BFM PRACTICE SET 1_38309031_2024_07_08_07_37

COMPLETE PREPARATION FOR JAIIB & CAIIB
PDF MCQS VIDEOS QUIZZES CONTACT NUMBER 8292857381
BFM
PREVIOUS YEAR
QUESTIONS PRACTICE
SET
A customer of your bank has approached you for an export bill
discounted on 16th July 2021 against a bill of £0.2 million. You have
discounted it for £0.19 million with a maturity on 18th September
2021. On 18th September, the bill got dishonored. The exchange rate
on that day was £1 = Rs. 84.221/228. How much amount is to be
recovered from the customer for such dishonor if charges for dishonor
are 0.025% and the RBI interest rate is 8%?
### Options:
a. Rs. 1,62,34,020
b. $ 1,62,29,963
c. Rs. 1,62,35,313
d. $ 1,62,31,369
### Step-by-Step Explanation:

1. **Discounting the Bill**:
The bill was discounted for £0.19 million.
2. **Exchange Rate Calculation**:

- The exchange rate on the day of dishonor is £1 = Rs. 84.228.
- Therefore, £0.19 million in rupees is:
16003320
3. **Dishonor Charges Calculation**:

- The charges for dishonor are 0.025%.
- Therefore, dishonor charges in rupees:
4000.83
4. **Interest Calculation**:
- The period from 16th July 2021 to 18th September 2021 is 64 days.
- The RBI interest rate is 8% per annum.
- Therefore, the interest for 65 days:
227992.5
5. **Total Amount to be Recovered**:

- Adding the original discounted amount, dishonor charges, and
interest:
c. Rs. 1,62,35,313
If 1 day VaR of a portfolio is Rs. 50000/- with 97% confidence level. In a

period of 1 year of 300 trading days, how many times the loss on the
portfolio may exceed Rs. 50000/-
A) 3
B) 6
C) 9
D) 12
What is VaR?
VaR stands for Value at Risk. It's a way to measure the maximum
potential loss of a portfolio (a collection of investments) over a specific
time period with a given probability.
The question:
If the 1-day VaR of a portfolio is Rs. 50,000 with a 97% confidence
level, how many times in a year (with 300 trading days) might the loss
exceed Rs. 50,000?
Simple explanation:
Imagine you have a portfolio of investments, and you want to know
how often it might lose more than Rs. 50,000 in a single day. The VaR
calculation says that there's a 3% chance (100% - 97% confidence level)
of losing more than Rs. 50,000 in a day.
Now, let's calculate:

With 300 trading days in a year, we can expect the loss to exceed Rs.
50,000 around 3% of the time. To find out how many days this is,
multiply 300 days by 3% (or 0.03):
300 days × 0.03 = 9 days
Answer:
So, the loss on the portfolio may exceed Rs. 50,000 around 9 days in a
year (Answer: C) 9).
In simple terms, VaR helps estimate how often a portfolio might lose a
certain amount (Rs. 50,000 in this case). With a 97% confidence level,
we expect the loss to exceed this amount around 3% of the time,
which translates to approximately 9 days in a year.
As per the given data, calculate the following:

• PNCPS: 2000
• RNCPS (Residual maturity 3 years): 2000
• Perpetual Debt Instrument: 1500
• Paid-up Capital: 8000
• Basel Compliant dated securities for Tier 2 (Residual period 6
months): 1500
• Revaluation Reserve: 1000
• Statutory Reserve: 4000
• Capital Reserve: 2000
• Credit Balance in P/L Account: 3500
• General Provision & Loss Reserve: 2000
• Goodwill: 1000
• Credit Risk Weighted Assets: 180000
• Market Risk Weighted Assets: 35000
• Operational Risk Weighted Assets: 25000
Required Calculation:
Calculate the Common Equity Tier 1 (CET1)
To calculate the Common Equity Tier 1 (CET1) as per the given data and
the specified elements of CET1 capital, we follow these steps:
### Given Data:

- PNCPS: 2000 (AT1)
- RNCPS (Residual maturity 3 years): 2000 (T2)
- Perpetual Debt Instrument: 1500 (AT1)
- Paid-up Capital: 8000
- Basel Compliant dated securities for Tier 2 (Residual period 6
months): 1500
- Revaluation Reserve: 1000
- Statutory Reserve: 4000
- Capital Reserve: 2000
- Credit Balance in P/L Account: 3500
- General Provision & Loss Reserve: 2000
- Goodwill: 1000
- Credit Risk Weighted Assets: 180000
- Market Risk Weighted Assets: 35000
- Operational Risk Weighted Assets: 25000
### Elements of CET1:

1. Paid-up Capital: 8000
2. Statutory Reserve: 4000
3. Capital Reserve: 2000
4. Revaluation Reserve (considered at a discount of 55%): $1000
\times (1 - 0.55) = 450$
5. Credit Balance in P/L Account: 3500
6. Less: Goodwill: 1000
### Step-by-Step Calculation:
1. **Calculate CET1 Components:**

- Paid-up Capital: 8000
- Statutory Reserve: 4000
- Capital Reserve: 2000
- Revaluation Reserve (discounted at 55%): 450
- Credit Balance in P/L Account: 3500
- Total CET1 Components:(8000 + 4000 + 2000 + 450 + 3500 = 17950
2. **Less Regulatory Adjustments/Deductions:**

- Goodwill: 1000
3. **Total CET1:**
-(17950 - 1000 = 16950
A Forward purchase contract for USD 10000 is booked by Bank B for it's
customer at rate of 71.60, due for delivery 7 days later. Bank had
covered itself in market at 71.68.
On due date, the customer request to extend the contract by 1

month.The prevailing rate on due date are as under:
Spot 1 USD = INR 70.10/12
1 month 09/10 paisa

2 months 11/13 paisa
Exchange margin @ 0.10% both for sale and purchase transaction.
Ques 1: The rate of cancellation of forward purchase contact on due

date would be?
1 USD = ------- INR
A- 70.05
B- 70.12
C- 70.19
D- 70.03
Imagine you bought a contract to exchange dollars (USD) for Indian

rupees (INR) at a fixed rate (71.60) from Bank B. But now, you want to
cancel that contract.
To cancel, Bank B needs to "sell" your dollars and "buy" Indian rupees.
They'll use the current market rate (70.10) to do this. However, they'll
also charge a small fee (0.10%) for this transaction.
So, they'll subtract this fee from the market rate (70.10), which leaves
them with 70.03. This means they'll give you 70.03 Indian rupees for
each US dollar you wanted to exchange.
Think of it like returning a purchase: you bought something (the

contract), now you want to return it, and the bank is calculating how
much they'll give you back (in Indian rupees).
Step 1: Understand the situation

- Bank B booked a forward purchase contract for $10,000 (USD) at a

rate of 71.60 (INR) for their customer, due in 7 days.
- Bank B covered themselves in the market at a rate of 71.68.
- The customer wants to extend the contract by 1 month.
Step 2: Calculate the cancellation rate
- To cancel the forward contract, Bank B needs to sell USD and buy INR
(Indian Rupees).
- The prevailing spot rate (current market rate) is 1 USD = 70.10/12 INR
(we'll use 70.10 for simplicity).
- Since Bank B is selling USD, they'll get the lower end of the spot rate,
which is 70.10.
- However, there's an exchange margin of 0.10% for sale transactions,
so they'll deduct this margin from the spot rate:
70.10 - (0.10% of 70.10) = 70.10 - 0.07 = 70.03
Answer: The rate of cancellation of the forward purchase contract on

the due date would be 1 USD = 70.03 INR (Option D).
In simple terms, when canceling the contract, Bank B sells USD and
buys INR at the prevailing spot rate (70.10) minus a small exchange
margin (0.07), resulting in a rate of 70.03.
A Future Contact of GBP 25000 is traded at LIFFE for delivery Feb,

25,2021 at USD 1.350 against spot exchange rate of USD 1.40. Also a
futures contract of EUR 20000 for delivery on 24-02-2021 is traded at
USD 1.20 against spot rate of USD 1.25. Q
ues 1: What will be loss/profit to buyer if spot rate of GBP on Feb
25,2021 is USD 1.4120?
A- Profit USD 1550
B- Profit USD 1250
C- Loss USD 1550
D- D- None
To determine the profit or loss for the buyer of the GBP futures
contract, we need to compare the futures price with the spot price on
the delivery date.
Here's the information provided:

- Futures contract for GBP 25,000.
- Futures price: USD 1.350.
- Initial spot exchange rate: USD 1.40.
- Spot exchange rate on the delivery date (Feb 25, 2021): USD 1.4120.
### Step-by-Step Explanation:
1. **Futures Price Calculation:**

- The buyer agreed to buy GBP at the futures price of USD 1.350.
2. **Spot Price on Delivery Date:**

- On Feb 25, 2021, the spot price is USD 1.4120.
3. **Comparison of Prices:**
- Futures price: USD 1.350
- Spot price on Feb 25, 2021: USD 1.4120
4. **Determine Profit or Loss:**

- Since the buyer locked in a price of USD 1.350 per GBP but the
market price on Feb 25, 2021, is USD 1.4120 per GBP, the buyer has the
benefit of buying GBP at a lower price than the market rate.
5. **Calculate the Profit per GBP:**

- Profit per GBP = Spot price on delivery date - Futures price
- Profit per GBP = USD 1.4120 - USD 1.350
- Profit per GBP = USD 0.062
6. **Total Profit:**
- Total profit = Profit per GBP * Total amount of GBP in the contract
- Total profit = USD 0.062 * 25,000
- Total profit = USD 1,550
### Conclusion:
The profit to the buyer if the spot rate of GBP on Feb 25, 2021, is USD
1.4120 is USD 1,550.
So the correct answer is:

**A- Profit USD 1550**

25,2021 at USD 1.350 against spot exchange rate of USD 1.40.
Also a futures contract of EUR 20000 for delivery on 24-02-2021 is

traded at USD 1.20 against spot rate of USD 1.25.
What is the loss or profit to buyer if spot rate of EUR on 25-02-2021
is USD 1.2710?
A- Profit USD 1550

B- Profit USD 1500
C- Profit USD 1400
E- Profit USD 1420
To determine the profit or loss for the buyer of the futures contracts,
we need to follow these steps:
1. **Identify the futures contract details:**

- GBP futures contract:
- Amount: GBP 25,000
- Spot rate at the time of the contract: USD 1.40
- EUR futures contract:
- Amount: EUR 20,000
2. **Determine the final spot rate for EUR on the delivery date:**
- Final spot rate of EUR on 25-02-2021: USD 1.2710
Since the question asks about the profit or loss for the EUR futures
contract, we will focus on that.
3. **Calculate the profit or loss for the EUR futures contract:**

- **Futures Price of EUR:** USD 1.20
- **Final Spot Rate of EUR on 25-02-2021:** USD 1.2710
When the buyer enters the futures contract, they agree to buy EUR
20,000 at USD 1.20 per EUR on the delivery date, regardless of the spot
rate on that date.
4. **Compare the final spot rate with the futures price:**

- The buyer can now sell EUR 20,000 at the final spot rate of USD
1.2710, having bought it at the futures price of USD 1.20.
- Therefore, the profit per EUR = Final Spot Rate - Futures Price =
1.2710 - 1.20 = USD 0.0710
5. **Calculate the total profit for EUR 20,000:**

- Total Profit = Profit per EUR * Amount of EUR = 0.0710 * 20,000 =
USD 1,420
Thus, the profit for the buyer of the EUR futures contract, given the
final spot rate of USD 1.2710, is **USD 1,420**.
**Answer: D - Profit USD 1420**

25,2021 at USD 1.350 against spot exchange rate of USD 1.40.
Also a futures contract of EUR 20000 for delivery on 24-02-2021 is

traded at USD 1.20 against spot rate of USD 1.25.Ques 3:What is the
profit or loss to buyer on EURO futures if the spot rate on 25-02-2021 is
USD 1.18?
A- Profit USD 400

B- Loss USD 400
C- Loss USD 500
D- None
To determine the profit or loss for the buyer of the EUR futures
contract, we need to follow these steps:
1. **Identify the futures contract details:**

- EUR futures contract:
- Amount: EUR 20,000
2. **Determine the final spot rate for EUR on the delivery date:**
- Final spot rate of EUR on 25-02-2021: USD 1.18
3. **Calculate the profit or loss for the EUR futures contract:**

- **Futures Price of EUR:** USD 1.20
- **Final Spot Rate of EUR on 25-02-2021:** USD 1.18
When the buyer enters the futures contract, they agree to buy EUR
20,000 at USD 1.20 per EUR on the delivery date, regardless of the spot
rate on that date.
4. **Compare the final spot rate with the futures price:**
- The buyer can now sell EUR 20,000 at the final spot rate of USD
1.18, having bought it at the futures price of USD 1.20.
- Therefore, the loss per EUR = Futures Price - Final Spot Rate = 1.20 -
1.18 = USD 0.02
5. **Calculate the total loss for EUR 20,000:**

- Total Loss = Loss per EUR * Amount of EUR = 0.02 * 20,000 = USD
400
Thus, the loss for the buyer of the EUR futures contract, given the final
spot rate of USD 1.18, is **USD 400**.
**Answer: B - Loss USD 400**

BFM PRACTICE SET 1_38309031_2024_07_08_07_37

Uploaded by

Document Information

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

BFM PRACTICE SET 1_38309031_2024_07_08_07_37

Uploaded by

Copyright:

Available Formats

COMPLETE PREPARATION FOR JAIIB & CAIIB

PDF MCQS VIDEOS QUIZZES CONTACT NUMBER 8292857381

### Step-by-Step Explanation:

2. **Exchange Rate Calculation**:

3. **Dishonor Charges Calculation**:

5. **Total Amount to be Recovered**:

If 1 day VaR of a portfolio is Rs. 50000/- with 97% confidence level. In a

Now, let's calculate:

300 days × 0.03 = 9 days

As per the given data, calculate the following:

### Given Data:

### Elements of CET1:

### Step-by-Step Calculation:

1. **Calculate CET1 Components:**

2. **Less Regulatory Adjustments/Deductions:**

On due date, the customer request to extend the contract by 1

Spot 1 USD = INR 70.10/12

1 month 09/10 paisa

Ques 1: The rate of cancellation of forward purchase contact on due

1 USD = ------- INR

Imagine you bought a contract to exchange dollars (USD) for Indian

Think of it like returning a purchase: you bought something (the

Step 1: Understand the situation

- Bank B booked a forward purchase contract for $10,000 (USD) at a

Step 2: Calculate the cancellation rate

70.10 - (0.10% of 70.10) = 70.10 - 0.07 = 70.03

Answer: The rate of cancellation of the forward purchase contract on

A Future Contact of GBP 25000 is traded at LIFFE for delivery Feb,

Here's the information provided:

### Step-by-Step Explanation:

1. **Futures Price Calculation:**

2. **Spot Price on Delivery Date:**

4. **Determine Profit or Loss:**

5. **Calculate the Profit per GBP:**

So the correct answer is:

A Future Contact of GBP 25000 is traded at LIFFE for delivery Feb,

Also a futures contract of EUR 20000 for delivery on 24-02-2021 is

A- Profit USD 1550

1. **Identify the futures contract details:**

3. **Calculate the profit or loss for the EUR futures contract:**

4. **Compare the final spot rate with the futures price:**

5. **Calculate the total profit for EUR 20,000:**

**Answer: D - Profit USD 1420**

A Future Contact of GBP 25000 is traded at LIFFE for delivery Feb,

Also a futures contract of EUR 20000 for delivery on 24-02-2021 is

A- Profit USD 400

1. **Identify the futures contract details:**

3. **Calculate the profit or loss for the EUR futures contract:**

5. **Calculate the total loss for EUR 20,000:**

**Answer: B - Loss USD 400**

You might also like

2. Exchange Rate Calculation:

3. Dishonor Charges Calculation:

5. Total Amount to be Recovered:

1. Calculate CET1 Components:

2. Less Regulatory Adjustments/Deductions:

1. Futures Price Calculation:

2. Spot Price on Delivery Date:

4. Determine Profit or Loss:

5. Calculate the Profit per GBP:

1. Identify the futures contract details:

3. Calculate the profit or loss for the EUR futures contract:

4. Compare the final spot rate with the futures price:

5. Calculate the total profit for EUR 20,000:

Answer: D - Profit USD 1420

1. Identify the futures contract details:

3. Calculate the profit or loss for the EUR futures contract:

5. Calculate the total loss for EUR 20,000:

Answer: B - Loss USD 400