (ROS)
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CHAPTER 25-: Treasury and Asset-Liability Management

1. What is the primary purpose of Asset- 5. What is the market risk mentioned in
Liability Management (ALM) in a bank? the passage that is associated with banking
a. Maximizing profits operations?
b. Avoiding credit risk a. Credit risk
c. Managing market risk b. Liquidity risk and interest rate risk
d. Ensuring regulatory compliance c. Operational risk
d. Regulatory risk
Answer: c) Managing market risk
Answer: b) Liquidity risk and interest rate
2. According to IBA guidelines, what is the risk
maximum period for which banks can
accept deposits? 6. What is the potential issue highlighted
a. 5 years when the bank has a fixed-rate deposit and
b. 7 years a floating-rate bill discounting facility, and
c. 10 years interest rates decline?
d. 15 years a. Positive earning for the bank
b. Negative earning for the bank
Answer: c) 10 years c. Reduced liquidity risk
d. Increased net interest income
3. In the context of ALM, why do banks
discourage longer-term deposits from Answer: b) Negative earning for the bank
customers?
a. To avoid credit risk 7. In the scenario where the average
b. To encourage short-term lending deposits have a one-year maturity and
c. To synchronize interest rates mortgage loans have an average maturity
d. To prevent interest rate risk exceeding 5 years, what issue might the
bank face?
Answer: d) To prevent interest rate risk a. Liquidity problem
b. Excess net interest income
4. How does a bank modify and extend c. Positive spread
maturities? d. No impact on net worth
a. By encouraging long-term deposits
b. By offering longer-term loans to Answer: a) Liquidity problem
borrowers
c. By limiting the acceptance of deposits
d. By avoiding lending to borrowers
Answer: b) By offering longer-term loans

to borrowers
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8. How does the bank address the liquidity 12. Why are banks especially sensitive to
problem? liquidity risks?
a. Encouraging long-term deposits a. To maximize profits
b. Accepting fresh deposits or borrowing b. To avoid default or delays in meeting
c. Reducing the interest rates on mortgage obligations
advances c. To invest in market-determined terms
d. Increasing the average maturity of d. To prompt a run on the bank
mortgage loans
Answer: b) To avoid default or delays in
Answer: b) Accepting fresh deposits or meeting obligations
borrowing
13. What is the potential consequence of
9. What is the impact of current interest suspicion or pressure on a bank's liquidity?
rates being higher than contracted rates a. Increased profits
on mortgage advances? b. Run on the bank or a threat to survival
a. Positive spread c. Reduction in interest rates
b. Negative spread d. Improved credit rating
c. Increased net interest income
d. Reduction in liquidity risk Answer: b) Run on the bank or a threat to
survival
Answer: b) Negative spread
14. How is liquidity represented in Asset-
10. What is the primary goal of Asset- Liability Management (ALM) in terms of
Liability Management (ALM) ? cash flows?
a. Maximizing profits a. Cash outflows
b. Managing liquidity risk b. Asset-liability mismatch
c. Reducing net worth c. Cash inflows
d. Eliminating interest rate risk d. Currency mismatch
Answer: b) Managing liquidity risk Answer: c) Cash inflows
11. What is the relationship between 15. What is liquidity?

liquidity risk and interest rate risk? . Cash surpluses only
a. Independent and unrelated b. Any positive cash flow
b. Interchangeable terms c. Cash surpluses retained by the bank
c. Two sides of the same coin d. Cash deficits
d. One causes the other
Answer: b) Any positive cash flow
Answer: c) Two sides of the same coin
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d. When advances are more than deposits

16. What is the main source of funds for a Answer: d) When advances are more than
bank in the context of Asset-Liability deposits
Management (ALM)?
a. Interest flows 20. How is the liquidity gap defined in the
b. Loans falling due for repayment given context?
c. Deposits maturing in the same time a. A mismatch between assets and
band liabilities
d. Commitments from other banks b. Cash surpluses
c. The immediate liabilities of the bank
Answer: b) Loans falling due for d. A positive difference between loans and
repayment deposits
17. What constitutes the main uses of Answer: a) A mismatch between assets
funds for a bank in the given time bands in and liabilities
ALM?
a. Commitments from other banks 21. In the context of ALM, what is liquidity
b. Deposits and other obligations maturing risk reflected as?
c. Immediate liabilities a. Interest rate mismatch
d. Cash resources b. Currency risk
c. Maturity mismatch
Answer: b) Deposits and other obligations d. Credit risk
maturing
Answer: c) Maturity mismatch
18. What is the net liquidity worked out by
comparing in ALM? 22. What is the primary concern associated
a. The difference between sources and with liquidity risk in ALM?
uses of funds a. Currency mismatch
b. Currency mismatch b. The inability to find enough cash
c. Interest flows c. Market risk
d. Positive liquidity gap d. Interest rate risk
Answer: a) The difference between Answer: b) The inability to find enough

sources and uses of funds cash
19. What is a positive liquidity gap in the

context of ALM?
a. When deposits are more than advances
b. When immediate liabilities are higher
c. When loans falling due are less than
deposits
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Answer: b) The risk of erosion of Net

23. How does liquidity risk arise in the Interest Income (NII)
context of ALM?
a. When marketability of securities 27. How is Net Interest Income (NII)
increases calculated in a bank?
b. When cash inflow exceeds outflow a. NII = Total Assets - Total Liabilities
c. When the liquidity in the market dries b. NII = Interest Earnings - Interest
up Payments
d. When interest rates are stable c. NII = Profit before tax
d. NII = Deposits - Loans
Answer: c) When the liquidity in the
market dries up Answer: b) NII = Interest Earnings -
Interest Payments
24. What factor should the bank consider
while classifying securities as liquid 28. In a hypothetical scenario, if a bank's
instruments in ALM? deposits mature after 6 months and need
a. Marketability of securities to be replaced at a higher market rate,
b. Nominal value of securities how does it impact NII?
c. Maturity of securities a. NII increases
d. Credit rating of securities b. NII remains the same
c. NII decreases
Answer: a) Marketability of securities d. NII becomes negative
25. According to RBI guidelines, what is the Answer: c) NII decreases

maximum limit for the net cumulative
negative mismatches in the 2-7 days time 29. How does a rise in market interest
bucket? rates impact the Net Interest Income (NII)
a. 5% in the given example?
b. 10% a. NII remains unchanged
c. 15% b. NII increases
d. 20% c. NII decreases
d. NII becomes negative
Answer: b) 10%
Answer: c) NII decreases
26. What is interest rate risk in the context
of ALM?
a. The risk of marketability of securities
b. The risk of erosion of Net Interest
Income (NII)
c. The risk of default on loans
d. The risk of currency mismatch
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d. Erosion of Net Interest Income (NII)
30. What is the primary concern associated Answer: c) Changes in market interest
with interest rate risk in ALM? rates for assets and liabilities
a. Maturity mismatch
b. Currency mismatch 34. In the context of repricing risk, when
c. Market risk does a tier-2 bond with a fixed interest
d. Erosion of Net Interest Income (NII) rate become sensitive to changes in
market price?
Answer: d) Erosion of Net Interest Income a. After 1 year
(NII) b. After 5 years
c. After 6 months
31. What is repricing risk in the context of d. After 7 years
ALM?
a. The risk of marketability of securities Answer: d) After 7 years
b. The risk of default on loans
c. The risk of erosion of Net Interest 35. What is the alternative term for
Income (NII) repricing risk in ALM?
d. The risk associated with changes in a. Maturity risk
interest rates for assets and liabilities b. Default risk
c. Interest rate risk
Answer: d) The risk associated with d. Market risk
changes in interest rates for assets and
liabilities Answer: c) Interest rate risk
32. How does a decrease in deposit rates 36. How does a loan getting repaid impact
impact Net Interest Income (NII) in the the repricing risk in ALM?
given example? a. Decreases the mismatch in time buckets
a. NII remains unchanged b. Increases the mismatch in time buckets
b. NII increases c. Has no impact on repricing risk
c. NII decreases d. Converts assets to liabilities
d. NII becomes negative
Answer: b) Increases the mismatch in time
Answer: b) NII increases buckets
33. What is the key factor causing repricing

risk in a bank's balance sheet?
a. Maturity mismatch
b. Currency mismatch
c. Changes in market interest rates for
assets and liabilities
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37. What is the purpose of placing assets 41. What does Basel 3 recommend for
and liabilities in time buckets in ALM? determining the capital requirement for
a. To determine market value derivative instruments in banks?
b. To measure liquidity a. No capital requirement for derivatives
c. To identify capital adequacy b. Capital based on book value
d. To assess repricing risk based on the c. Simplified approach
dates of interest rate changes d. Duration-based approach
Answer: d) To assess repricing risk based Answer: c) Simplified approach
on the dates of interest rate changes
42. What is one way of monitoring ALM in
38. How is the mismatch in each time banks?
bucket measured in ALM? a. Using VaR
a. By determining market value b. Duration analysis
b. In absolute amounts, sensitivity ratio, or c. Simulations
as a percentage of rate-sensitive assets d. Gap management
c. Through credit ratings
d. Based on the book value Answer: d) Gap management
Answer: b) In absolute amounts, 43. Why did banks like SBI and IDBI
sensitivity ratio, or as a percentage of rate- withdraw deposit schemes linked to
sensitive assets floating rate interest in the past?
39. What risk does the mismatch in time a. Due to lack of demand from depositors
buckets present in ALM? b. As per Basel 3 regulations
a. Market risk c. To adopt a simplified approach
b. Credit risk d. To reduce credit risk
c. Repricing risk
d. Liquidity risk Answer: a) Due to lack of demand from
depositors
Answer: c) Repricing risk
44. What are other methods for measuring
40. How can a bank reduce the mismatch asset-liability mismatches in ALM, apart
in ALM? from gap management?
a. By increasing the mismatch a. Using VaR, duration, and simulations
b. By using derivative instruments like b. Capital adequacy ratio
swaps c. Liquidity ratios
c. By converting assets to liabilities d. Credit rating analysis
d. By eliminating market risk Answer: a) Using VaR, duration, and
simulations
Answer: b) By using derivative
instruments like swaps
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45. What is the preferred type of interest 49. How does the MCLR system impact the
rate for depositors, as mentioned in the Net Interest Income (NII) of banks in a
text? falling interest rate scenario, as per the
a. Floating rate text?
b. Variable rate a. NII increases
c. Fixed rate b. NII decreases
d. Market-driven rate c. NII remains unchanged
d. NII becomes unpredictable
Answer: c) Fixed rate
46. In a fixed-rate interest regime, where Answer: b) NII decreases
does the interest rate risk lie according to
the text? 50. In the context of interest rate risk,
a. Depositors what do depositors effectively do in a
b. Banks fixed-rate interest regime?
c. Both depositors and banks a. Share the risk with banks
d. Regulators b. Pass on the risk to regulators
c. Bear the risk themselves
Answer: b) Banks d. Pass on the risk to banks
47. What happens if the deposit rate goes Answer: d) Pass on the risk to banks
up subsequent to the placement of a fixed-
rate deposit, according to the text? 51. What is the core function of the
a. Depositors bear the risk Treasury in the context of Asset-Liability
b. Banks charge a penalty Management (ALM)?
c. Depositors come for premature a. Credit risk management
extension at the enhanced rate b. Market risk management
d. Fixed rate remains unchanged c. Operational risk management
d. Regulatory risk management
Answer: c) Depositors come for
premature extension at the enhanced rate Answer: b) Market risk management
48. What system did RBI introduce for
advances from April 1, 2016, which 52. How does the Treasury serve as a link
involves a floating rate of interest? between core banking functions and
a. Fixed Rate System market operations in ALM?
b. MCLR System a. By accepting deposits
c. Advance Rate Regime b. By extending credit to borrowers
d. Interest Rate Hike System c. By operating in financial markets directly
d. By physically moving assets
Answer: b) MCLR System
Answer: c) By operating in financial
markets directly
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d. To reduce liquidity risk

53. Why is market risk identified and
monitored through the treasury in the Answer: b) To earn profits
context of ALM?
a. To eliminate market risk 57. What does the treasury use, including
b. To establish a link with credit risk derivatives and new product structures, to
c. Due to the core function of accepting bridge liquidity and rate sensitivity gaps in
deposits ALM?
d. Because the treasury operates in a. Physical assets
financial markets b. Commercial paper
c. Core banking functions
Answer: d) Because the treasury operates d. Trading positions
in financial markets
Answer: d) Trading positions
54. What is the role of the treasury in
dealing with asset-liability mismatches in 58. What is residual risk in the context of
ALM? ALM?
a. Physically moving assets a. The primary risk
b. Ironing out mismatches b. The risk that remains after efforts to
c. Establishing mismatches identify and eliminate some or all types of
d. Identifying and monitoring mismatches risk
c. The risk compensated by market risk
Answer: d) Identifying and monitoring d. The risk completely removed from the
mismatches balance sheet
55. In the context of ALM, which risks are Answer: b) The risk that remains after
automatically engulfed by the treasury's efforts to identify and eliminate some or
role in fund management? all types of risk
a. Operational risks
b. Credit risks
c. Liquidity and interest rate risks 59. When may the treasury hedge only
d. Regulatory risks residual risk in the context of ALM?
a. When the risk is compensatory in nature
Answer: c) Liquidity and interest rate risks b. When there are no mismatches on the
banking side
56. Why is it not advisable to remove c. When the market is underdeveloped
mismatches completely from a bank's d. When the risks are eliminated
balance sheet in the context of ALM?
a. To increase operational risk Answer: a) When the risk is compensatory
b. To earn profits in nature
c. To eliminate market risk
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64. What is ALCO an acronym for in the

context of banking?
60. In the development of the market, a. Asset Liability Committee
what may treasury products substitute in b. Automated Liquidity and Credit
the context of ALM? Operations
a. Derivatives c. Accounting and Legal Compliance Office
b. Commercial paper d. Advance Loan Control Organization
c. Credit products
d. Physical assets Answer: a) Asset Liability Committee
Answer: c) Credit products 65. Why is the Treasury head an important

member of ALCO in the context of ALM?
61. Why are treasury products considered a. To eliminate risk entirely
marketable in the context of ALM? b. To contribute to risk management,
a. To eliminate market risk product pricing, and policy issues
b. To reduce liquidity c. To focus on credit operations
c. To infuse liquidity in times of need d. To bridge liquidity gaps
d. To bridge rate sensitivity gaps
Answer: b) To contribute to risk
Answer: c) To infuse liquidity in times of management, product pricing, and policy
need issues
62. What makes it easier to administer 66. How do derivatives help in managing
exchange rate and interest rate risks liquidity and interest rate risks in ALM?
through treasury operations in ALM? a. By eliminating all risks entirely
a. Physical assets b. By replicating market movements
b. ALM desk c. By increasing capital requirements
c. Marketable treasury products d. By deploying large amounts of funds
d. Credit products
Answer: b) By replicating market
Answer: b) ALM desk movements
63. What is ALM an acronym for in the 67. In what way can derivatives be used as
context of banking? insurance or hedge in the stock market?
a. Asset Liability Management a. By buying stocks
b. Automated Liquidity Management b. By selling index futures
c. Advance Loan Management c. By investing in bonds
d. Accounting and Legal Management d. By holding cash reserves
Answer: a) Asset Liability Management Answer: b) By selling index futures

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68. What is an advantage of using 72. Why do many banks fund their regular
derivatives in ALM? loans from short-term resources, as
a. High capital requirement mentioned in the scenario?
b. Large deployment of funds a. To reduce interest rate risk
c. Small capital requirement b. To increase liquidity risk
d. No impact on liquidity c. To decrease operational risk
d. To boost profitability through increased
Answer: c) Small capital requirement spreads
69. How can derivatives be utilized to Answer: d) To boost profitability through

hedge high-value individual transactions in increased spreads
ALM?
a. By replicating market movements 73. How many times will the short-term
b. By increasing capital requirements deposits be repriced during the life of the
c. By eliminating risks entirely 3-year loan in the given scenario?
d. By deploying large amounts of funds a. 3 times
b. 6 times
Answer: a) By replicating market c. 9 times
movements d. 12 times
70. How do derivatives contribute to Answer: d) 12 times

managing aggregate risks in ALM?
a. By increasing capital requirements 74. What type of management is necessary
b. By replicating market movements for effectively using derivatives to hedge
c. By eliminating risks entirely risks associated with the changing
d. By hedging asset-liability mismatches composition of assets and liabilities?
a. Static management
Answer: d) By hedging asset-liability b. Dynamic management
mismatches c. Passive management
d. Fixed management
71. What is a potential risk associated with Answer: b) Dynamic management
funding a medium-term loan with short- 75. What does the bank need to pay back
term deposits in the given scenario? much earlier than the repayment of the 3-
a. Credit risk year loan in the given scenario, leading to
b. Market risk liquidity risk?
c. Liquidity risk a. Long-term deposits
d. Operational risk b. Short-term deposits
c. Inter-bank borrowings
Answer: c) Liquidity risk d. Medium-term loans
Answer: b) Short-term deposits

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d. Variable interest income from the loan

76. What does the bank swap the 3-month plus the swap cost of deposit
interest rate into, in order to protect its
interest cost and spread over the loan? Answer: c) Fixed interest income from the
a. Variable rate loan minus the swap cost of deposit
b. Fixed rate
c. Floating rate 80. What does the derivative transaction
d. Prime rate (swap) help protect in the banking
transaction according to the scenario?
Answer: b) Fixed rate a. Credit risk
b. Market risk
77. Which risk is the bank protecting itself c. Liquidity risk
from by swapping the 3-month interest d. Operational risk
rate into a fixed rate for 3 years?
a. Credit risk Answer: b) Market risk
b. Liquidity risk
c. Market risk 81. In the scenario where the bank swaps
d. Operational risk fixed interest rate on the loan into a
floating rate linked to T-bill rate, what is
Answer: c) Market risk the clear spread in the bank's favor?
a. 1%
78. What is the benchmark market rate b. 2%
linked to in the scenario when swapping c. 3%
the 3-month interest rate? d. 4%
a. LIBOR
b. Prime rate Answer: b) 2%
c. 91-day T-bill rate
d. CP rate index
Answer: c) 91-day T-bill rate 82. How does Treasury enable the bank to
structure new products that reduce
79. What is the gross margin, also known mismatches in the balance sheet?
as spread or net interest income, a. By increasing mismatches
calculated as in the scenario? b. By introducing fixed-rate products
c. By using derivatives and new product
a. Fixed interest income from the loan plus structures
the swap cost of deposit d. By avoiding market risks
b. Variable interest income from the loan
minus the swap cost of deposit Answer: c) By using derivatives and new
c. Fixed interest income from the loan product structures
minus the swap cost of deposit
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83. What does Treasury do to manage a. To increase the maturity period

exchange risk when arbitraging in foreign b. To improve liquidity
currencies? c. To allow prepayment
a. Buy put options d. To decrease inflation rates
b. Pay a forward premium
c. Sell call options Answer: c) To allow prepayment
d. Hedge with futures
88. What is a limitation of using interest
Answer: b) Pay a forward premium rate swaps in ALM?
a. Interest rates are not fairly aligned
84. What is the cost of hedge against b. Product prices exactly move in line with
currency risk in the given scenario? market rates
a. 1% c. Benchmark rates are not used for pricing
b. 2% d. Treasury provides a perfect hedge
c. 3%
d. 1.5% Answer: c) Benchmark rates are not used
for pricing
Answer: d) 1.5%
89. Why may market risk not be
85. In the USD-Rupee funds arbitrage, completely mitigated in ALM despite using
what is the spread earned by the bank appropriate hedges?
after considering the forward premium? a. Lack of embedded options
a. 2% b. Treasury's inability to provide a perfect
b. 3.5% hedge
c. 4% c. ALM using broad time bands
d. 1.5% d. Interest rates are fairly aligned
Answer: a) 2% Answer: c) ALM using broad time bands
86. Why are embedded options in 90. What characteristic of certain bank
corporate debt paper useful? products makes them escape ALM analysis
a. To increase interest rates and cannot be fully hedged?
b. To improve liquidity a. Benchmark rates
c. To decrease inflation rates b. Broad time bands
d. To reduce the maturity period c. Embedded options
d. Product pricing alignment
Answer: b) To improve liquidity
Answer: c) Embedded options
87. What is the purpose of a put option
embedded in a bond issue at the end of a
specific period?
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95. Why is a bond considered a credit

91. In treasury business, what is the substitute in treasury products?
primary concern related to credit risk? a. Bonds have lower interest rates
a. Exposure limits b. Bonds are tradable and more liquid
b. Counterparty dealings c. Bonds have a fixed rate of interest
c. Market risk d. Bonds are priced based on market
d. Lending business demand
Answer: b) Counterparty dealings Answer: b) Bonds are tradable and more

liquid
92. Why do highly rated companies prefer
issuing debt paper over bank credit in the 96. What is the primary advantage of the
debt market? non-SLR investment portfolio of treasury
a. Lower liquidity from the ALM perspective?
b. Lower interest rates a. Higher interest rates
c. Fixed interest rates b. More liquidity
d. Higher credit risk c. Flexible nature
d. Fixed interest rates
Answer: b) Lower interest rates
Answer: c) Flexible nature
93. What makes a corporate bond a more
liquid asset compared to a loan? 97. What is the process called when credit
a. Fixed interest rates receivables of a bank are converted into
b. Base Rate/MCLRs of the bank units or bonds that can be traded in the
c. Tradable nature market?
d. Credit quality a. Bonding
b. Leverage
Answer: c) Tradable nature c. Securitisation
d. Marginalisation
94. How is the credit risk in a bond
different from that in a loan? Answer: c) Securitisation
a. Bonds have a fixed rate of interest
b. Loans are more liquid assets 98. How does securitisation benefit the
c. Bonds are marked-to-market more issuing bank?
frequently a. Reduces liquidity
d. Loans are priced in the market b. Blocks capital
c. Frees capital for fresh lending
Answer: c) Bonds are marked-to-market d. Increases credit risk
more frequently
Answer: c) Frees capital for fresh lending
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99. What are units or bonds, often called 103. Who is the protection buyer in a
Pass-Through Certificates (PTCs), created credit derivatives transaction?
through securitisation known as? a. A bank
a. Credit notes b. An investor
b. Tradable assets c. Both a and b
c. PTCs d. Reference asset
d. Treasury bonds
Answer: a) A bank
Answer: c) PTCs
104. What does the protection seller
100. In securitisation, what type of loans guarantee in a credit derivatives contract?
can be converted into PTCs, providing a. Profit on the reference asset
liquidity to the bank? b. Payment of principal or interest or both
a. Long-term loans only c. Market liquidity
b. Medium-term retail assets only d. Reduction of credit risk
c. Mortgage loans
d. Short-term loans only Answer: b) Payment of principal or
interest or both
Answer: c) Mortgage loans
105. What does the protection buyer pay
101. What is the primary purpose of credit to the protection seller in a credit
derivatives in the financial market? derivatives transaction?
a. Enhancing interest rates a. Principal amount
b. Segregating credit risk from b. Interest on the reference asset
loan/investment assets c. Guarantee fee (premium)
c. Increasing market liquidity d. Collateral
d. Reducing capital adequacy requirements
Answer: c) Guarantee fee (premium)
Answer: b) Segregating credit risk from
loan/investment assets 106. What is the primary advantage of
Credit Derivatives (CD) for the issuer?
102. What are the instruments used in a. Increased market liquidity
credit derivatives that transfer credit risk b. Efficient use of capital and
from the owner of the asset to another diversification of credit risk
person for a fee? c. Enhanced credit quality assessment
a. Credit certificates d. Improved counterparty risk
b. Interest rate swaps management
c. Credit default swap
d. Market-linked bonds Answer: b) Efficient use of capital and
diversification of credit risk
Answer: c) Credit default swap
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107. Which organization is associated with 110. What role did governments/central
guidelines related to credit derivatives banks play during the financial crisis in
transactions? relation to troubled assets?
a. Financial Stability Board (FSB)
b. International Monetary Fund (IMF) a. Issued more credit derivatives
c. International Swaps and Derivatives b. Sold troubled assets to private
Association (ISDA) institutions
d. Basel Committee on Banking Supervision c. Provided liquidity and support to banks
against weak assets
Answer: c) International Swaps and d. Encouraged securitization of troubled
Derivatives Association (ISDA) assets
108. What is the counterparty risk Answer: c) Provided liquidity and support
mentioned in the context of credit to banks against weak assets
derivatives?
a. Risk associated with credit defaults 111. Which of the following entities are
b. Risk related to market liquidity eligible as Market Makers in the context of
c. Risk arising from inefficient use of capital the passage?
d. Risk associated with the credit status of
the protection provider a. Commercial Banks, Mutual Funds, and
Housing Finance Companies
Answer: d) Risk associated with the credit b. Non-Banking Financial Companies
status of the protection provider (NBFCs), Provident Funds, and Export-
Import Bank of India (EXIM)
109. What negative aspects of credit c. Foreign Institutional Investors (FIIs) and
derivatives and securitization were Listed Corporates
highlighted during the global financial crisis d. All India Financial Institutions (EXIM,
(2008-2009)? NABARD, NHB, SIDBI) and Insurance
Companies
a. Enhanced market efficiency
b. Diversification of credit risk Answer: b) Non-Banking Financial
c. Negligence in assessing credit quality Companies (NBFCs), Provident Funds, and
and counterparty risk Export-Import Bank of India (EXIM)
d. Reduction in capital adequacy
requirements
Answer: c) Negligence in assessing credit

quality and counterparty risk
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112. Which category includes entities such

as Mutual Funds, Provident Funds, and 115. What is the significance of specific
Listed Corporates? permission from the Reserve Bank for an
institution to be included in either
a. Market Makers category?
b. Primary Dealers (PDs) a. It ensures sound financials
c. All India Financial Institutions b. It overrides regulatory criteria
d. Users c. It indicates eligibility beyond general
criteria
Answer: d) Users d. It establishes a good track record
113. What is a common criterion for Answer: c) It indicates eligibility beyond

entities under both Market Makers and general criteria
Users categories?
a. Presence of a good track record
b. Sound financials
c. Specific permission from the Reserve
Bank
d. Eligibility by regulatory bodies
Answer: c) Specific permission from the

Reserve Bank
114. In the Users category, which entities

are explicitly?
a. Commercial Banks, Provident Funds, and

Mutual Funds
b. Insurance Companies, Listed Corporates,
and Housing Finance Companies
c. All India Financial Institutions, Foreign
Institutional Investors (FIIs), and National
Bank for Agriculture and Rural
Development (NABARD)
d. Non-Banking Financial Companies
(NBFCs) and Small Industries Development
Bank of India (SIDBI)
Answer: b) Insurance Companies, Listed

Corporates, and Housing Finance
Companies

BFM Module C Quiz

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1

APP NAME: CAIIB WITH ASHOK, WWW.CAIIBWITHASHOK.IN

ALL THE VERY BEST FOR YOUR

SAMPLE QUESTION S FOR

BANK FINANCIAL MANAGEMENT

Ashok Pandey ( Senior Manager)

S No. Topic Page No

CAIIB GENERAL INFORMATION

S NO. Mandatory Paper Elective Papers: Candidates may select

2 Advanced Business & Risk Management

3 Banking Regulations and Information Technology & Digital Banking

4 Bank Financial Management Central Banking

 There will be 100 objective-type multiple-choice Question s on the Question

 Negative points won't be awarded for incorrect responses.

 Exam Question s will include the following:

c. Logical and analytical explanation

 50 out of 100 is the minimum score required to pass the subject.

 The "Class of Pass" requirements:

 Deadline for Guidelines and Significant Developments Ahead of Exams:

 Important developments in banking and finance up to June 30th, as well as

MODULE C: TREASURY MANAGEMENT

o Products of Foreign Exchange Markets; Money Market Products; Securities Market

 International Equity and Debt Products

o Regulatory Environment; Global Depository Receipts; Indian Depository Receipts; External

 Funding and Regulatory Aspects

 Treasury Risk Management

 Treasury and Asset-Liability Management

CHAPTER 19-: Introduction to Treasury Management

8. How has the scope of Treasury expanded A. Conducting market research

11. In Asset-Liability Management (ALM),

Answer: B. Underlying assets and liabilities

17. What does the balance of payments

Answer: B. Deregulation of interest rates Answer: D. By facilitating operation across

33. What is identified as one of the driving Answer: A. Asset-Liability Management

Answer: B. Foreign Exchange Business

63. What are the conventional sources of

Answer: C. Generating profits Answer: B. By borrowing in Rupee and

Answer: B. Interest Arbitrage

70. How does the Treasury operate in Interest

73. What is the nature of trading? B. To avoid managing liquidity

81. What is an area almost exclusive to the A. Retail banking services

89. How is the Treasury typically organized C. No accounting system

Answer: C. To maintain books of accounts Answer: C. It can act as an Authorized Dealer

111. What key parameters of performance D. Within the Back Office

118. What role does the Mid Office play in the

A. Actively involved in day-to-day

Answer: B. No involvement in day-to-day

119. What is the role of the Mid Office in

A. Execute daily market transactions

Answer: B. Aggregate total market risk

CHAPTER 20-: Treasury Products

Answer: c. Most liquid market Answer: d. INR

6. Why is the market for USD/INR considered

Answer: d. Bank websites and trading Answer: c. Tomorrow (TOM)

13. In spot trades, when does the settlement

25. In the context of forward contracts, who d. Avoiding currency transactions

Answer: b. Raising and deploying short-term

Answer: b. Liquidity available in the market

52. What is the Overnight Mumbai Interbank

67. What is the typical duration of placements

Answer: c. 225% of Net Owned Funds (NOF) Answer: c. 1 month to 6 months

Answer: b. Inter-bank markets Answer: c. Short-term investment paper