Q.

The office created exclusively to provide

information to the management and implement risk
management systems is known as:
a) Front office
b) Mid office
c) Back office
d) Integrated Treasury
Case Study: Treasury Management in ABC Bank Q1. Which of the following actions should the Mid-
ABC Bank operates a well-structured Treasury Office take upon detecting a breach in VaR limits?
Department, segregated into Front Office, Mid- A) Report to the Chief Dealer for correction
Office, and Back Office. The Front Office deals with B) Escalate the issue to ALCO and Risk Management
execution of trades in forex, money market, and Department
securities market. The Mid-Office monitors market C) Ignore the breach if it is within a tolerable range
risk, compliance with risk limits, and reports to the D) Advise the Back Office to cancel the trade
ALCO (Asset Liability Committee). The Back Office
is responsible for deal settlement, reconciliation, Answer: B) Escalate the issue to ALCO and Risk
and regulatory reporting. Management Department
Recently, the bank’s dealing room executed a trade The Mid-Office is responsible for ensuring compliance
in government securities (G-Secs). The Mid-Office with risk parameters. Any breach in VaR limits should be
observed that the dealer exceeded the prescribed immediately escalated to ALCO and the Risk
Value-at-Risk (VaR) limits, and the Back Office Management Department for corrective action.
identified a settlement mismatch due to incorrect
trade confirmation. The ALCO is now assessing the
impact on liquidity, market risk, and regulatory
compliance.
Based on this case, answer the following questions:
Case Study: Treasury Management in ABC Bank Q2. What role does the Back Office play in the
ABC Bank operates a well-structured Treasury settlement of the executed trade?
Department, segregated into Front Office, Mid- A) Executes trades in the market
Office, and Back Office. The Front Office deals with B) Monitors exposure limits and risk compliance
execution of trades in forex, money market, and C) Confirms the trade with the counterparty and
securities market. The Mid-Office monitors market ensures timely settlement
risk, compliance with risk limits, and reports to the D) Decides on hedging strategies for the bank
ALCO (Asset Liability Committee). The Back Office
is responsible for deal settlement, reconciliation, Answer: C) Confirms the trade with the counterparty
and regulatory reporting. and ensures timely settlement
Recently, the bank’s dealing room executed a trade The Back Office is responsible for trade verification,
in government securities (G-Secs). The Mid-Office confirmation, settlement, and reconciliation to ensure
observed that the dealer exceeded the prescribed smooth financial transactions.
Value-at-Risk (VaR) limits, and the Back Office
identified a settlement mismatch due to incorrect
trade confirmation. The ALCO is now assessing the
impact on liquidity, market risk, and regulatory
compliance.
Based on this case, answer the following questions:
Case Study: Treasury Management in ABC Bank Q3. The breach in Value-at-Risk (VaR) limits indicates
ABC Bank operates a well-structured Treasury which type of risk for the bank?
Department, segregated into Front Office, Mid- A) Credit Risk
Office, and Back Office. The Front Office deals with B) Market Risk
execution of trades in forex, money market, and C) Operational Risk
securities market. The Mid-Office monitors market D) Liquidity Risk
risk, compliance with risk limits, and reports to the
ALCO (Asset Liability Committee). The Back Office Answer: B) Market Risk
is responsible for deal settlement, reconciliation, A breach in VaR limits signifies Market Risk, which arises
and regulatory reporting. due to adverse price movements in securities, forex, or
Recently, the bank’s dealing room executed a trade interest rate-sensitive assets.
in government securities (G-Secs). The Mid-Office
observed that the dealer exceeded the prescribed
Value-at-Risk (VaR) limits, and the Back Office
identified a settlement mismatch due to incorrect
trade confirmation. The ALCO is now assessing the
impact on liquidity, market risk, and regulatory
compliance.
Based on this case, answer the following questions:
Case Study: Treasury Management in ABC Bank Q4. How should the ALCO respond to the liquidity risk
ABC Bank operates a well-structured Treasury arising from the settlement mismatch?
Department, segregated into Front Office, Mid- A) Conduct a stress test to assess future liquidity needs
Office, and Back Office. The Front Office deals with B) Instruct the Front Office to execute another trade to
execution of trades in forex, money market, and compensate for the mismatch
securities market. The Mid-Office monitors market C) Ignore the issue, as settlement mismatches are
risk, compliance with risk limits, and reports to the common
ALCO (Asset Liability Committee). The Back Office D) Request an immediate regulatory waiver from RBI
is responsible for deal settlement, reconciliation,
and regulatory reporting. Answer: A) Conduct a stress test to assess future
Recently, the bank’s dealing room executed a trade liquidity needs
in government securities (G-Secs). The Mid-Office ALCO should assess liquidity risk through stress testing
observed that the dealer exceeded the prescribed and implement corrective measures such as adjusting
Value-at-Risk (VaR) limits, and the Back Office liquidity buffers or revising exposure limits.
identified a settlement mismatch due to incorrect
trade confirmation. The ALCO is now assessing the
impact on liquidity, market risk, and regulatory
compliance.
Based on this case, answer the following questions:
Case Study: Treasury Management in ABC Bank Q5. What measure can the bank take to prevent future
ABC Bank operates a well-structured Treasury settlement mismatches?
Department, segregated into Front Office, Mid- A) Strengthen reconciliation processes in the Back
Office, and Back Office. The Front Office deals with Office
execution of trades in forex, money market, and B) Increase trading volume to cover losses
securities market. The Mid-Office monitors market C) Reduce dependency on government securities
risk, compliance with risk limits, and reports to the D) Shift settlement responsibility from Back Office to
ALCO (Asset Liability Committee). The Back Office Front Office
is responsible for deal settlement, reconciliation,
and regulatory reporting. Answer: A) Strengthen reconciliation processes in the
Recently, the bank’s dealing room executed a trade Back Office
in government securities (G-Secs). The Mid-Office Proper settlement procedures, confirmations, and
observed that the dealer exceeded the prescribed reconciliations are essential to avoid trade mismatches
Value-at-Risk (VaR) limits, and the Back Office and financial losses.
identified a settlement mismatch due to incorrect
trade confirmation. The ALCO is now assessing the
impact on liquidity, market risk, and regulatory
compliance.
Based on this case, answer the following questions:
 Q. 9.81% GOI 2025 with an yield of 8.40% was bought for
116.50. when the yield falls to 7.70%, what will happen to
BFM the price of the bond?
a) Bonds price is insensitive to yield movements
Mod.-C b) Bond price falls
c) Bond price does not change
d) Bond price rises
 A bank’s FX treasury plans to borrow USD funds for a 12-month
period and engage in arbitrage. The details of the arbitrage
strategy are as follows:
BFM
▪ 12-months ARR (Annual Rate Return) with a markup is
calculated as 150 bps + 100 bps.
Mod.-C ▪ Sell/Buy Swap rate: 75.00 with an additional swap premium of
2.25.
▪ Yield on 1-Year CD in INR is 6%.
▪ Based on the given details, answer the following question:
Q. Calculate the arbitrage gain percentage that the bank can
earn through this strategy:
(a) 0.45% Calculation :
(b) 0.50% ▪ 12-month ARR + Mark up = 150 bps + 100 bps = 2.50%
(c) 0.55% ▪ Sell/Buy Swap = 75.00 + 2.25 = 77.25,
▪ thus Swap cost = 2.25/75 = 0.03 or 3.00%
(d) 0.60%
▪ Total Cost for USD funds = 2.50% + 3.00% = 5.50%
▪ Yield on INR funds = 6.00%
▪ Arbitrage Gain = Yield (6.00%) – Cost (5.50%) = 0.50%
ABC Bank is a scheduled commercial bank operating in India.
Due to economic fluctuations and regulatory changes, the bank
has been closely monitoring its liquidity, capital adequacy, and
asset-liability management (ALM). The bank is assessing its 1. What is the CAR for ABC Bank?
balance sheet position as of March 31, 2025, and the Chief Risk a) 10.0%
Officer (CRO) is tasked with ensuring compliance with Basel III b) 12.0%
norms and RBI guidelines. c) 13.0%
Key financial data for ABC Bank: d) 11.5%
•Total Risk-Weighted Assets (RWA): ₹50,000 crore
•Tier 1 Capital: ₹4,500 crore
•Tier 2 Capital: ₹1,500 crore
•Net Demand and Time Liabilities (NDTL): ₹40,000 crore
•Statutory Liquidity Ratio (SLR) securities: ₹8,000 crore
•Cash Reserve Ratio (CRR) Balance with RBI: ₹1,600 crore
•Liquidity Coverage Ratio (LCR) High-Quality Liquid Assets
(HQLA): ₹5,000 crore
•Total Loans Disbursed: ₹35,000 crore
•Total Deposits: ₹42,000 crore
•Net Interest Income (NII): ₹1,200 crore
•Net Stable Funding Ratio (NSFR) Required Stable Funding
(RSF): ₹30,000 crore
•NSFR Available Stable Funding (ASF): ₹35,000 crore
ABC Bank is a scheduled commercial bank operating in India.
Due to economic fluctuations and regulatory changes, the bank
has been closely monitoring its liquidity, capital adequacy, and 2. The CRR requirement is 4.0% of NDTL.
asset-liability management (ALM). The bank is assessing its What is the required CRR balance for ABC Bank?
balance sheet position as of March 31, 2025, and the Chief Risk a) ₹1,500 crore
Officer (CRO) is tasked with ensuring compliance with Basel III b) ₹1,600 crore
norms and RBI guidelines. c) ₹1,400 crore
Key financial data for ABC Bank: d) ₹1,200 crore
•Total Risk-Weighted Assets (RWA): ₹50,000 crore
•Tier 1 Capital: ₹4,500 crore
•Tier 2 Capital: ₹1,500 crore
•Net Demand and Time Liabilities (NDTL): ₹40,000 crore
•Statutory Liquidity Ratio (SLR) securities: ₹8,000 crore
•Cash Reserve Ratio (CRR) Balance with RBI: ₹1,600 crore
•Liquidity Coverage Ratio (LCR) High-Quality Liquid Assets
(HQLA): ₹5,000 crore
•Total Loans Disbursed: ₹35,000 crore
•Total Deposits: ₹42,000 crore
•Net Interest Income (NII): ₹1,200 crore
•Net Stable Funding Ratio (NSFR) Required Stable Funding
(RSF): ₹30,000 crore
•NSFR Available Stable Funding (ASF): ₹35,000 crore
ABC Bank is a scheduled commercial bank operating in India.
Due to economic fluctuations and regulatory changes, the bank
has been closely monitoring its liquidity, capital adequacy, and 3. If the bank's Net Cash Outflows over 30 days
asset-liability management (ALM). The bank is assessing its is ₹4,000 crore, what is its LCR?
balance sheet position as of March 31, 2025, and the Chief Risk a) 100%
Officer (CRO) is tasked with ensuring compliance with Basel III b) 120%
norms and RBI guidelines. c) 125%
Key financial data for ABC Bank: d) 90%
•Total Risk-Weighted Assets (RWA): ₹50,000 crore
•Tier 1 Capital: ₹4,500 crore
•Tier 2 Capital: ₹1,500 crore
•Net Demand and Time Liabilities (NDTL): ₹40,000 crore
•Statutory Liquidity Ratio (SLR) securities: ₹8,000 crore
•Cash Reserve Ratio (CRR) Balance with RBI: ₹1,600 crore
•Liquidity Coverage Ratio (LCR) High-Quality Liquid Assets
(HQLA): ₹5,000 crore
•Total Loans Disbursed: ₹35,000 crore
•Total Deposits: ₹42,000 crore
•Net Interest Income (NII): ₹1,200 crore
•Net Stable Funding Ratio (NSFR) Required Stable Funding
(RSF): ₹30,000 crore
•NSFR Available Stable Funding (ASF): ₹35,000 crore
ABC Bank is a scheduled commercial bank operating in India.
Due to economic fluctuations and regulatory changes, the bank
has been closely monitoring its liquidity, capital adequacy, and 4. What is the NSFR for ABC Bank?
asset-liability management (ALM). The bank is assessing its a) 100%
balance sheet position as of March 31, 2025, and the Chief Risk b) 116.67%
Officer (CRO) is tasked with ensuring compliance with Basel III c) 105%
norms and RBI guidelines. d) 90%
Key financial data for ABC Bank:
•Total Risk-Weighted Assets (RWA): ₹50,000 crore
•Tier 1 Capital: ₹4,500 crore
•Tier 2 Capital: ₹1,500 crore
•Net Demand and Time Liabilities (NDTL): ₹40,000 crore
•Statutory Liquidity Ratio (SLR) securities: ₹8,000 crore
•Cash Reserve Ratio (CRR) Balance with RBI: ₹1,600 crore
•Liquidity Coverage Ratio (LCR) High-Quality Liquid Assets
(HQLA): ₹5,000 crore
•Total Loans Disbursed: ₹35,000 crore
•Total Deposits: ₹42,000 crore
•Net Interest Income (NII): ₹1,200 crore
•Net Stable Funding Ratio (NSFR) Required Stable Funding
(RSF): ₹30,000 crore
•NSFR Available Stable Funding (ASF): ₹35,000 crore
ABC Bank is a scheduled commercial bank operating in India.
Due to economic fluctuations and regulatory changes, the bank
has been closely monitoring its liquidity, capital adequacy, and 5. If the bank's total assets are ₹60,000 crore,
asset-liability management (ALM). The bank is assessing its what is its NIM?
balance sheet position as of March 31, 2025, and the Chief Risk a) 2.0%
Officer (CRO) is tasked with ensuring compliance with Basel III b) 1.8%
norms and RBI guidelines. c) 2.2%
Key financial data for ABC Bank: d) 3.0%
•Total Risk-Weighted Assets (RWA): ₹50,000 crore
•Tier 1 Capital: ₹4,500 crore
•Tier 2 Capital: ₹1,500 crore
•Net Demand and Time Liabilities (NDTL): ₹40,000 crore
•Statutory Liquidity Ratio (SLR) securities: ₹8,000 crore
•Cash Reserve Ratio (CRR) Balance with RBI: ₹1,600 crore
•Liquidity Coverage Ratio (LCR) High-Quality Liquid Assets
(HQLA): ₹5,000 crore
•Total Loans Disbursed: ₹35,000 crore
•Total Deposits: ₹42,000 crore
•Net Interest Income (NII): ₹1,200 crore
•Net Stable Funding Ratio (NSFR) Required Stable Funding
(RSF): ₹30,000 crore
•NSFR Available Stable Funding (ASF): ₹35,000 crore
Certificate of Deposit (CD) is a negotiable, unsecured
money market instrument issued by a bank as a
Usance Promissory Note against funds deposited at
the bank for a specified time period.
Eligible issuers
Certificates of Deposit (CDs) can be issued by:
1-Scheduled Commercial Banks
2-Small Finance bank
3-Regional Rural Banks
4- All India Financial Institution
Eligible investors:
CDs can be issued to all persons resident in India
and
to non-residents to the extent permitted under the
Foreign Exchange Management Act (FEMA), 1999.
 Primary issuance:
CDs shall be issued only in dematerialized form and held with
a depository registered with Securities and Exchange Board of
India.
CDs shall be issued in minimum denomination of ₹5 lakh and
in multiples of ₹5 lakh thereafter.
The tenor of a CD at issuance shall not be less than 7 days
and shall not exceed 1 year.
CDs shall be issued on a T+1 basis where T represents the
date of closure of the offer period for issuance of the CDs.
Secondary market - trading venue and settlement:
CDs shall be traded either in Over the Counter (OTC) markets,
including on Electronic Trading Platforms (ETPs), or on
recognized stock exchanges with the approval of the Reserve
Bank.
The settlement cycle for OTC trades in CDs shall be T+0 or T+1
All secondary market transactions in CDs shall be settled on a
DvP basis through the clearing corporation of any recognized
stock exchange...
 Loans against CDs:
Banks are not permitted to grant loans against CDs
Buyback of CDs:
Issuing banks are permitted to buyback CDs before maturity.
Buyback of CDs shall be subject to the following conditions:
Buyback of CDs can be made only 7 days after the date of issue of the CD.
The buyback offer shall be made to all investors.
The investors shall have the option to accept or reject the buyback offer.
Buyback of CDs shall be at the prevailing market price.
Reporting requirements
Primary issuances:
Details of primary issuance of a CD shall be reported by the issuer on the Financial
Market Trade Reporting and Confirmation Platform (“F-TRAC”) of Clear Corp Dealing
System (India) Ltd by 5.30 PM on the day of issuance.
Secondary market transactions on exchanges:
All secondary market transactions in CDs undertaken on recognized stock exchanges
shall be reported on the F-TRAC platform by the exchanges after the close of
business on the same day.
On 2nd September 2021 following are the Spot rates. Q1. In a Currency Option
Spot EUR/USD : 1.2000 Contract:
USD/INR : 66.8000 a) An Option buyer has the
Following are the quotes for European type Options. right to buy the underlying
but not sell.
b) An Option buyer has the
Currency Call / Put Strike Price Premium Expiry Date obligation to buy the
Pair underlying but no
EUR/USD Call 1.2000 $0.036 24th Dec obligation to sell.
EUR/USD Put 1.2000 $0.04 24th Dec c) An Option seller has the
USD/INR Call 66.8000 Rs.0.15 24th March right but not the obligation
USD/INR Put 66.8000 Rs.0.08 24th March
to sell the underlying.
d) The buyer has the right but
In context of the given details, answer the following not the obligation to buy or
questions. sell the underlying
depending on whether it is
a call or put option.
On 2nd September 2021 following are the Spot rates. Q2. Buying a Call Option on
Spot EUR/USD : 1.2000 currency Y against currency
USD/INR : 66.8000 X is same as:
Following are the quotes for European type Options. a) Buying a put on currency X
against Y.
Currency Call / Put Strike Price Premium Expiry Date b) Selling a put on X against
Pair Y.
EUR/USD Call 1.2000 $0.036 24th Dec c) Selling a call on X against
EUR/USD Put 1.2000 $0.04 24th Dec Y.
USD/INR Call 66.8000 Rs.0.15 24th March
d) None of the above
USD/INR Put 66.8000 Rs.0.08 24th March

In context of the given details, answer the following

questions.
On 2nd September 2021 following are the Spot rates. Q3. ‘Straddle’ in money
Spot EUR/USD : 1.2000 market is referred to:
USD/INR : 66.8000 a) Call option where strike
Following are the quotes for European type Options. price = market price
b) Put option where strike
Currency Call / Put Strike Price Premium Expiry Date Price = market price
Pair
EUR/USD Call 1.2000 $0.036 24th Dec
c) Call & put option with
identical strike price
EUR/USD Put 1.2000 $0.04 24th Dec
USD/INR Call 66.8000 Rs.0.15 24th March d) None of the above
USD/INR Put 66.8000 Rs.0.08 24th March

In context of the given details, answer the following

questions.
On 2nd September 2021 following are the Spot rates. Q4. A dealer believes that the
Spot EUR/USD : 1.2000 spot rate for the dollar will
USD/INR : 66.8000 rise to 67.00 by 24th March
Following are the quotes for European type Options. 2017. So, he decides to buy at
the money call options. If his
expectations is correct, his
Currency Call / Put Strike Price Premium Expiry Date
profit from buying call option
Pair
for USD 1.5 million will be
EUR/USD Call 1.2000 $0.036 24th Dec
INR_________:
EUR/USD Put 1.2000 $0.04 24th Dec
USD/INR Call 66.8000 Rs.0.15 24th March
a) 80,000
USD/INR Put 66.8000 Rs.0.08 24th March b) 75,000
c) 1,00,000
In context of the given details, answer the following
questions. d) 90000
 Prudential limits for outstanding borrowing transactions in Call, Notice and Term Money Markets
Sr. No. Participant Category Prudential Limit
1 Scheduled Commercial Call, Notice and Term Money: Internal board approved limits within the prudential
Banks1 limits for inter-bank liabilities prescribed by Department of Regulation.
2 Small Finance Banks Call and Notice Money:
(i) 100% of capital funds, on a daily average basis in a reporting fortnight, and
(ii) 125% of capital funds on any given day.
Term Money:
(i) Internal board approved limit within the prudential limits for inter-bank liabilities.
3 Payment Banks, and Call, Notice and Term Money:
Regional Rural Banks
(i) 100% of capital funds, on a daily average basis in a reporting fortnight, and
(ii) 125% of capital funds on any given day.
4 Co-operative Banks Call, Notice and Term Money:
(i) 2.0% of aggregate deposits as at the end of the previous financial year.
5 Primary Dealers Call and Notice Money:
(i) 225% of Net Owned Fund (NOF) as at the end of the previous financial year on a daily
average basis in a reporting fortnight.
Term Money2:
(i) 225% of Net Owned Fund (NOF) as at the end of previous financial year.
General guidelines
(a) Interest rates: Eligible participants are free to decide on interest rates in the Call, Notice
and Term Money Markets.
(b) Trading venues: Call, Notice and Term Money transactions shall be executed in Over-
the-Counter markets, including on the NDS-CALL platform or any other Electronic Trading
Platform authorised for the purpose by the Reserve Bank.
(c) Market timings: The market timings for Call, Notice and Term Money transactions shall
be from 9:00 AM to 5:00 PM on each business day or as specified by the Reserve Bank from
time to time.
(d) Market practices and documentation: Eligible participants shall follow the standard
market practices, methodologies and documentation prescribed by Fixed Income Money
Market and Derivatives Association of India (FIMMDA), in consultation with the Reserve
Bank, from time to time.
Cancellation and termination
(a) A Call, Notice or Term Money transaction shall, normally, not be cancelled.
(b) A Notice or Term Money transaction can be terminated before maturity at a mutually
agreed price.
(c) Any cancellation or termination of a Call, Notice or Term Money transaction shall be
reported as set out in paragraph 7 of these Directions.
Reporting requirements
(a) All Call, Notice or Term Money transactions, other than those executed on NDS-CALL platform, shall
be reported to the NDS-CALL platform within 15 minutes of execution (the time when interest rate is
agreed), by both counterparties to the transaction or by the Electronic Trading Platform concerned, as the
case may be. For this purpose, all eligible participants in the Call, Notice and Term Money Markets shall
obtain membership of NDS-CALL platform. Eligible participants who are not members of NDS-CALL
platform shall obtain such membership within a period of six months.
(b) A Call, Notice or Term Money transaction executed on the NDS-CALL platform need not be reported
separately.
(c) Any cancellation or termination of a Call, Notice and Term Money transaction shall be reported on the
NDS-CALL platform within 15 minutes of cancellation by each counterparty to the transaction or by the
Electronic Trading Platform concerned, as the case may be.
(d) Any misreporting or multiple reporting of the same OTC markets deal by a counterparty shall be
immediately brought to the notice of the Clearcorp Dealing System Ltd., or any other NDS-CALL system
operator authorised by the Reserve Bank and also to the Financial Markets Regulation Department,
Reserve Bank of India, Central Office, Fort, Mumbai,
 Q. Company X shares are being traded simultaneously on two different
exchanges. Currently, the shares are priced at $20 on the NYSE, while the
same shares are trading at $20.05 on the London Stock Exchange (LSE). A
BFM trader notices this difference and quickly acts upon it, purchasing shares
from the NYSE and immediately selling them on the LSE, exploiting the
price difference.

Mod.-C Based on this scenario, select the correct statement regarding arbitrage
activities in modern financial markets:
a) Arbitrage opportunities frequently last for extended periods, making it
easy for traders to capitalize consistently.
b) Technological advancements have made arbitrage extremely easy and
profitable due to persistent price asymmetries.
c) Modern computerized trading systems have drastically reduced
arbitrage opportunities by rapidly correcting pricing inefficiencies.
d) Arbitrage is only possible on exchanges within the same country due
to regulatory constraints.
Arbitrage opportunities in today's market are short-lived because
computerized trading systems rapidly detect and eliminate price
asymmetries, quickly adjusting the prices to equilibrium.
 Q. A bank issues a Certificate of Deposit (CD) with a face
BFM value of ₹50 Lakh, offering a simple interest yield of 8%
per annum. The CD matures in 182 days. Calculate the
issue price of the CD based on the details provided and
Mod.-C the appropriate formula for calculating the price.
Choose the correct issue price of the CD:
(a) ₹48,07,456
(b) ₹48,06,954
(c) ₹48,09,051
(d) ₹48,08,200

▪ Yield = 8% or 0.08 = ₹48,08,200

▪ No. of days = 182 approximately
▪ Face Value = ₹50 Lakh
Q. Which of the following type option can be
exercised any time before the expiry date, After
the sub-prime crisis which took place in the year
2008/2009 in most of the markets, this option is
prohibited?
a) American option
b) European option
An option, without any conditionality, is called plain
c) Plain Vanilla Option vanilla option, which is a simple product and ideal for
hedging.
d) Call Option
e) Put Option
Q. Which of the following type of option can be
exercised only on the expiry date, In India we
use this type of options?
a) American option
b) European option
c) Plain Vanilla Option
d) Call Option
e) Put Option
❑ATM and OTM options do not have any intrinsic value.
❑Intrinsic Value of an option is the amount by which an
option is In-The-Money.
❑For a CALL Option, Intrinsic Value = Spot Price – Strike
Price
❑For a PUT Option, Intrinsic Value = Strike Price – Spot
Price
❑The option price, less the intrinsic value, is the time
value of the option.
❑Hence, the second component is the time value, which
is maximum for an ATM option.
❑Time Value is also called Extrinsic Value.
❑Time value decreases with the option becoming more
and more ITM or OTM, as the expiry date approaches.
Q. Calculate the annualized yield on a
91-day T-Bill priced at ₹99.

A) 4.04%
B) 4.05%
C) 4.12%
D) 4.20%
MAMP for
ECB will be
3 years.
 Q. A Certificate of Deposit (CD) was issued at a price of
BFM ₹97.50 per ₹100 face value for 270 days. Calculate the
annual yield percentage that the investor will earn based
on the provided details.
Mod.-C Choose the correct yield percentage:
(a) 3.4663%
(b) 3.4725%
(c) 3.4722%
(d) 3.4820% ▪ Price = ₹97.50
▪ No. of days = 270
 Q. The following statements describe the features of Cash Management Bills (CMBs).
BFM Identify which of the statements are correct:
1. The tenure, notified amount, and date of issue of the proposed Cash Management Bills
depend upon the temporary cash requirement of the Government, and the tenure is less
than 91 days.
2. The Bills are issued at a premium to the face value through auctions, as in the case of
Treasury Bills.
3. The announcement of the auction of the Bills is made by the Reserve Bank of India
through a separate Press Release issued one day prior to the date of auction.
4. The settlement of the auction is on a T+1 basis.
5. The Non-Competitive Bidding Scheme for Treasury Bills is extended to CMBs.
6. The Bills are tradable and qualify for the ready forward facility (Repo, MSF, and Reverse
Repo facility), and investment in the proposed Bills is reckoned as an eligible
investment in Government Securities by banks for SLR purposes.
a) Only statements 1, 3, 4, and 6 are correct. 2 is incorrect. The Bills are issued at a
discount, not a premium, to the face value
b) Only statements 2, 4, and 5 are correct.
through auctions, as in the case of Treasury
c) Only statements 1, 3, and 5 are correct. Bills.
d) Only statements 1, 2, 3, and 6 are correct. 5 is incorrect. The Non-Competitive
Bidding Scheme for Treasury Bills is not
extended to CMBs.
 Q. A bank rediscounts a bill:
Amount of Bill ₹100
BFM
Interest rate per annum 12%
Bill Rediscounting period 3 months
Mod.-C
Interest amount for three months is ₹3
Net amount lent is ₹97
Select the correct effective yield from
the options below:
(a) 12.00% Interest amount of 1 year: 3x4=12
(b) 12.15%
Yield= (3x4/97)*100
(c) 12.28%
(d) 12.37% Yield= 12.37%
 Q. Bank XYZ discounts a commercial bill with a principal amount of
BFM ₹10,00,00,000 (₹10 crore) at a discount rate of 10.25% per annum for
a period of 45 days (front-ended discounting method).

Mod.-C Calculate the net amount payable by the bank to the customer after
discounting the bill.
A. ₹9,85,26,401
B. ₹9,87,36,301
C. ₹9,86,33,501 =12,63,699
D. ₹9,88,46,201

Net amount payable=10,00,00,000−12,63,699

=₹9,87,36,301
BFM Q. The following statements describe the functions of an Integrated Treasury
in a bank. Identify which of the statements are correct:
1. Meeting reserve requirements, specifically the Cash Reserve Ratio (CRR)
and Statutory Liquidity Ratio (SLR).
2. Handling only domestic cash management without involvement in global
cash management.
3. Providing efficient merchant services, including foreign exchange (forex)
and advisory services.
4. Optimizing profit by encashing market opportunities in the forex market,
money market, and securities market (debt, equity, and credit derivative
markets).
5. Managing only credit risk and ignoring market risk for the bank/entity.
a) Only statements 1, 3, and 4 are correct.
Statement 2 is incorrect. Integrated
b) Only statements 2 and 5 are correct. Treasury handles global cash management,
c) Only statements 1, 2, and 4 are correct. not just domestic.
d) Only statements 1, 3, 4, and 5 are correct. Statement 5 is incorrect. Integrated Treasury is
involved in managing market risk, not just
credit risk, for the bank/entity.
 Q. A 90-day Commercial Paper (CP) is trading at a yield
BFM of 7% and FV is Rs. 100. Determine the price of the CP
based on the given information.
A) ₹97.36
Mod.-C B) ₹98.30
C) ₹98.50
D) ₹99.02
 Q. A 91-day Treasury Bill (T-bill) is trading at ₹98.59.
BFM Compute the annualized yield (YTM) on this T-bill.
A) 5.47%
B) 5.62%
Mod.-C C) 5.74%
D) 6.00%
NDS-OM is a screen based electronic anonymous order matching system for Govt.
securities owned by RBI. Presently the membership of the system is open to entities
like Banks, Primary Dealers, Insurance Companies, Mutual Funds etc. i.e entities
who maintain SGL accounts with RBI. These are Primary Members (PM) of NDS and
are permitted by RBI to become members of NDS-OM.
Gilt Account Holders which have gilt account with the PMs are permitted to have
indirect access to the NDS-OM system i.e they can request their Primary Members
to place orders on their behalf on the NDS-OM system.

Q.1 NDS-OM is a screen based electronic-------owned

by RBI.
a. Anonymous order matching system for
secondary market trading on government
securities.
b. Anonymous order matching system for primary
market trading on government securities
c. Anonymous order matching system for
secondary market trading on government
securities and corporate bonds.
d. Anonymous order matching system for primary
market trading on government securities and
corporate bonds.
NDS-OM is a screen based electronic anonymous order matching system for Govt.
securities owned by RBI. Presently the membership of the system is open to entities
like Banks, Primary Dealers, Insurance Companies, Mutual Funds etc. i.e entities
who maintain SGL accounts with RBI. These are Primary Members (PM) of NDS and
are permitted by RBI to become members of NDS-OM.
Gilt Account Holders which have gilt account with the PMs are permitted to have
indirect access to the NDS-OM system i.e they can request their Primary Members
to place orders on their behalf on the NDS-OM system.

Q.2 The uses of gilt account holders (GAHs) are

of different types. Which of the following are
correct users?
i. Operational users
ii. Transactional users
iii. View users
a) Only i and ii
b) Only ii and iii
c) Only i and iii
d) All i, ii and iii
NDS-OM is a screen based electronic anonymous order matching system for Govt.
securities owned by RBI. Presently the membership of the system is open to entities
like Banks, Primary Dealers, Insurance Companies, Mutual Funds etc. i.e entities
who maintain SGL accounts with RBI. These are Primary Members (PM) of NDS and
are permitted by RBI to become members of NDS-OM.
Gilt Account Holders which have gilt account with the PMs are permitted to have
indirect access to the NDS-OM system i.e they can request their Primary Members
to place orders on their behalf on the NDS-OM system.

Q.3 Which of the following entities are not

eligible to open and maintain a Constituents'
Subsidiary General Ledger (CSGL) account
with RBI on behalf of its constituents also
known as gilt account holder (GAHs)?
a) Licensed banks with minimum net worth
of Rs. 50 cr.
b) Stock holding corporation of India Ltd.
c) NABARD
d) Clearing corporation of India Ltd
NDS-OM is a screen based electronic anonymous order matching system for Govt.
securities owned by RBI. Presently the membership of the system is open to entities
like Banks, Primary Dealers, Insurance Companies, Mutual Funds etc. i.e entities
who maintain SGL accounts with RBI. These are Primary Members (PM) of NDS and
are permitted by RBI to become members of NDS-OM.
Gilt Account Holders which have gilt account with the PMs are permitted to have
indirect access to the NDS-OM system i.e they can request their Primary Members
to place orders on their behalf on the NDS-OM system.

Q.4 Which of the following entities is/are not

eligible to open and maintain an SGL
account with RBI?
a) Central government
b) Insurance companies
c) Foreign central governments
d) Corporate and LLPs
NDS-OM is a screen based electronic anonymous order matching system for Govt.
securities owned by RBI. Presently the membership of the system is open to entities
like Banks, Primary Dealers, Insurance Companies, Mutual Funds etc. i.e entities
who maintain SGL accounts with RBI. These are Primary Members (PM) of NDS and
are permitted by RBI to become members of NDS-OM.
Gilt Account Holders which have gilt account with the PMs are permitted to have
indirect access to the NDS-OM system i.e they can request their Primary Members
to place orders on their behalf on the NDS-OM system.

Q.5 What is the minimum order size for the

delas carried out through NDS-OM under
standard market lot?
a) Rs. 1 cr. And in multiple of Rs. 1 cr.
b) Rs. 2 cr. And in multiple of Rs. 2 cr.
c) Rs. 5 cr. And in multiple of Rs. 5 cr.
d) Rs. 100 cr. And in multiple of Rs. 100 cr.
BFM Q. The following statements describe the distinct roles Treasury is expected
to play in a bank. Identify which of the statements are correct:
1. Treasury is responsible for managing short, medium, and long-term funds
across currencies, and also for complying with reserve requirements
(CRR and SLR).
2. Treasury may trade in currencies, securities, and other financial
instruments, including derivatives, solely to manage client portfolios.
3. Treasury aids management in bridging asset-liability mismatches (ALM)
and provides derivative tools to manage risks in clients' businesses.
4. The roles of Treasury necessitate managing an ALM Book for internal risk
management, a Merchant Book for client-related currency and derivative
transactions, and a Trading Book for managing proprietary positions.
a) Only statements 1, 3, and 4 are correct.
b) Only statements 2 and 3 are correct. Statement 2 is incorrect. While Treasury
does trade in currencies, securities, and
c) Only statements 1 and 4 are correct. other financial instruments, including
d) Only statements 1, 2, and 4 are correct. derivatives, it is not solely to manage client
portfolios but also to contribute to the
bank's profits.
 Q. Bank A lends ₹10 crore under Bill Rediscounting
BFM Scheme (BRDS) at 7% p.a. for 90 days. Calculate the
amount of interest Bank A receives at the beginning of the
transaction.
Mod.-C A) ₹17,26,027
B) ₹16,92,307
C) ₹18,12,500
D) ₹17,50,000
Q. A dealer is long on call option in
company' equity at strike price of Rs 2725
per share with lot size of 100 paying a
total premium of Rs 800. When spot price
is 2750, what will be the profit or loss on
the day of exercise?
 Q. If the spot price of USD is Rs. 74
on the expiry day, it is an ……

As per a call option, you can buy a. In-the-money option

USD 100000 at a strike price of Rs. b. Out-of-money option
c. At-the-money option
74 per USD with expiry at the end d. American option
of 2 months. In this case,
 VaR is a statistical measure
Value at Risk indicating the worst possible
movement of a market rate, over

(VaR) a given period of time, under

normal market conditions, at a
defined confidence level.

VaR= Volatility x Probability (Z value)

How to Get Z
Value
Z value on 95% confidence level: 1.65

Z value on 99% confidence level: 2.33

 Z Value Trading Days
Z Value at 99% confidence Level: 2.33 Weekly Trading Days: 5 Days
Z Value at 95% confidence Level: 1.65 Monthly Trading Days: 25 Days
Z Value at 90% confidence Level: 1.28 Semi. Annual Trading Days: 125 Days
Annual Trading Days: 250 Days
 Q. ABC Bank has invested Rs.
20 Lakh in shares of Global
VaR Case Limited. The daily volatility is
2% and confidence level is
Study 95%.

Q.1 Calculate Daily VaR

Formula:
VaR= Volatility x Probability (Z value)
Z value on 95% confidence level: 1.65
VaR= 2% x 1.65 = 3.3%
VaR Amount= 20 Lakh x 3.3%
= 66000
 Q. ABC Bank has invested Rs. 20
Lakh in shares of Global Limited.

VaR Case
The daily volatility is 2% and
confidence level is 95%.

Study No. of trading days in a week: 7

Q.2 Calculate Weekly VaR

VaR= Volatility x Probability (Z value)
Z value on 95% confidence level: 1.65
VaR= 2% x 1.65 = 3.3%
VaR Amount= 20 Lakh x 3.3%
= 66000
Weekly VaR= Daily Volatility x √7
Weekly VaR (Amount)= 66000*2.646
=1,74,636
 Q. ABC Bank has invested Rs. 20
Lakh in shares of Global Limited.
VaR Case The daily volatility is 2% and
confidence level is 95%.

Study No. of days in a month: 30

Q.3 Calculate monthly VaR

Formula:
VaR= Volatility x Probability (Z value)
Z value on 95% confidence level: 1.65
VaR= 2% x 1.65 = 3.3%
VaR Amount= 20 Lakh x 3.3%
= 66000
Monthly VaR= Daily Volatility x √30
Monthly VaR (Amount)= 66000*5.477
= 3,61,482
 Q. ABC Bank has invested Rs. 20 Lakh
in shares of Global Limited. The daily
VaR Case volatility is 2% and confidence level is
95%.

Study No. of trading days in a year: 300

Q.4 Calculate yearly VaR

Formula:
VaR= Volatility x Probability (Z value)
Z value on 95% confidence level: 1.65
VaR= 2% x 1.65 = 3.3%
VaR Amount= 20 Lakh x 3.3%
= 66000
yearly VaR= Daily Volatility x √300
yearly VaR (Amount)= 66000*17.32
= 11,43,120
Volatility Q.5 In an investment yearly
volatility is 30% and number of
Case Study trading days in year is 250.
Calculate the daily volatility

Formula:
Yearly Volatility = Daily Volatility x √ No. of days
30% = Daily Volatility x √250
30% = Daily Volatility x 15.81
Daily Volatility= 30%/15.81 =1.90%
 Q.6 Global Bank has bought 250 shares
of ABC Ltd at Rs. 50 each. Find out daily
VaR Case VaR at 95% confidence level, given
annual volatility is 12%. Number of

Study trading days in year is 250

Formula:
VaR= Volatility x Probability (Z value)
Z value on 95% confidence level: 1.65
Annual VaR= 12%*1.65= 19.8%
Annual VaR (Amount)=250*50*19.8%
=Rs. 2475
Annual VaR=Daily Volatility* 𝑵𝒐. 𝒐𝒇 𝒅𝒂𝒚𝒔
Rs. 2475=Daily Volatility*√𝟐𝟓𝟎
Daily Volatility= Rs. 2475/15.81
= Rs. 156.55
 Q. Bank A discounts a ₹10 crore BRDS transaction at
BFM 7% p.a. for 90 days, with a front-ended basis.
Calculate the effective yield or YTM for Bank A.
Mod.-C
A) 6.92%
Interest received upfront = ₹17,26,027
B) 7.00% Net amount lent = ₹9,82,73,973
C) 7.12% Amount received on maturity = ₹10,00,00,000

D) 7.26%
 Q. The following statements describe the guidelines for banks permitted to issue Rupee
BFM Denominated Bonds (RDBs) overseas. Identify which of the statements are correct:
1. Banks are permitted to issue RDBs overseas for the purpose of Perpetual Debt
Instruments (PDI) qualifying for inclusion as Additional Tier 1 capital under the extant
Basel III Capital Regulations.
2. Banks can issue RDBs for the purpose of financing infrastructure and affordable
housing.
3. The “eligible amount” for the issue of PDIs in foreign currency shall be, as on March 31
of the previous financial year, the higher of 1.5% of Risk Weighted Assets (RWAs) or
Total Additional Tier 1 capital.
4. More than 49% of the “eligible amount” can be issued in foreign currency and/or in
rupee denominated bonds overseas.
5. RDBs issued have to be included in the limit for investments by Foreign Portfolio
Investors (FPIs) in corporate bonds.
6. Debt capital instruments qualifying for inclusion as Tier 2 capital under the extant Basel
III Capital Regulations can also be issued as RDBs overseas.
a) Only statements 1, 2, 3, and 6 are correct.
b) Only statements 1, 3, 4, and 5 are correct. 4 is incorrect. Not more than 49% of the
“eligible amount” can be issued in foreign
c) Only statements 1, 2, 4, and 6 are correct.
currency and/or in rupee denominated
d) Only statements 2, 3, 4, and 6 are correct. bonds overseas.
5 is incorrect. RDBs issued have to be excluded
from the limit for investments by Foreign
Portfolio Investors (FPIs) in corporate bonds.
 Q. A bank receives an FCNR(B) deposit for a tenure of 4 years. Given
BFM that the Overnight ARR is currently 2.50%, calculate the effective rate
of interest offered on this deposit.
Mod.-C A) 5.00%

B) 5.50%

C) 6.00%

D) 6.50%

Tenure (3 to 5 years): Overnight ARR + 350 bps.

Calculation: 2.50% + 3.50% = 6.00%

 Q. A corporate avails a new Foreign Currency External
Commercial Borrowing (ECB). The current 6-month ARR rate is
BFM
1.75%. Determine the maximum permissible all-in-cost ceiling
applicable to this ECB as per RBI guidelines.
Mod.-C
A) 6.75%

B) 7.00%

C) 7.25%

D) 7.50%

New Foreign Currency ECB: 6-month ARR + 500 bps.

Calculation: 1.75% + 5.00% = 6.75%

 Commercial Paper (CP) is an unsecured money market instrument issued in the
form of a promissory note.
The original tenor of a CP shall be between 7 days to 1 year.
Eligible Issuers:
Companies
Non-Banking Finance Companies (NBFCs) and
All India Financial Institutions (AIFI)
Subject to the condition that any fund-based facility availed of from bank or financial
institutions is classified as a standard asset by all financing banks at the time of issue.
Other entities like
co-operative societies/unions,
government entities,
trusts,
limited liability partnerships
any other body corporate
having presence in India with a net worth of ₹ 100 crore or higher.
 Eligible Investors:
All residents, and non-residents permitted to invest in
CP.
however, no person can invest in CPs issued by related
parties either in the primary or secondary market.
Investment by financial sector entities also allowed
CP shall be issued in the form of a promissory note
and held in a dematerialized form through any of the
depositories approved by and registered with SEBI.
A CP shall be issued in minimum denomination of ₹ 5
lakh and multiples thereof.
A CP shall be issued at a discount to face value.
No issuer shall have the issue of a CP underwritten or
co-accepted.
Options (call/put) are not permitted on a CP.
 Rating Requirement:
Eligible issuers, whose total CP issuance during a calendar year is ₹ 1000 crore or
more, shall obtain credit rating for issuance of CPs from at least 2 CRAs registered
with SEBI.
CRA:Credit Rating Agency
The minimum credit rating for a CP shall be ‘A3’.
Issuers, investors and Issuing and Paying Agents (IPA) shall follow the standard
procedures and documentation prescribed by FIMMDA.
FIMMDA: Fixed Income Money Market and Derivatives Association of India.
Secondary market trading and settlement of CP:
All OTC trades in CP shall be reported within 15 minutes of the trade to the
Financial Market Trade Reporting and Confirmation Platform (“F-TRAC”) of Clearcorp
Dealing System (India) Ltd.
The settlement cycle for OTC trades in CP shall be T+0 or T+1.
Buyback of CP :
The buyback of a CP, in full or part, shall be at the prevailing market price.
The buyback offer should be extended to all investors in the CP issue.
The buyback offer may not be made before 30 days from the date of issue.
 MCQ 1
XYZ Ltd., a manufacturing
company with ₹150 crore net
What is the minimum credit rating
worth, plans to raise ₹50 crore required for issuing Commercial Paper
via CP for 90 days. All fund- (CP)?
based facilities are standard
assets. CP is issued at a
a) A1
discount with ₹5 lakh face
value, credit rating 'A3', held in b) A2
dematerialized form. No c) A3
related parties invest. Buyback d) BBB
after 40 days at market price to
all investors. Trades reported Answer: c) A3
on F-TRAC within 15 minutes.
 MCQ 2
XYZ Ltd., a manufacturing
company with ₹150 crore net Which of the following statements regarding
worth, plans to raise ₹50 crore XYZ Ltd.’s CP issuance is correct?
via CP for 90 days. All fund-
based facilities are standard a) The CP can be underwritten by a bank.
assets. CP is issued at a b) CP can be issued in denominations of ₹3
discount with ₹5 lakh face lakh.
value, credit rating 'A3', held in c) Options like call/put are allowed on CP.
dematerialized form. No d) CP shall be issued at a discount to face
value.
related parties invest. Buyback
after 40 days at market price to Answer: d) CP shall be issued at a discount to
all investors. Trades reported face value.
on F-TRAC within 15 minutes.
 MCQ 3
XYZ Ltd., a manufacturing
company with ₹150 crore net
When can XYZ Ltd. make a buyback
worth, plans to raise ₹50 crore offer on its issued CP?
via CP for 90 days. All fund-
based facilities are standard a) Immediately after issuance.
assets. CP is issued at a
b) After 15 days from the date of issue.
discount with ₹5 lakh face
value, credit rating 'A3', held in c) After 30 days from the date of issue.
dematerialized form. No d) Only on maturity.
related parties invest. Buyback
after 40 days at market price to Answer: c) After 30 days from the date
all investors. Trades reported of issue.
on F-TRAC within 15 minutes.
 MCQ 4
XYZ Ltd., a manufacturing
company with ₹150 crore net Which platform is used for reporting OTC
worth, plans to raise ₹50 crore trades in Commercial Paper within 15
via CP for 90 days. All fund- minutes?
based facilities are standard
assets. CP is issued at a discount a) SEBI-TRADE
with ₹5 lakh face value, credit b) F-TRAC
rating 'A3', held in c) RBI-PORTAL
dematerialized form. No related d) NDS-OM
parties invest. Buyback after 40
days at market price to all Answer: b) F-TRAC
investors. Trades reported on F-
TRAC within 15 minutes.
 MCQ 5
XYZ Ltd., a manufacturing
company with ₹150 crore net
worth, plans to raise ₹50 crore What is the minimum denomination in which
via CP for 90 days. All fund- XYZ Ltd. can issue its Commercial Paper?
based facilities are standard
assets. CP is issued at a a) ₹1 lakh
discount with ₹5 lakh face b) ₹2 lakh
value, credit rating 'A3', held in
dematerialized form. No c) ₹5 lakh
related parties invest. Buyback d) ₹10 lakh
after 40 days at market price to
all investors. Trades reported Answer: c) ₹5 lakh
on F-TRAC within 15 minutes.
 BFM Decrease in interest earning =
200 × 0.8 = 1.60
160 × 1.10 = 1.76
The GAP statement of XYZ bank Ltd. Total = 3.36 cr
Decrease in interest paid
Re-pricing assets [Link] Re-pricing liabilities [Link] 200 × 0.6 = 1.20
200 × 0.5 = 1.00
Call money 200 Saving deposits bucket 200 Total = 2.20 cr
as per behavior Decrease in NII = 1.16 cr
Cash credit advance 160 Fixed deposit 200
Total 360 Total 400

Q. Change in interest
In the above gap position, bank reckons the following changes in the
interest rate? earning?
- Call money lending falls by – 0.80%
- Cash credit lending falls by – 1.10%
- SB deposits falls by – 0.60% Ans. Decline Rs.3.36 cr
- FD falls by – 0.50%
 BFM Decrease in interest earning =
200 × 0.8 = 1.60
160 × 1.10 = 1.76
The GAP statement of XYZ bank Ltd. Total = 3.36 cr
Decrease in interest paid
Re-pricing assets [Link] Re-pricing liabilities [Link] 200 × 0.6 = 1.20
200 × 0.5 = 1.00
Call money 200 Saving deposits bucket 200 Total = 2.20 cr
as per behavior Decrease in NII = 1.16 cr
Cash credit advance 160 Fixed deposit 200
Total 360 Total 400

Q. Change in interest
payment?
In the above gap position, bank reckons the following changes in the
interest rate?
- Call money lending falls by – 0.80%
- Cash credit lending falls by – 1.10% Ans. Decline Rs.2.20 cr
- SB deposits falls by – 0.60%
- FD falls by – 0.50%
 BFM Decrease in interest earning =
200 × 0.8 = 1.60
160 × 1.10 = 1.76
The GAP statement of XYZ bank Ltd. Total = 3.36 cr
Decrease in interest paid
Re-pricing assets [Link] Re-pricing liabilities [Link] 200 × 0.6 = 1.20
200 × 0.5 = 1.00
Call money 200 Saving deposits bucket 200 Total = 2.20 cr
as per behavior Decrease in NII = 1.16 cr
Cash credit advance 160 Fixed deposit 200
Total 360 Total 400

Q. Impact on net interest

In the above gap position, bank reckons the following changes in the
interest rate? income (NII)
- Call money lending falls by – 0.80%
- Cash credit lending falls by – 1.10% Ans. Decline 1.16 cr
- SB deposits falls by – 0.60%
- FD falls by – 0.50%
 Q. An RTGS payment of ₹5 crore was initiated by a
customer from Mumbai in favor of a party in Delhi on
BFM 11th August. Consider the following details:
11th August: Holiday in Delhi
Mod.-C 12th August: Holiday across India
13th August: Holiday in Mumbai
On which date will the beneficiary in Delhi receive the
credit?
A. 11th August
B. 12th August
C. 13th August
D. 11th August itself, despite local holiday in Delhi
RTGS (Real-Time Gross Settlement) payments are processed by RBI, and settlement occurs instantly and irrevocably,
regardless of regional holidays. RTGS operations are governed by the RBI’s national-level working days. Local holidays
at the beneficiary’s or sender’s location do not impact RTGS credits. Therefore, the beneficiary in Delhi will receive
immediate credit on 11th August itself, despite it being a local holiday in Delhi.
Case Study: Treasury Risks in XYZ Bank
XYZ Bank has a well-established treasury division that engages in foreign Q. What was the primary reason for the
exchange trading, money market investments, and bond trading. The financial loss faced by XYZ Bank’s treasury
bank follows RBI’s capital adequacy guidelines and risk management division?
protocols. A) Non-compliance with RBI capital
adequacy norms
One day, the bank’s treasury department initiated a large foreign B) High leverage and adverse exchange rate
exchange deal worth ₹500 crore, assuming a stable market. However, movement
due to unexpected global economic events, the exchange rate moved C) Insufficient funds for the transaction
adversely by ₹1.5, leading to a direct loss of ₹7.5 crore in a matter of D) Delay in regulatory approval for the deal
hours. Answer:
The treasurer, who was responsible for approving the transaction, did not B) High leverage and adverse exchange
rate movement
take additional risk mitigation measures like hedging. Due to the high
leverage and fast-paced nature of treasury operations, the loss was
irreversible.
Later, an internal audit revealed that the treasurer had exceeded the pre-
approved trading limits set by the bank’s risk management team. The
management realized that a single miscalculation in judgment had
resulted in a significant financial loss, highlighting the importance of
strict risk controls in treasury operations.
Treasury Risk
XYZ Bank's treasury department engages in foreign exchange trading. The bank
purchases USD 10 million at an exchange rate of ₹82/USD. However, due to
market fluctuations, the exchange rate depreciates to ₹80/USD before the bank
can sell the dollars.
Question:
What is the total loss incurred by XYZ Bank due to the adverse exchange rate
movement?
A) ₹2 million
B) ₹20 million
C) ₹200 million
D) ₹2000 million
Case Study: Organisational Controls in Treasury Operations
XYZ Bank operates a well-structured treasury department divided into 1. What was the primary reason for XYZ
three key segments: Front Office, Back Office, and Mid Office. Bank’s financial loss?
One day, the treasury front office of XYZ Bank initiated a foreign A) The front office executed a trade beyond
exchange trade of USD 50 million without seeking approval from the its authorized limit
mid-office. The back office, during its verification, found that the deal B) The back office failed to verify the deal’s
exceeded the exposure limits set by the RBI and the bank’s internal exposure limit before execution
policies. Upon further investigation, it was revealed that the Chief Dealer C) The mid-office incorrectly assessed the
had miscalculated risk factors, leading to an unexpected loss of ₹25 exchange rate movement
crore due to exchange rate fluctuations. D) The risk management team failed to
The bank's risk management team conducted an audit and found that: review treasury operations regularly
Answer: A) The front office executed a
The front office failed to seek approval from the mid-office, violating trade beyond its authorized limit
risk control policies.
The deal exceeded exposure limits, making the bank vulnerable to
regulatory penalties.
The back office identified the issue after the trade was executed, which
was too late to prevent the loss.
As a result, XYZ Bank faced a significant financial setback and had to
revise its treasury risk policies to prevent future mismanagement.
Case Study: Organisational Controls in Treasury Operations
XYZ Bank operates a well-structured treasury department divided into 2. What role does the back office play in
three key segments: Front Office, Back Office, and Mid Office. treasury operations?
One day, the treasury front office of XYZ Bank initiated a foreign A) Verifying that executed deals conform to
exchange trade of USD 50 million without seeking approval from the market rates and exposure limits
mid-office. The back office, during its verification, found that the deal B) Monitoring treasury risk exposure and
exceeded the exposure limits set by the RBI and the bank’s internal setting credit limits for trading desks
policies. Upon further investigation, it was revealed that the Chief Dealer C) Deciding foreign exchange and securities
had miscalculated risk factors, leading to an unexpected loss of ₹25 trading strategies for the bank
crore due to exchange rate fluctuations. D) Executing trades directly with
The bank's risk management team conducted an audit and found that: counterparty banks and financial
institutions
The front office failed to seek approval from the mid-office, violating Answer: A) Verifying that executed
risk control policies. deals conform to market rates and
The deal exceeded exposure limits, making the bank vulnerable to exposure limits
regulatory penalties.
The back office identified the issue after the trade was executed, which
was too late to prevent the loss.
As a result, XYZ Bank faced a significant financial setback and had to
revise its treasury risk policies to prevent future mismanagement.
Case Study: Organisational Controls in Treasury Operations
XYZ Bank operates a well-structured treasury department divided into 3. How could XYZ Bank have prevented
three key segments: Front Office, Back Office, and Mid Office. this loss?
One day, the treasury front office of XYZ Bank initiated a foreign A) By allowing the back office to pre-
exchange trade of USD 50 million without seeking approval from the approve all forex transactions
mid-office. The back office, during its verification, found that the deal B) By ensuring the mid-office monitors and
exceeded the exposure limits set by the RBI and the bank’s internal approves transactions before execution
policies. Upon further investigation, it was revealed that the Chief Dealer C) By increasing the exposure limit to
had miscalculated risk factors, leading to an unexpected loss of ₹25 accommodate larger forex trades
crore due to exchange rate fluctuations. D) By allowing the front office to execute
The bank's risk management team conducted an audit and found that: deals without intervention to speed up
transactions
The front office failed to seek approval from the mid-office, violating Answer: B) By ensuring the mid-office
risk control policies. monitors and approves transactions before
The deal exceeded exposure limits, making the bank vulnerable to execution
regulatory penalties.
The back office identified the issue after the trade was executed, which
was too late to prevent the loss.
As a result, XYZ Bank faced a significant financial setback and had to
revise its treasury risk policies to prevent future mismanagement.
Case Study: Organisational Controls in Treasury Operations
XYZ Bank operates a well-structured treasury department divided into 4. Which of the following best describes
three key segments: Front Office, Back Office, and Mid Office. the function of the Mid Office in Treasury?
One day, the treasury front office of XYZ Bank initiated a foreign A) Verifying that transactions comply with
exchange trade of USD 50 million without seeking approval from the internal and regulatory risk policies
mid-office. The back office, during its verification, found that the deal B) Processing payments and ensuring
exceeded the exposure limits set by the RBI and the bank’s internal settlements of treasury transactions
policies. Upon further investigation, it was revealed that the Chief Dealer C) Engaging in buying and selling of forex
had miscalculated risk factors, leading to an unexpected loss of ₹25 and securities in the market
crore due to exchange rate fluctuations. D) Confirming deals directly with
The bank's risk management team conducted an audit and found that: counterparty banks after execution
Answer: A) Verifying that transactions
The front office failed to seek approval from the mid-office, violating comply with internal and regulatory risk
risk control policies. policies
The deal exceeded exposure limits, making the bank vulnerable to
regulatory penalties.
The back office identified the issue after the trade was executed, which
was too late to prevent the loss.
As a result, XYZ Bank faced a significant financial setback and had to
revise its treasury risk policies to prevent future mismanagement.
Case Study: Organisational Controls in Treasury Operations
XYZ Bank operates a well-structured treasury department divided into 5. What key learning can be derived from
three key segments: Front Office, Back Office, and Mid Office. XYZ Bank’s treasury failure?
One day, the treasury front office of XYZ Bank initiated a foreign A) Risk controls in treasury should be
exchange trade of USD 50 million without seeking approval from the strong to prevent unauthorized trading
mid-office. The back office, during its verification, found that the deal B) Exposure limits should be removed to
exceeded the exposure limits set by the RBI and the bank’s internal encourage larger trading volumes
policies. Upon further investigation, it was revealed that the Chief Dealer C) Banks should allow the front office to
had miscalculated risk factors, leading to an unexpected loss of ₹25 operate independently without oversight
crore due to exchange rate fluctuations. D) The back office should delay
The bank's risk management team conducted an audit and found that: confirmation to detect more errors in
transactions
The front office failed to seek approval from the mid-office, violating Answer: A) Risk controls in treasury
risk control policies. should be strong to prevent unauthorized
The deal exceeded exposure limits, making the bank vulnerable to trading
regulatory penalties.
The back office identified the issue after the trade was executed, which
was too late to prevent the loss.
As a result, XYZ Bank faced a significant financial setback and had to
revise its treasury risk policies to prevent future mismanagement.
Thank You