1. Conventionally, the treasury function was confined to ...ibskayamkulam.in/OnlineExam/file/2013-09... · 1. Conventionally, the treasury function was confined to funds management,

1. Conventionally, the treasury function was confined to funds management, covering which ofthe following (which is not correct):

a) Maintaining adequate cash balances to meet day-to-day requirements

b) Deploying surplus funds generated in the operations

c) Sourcing funds to bridge occasional gaps in cash flow

d) Lending to large corporates

2. With regard to Banking Treasury functions which of the following statements are correct ?

a) Treasury function is liquidity management and considered as a service centre

b) Treasury is responsible to hold with RBI minimum cash balances as per CRR requirements

c) Treasury s responsible to invest funds in approved securities as per SLR requirements

d) All the above

3. From an organizational point of view Treasury is considered to be;

a) Investment Centre

b) Fund Management department

c) Service Centre

d) None of the above

4. The scope of treasury has expanded considerably due to;

a) Economic reforms, economic development, declining disintermediation

b) Deregulation of markets, economic reforms competition

c) Competition, increasing intermediation, economic conditions

d) All the above

5. Owning to the interface with markets, managing market risk for the entire bank has becomean integral part of Treasury?

a) True

b)False

6. Which of the following has become part of the Integrated Treasury and added a newdimension to treasury activity?

a) Foreign exchange business

b) Investment in securities

c) a and b both

d) only b

7. Which of the following was not a function of treasury in the earlier days?

a)Maintenance of adequate cash balance

b)Deploying surplus funds

c)Maintaining CRR and SLR

d)selling hedging products to customers

8. Treasury essentially deals with short term funds-flow but which of the following areexceptions?

a) Part of SLR requirement is held till maturity exceeding one year

b) Investment in some securities is held till maturity exceeding one year

c) Both of the above

d) B only

9. Risk Management covers underlying assets and liabilities across (a) short term maturities (b) Medium term maturities (c) Long term maturities

a) a and b only

b) a and c only

c) b and c only

d) a, b, c only

10. Integrated treasury refers to integration of which of the following (which is not correct)?

a) Money market

b) Securities market

c) Foreign exchange operations

d) Credit appraisal

11. In Indian context, integrated treasury is the direct result of which reforms?

a) Deregulation of interest rates

b) Partial convertibility of rupee

c) b only

d) a and b only

12. Which of the following statement is not correct?

a) Rupee is freely convertible on current account

b) Rupee is not freely convertible on capital account

c) Rupee is to a large extent, also convertible on capital account

d) Rupee is not freely convertible on current account

13. Rupee is convertible on capital account due to which of the following relaxations by RBI(which is not true)?

a) Foreign direct investment

b) Overseas direct investment by Indian Corporates

c) Foreign currency operations of Resident Indians

d) Speculative Investments on stock markets abroad

14. To-day’s treasury is a:

a) service centre

b) Accounting centre

c) Profit centre


15. Banks look for interest arbitrage across the currency markets and are in a position to;

a) Shift swiftly a placement in Rupee denominated commercial paper to lending in USD inGlobal Inter-bank market

b) Source funds in Global market and swap the funds into domestic currency or vice-versa

c) b only

d) a and b both

16. Banks have gained wider access to foreign currency funds through which of the following?

a) Deposits maintained by NRIs

b) Cash balances in EEFC accounts of exporters

c) Float funds from external commercial borrowings

d) All the above

17. The banks distinguish between rupee cash flows and foreign currency cash flows and anintegrated cash flow has become the basis for treasury operations?

a) True

b) False

18. With the instant Payment and Settlement Systems, the funds can be transferred easily;

a) form long term to short-term investments

b) Form securities market to money market

c) From one currency to another currency

d) All the above

19. Integrated treasury is in a position to operate across the sectors and across the currencymarkets in search of;

a) Higher returns

b) Mobilizing low cost funds for liquidity needs

c) a only

d) Both of the above

20. Cash flow is a cash flow irrespective of the currency in which it is denominated?

True/ False

21. Which of the following is false?

a) Interest changes globally have no impact on interest rates domestically

b) Proprietary positions facilitate treasury to do:

True/ False

22. A Treasury transaction with customers is known as;

a) Merchant banking business

b) Trading business

c) Investment business


23. Many corporate customers have their own treasury departments and they expect to receivean integrated service from the bank in which of the following areas (which is not true)?

a) Hedging export receivable

b) Raising foreign currency loans

c) Overseas investments

d) Arranging funds for them in overseas markets

24. Which is the driving force for integrated treasury (a) Interest arbitrage (b) Investmentopportunities (c) Risk Management

a) a and b only

b) a and c only

c) b and c only

d) a, b, c only

25. Which of the following are functions of Integrated Treasury (a) Meeting reserverequirements (b) Efficient merchant services (c) Global cash management (d) creditmanagement

a) a and d only

b) a and c only

c) b and d only

d) a, b, c only

1.d 2.d 3.c 4.b 5.a 6.c 7.d 8.c 9.d 10.d 11.d 12.d 13.d

14.c 15.d 16.d 17.b 18.d 19.d 20.a 21.a 22.a 23.d 24.d 25.d

1. Profit may be optimized exploiting market opportunities in (which one is not true);

a) Forex market

b) Money market

c) Stock exchange speculative market

d) Securities market

2. Globalization is the process of integrating domestic market with global markets,characterized by free capital flows and minimum regulatory requirements?

a)True

b) False

3. Which of the following is less in treasury operations?

a) Interest rate risk

b) Credit risk

c) Price risk

4. Which of the following statement is not correct?

a) The Capital flows represent direct and indirect investments

b) Ultimate motive of Capital flows is investing returns on investments within India

c) Capital flows involve transfer of wealth

d) All the above

5. Which department of RBI has been renamed w.e.f. Jan 2004?

a) Foreign Exchange Department

b) Exchange Control Department

c) None of the above


6. Which Act relating to foreign exchange, has replaced the earlier one?

a) Foreign Exchange Management Act

b) Foreign Exchange Regulation Act



7. Globalization process in India has influenced directly, which of the following?

a) Interest rates

b) Exchange rates



8. Which of the following are not used to hedge currency and interest rate risks?

a) Securitization

b) Forward

c) Option

d) Swaps

9. Which of the following have contributed to deepening the debt market and eliminatingcounterparty risks in treasury dealings?

a) Mutual funds

b) Domestic Investment Institutions

c) Foreign Investment Institutions

d) All the above

10. Which of the following involves interest arbitrage?

a) Buying securities with a view to sell later at a higher price

b) Borrowing in one currency and lending in another currency

11. Which Payment and settlement system, is working in India, comparable to any Globalsystem?

a) Clearing Corporation of India Ltd

b) National Securities Depository Corporation Ltd

c) a and b both

d) a only

12. Payment and Settlement System has greatly facilitated which of the following transactionsof treasury?

a) Foreign exchange, money market, commodity market

b) Money market, forex market, securities

c) Securities market, commodity market

d) All the above

13. Equity Derivatives such as futures and options have become popular with investors,although thebank treasuries have as yet not been permitted to use Equity Derivatives?

a) True/False

14. RBI has permitted banks to borrow and invest through their overseas correspondents inforeign currency subject to which of the following ceiling?

a) 25% of their Tier-1 Capital

b) 25% of their Tier-1 Capital or USD 10 million

c) 25% of their Tier-1 Capital or USD 10 million which ever is higher

d) 25% of their Tier-1 Capital or USD 10 million which ever is lower

15. The process of globalization is in no way confined only to banks having overseas branches,but is equally applicable to all other banks that have a full fledged treasury activity?

a) True/ False

16. Which of the following statement is not true?

a) Treasury operates in markets with high credit risk

b) Treasury activity is highly leveraged, with return on capital being very high

c) Operational costs in treasury are low as compared to branch banking


17. Which of the following is a major risk in speculative trading?

a)Operational risk

b)Credit risk

c)Price risk

d)None of the above

18. The Treasury is run by a few specialist staff, engaged in high-value transactions, pertransaction size generally not being below;

a) Rs)10 million

b) Rs)25 million

c) Rs.50 million


19. Buying and selling foreign currency to customers constitutes a major source of fee-basedincome for the banks?

a) True/ False

20. Which of the following statements is true?

a) The banks buy foreign currency from customers (Mainly Importers)

b) The banks sell foreign currency to customers (Mainly Exporter)

c) The banks sell foreign currency in the inter-bank market


21. Banks generally maintain a stock of foreign currency for the purpose of merchant business,as it is not convenient to buy and sell from inter-bank market?

a) True/ False

22. The difference between buying and selling rate is called;

a) Spread

b) Profit

c) b only

d) a and b both

23. What is Open Position?

a) Any residual position of a bank at the end of the day-Overbought

b) Any residual position of a bank at the end of the day-Oversold


d) a and b both

24. Which if the following is true?

a) RBI permits trading subject to certain conditions

b) A dealer can deal both in secondary and primary markets

25. Open position involves Exchange Risk, as the value of foreign currency may change maychange overnight?

a) True/ False

1. c 2.a 3.b 4.b 5.b 6.a 7.c 8.a 9.d 10.b 11.c 12.b 13.a

14. c 15.a 16.a 17.c 18.c 19.a 20.c 21.b 22.d 23.d 24.a 25.a

1. Conventional banking operation in money market pertained to (a) Lending surplus funds (b)Borrowing funds when required (c) Interest on funds lent in the market being source of income

a) a and b only

b) a and c only

c) b and c only

d) a, b, c only

2. Till recently-even five years back-banks were circumspect in borrowing money market fundsonly for the purpose of lending with a profit?

a) True/False

3. Which of the following statements is not correct?

a) Banks have always been investing in Govt. Securities being risk-prone

b) Banks have been investing in strategic investments- such as Subsidiary and Associatecompanies

c) Banks have been investing in Govt. Securities to satisfy SLR requirement

d) All the above

4. Which of the following is not the primary source of income for bank treasury?

a) Buying and selling of foreign exchange

b) Interest on loans and advances

c) interest on money market lending

d) All the above

5. Treasury profits are increasingly derived from market operations involving (which one is nottrue.

a) Buying and selling of securities

b) Borrowing and lending of securities

c) Investing in loans

d) All the above

6. Which of the following is not true?

a) Mid office is not responsible for settlements

b) Back office does not monitor balances in Nostro accounts

7. Treasury operates across the currency and security markets and hence in a position to findout where the interest differentials are in its favour?

a) True/ False

8. Interest Arbitrage cannot be got from which of the following?

a) The treasury may borrow in one currency and lend in another currency or vice-versadepending on the domestic and foreign interest rates

b) The treasury may borrow in money market and invest short-term in commercial paper or T-bills

c) Banks with good credit standing may borrow large amounts in money market and lend toother banks at rates marginally lower than those rates

d) All the above

9. Trading is not a speculative activity where profits arise out of favorable price movementsduring the interval between buying and selling?

a True/ False

10. Treasury has an Open position which is also called as;

a) Trading position

b) Propriety position

c) A only

d) a and b both

11. While trading in currencies and securities, treasuries are open to which of the followingrisks?

a) Market risk

b) Price risk

c) b only

d) a and b both

12. The treasuries may incur loss while trading in currencies and securities if;

a) Price of the currency (Exchange rate) moves adversely

b) Price of the security move adversely

c) Any of the above


13. Which of the following is caused by delay in settlement?

a) Operational risk

b) Credit risk

c) Reputation risk

14. For what purpose, a company buts a Forward Rate agreement from Treasury to fix interestrate for commercial paper?

a) To reduce interest cost

b) To reduce exchange risk

c) b only

d) a and b both

15. Traditionally the cost of funds was accounted only as interest cost, ignoring;

a) Interest rate

b) Maturity mismatch between sources and uses of funds

c) b only

d) Both the above

16. In the context of integrated treasury operations, which of the following form of organizationis preferred?

a) Treasury Department

b) Treasury Specialized branch


17. Treasury plays an important role in transfer pricing i)e) allocation of costs to variousdepartments/ branches of the bank on a rational basis?

a)True

b) False

18. Treasury Specialized Branch has which of the following features?

a) It functions with its own accounting system

b) It can act as Authorized Dealer for foreign exchange

c) It can participate in clearing and settlement systems directly

d) All the above

19. The Treasury is headed by a Senior Management Person of the Bank normally;

a) General Manager

b) Dy. Gen. Manager

c) Vice-President

d) Any of the above


a)Mid office and back office report to one Head

b) Treasury operations are subject to RBI guidelines

21. The treasury has which of the following divisions?

a) Dealing Room, accounting cell, back office

b) Bank Office, dealing room, accounting office

c) Middle Office, dealing room, back office

d) dealing room and back office only

22. Dealing Room has which of the following dealers?

a) Chief Dealer, security dealer, retail dealer

b) Specialized dealer, Chief dealer, corporate Dealer

c) Corporate Dealer, security dealer

d) any of the above

23. Which of the following statement is correct?

a) Each dealer specializes in one of the markets, i.e. (Foreign Exchange), Money Market andSecurities Market

b) The Dealers are generally familiar with all the markets in an Integrated Treasury

c) It is common to have a separate Corporate Dealer exclusively to attend to major corporatecustomers

d) All the above

24. What are the features of Dealing Room (which one is not correct)?

a) It buys and sells directly in the market

b) Each dealer specializes in all the markets

c) It is a Front office

d) All the above

25. The Securities market is divided in which of the following markets?

a) Primary market and secondary market

b) Secondary Market and developed markets

c) Primary market and forex market


1. d 2.a 3.a 4.b 5.c 6.b 7.a 8.c 9.b 10.d 11.d 12.c 13.c

14. d 15.d 16.b 17.a 18.d 19.d 20.a 21.c 22.b 23.d 24. 25.a

1. The Securities Dealer deals with which of the following markets?

a) Primary market

b) Secondary market


2. Spot settlement relates to settlement:

a) Two days from trade date

b) Two working days from trade date

c) Three days from trade date

d) Three working days from trade date

3. The securities dealer deals in (which one is false);

a) Buying and selling of securities already available in the market

b) Auction of Govt. securities

c) Auction of shares by companies

d) All the above


a) Primary market issues are subscribed by Investment Department

b) Investment department is situated outside the Dealing room

c) Investment department is not part of Treasury


5. Why Investment department is situated outside the Dealing Room, but as part of Treasury (a) Primary issues need appraisal of credit risk

(b) Through examination of issue terms

(c) Documentation for secured debt (Through a Trustee)

a) a and b only

b) a and c only

c) b and c only

d) a, b, c only

6. Back up Office is responsible for verification and settlement of the deals concluded by theDealers?

a) True/ False

7. The deals are verified from which of the following sources (which is not correct)?

a) Deal slips prepared by the Dealers

b) Confirmation received from the counterparties

c) Over phone with the counterparties through the brokers only

d) All the above

8. Back office deals with which of the following?

a) Maintaining Nostro accounts

b) Maintaining funding and security accounts with RBI

c) Maintaining Demat Accounts with SEBI

d) All the above


a) Exchange rates under TOD and TOM settlement are generally favourable to the buyer

b) All exchange rate under quoted on the screen are for spot settlement unless otherwisestated

10. Settlement refers to receipt and payment of amounts following deals made by dealers inrespect of;

a) Sale and purchase of foreign currency

b) Lending and borrowing

c) Sale and purchase of securities

d) All the above

11. Which of the following statement is not correct about Settlement?

a) All payments and receipts must take place on value date

b) Delay in settlement may result in financial gain or loss to the bank

c) Any delay in payment is considered a default by the bank

d) All the above

12. Middle office is created exclusively to provide information to the management (MIS) and toimplement risk management systems?

a) True/ False

13. Middle Office acts performs the following function (which is not correct);

a) To fix exposure limits

b) To stop loss limits of Treasury

c) Reporting to the management on key parameters of performance

d) All the above

14. Minimum marketable investment is normally;

a) Rs.5 Crore

b) Rs.10 Crore

c) Rs.15 Crore

d) Rs.20 Crore

15. Which are other Departments in Treasury, mainly administrative in nature?

a) Accounts and administration

b) Systems Administration

c) Remittances (SWIFT/ RTGS etc)

d) All the above

16. Which of the following is not false?

For making available foreign currency loans to domestic borrowers:

a) Prior clearance is required from treasury for funds availability

b) Treasury has no role in deciding the cost of such loans

17. In smaller banks, Middle Office may also function as ALM Support Group, as the balancesheet risk management is closely connected to Treasury risk management?

a) True/ False

18. Foreign Exchange Market is the most liquid market as free currencies cannot be readilybought and sold?

a)True

b) False

19. Which among the following is not the free currency in the Foreign Exchange market?

a) USD

b) Rupee

c) EUR


20. Free currencies belong to those countries; whose markets are;

a) Underdeveloped

b) Highly developed

c) Developing


21. Currencies which are not fully convertible have which of the following features?

a) Have unlimited demand

b) May not be traded actively

c) Does not enjoy high liquidity

d) All the above

22. Foreign Exchange Market is the most transparent in that the exchange rate movements arereflected on the screen from moment to moment, even when the trade has taken place in far offmarkets?

a) True/ False

23. Which of the following statements is not correct is Spot Trades?

a) Spot Settlement takes place 3 working days from the trade date

b) Currency may be bought and sold, with settlement in the same day

c) All exchange rates quoted on the screen, or in the print, are for spot trade unless otherwisementioned

d) All the above

24. Notice money refers to:

a) Accepting deposits payable after getting notice of withdrawal from the depositors

b) Lending to customers, repayable after serving a fixed period notice

c) A type of borrowing and lending in the call money market

25. Which of the following statements is not correct relating to TOD and TOM?

a) Rates are generally quoted at a discount to the spot rate

b) Rates are less favorable to the buyer of the currency

c) Rates are generally quoted at a premium to the spot rate


1.b 2.b 3.c 4.c 5.d 6.a 7.c 8.c 9.a 10.d 11.b 12.a 13.a

14.a 15.d 16.a 17.a 18.b 19.b 20.b 21.b 22.a 23.a 24.c 25.c

1. The customers who expect payments or receipts in foreign currency, cover their currency riskby entering into forward contracts with their respective banks?

a) True/ False

2. Forward exchange rates are arrived (a) On the basis of interest rate differentials of twocurrencies

(b) Differential to be added to the spot exchange rate (c) Differential to be deducted from thespot exchange rate

a) a and b only

b) a and c only

c) b and c only

d) a, b, c only

3. The interest rate differential is added to the spot rate of;

a) Low interest Yielding currency

b) High interest yielding currency

c) b only


4. Which of the following statement is incorrect that Forward rates fully reflect interest ratedifferentials only in;

a) Perfect markets

b) Non-convertible currencies

c) Highly liquid markets


5. Buying of USD (with rupees) in the spot market and selling same in forward market or viceversa is called;

a) Spot transaction

b) Forward transaction

c) Swap transaction


6. In which of the following credit risk is very low?

a) Term loan to customers

b) Cash credit loan to customers

c) Discounting of foreign currency bills

d) Rediscounting of foreign currency bills

7. Foreign exchange surpluses of the bank arise out from which of the following (which is nottrue)?

a) Profits from treasury operations

b) Forex lending in overseas/ domestic market

c) Profits from overseas branch operations

d) All the above

8. Which of the following avenues are available to the treasury for investment of forexsurpluses?

a) Inter-bank loans

b) Short-term investments

c) Nostro accounts

d) All the above


a) Balances held in Nostro accounts do not earn any interest

b) Treasury is able to earn nominal interest on idle funds in the Nostro accounts

c) Balances held in Nostro accounts earn interest


10. Which of the following is not correct?

a) Treasury is involved in credit appraisals

b) Treasury is not involved in disbursements

c) Treasury is not involved in credit appraisals


11. Clearance is sought as to the availability of foreign currency funds and cost of funds, priorto sanction of foreign currency advances?

a) True/ False

12. Which of the following statements is not correct ‘that rediscounting of foreign bills is --------;

a) An inter-bank advance

b) Treasury product

c) Is priced slightly lower than market placements

d) All the above

13. Treasury bills are issued by

a) Government of India

b) State Governments

c) a and b

d) Corporates

14. Though rediscounting of foreign bills is an inter-bank exposure, RBI has allowed banks toinclude it in their credit portfolio?

a) True/ False

15. Money markets refer to raising and deploying short-term funds with maturity of generally;

a) Not exceeding one year

b) Not exceeding two years

c) Not exceeding five years


16. Inter-bank market is not related to which of the following?

a) Call Money

b) Notice Money

c) Term Money

d) In the money

17. Call Money refers to placements of funds?

a) For five days

b) Overnight

c) For two days

d) For three days

18. Notice Money refers to placement of funds for periods not exceeding;

a) 5 days

b) 7 days

c) 14 days

d) 15 days

19. Term money refers to placement of funds for period not exceeding;

a) 1 year

b) 2 years

c) 3 years

d) 5 years


a) Commercial Paper can be issued only by banks

b) Banks can invest in commercial papers

21. Inter-bank market is considered to be risk-free market, though in reality, the banks do carrycounterparty risk?

a) True

b) False

22. Bank treasuries deal in which of the following?

a) Inter-bank markets

b) Short term investment paper issued by Govt.

c) Short term investment paper issued by companies in Public & Private Sector

d) All the above

23. Treasury bills are issued by whom?

a) RBI

b) State PSUs

c) Govt. of India


24. Treasury bills are issued for maturities of;

a) 15 days to 30 days

b) 30 days to 45 days

c) 45 days to 90 days

d) 91 days to 364 days

25. Which of the following is not correct that the interest on treasury bills is by way of;

a) Discount

b) Premium

c) Implicit yield


1.a 2.d 3.a 4.b 5.c 6.d 7.b 8.d 9.c 10.a 11.a 12.c 13.a

14.a 15.a 16.d 17.b 18.c 19.a 20.b 21.a 22.d 23.c 24.d 25.b

1. Each issue of 91 days T-Bills is for;

a) Rs .100 Crore

b) Rs. 250 Crore

c) Rs. 400 Crore

d) Rs.500 Crore


a) Certificate of deposit is long term product

b) Certificate of deposit can be transferred by endorsement and delivery

3. Auction of 91-days Treasury bills is conducted on;

a) Weekly basis

b) Fortnightly

c) Monthly



a) Rs.500 Crore

b) Rs.750 Core

c) Rs.1000 Crore

d) Rs.1500 Crore

5. Auction of 364 days T-Bills is conducted on;

a) Weekly basis

b) Fortnightly

c) Monthly

d) Bimonthly

6. Treasury bills are open for investment by whom (a) Corporate (b) High Net worth Individuals(c) NRIs

a) a and b only

b) a and c only

c) b and c only

d) a, b, c, only

7. T-Bills being sovereign paper and preferred investment of banks, the implicit yield of T-Bills isaccepted as a benchmark for term money lending?

True/ False

8. Notice Money refers to placement of funds for periods not exceeding;

a) 5 days

b) 7 days

c) 14 days

d) 15 days

9. Term money refers to placement of funds for period not exceeding;

a) 1 year

b) 2 years

c) 3 years

d) 5 years


a) Commercial Paper can be issued only by banks

b) Banks can invest in commercial papers

11. Inter-bank market is considered to be risk-free market, though in reality, the banks do carrycounterparty risk?

a) True/ False

12. Bank treasuries deal in which of the following?

a) Inter-bank markets

b) Short term investment paper issued by Govt.

c) Short term investment paper issued by companies in Public & Private Sector

d) All the above

13. Treasury bills are issued by whom?

a) RBI

b) State PSUs

c) Govt) of India


14. Treasury bills are issued for maturities of;

a) 15 days to 30 days

b) 30 days to 45 days

c) 45 days to 90 days

d) 91 days to 364 days

15. Which of the following is not correct that the interest on treasury bills is by way of;

a) Discount

b) Premium

c) Implicit yield



a) Rs. 100 Crore

b) Rs. 250 Crore

c) Rs. 400 Crore

d) Rs.500 Crore


a) Certificate of deposit is long term product

b) Certificate of deposit can be transferred by endorsement and delivery

18. Auction of 91-days Treasury bills is conducted on;

a) Weekly basis

b) Fortnightly

c) Monthly



a) Rs.500 Crore

b) Rs.750 Core

c) Rs.1000 Crore

d) Rs.1500 Crore

20. Auction of 364 days T-Bills is conducted on;

a) Weekly basis

b) Fortnightly

c) Monthly

d) Bimonthly

21. Treasury bills are open for investment by whom (a) Corporate (b) High Net worth Individuals(c) NRIs

a) a and b only

b) a and c only

c) b and c only

d) a, b, c, only

22. T-Bills being sovereign paper and preferred investment of banks, the implicit yield of T-Billsis accepted as a benchmark for term money lending?

True/ False

23. Which of the following statements is not correct about Treasury Bills?

a) T-bills cannot be traded in secondary market

b) It is I Electronic form

c) It is to be held in SGL account maintained by banks with RBI

d) All the above


a) Yielding interest on T-bills is higher than the call money market

b) T-bills is a convenient way of parking short-term surpluses in risk-free investment

c) It is not possible to trade T-bills in secondary market



a) Reverse repo is not used for infusing liquidity in the financial system

b) Under bill rediscounting, the lending bank gets its liquidity strengthened

1. d 2.a 3.a 4.c 5.b 6.d 7.a 8.c 9.a 10.b 11.a 12.d 13.c

14. d 15.b 16.d 17.a 18.a 19.c 20.b 21.d 22.a 23.a 24.c 25.a

1. Commercial paper is issued by;

a) RBI

b) Corporate

c) Commercial bank

d) Central Govt.

2. Commercial paper is issued with a maximum maturity period of ;

a) Five years

b) Three years

c) Two years

d) One years

3. The minimum maturity period of Commercial Paper is;

a) 60 days

b) 45 days

c) 15 days

d) 7 days

4. The issue of Commercial paper should be for a minimum amount of;

a) Rs)50 lakh

b) Rs)25 lakh

c) Rs)10 lakh

d) Rs)5 lakh


a) Issuing company of CP should have a minimum credit rating of P2

b) Banks can invest in CP only if it is in Demat form

c) Issue of CP is governed by guidelines issued by Finance Ministry


6. Commercial paper does not have which of the following characteristic?

a) It carries no credit risk

b) It is issued in the form of promissory note

c) It is issued for discounted amount


7. Which of the following statement is correct?

a) CP is not a negotiable instrument

b) CP does not have a fairly active market

c) CP is to be compulsorily in D-mat form

d) All the above

8. Government securities can be issued for a period ranging from :

a) 7 days to 1 year

b) Overnight to 1 year

c) 1 month to 1 year

d) 1 year to 10 years

e) 1 year to 30 years

9. The price of CP is quoted for the face value of ;

a) Rs)100

b) Rs)500

c) Rs)1000

d) Rs)5000

10. Banks tend to invest in CPs through the treasury due to which of the following (a) Credit riskis relatively low and limited to a short period (b) Yield is higher than Inter-bank money marketyield (c) It being a tradable instrument, there is not liquidity risk

a) a and b only

b) a and c only

c) b and c only

d) a, b, c only

11. Certificates of Deposit is a debt instrument and issued by;

a) RBI

b) Banks

c) Corporate



a) CD is not a negotiable instrument

b) CD is issued against deposit of funds

c) It is more expensive as the CD attracts stamp duty


13. Which of the following characteristics relate to Certificates of Deposit?

a) It is meant primarily for high net worth individuals

b) It generally bears interest rates higher than regular deposits of the bank

c) Period of maturity may range between 7 days and 1 year

d) All the above

14. Minimum amount of the CD is;

a) Rs)1 lakh

b) Rs)2 lakh

c) Rs)5 lakh

d) Rs)10 lakh

15. Which of the following securities are actively traded by the Treasury?

a) HTM

b) AFS

c) HFT

16. Which of the following statements is not correct about Repo Transaction?

a) It is a security transaction

b) It is used for lending and borrowing money market funds

c) It refers to sale of securities with a commitment to repurchase the same at a later stage


17. Whether the statement is correct that the margin in case of Repo transaction is called “Haircut” as the principal amount exchange against the securities is lower than the market value ofsecurities?

a) True/ False

18. Which of the following have been permitted to enter into Repo transactions?

a) Bank’s financial institutions and high net worth individuals

b) Corporates, high net worth individuals

c) Financial institutions, banks, corporates

d) Banks, Corporates, High net worth individuals

19. Whether the statement is correct that once the Non-bank Financial Institutions withdrawtotally from the call money market, they would need to resort to Repos for raising/ deployingshort-term funds?

a) True/ False

20. Treasury discounts bills of exchange, of short term nature, with a tenure of;

a) 1 to 3 months

b) 3 to 6 months

c) 6 to 9 months

d) 9 to 12 months

21. In case of bills rediscounting, the borrowing banks is able to infuse liquidity from out ofassets and at the same time improves its liquidity ratio as the bills are taken out of creditportfolio and added to the inter-bank liability?

a) True/ False


a) In CBLO , CCIL is the common counter party

b) As per RBI instructions, banks are not permitted to make investments in equity shares oflisted companies

23. Government securities are issued by;

a) Central Finance Ministry

b) RBI

c) State Bank of India

d) None of above

24. Cash management bills have maturity of;

a) Less than one year

b) Less than 91 days

c) Less than 76 days

d) Less than 60 days

25. The basis points value is associated with;

a) risk pricing

b) risk measurement

c) risk mitigation

d) risk control

1.b 2.d 3.d 4.d 5.c 6.a 7.c 8.e 9.a 10.d 11.b 12.a 13.d

14.a 15.c 16.d 17.a 18.c 19.a 20.b 21.a 22.a 23.b 24.b 25.

1. RBI issues govt. bonds for various maturities ranging from;

a) 1 year to 30 years

b) 1 year to 40 years

c) 1 year to 45 years


2. RBI issues bonds with which of the following features?

a) Step-up coupons

b) Coupons linked to inflation index

c) Floating rate of coupons

d) All the above

3. Corporate Debt Paper includes which of the following?

a) Medium-term bonds debentures only

b) Long-term bonds and debentures only

c) Long-term bonds and medium term bonds

d) Medium and long term bonds and debentures


a) Credit availed through banks increases M3

b) Ensuring stability of financial market is not the aim of monetary policy


a) Reserve money is the same as Reserve asset

b) CRR is part of reserve money

6. The yield on bonds and debentures issued by corporates is lower than Govt. Securities?

a) True/ False

7. Which of the following statements is correct in case of bonds/ debentures issued byCorporates?

a) Banks are allowed to invest only in D-Mat securities

b) Global ratings are necessary if such debt papers are issued in International market

c) Higher the credit risk, higher is the yield on such debt papers

d) All the above

8. Debentures are governed by;

a) Law of contracts

b) Company Law

c) Negotiable Instruments Act


9. Bonds are transferable only by registration?

a) True/ False

10. Debentures and bonds may be issued with different structures in order to enhance themarketability of the instruments as also to reduce the cost of the issue) The variations includewhich of the following (a) Zero coupon bonds (b) Deep discount bonds (c) Put/ Call orconvertibility options

a) a and b only

b) a and c only

c) b and c only

d) a, b, c only

11. Debenture and bond-holders, like other creditors, have prior legal claim over the equity and

a) preference stock-holders, on the assets of the company?

True/ False


a) RBI cannot increase CRR beyond a ceiling

b) RBI cannot increase SLR beyond a ceiling

13. Daily cash balances of banks with RBI for the purpose of CRR should not fall below–––––% of average CRR to be maintained by it.

a) 50%

b) 60%

c) 70%

d) 80%

14. Indian Stock market is one of the oldest in Asia with well developed institutional structureand the regulator is;

a) RBI

b) Govt. of India

c) SEBI

d) None of these

15. Major investors in domestic stock market are which of the following?

a) Mutual funds and private companies

b) Insurance companies and securitization companies

c) private fund mangers and large companies

d) mutual fund, insurances companies and private fund mangers

16. Which of the following have been introduced in the market as Derivative products?

a) Index Futures

b) Index options

c) Stock futures/ options

d) All the above

17. Foreign currency funds are converted into rupees for portfolio investment and rupees fundswith profits are reconverted into foreign currency for repatriation?

a) True

b) False

18. Who is the Note Issuing Authority in India?

a) Govt. of India

b) State bank of India

c) RBI


19. Broad Money or M3 includes which of the following (which is not correct)?

a) Currency I circulation

b) Demand deposits with banks

c) Time deposits with banks

d) Borrowing and refinancing by banks

20. Which of the following is correct?

a) RBI pays a modest interest of 3% on CRR balances kept by banks

b) The CRR to be kept is calculated on fortnightly basis

21. Which of the following is incorrect?

a) LAF has no connection with Repo

b) RBI provides automatic repo to banks in case of shortfall of funds for meeting RTGScommitments

22. Broad money is funded by which of the following?

a) Credit availed by the public and the Govt.

b) Net foreign currency assets of RBI

c) Banking system (Sources of money)

d) All the above

23. The monetary policy of RBI is aimed at controlling the rate of inflation and ensuring stabilityof financial markets?

a) True/ False

24. Which is the indicator of money supply that has not been absorbed by the real economy?

a) Surplus funds available with banks

b) Currency/ Notes with RBI

c) Funds held with the Govt.


25. A shortage of liquidity may result in high interest rates and depreciation of rupee exchangerate and an excess of liquidity may lead to inflation?

a) True/ False

1.a 2.d 3.d 4.a 5.a 6.b 7.d 8.b 9.b 10.d 11.a 12.a 13.c

14.c 15.d 16.d 17.a 18.c 19.d 20.b 21.a 22.d 23.a 24.a 25.a

1. The minimum and maximum levels or CRR are prescribed at which percentage of demandand time liabilities of the banks?

a) prescribed by RBI

b) 3% and 20%

c) 4% and 15%

d) 5% and 25%

2. The minimum and maximum levels of SLR are prescribed at which percentage of DTL ofbanks?

a) 10% and 25%

b) 15% and 30%

c) 20% and 35%

d) RBI discretion and 40%


a) Under RTGS, there is floor for customer remittances

b) Under NDS OM, the identity of the bidder is automatically revealed to the other party


a) Deals done outside NDS need not be reported through NDS

b) Fx clear is not a system developed by RBI

5. Which of the following statements is correct?

a) CRR is governed by Banking Regulation Act of 1949

b) SLR is governed by RBI Act of 1934

c) RBI is authorized to increase or decrease the CRR and SLR at its discretion withinprescribed ceiling

d) All the above

6. CRR and SLR are to be maintained on;

a) Weekly basis

b) Fortnightly basis

c) Monthly basis


7. What is the effect of any shortfall in meeting the CRR/ SLR requirements?

a) Serious penalties are attracted from RBI only

b) capacity of the bank to undertake business is affected only

c) a only

d) a and b all

8. Which of the following is not a component of Demand and Term Liabilities of the banks?

a) Demand deposits

b) Term deposits

c) Foreign outward remittances in transit

d) Loans and advances

9. Which of the following liabilities are not excluded from the CRR stipulation?

a) Paid up capital and reserve

b) Refinance availed fro RBI and Apex Financial Institutions

c) Funds borrowed from other banks

d) All the above

10. Bank has to maintain cash balances with RBI to meet the prescribed CRR on averageduring the fortnight, subject to daily cash balances not falling below of which percentage of theamount required for CRR?

a) 50%

b) 60%

c) 70%

d) 75%

11. Which of the following is true?

a) CCIL settles inter-bank USD/INR deals on gross basis

b) In the equity secondary market deals, settlement risk is eliminated


a) NEFT is meant only for inter-bank transfers

b) Interbank fund transfers are not settled through SWIFT

13. RBI pays interest on the cash balances in excess of which of the following to the bank oftheir NDTL?

a) 3%

b) No payment

c) 5%

d) 6%

14. RBI pays interest on cash balances to the bank;

a) Fortnightly

b) no payment

c) Quarterly

d) Half yearly

15. SLR is to be maintained in which of the following form?

a) Cash balances

b) Gold

c) Approved securities valued as per norms prescribed by RBI

d) Cash with RBI in CRR account

16. SLR is to be maintained on which of the following of NDTL of the banks?

a) Daily balances

b) Weekly balances

c) Fortnight balances

d) Monthly balances

17. RBI has imposed which of the following ceiling over call money lending and borrowing bybanks of their net worth respectively?

a) 10% and 5%

b) 25% and 10%

c) 50% and 20%

d) 100% and 25%

18. Which of the following statement is true about payment and settlement system?

a) All security dealings take place through Negotiated Dealing system’

b) All inter-bank payments and high value customer payments are settled instantly under RTGSsystem

c) Banks accounts with all the branch offices of RBI are integrated under SWIFT

d) All the above


a) For entering into high value transactions in the forex market treasury needs to have funds inadvance

b) In treasury transactions, the trades made by the dealers are not vetted by any other official)


a) Volatility has not role in creating market risk

b) Price of security does not change in the same directions as interest rate moves

21. The Institute for Banking Research and Technology (IBRDT) has developed the IndianFinancial Network (INFINET) as a secure communication backbone for the banking andfinancial sectors?

a) True/ False

22. In banks other than the larger banks, the Treasury does not have which of the following?

a) Front office

b) Middle office

c) Back office


23. Which of the following statements is not true?

a) Back office of a Treasury checks and validates deal-wise information form accounting pointof view

b) Middle office of a Treasury is responsible for overall risk management and MIS

c) Front office validates and confirms the deals


24. Which of the following is not responsible to ensure that treasury complies with the exposurelimits meticulously?

a) Front office

b) Middle office

c) Back office


25. The banks fix exposure limits under Treasury functions, for which of the following counterparties?

a) Banks, security brokers, borrowers

b) Mutual funds, sponsor banks, borrowers

c) Security brokers only

d) Banks, mutual funds, security brokers

1.a 2.d 3.b 4.b 5.c 6.b 7.d 8.d 9.c 10.c 11.b 12.b 13.b

14.b 15.d 16.c 17.d 18.c 19.a 20.b 21.a 22.b 23.c 24.a 25.d

1. Exposure limits are fixed for counter parties on the basis of their

a) Net worth & market reputation only

b) Market reputation and track record only

c) Track record and market reputation only

d) Track record, net worth and market reputation only


a) Funding risk has the effect of increasing the cost

b) Setting up exposure limit is not a preventive measure, but a post risk management measure


a) A dealer has bought 1 million USD and sold 2 million USD in the market at 10)30 am) Theposition of 1 million USD he has, is known as long position)

b) Both long and short positions have potential to create risk

4. Which of the following is trading limit (a) Limits on deal size (b) Limits o open positions (c)Stop-loss limits

a) a and b only

b) a and c only

c) b and c only

d) a, b, c only

5. Stop-loss limits prevent the dealer from waiting indefinitely and limit the losses to a levelwhich is acceptable to the management?

a) True

b) False

6. Stop loss limits are prescribed (which one is false)

a) Per deal

b) Per day

c) Per month

d) Per annum

7. Real Time Gross Settlement System has which of the following features (which is notcorrect)

a) Banks need to maintain adequate funds throughout the day due to instant payment system

b) All inter-bank payments are settled within a pre-given time interval

c) Bank account with all the branch offices of RBI are integrated


8. Liquidity Adjustment Facility has which of the features (which is not correct)?

a) It is applicable to Repo transactions with RBI and with other banks

b) It is used to monitor day to day market liquidity

c) With the mechanism RBI lends funds top Banking sector trough Repo instrument


9. Which of the following features relate to Negotiated Dealing System:

a) All inter-bank Money Market deals are done under this system

b) Physical delivery of instruments not required

c) Securities clearing against assured payment is handled by CCI

d) All the above


a) Day light limit will always be lower than the overmight limit.

b) Overnight position is not less risky than the day light limit

11. Overnight position limit is to be approved by:

a) The head of treasury operations

b) Investment committee

c) Chief dealer

d) RBI

12. Demand deposits, being component of DTL, in case of CRR calculation, do not consists,which of the following?

a) Deposits in current and savings account

b) Margin money for LCs or bank guarantees

c) Overdue fixed deposits

d) Term deposits to mature within the same financial year

13. Which of the following come under exempted categories where only minimum CRR is to bemet irrespective of actual CRR?

a) Net inter-bank borrowings/ deposits with maturity not exceeding 14 days

b) Credit balances in ACU (Us$) accounts

c) DTL in respect of their Offshore Banking Units (OBUs)

d) All the above

14. Bank office does not have which of the following characteristics?

a) It obtains independent confirmation of each and every deal from the counterparty

b) It generates deals

c) It settles the deal only if it is within the exposure limits allowed to the counterparty


15. Back office is responsible for compliance with various risk limits imposed by themanagement and RBI, as well as for accuracy and objectivity of the transaction detail?

a) True/ False

16. Middle Office has which of the following characteristics?

a) It monitors liquidity and interest rates closely

b) It is a bridge between front office and the back office

c) It maintain the overall risk profile of treasury

d) All the above

17. All the exposure limits are reviewed-

a) Once in a Quarter

b) Once in a Half Year

c) Once in a Year


18. Gap refers to:

a) The time difference between buying a currency and selling the same in the market

b) The difference between the buying price and selling price of the currency

c) The difference in delivery period of the currency


a) Since treasury is a profit centre, the dealer has to ensure that in each transaction he makesa profit

b) If the bond is traded at a price lesser than its face value, the current yield on the bond will bemore

20. While the exposure limits are generally left to the bank’s direction, RBI has imposed whichceiling of total business in a year with individual brokers?

a) 2%

b) 5%

c) 10%

d) 15%

21. Market risk is a confluence of (a) liquidity risk (b) Equity risk (c) Commodity risk

a) a and b only

b) a and c only

c) b and c only

d) a, b, c only

22. Value at risk (VAR) is the most probable loss that we may incur in normal market conditionsover a given period due to volatility of;

a) Commodity prices

b) Exchange rates

c) Interest rates

d) All the above

23. The probability of loss is expressed as a percentage-VaR at 99% level implies probability ofloss as;

a) 1%

b) 100%

c) 101%


24. Which of the following approach is to calculate the VaR (a) Parametric approach (b) MonteCarlo approach (c) Historical approach (d) Altman’s Z approach:

a) a and b only

b) a and c only

c) d and c only

d) a, b, c only

25. The effective return on a bond based on which of the following is known as yield?

a) Coupon rate

b) Market price

c) Residual maturity

d) All the above

1. d 2.a 3.b 4.d 5.a 6.d 7.b 8.a 9.d 10.a 11.d 12.d 13.d

14.b 15.a 16.d 17.c 18.c 19.b 20.b 21.d 22.d 23.a 24.d 25.d

1. The exposure limit for individual brokers is:

a) 5%

b) 10%

c) 12%

d) 15% of the total business during the year

2. If the overnight VaR for a currency is 25bp at 95% confidence level, it means that thechances of the currency fluctuating beyond 25bp is:

a) More

b) Less

3. Which of the following statements is incorrect?

a) Yield and price of a bond move in inverse proportion

b) If the rises, price of a bond falls

c) If the yield falls, price of a bond also falls

d) All the above

4. Duration is a measure widely used in;

a) Investment business

b) All assets where interest rate risk is present

c) All liabilities where interest risk is present

d) All the above

5. Ability of a business concern to borrow or build up assets on the basis of a given capital, iscalled;

a) debt service coverage ratio

b) goodwill

c) reputation

d) leverage

6. The leverage is expressed in the form of --------- in case of companies and as ---- in the caseof banks

a) debt service coverage ratio, capital adequacy ratio

b) debt equity ratio, capital adequacy ratio

c) capital adequacy ratio, capital to risk assets ratio

d) total liabilities to net worth ration, capital fund ratio

7. Treasury operations take place over phone and

these are confirmed later on in writing between ------ to ------of the counterparties:

a) front office, front office

b) front office, back office

c) back office, front office

d) back office, back office

8. When one account (funding account) is debited and another account (security account) iscredited at the same time in case of security purchase, this is called;

a) payment and settlement

b) settlement (vs) delivery

c) delivery (vs) payment

d) payment (vs) delivery


a) A derivate product has an independent value

b) A derivative product need not be OTC product only

10. Interest cost of funds locked in a trading position is called;

a) swap

b) pre-settlement

c) carry

d) speculation

11. Items like interest swaps that do not appear in the balance sheet, are called;

a) contingent assets

b) liabilities

c) off-balance sheet items

d) swap items

12. The line where the yields of risk free securities for different maturities at a give point of timeare graphically plotted is called;

a) yield curve

b) price line

c) indifference curve

d) yield maturity

13. Degree of fluctuation of markets with reference to variable such as interest rates andexchange rates, measured as standard deviation from the mean of the variable is called;

a) mark to marked

b) fluctuation curve

c) volatility

d) speculation

14. Valuation of trading positions applying current market value as at the end of the day, iscalled;

a) mark to marked

b) fluctuation curve

c) volatility

d) speculation


a) In a OTC product, margin has to be maintained

b) In a exchange traded product, counter party risk is not present

16. When duration is divided with the interest rate, it is called;

a) duration

b) mean duration

c) standard duration

d) modified duration

17. The -------- the duration, the ---- is the sensitivity of the bond price to change in interestrates;

a) longer, greater

b) shorter, smaller

c) longer, smaller

d) shorter, greater

18. ------- is the weighted average measure of life a bond, where the time of receipt of a cashflow is weighted by the present value of the cash flow:

a) gap

b) maturity

c) duration

d) value at risk (VaR)

19. ------ is an estimate of potential loss, necessarily for a given period, at a given confidencelevel:

a) gap

b) maturity

c) duration

d) value at risk (VaR)


a) The bonds carry a coupon rate of interest which is payable on 100% value of the bond

b) Bonds may be treaded at a premium

c) Bonds may not be traded at a discount



a) Option contract is the same as option delivery contract

b) If an option contract is cancelled automatically, the customer is not entitled for swap profit

22. Derivatives are market products widely used by bank treasuries chiefly;

a) To manage risk, including ALM risk

b) To cater to the requirements of the corporate customers

c) To take trading position in derivative products

d) All the above

23. Financial markets do not relate to which of the following products;

a) Foreign exchange

b) Bonds

c) Gold

d) Equities

24. The derivatives products can be directly negotiated and obtained from;

a) Banks

b) Investment institutions

c) Stock exchanges

d) All the above

25. Which of the following stock exchanges are not global?

a) International Monetary Exchange, Chicago

b) London Financial Future Exchange

c) Singapore Stock Exchange

d) National Stock Exchange of India

1.a 2.b 3.c 4.d 5.d 6.b 7.d 8.c 9.b 10.c 11.c 12.a 13.c

14.a 15.a 16.d 17.a 18.c 19.d 20.c 21.b 22.d 23.c 24.d 25.d

1. OTC products have which of the following characteristics?

a) Banks are main players

b) Contracts of any size and maturity can be structured

c) Market is not liquid

d) All the above

2. In which of the following, delivery or taking delivery is compulsory?

a) Forward contract

b) Option

c) Futures

3. Exchange Traded Products does not have which of the following characteristics?

a) Only members of the exchange can trade

b) There is counterparty risk

c) Market is highly liquid


4. Bank treasuries and corporate customers of the bank mostly use which of the following OTCproducts (which is not correct)?

a) Foreign

b) Options

c) Swaps

d) Futures

5. In-the-money (ITM) option has which of the following features?

a) The strike price is same as forward rate on the start date

b) The strike price is same as the spot (rice of the currency

c) The strike price is less than forward rate incase of a call option


6. Out-of-money (OTM) option does not have which of the following features?

a) If the strike price is more than the forward rate in case of call option

b) If the strike price is less then forward rate in case of option

c) Strike price is better than the market price


7. Buyer of the Option has which of the following features?

a) He has the right to exercise the option at strike price

b) He has no obligation

c) His profit potential is unlimited

d) All the above


a) Forward contract once cancelled, can be rebooked

b) In an option contract, seller of the contract has the compulsion to deliver or take delivery, ifthe buyer is exercising the option


a) The option is based on an amount which is only national

b) The seller of the option is not obliged to buy/sell to the holder of the option at the strike price,irrespective of market price

c) The option-seller’s potential loss is unlimited


10. Forward contracts do not have which of the following features?

a) The holder has necessarily to settle the contract on maturity

b) Contract is tradable and can be sold

c) The buyer has to accept forward rate prevailing in the market

d) All the above

11. Which of the following statements is correct in case of Option and Forward contract?

a) The buyer of an option has the right to exercise or not to exercise the contract

b) The price of an option-option premium- is to be paid upfront

c) There is no price for a forward contract-interest differentials of two currencies is loaded intothe forward rate

d) All the above

12. Under a Futures contract, the seller agrees to deliver which of the following on specifieddate (which is not correct):

a) Security

b) Currency

c) Commodity


13. Financial futures relate to which of the following (which is not correct)?

a) Exchange rates (Currency futures)

b) Interest rates (Bond futures)

c) Equity prices (Stock/index futures)

d) Corporate Loans


a) The premium paid in an option contract can be refunded if the contract is cancelled

b) In an out of the money option, the buyer is not opting for a more favourable price

15. Currency futures are traded for which of the following currencies?

a) EURO

b) GBP

c) JPY

d) All the above

16. Which of the following statements is not correct about Future contracts?

a) These are bought and sold between two parties

b) They are marked to market daily

c) Members are required to pay margin equivalent to daily loss


17. The Stock exchange guarantee all trades routed through its members and in case ofdefault/insolvency of any member, Exchange will meet the payment obligations from its TradeProtection Fund?

a)True

b) False

18. Which of the following statements is correct about interest rate Futures?

a) These are contracts written on fixed income securities of specified size

b) Contracts written on treasury bills trade in short-term interest rates

c) Contracts on treasury bonds or corporate bonds deal in medium and long term rates

d) All the above


a) The hedge is based on the inverse relationship between the interest rates and bond prices

b) If the interest rate goes up, bond prices also goes up

c) If the interest rates decline, the bond prices goes up



a) A vanilla option contains extra features

b) Strike price can be negotiated in an option

21. Protection of risk in a transaction usually through derivatives products is called

a) insurance

b) swap

c) hedge

d) arbitrage

22. A fixed deposit which can be withdrawn before maturity or a term loan, where pre-paymentis permitted to the customers is a form of;

a) Option

b) futures

c) embedded option

d) put and call option

23. A currency or interest rate swaps with basic structure without inbuilt options or knock-outlevels is called.

a) simple swap

b) plain vanilla type swap

c) embedded option

d) hedge

24. When cash flow of one currency are exchanged with another currency, the process iscalled;

a) convertibility

b) currency swap

c) foreign exchange swap

d) currency option

25. In a currency swap, the cash flow representing only the repayment of principal is involved isknown as;

a) principal only swap

b) interest only swap

c) American swap

d) principal-cum-interest swap

1.d 2.a 3.b 4.d 5.c 6.c 7.d 8.a 9.b 10.b 11.d 12.d 13.d

14.b 15.d 16.a 17.a 18.d 19.b 20.a 21.c 22.c 23.b 24.b 25.a


a) In Futures, the contract has to kept until maturity and delivered

b) Swap is not a spot contract

2. In a currency swap, the cash flow representing only the repayment of interest is involvedwhich is known as;

a) principal swap

b) interest only swap

c) American swap

d) principal-cum-interest swap

3. Exchange of interest flow on an underlying asset or liability, the value of which is notionalamount of swap, is called;

a) swap

b) principal swap

c) interest only swap

d) interest rate swap

4. Under a contract, the seller agrees to deliver to the buyer a specified security currency orcommodity on a specified date. Such contract is called;

a) forwards

b) swap

c) futures

d) hedge

5. Which of the following is part of financial future (a) exchange rates (b) interest rates (c) equity prices

a) a and b only

b) b and c only

c) a and c only

d) a, b, c all

6. Which contract out of the following is of standard sizes and with prefixed settlement dates;

a) forwards

b) swap

c) futures

d) hedge


a) In a rising interest rate scenario, swapping fixed interest with floating interest is beneficial tothe customer

b) FRA is not used for hedging currency risk

8. Which of the following is not a feature of a futures contract (a) it is marked to marketeveryday (b) members are to pay margin equivalent to daily loss (c) exchange is counter party (d) can be sold through members of the exchange

a) a, b and c

b) b, c, d

c) a, b, d

d) none of the above

9. When the interest rates on bonds move up, the bond prices move -------- and when theinterest rate on bonds goes down, the bond price move --------

a) down, down

b) down, up

c) up, down

d) up, up

10. The holder of -------- contract has to necessarily settle the contract on maturity;

a) option

b) futures

c) forward

d) swap

11. ----------- cannot be sold but it can be cancelled or rolled over ---------- is tradable. Can besold when not required;

a) option, futures

b) forward, option

c) future, forward

d) option, forward

12. Buyer of an option has to pay ------------- to the -------- for purchase of an option, which is theprice of the option;

a) interest, receiver

b) interest, seller

c) premium, seller

d) commission, seller

13. In which year USD/INR option was permitted by RBI?

a) 1998

b) 2000

c) 2001

d) 2003

14. The option premium increases with (a) the volatility of the markets (b) maturity (c) intrinsicvalue

a) a and b only

b) b and c only

c) a and c only

d) a, b, c all

15. A --------- option is the right to buy or sell equity of a company at a strike price;

a) stock

b) call

c) put

d) English

16. An option which is exercised any time before the expiry date is called ------- and which canbe exercised on the date is called -----------:

a) call, put

b) American, European

c) European, American

d) Put and call


a) The future contracts can be bought only for a fixed amount and fixed period

b) The trade is open for fraction of the amount

c) The trade is not open for fraction of the period


18. An interest rate swap is shifting of basis of interest rate calculation. Which of the following istrue?

a) From fixed rate to floating rate

b) From floating rate to fixed rate

c) From floating rate to floating rate

d) All the above

19. Which of the following statements is correct about floating rate of interest?

a) It is always linked to a benchmark rate

b) Benchmark interest rate is a risk rat determined by the market

c) It is widely accepted by the market players for its objectivity and transparency

d) All the above


a) Funds raised as deposits are reflected in the balance sheets of banks, but not the funds lent

b) Operational risk is present in the process of raising and lending funds by banks


a) The risks taken by banks are not reflected in their balance sheets

b) The need to fund and unforeseen cash outflow may have the effect of affecting the netinterest income of the bank

22. Which of the following are not the interest rate swaps and swap structures?

a) Quanto swaps

b) Coupon swaps

c) Swept ions


23. In India Rupee market which of the following swaps are permitted?

a) Coupon swaps

b) Quanto swap

c) Plain vanilla type swaps


24. While Interest Rate Swaps (IRS) covers a series of periodical interest payments, ForwardRate Agreement (FRA) is for a single payment in future?

True/ False

25. Which of the following are not the variants of the currency swap?

a) Principal only swap

b) Interest only swap

c) P+I swap


1.a 2.b 3.d 4.c 5.d 6.c 7.a 8.d 9.b 10.c 11.b 12.c 13.d

14.d 15.a 16.b 17.c 18.d 19.d 20.a 21.b 22.d 23.c 24.a 25.d

1. Conventional Forward contracts in foreign exchange were the only derivative productavailable in Indian markets up to which year?

a) 1997

b) 1998

c)1999

d) 2000


a) RBI is more concerned with long term liquidity of the banks

b) RBI stipulates a ceiling for mismatches in each time bucket

3. Which of the following is not part of contingency measures for managing mismatches inliquidity?

a) Standby credit available with other banks

b) CBLO

c) Liquid investments

d) CASA deposits

4. While introducing interest Rate Swaps (IRS), RBI has allowed banks to use the IRS for whichof the following uses?

a) For hedging

b) For market making

c) a only


5. MIFOR has which of the following characteristics?

a) It is used as a benchmark

b) It combines LIBOR and forward premium

c) It is based on active forex market dealings

d) All the above

6. MIFOR linked the domestic and global markets and has now become a standard benchmarkrate for medium and long-term Rupees IRS?

True/ False

7. Banks who intend to trade in option products should meet with the minimum requirementsprescribed for capital, NPA etc and seek prior permission from;

a) Govt.

b) RBI

c) SEBI


8. Which of the following statements is correct about the use of options and forward contractsby exporters and importers for their trade transactions?

a) They can book and rebook them

b) They can cancel them also

c) If booked to hedge loans and other term liabilities, once cancelled, can not be rebooked

d) All the above

9. Designed Exporters are permitted to book the contracts with the bank on declaration formsubject to a ceiling) Which of the following ceiling is correct?

a) 100% of previous years exports

b) 100% of previous years exports or average of last 3 years whichever is lower

c) 100% of pervious year exports or average of last 3 years whichever is higher


10. Which of the following is not used for monitoring ALM:

a) VaR

b) Duration

c) Probability of default

d) Simulation


a) For taking up derivatives, banks need to have large amount of funds

b) Certain derivatives cannot provide perfect hedge

12. Use of all derivatives is subject to internal policies of the bank approved at the Board level?

a) True/ False

13. Which of the following risks of the bank is obvious and managed conventionally througheffective credit supervision?

a) Liquidity risk

b) Credit risk

c) Interest rate risk


14. Balance sheet risks if not controlled may result;

a) Negative spreads

b) Erosion of net worth

c) Bankruptcy

d) All the above

15. The difference sources and uses of funds in specific time bands (buckets) is known asliquidity gap which may be positive or negative?

a) True/ False

16. Liquidity gap arises out of mismatch between;

a) Income and expenditure

b) Current assets and current liabilities

c) Assets and Liabilities


17. RBI has not prescribed which of the following time bands (buckets) for ALM purposes?

a) 8 to 14 days

b) 14 to 29 days

c) 1 month to 30 months

d) 1 to 7 days

18. Which of the following creates credit risk for the treasury?

a) investment SLR securities

b) Lending to other banks in the call money market

c) Taking positions in foreign currency

d) Investment in non SLR securities


a) Transfer pricing involves payment of interest to the branches by the treasury for the depositsmobilized by them

b) Transfer pricing has no relationship with branch profits

20. Derivative instruments are useful in;

a) Reducing the liquidity risk

b) Interest rate risk

c) Structuring new products

d) All the above

21. Why the corporate bonds are preferred by banks?

a) More liquid asset

b) Can be sold at discount

c) Easy exit

d) All the above

22. Prepayments of which bank products escapes ALM analysis and can not be fully hedged(which is not true)?

a) Fixed deposits

b) Term loan

c) Demand deposits


23. In normal course Treasury operations are untouched by credit risk present in bank’s lendingbusiness?

a) True/ False

24. Which of the following are credit substitutes?

a) Commercial Paper

b) Bonds


25. The protection Seller guarantee payment of;

a) Principal

b) Interest

c) Both Principal and Interest

d) a only

1.b 2.a 3.d 4.d 5.d 6.a 7.b 8.d 9.c 10.c 11.a 12.a 13.b

14.d 15.a 16.c 17.d 18.d 19.a 20.d 21.d 22.c 23.a 24.c 25.c


a) Credit derivatives help the issuer diversify the credit risk and use the capital more efficiently

b) Credit derivatives are not a transferable instrument

c) Market for derivatives is not liquid



a) Treasury is not responsible for credit risk management policy of the bank

b) Treasury is not responsible for foreign exchange risk of the bank


a) ALM policy is a permanent policy of the bank decided by the Board) As such it is notreviewed

b) SEBI guidelines have a role in deciding the ALM policy of the bank

4. Transfer pricing is an integral part of (ALM) The Treasury determines the buy/sell prices onthe basis of;

a) Market rates of interest

b) Cost of hedging market risk

c) Cost of maintaining reserve assets of bank

d) All the above

5. Once transfer pricing is implemented, treasury takes care of the liquidity and interest rate riskof the Entire bank, and profits of credit department reflect only the credit risk, net of allmismatches of sources and uses of funds?

a) True/ False

6. Liquidity policy under ALM prescribes which of the following?

a) Minimum liquidity to be maintained

b) Funding of reserve assets

c) Limits on exposure to money market

d) All the above

7. Investment policy under ALM prescribes

a) Permissible investments

b) SLR and Non-SLR investments

c) Trading in securities and Repos

d) All the above

8. Derivative policy does not prescribe which of the following norms?

a) Use of derivatives

b) Capital allocation

c) Stop loss limits


9. Composite risk policy for foreign exchange and treasury prescribes which of the followingnorms?

a) Securities trading

b) Limits on Intra-day and Overnight positions

c) Exposure limits

d) All the above

10. As per RBI requirements ALM Policies are to be supplemented with Prevention of MoneyLaundering policy and Hedging Policy for customer risks, both of which will have impact onbank’s treasury activity?

a) True/ False

11. Transfer pricing policy prescribes;

a) Spreads to be retained by treasury

b) Segregation of administrative and hedging costs

c) Allocation of costs to branches/ other departments

d) All the above

12. Which of the following is not the essential requirement of all ALM policies?

a) Policies are required to be approved by the Board

b) Compliance of the extent guide of RBI/SEBI

c) Subject to monthly review

d) Filing a copy of the policy with RBI

13. Treasury is instrumental in implementing the ALM Policy of the bank as Treasury connectscore banking activity of the bank with financial markets?

a) True

b) False

14. A situation where the depositors of a bank lose confidence in the bank and withdraw theirbalances immediately, is called;

a) Liquidation of the bank

b) failure of the bank

c) run on the bank

d) any of the above

15. Securities that can be really sold for cash in the secondary market are called;

a) SLR securities

b) marketable securities

c) Liquefiable securities

d) liquidity securities

16. Ratio of interest rate sensitive assets to rate sensitive liabilities is called;

a) sensitivity ratio

b) sensation ratio

c) significance ratio

d) liquidity ratio

17. Capacity of a bank or business organization to absorb losses on account of market risk;

a) risk absorption capacity

b) risk aversion capacity

c) risk taking capacity

d) risk appetite

18. Special purpose vehicle that is formed to handle security paper exclusively, on behalf of thesponsoring bank is called ----------- company;

a) subsidiary company

b) fire-proof company

c) associate company

d) joint venture company

19. FIMMDA or FEDAI that determined market related code of conduct and other standardpractices fall under the category of;

a) regulator

b) self-regulatory agency

c) advisory agency

d) consultancy organization

20. The process of fixation of the cost of resources and return on assets of a bank in a rationalmanner within a bank is called;

a) transfer price mechanism

b) cost-fixation mechanism

c) profit planning

d) loss aversion measure

21. Where a bank branch raises the deposits at 8% and the Treasury Division buys the samedeposit from the branch at 7% the loss of 1% is born by;

a) the treasury division

b) the branch that raises the deposit

c) shared equally by them

d) being national entry, it is ignored, as both the departments are within the bank

22. Where a bank branch extends the loan at 12% and the Treasury Division buys the sameloan from the branch at 8%, the gain of 4% is to;

a) the treasury division which has purchased the loan

b) the branch that extends the loan to the borrower

c) shared national by them

d) Being national entry, it is ignored, as both the departments are within the bank

23. Which of the following is not covered by the derivative policy of a bank;

a) limits on exposure to money market

b) use of derivatives

c) capital allocation for derivative activity

d) valuation norms

24. Which of the following is not covered under the investment policy of bank;

a) SLR and non-SLR investment

b) classification and valuation of investments

c) trading insecurities including Repo

d) none of the above

25. Which policy within a bank determines the methodology, spreads to be retained by treasury,segregation of administrative costs and hedging costs, allocation of cost of branches etc;

a) investment policy

b) derivative policy

c) transfer price policy

d) composite risk policy

1.b 2.b 3.a 4.d 5.a 6.d 7.d 8.c 9.d 10.a 11.d 12.c 13.a

14.c 15.c 16.a 17.d 18.a 19.b 20.a 21.b 22.b 23.a 24.d 25.c

1. The composition of ALCO and operational aspect of ALM etc, are part of which of thefollowing;

a) investment policy

b) transfer price policy

c) asset liability management policy

d) composite risk policy

2. ----------- help the issuing bank to diversify the credit risk and use the capital more efficiently;

a) certificate of deposits

b) credit derivatives

c) interest rate derivatives

d) credit rating

3. Treasury is mostly concerned with which of the following types of risks;

a) liquidity and credit risk

b) market risk

c) credit risk

d) operational risk and settlement risk

4. Which treasury dealt with products are credit substitutes, out of the following;

a) shares of a company

b) units of a mutual fund

c) commercial paper and bonds issued by a company

d) all the above

5. Name an instrument where the credit risk is similar to loan, but it is tradable and hence moreliquid;

a) share of a company

b) bond issued by a company

c) unit of a mutual fund

d) any of the above

6. The process of conversion of conventional credit into tradable treasury assets (i.e marketablesecurities) is called;

a) factoring

b) forfeiting

c) securitization

d) leasing

7. In the process of securitization, the credit receivables are converted into a paper security,that can be traded. Z it is called;

a) bond

b) debenture

c) pass-through certificate

d) promissory note

8. What is the advantage to the issuing bank on securitization of loans (a) infusion of liquidity

(b) freeing the capital blocked in loan assets

(c) earning of extra income;

a) a and b only

b) b and c only

c) c and a only

d) a, b, c only

9. If a bank’s Treasury is buying a stock which is highly sensitive to market movements, thebank can sell ------- as an insurance against fall in stock prices;

a) forwards and futures

b) commodity derivatives

c) index futures

d) interest rate agreements

10. A bank is funding a 5 year loan with a 6 months deposit) It faces what kind of risk (a)liquidity risk (b) settlement risk (c) interest rate risk;

a) a and b only

b) a and c only

c) b and c only

d) a, b and c all

11. ALCO of a bank prices the 6 months deposit

at 182 Treasury bill +2% and the swap rate of the loan yields T + 5%. What is the spreadavailable to the bank;

a) 7%

b) 5%

c) 3%

d) 2%

12. A bank borrows 6month in US $ at 3% and lends equal amount in rupee funds at 7% for thesame period) The bank also makes payment of forward premium of 1%) What is the spreadavailable to the bank;

a) 3%

b) 1%

c) 9%

d) 7%

13. A bank issues a 7-year bond and wants that in case of need, the bond may be liquidated atthe end of 3 years) The bond will be issued;

a) subject to compliance of such condition

b) subject top call option

c) subject to put option

d) any of the above

14. Which department with in a bank is a link between the branch operations and the marketoperations;

a) Investment department

b) credit department

c) treasury

d) all the above

15. In order to bridge the ––––––and ––––––Treasury within a bank uses derivatives and othermeans including new product structures:

a) liquidity, market price

b) market risk, interest rate risk

c) liquidity, rate sensitivity gap

d) mismatch, gap

16. Liquidity with a bank means positive cash flow that include (a) cash surplus (b) committedcredit lines from other banks (c) liquefiable securities

(d) NOSTRO accounts:

a) a, b, c only

b) a, b, d only

c) b, c, d only

d) a, b, c, d all

17. How does a bank calculates the net liquidity;

a) comparing available cash resources with immediate liabilities

b) comparing available cash resources with liabilities

c) comparing total assets with total liabilities

d) any of the above

18. The risk arising out of mismatch of assets and liabilities if not managed can result into (a)negative spread (b) erosion of net worth (c) interest rate risk

(d) liquidity risk:

a) a, b, c d all

b) a, b, and c only

c) a, c and d only

d) b, c and d only

1. c 2.b 3.b 4.c 5.b 6.c 7.c 8.a 9.c 10.b 11.c 12.a 13.c

14.c 15.c 16.d 17.a

Documents

1. Conventionally, the treasury function was confined to ...ibskayamkulam.in/OnlineExam/file/2013-09... · 1. Conventionally, the treasury function was confined to funds management,