SOLVED CAIIB COMBINED PAPER 30:
1. Your importer customer has to retire his import bill. The rate of exchange to be applied will not be ......
(i) Bills buying, (ii) Bills selling, (iii) TT selling
a. Only (i) and (ii)
b. Only (i) and (iii)
c. Only (ii) and (iii)
d. (i), (ii) and (iii)
Ans - b
2. You had negotiated an export bill of your customer in May, 2015. This bill has been returned by the overseas buyer for some reasons and the AD has to debit his customer's account with Indian rupees. The rate to be applied will be ......
(i) Bills buying, (ii) Bills selling, (iii) TT selling
a. Only (i) and (ii)
b. Only (i) and (iii)
c. Only (ii) and (iii)
d. (i), (ii) and (iii)
Ans - a
3. Mr. Raj purchases a call option for 400 shares of A with strike price of Rs. 100 having maturity after 03 months for Rs. 20 and also buy a put option for 200 shares of B with strike price of Rs. 200 having maturity after 03 months for Rs. 30. On maturity, shares of A were priced at Rs. 130 and shares of B were priced at Rs. 180. What is the profit/lost for the individual on the transaction (without taking the interest cost and exchange commission into calculation)?
a. Profit of Rs. 4000
b. Profit of Rs. 2000
c. Loss of Rs. 4000
d. Loss of Rs. 2000
Ans - b
Explanation.
First one is a call option, so it is assumed that,
He will purchase 400 shares of A at a price of 100
Total value of shares is = 40000
Then he will sell the total shares in the market at a price of 130.
400 × 130 = 52000
But he paid the premium for call options @ 20 × 400 = 8000
So profit in this first transaction will be
52000 - 40000 - 8000
=4000 (Profit of Rs. 4000)
Second one is a put option, so it is assumed that,
He will sell 200 shares of A at a price of 200
Total value of shares is = 40000
Then he will buy the total shares in the market at a price of 180.
200 × 180 = 36000
But he has to paid Rs. 30 per share to buy put options.
=30 × 200 = 6000
So profit in this transaction will be
40000 - 36000 - 6000
= -2000 (loss of Rs. 2000)
So taking both the transactions,
4000-2000 = 2000 (Profit of Rs. 2000)
4. ...............risk can be controlled by putting in place state of art system, specified contingencies.
a. Sovereign Risk
b. Country risk
c. operational risk
d. Systematic Risk
Ans - c
5. When Foreign currency is fixed and value of home currency is variable, it is called ......
a. Direct Rate
b. Indirect Rate
c. Cross Rate
d. Variable Rate
Ans - a
6. Inflow of USD 200,000.00 by TT for credit to your exporter's account, being advance payment for exports (credit received in Nostro statement received from New York correspondent). What rate you will take to quote to the customer, if the market is 55.21/25?
a. 55.21
b. 55.21-Bank commission
c. 55.25
d. 55.25- Bank commission
Ans - b
Explanation :
It will be purchase of USD from customer for which USD will have to be sold in the market. Say when USD/Rs is being quoted as 55.21/25, meaning that market buys USD at Rs 55.21and sells at Rs 55.25. We shall have to quote rate to the customer on the basis of market buying rate, i.e. 55.21, less our margin, as applicable, to arrive at the TT Buying Rate applicable for the customer transaction.
7. Retirement of import bill for GBP 100,000.00 by TT Margin 0.20%, ignore cash discount/premium, GBP/USD 1.3965/75, USD/INR 55.16/18. Compute Rate for Customer.
a. 76.5480
b. 76.6985
c. 77.1140
d. 77.2682
Ans - d
Explanation :
For retirement of import bill in GBP, we need to buy GBP, to buy GBP we need to give USD and to get USD, we need to buy USD against Rupee, i.e. sell Rupee.
At the given rates, GBP can be bought at 1.3975 USD, while USD can be bought at 55.18. The GBP/INR rate would be 77.1140. (1.3975 x 55.18), at which we can get GBP at market rates. Thus the interbank rate for the transaction can be taken as 77.1140.
Add Margin 0.20% 0.1542.
Rate would be 77.1140 + 0.1542 = 77.2682 for effecting import payment. (Bill Selling Rate).
8. XYZ Bank’s foreign correspondent maintaining a Nostro Rupee account with XYZ bank, wants to fund his account by purchase of Rs. 10.00 million, against US dollars. Assuming that the USD/INR interbank market is at 56.2380/2420, what rate would be quoted to the correspondent, ignoring exchange margin?
a. 56.2380
b. 56.2400
c. 56.2420
d. 56.2425
Ans - a
Explanation :
The transaction is to sell Rs 10.00 million, against US dollars, and hence the XYZ Bank would quote the lower of the two rates, i.e. 56.2380 (Sell low maxim).
9. On which of the following TT Selling rate will not be applied?
(i) crystallization of overdue export bills,
(ii) crystallization of overdue import bills,
(iii) cancellation of outward TT/MT
a. Only (i) and (ii)
b. Only (i) and (iii)
c. Only (ii) and (iii)
d. (i), (ii) and (iii)
Ans - c
10. When the strike price is equal to the spot price for the call option, the option is ......
a. at the money
b. out of money
c. in the money
d. any of the above
Ans - a
11. which is world’s first Exchange traded currency future contract.
a. Bretton Woods exchange
b. The Chicago Mercantile Exchange
c. Philadelphia stock exchange
d. Shangai stock exchange
Ans - b
12. A bank borrows US $ for 03 months @ 3.0% and swaps the same in to INR for 03 months for deployment in CPs @ 5%. The 3 months premium on US $ is 0.5%. What is the margin(gain/loss) generated by the bank in the transaction?
a. 2%
b. 3%
c. 1.5%
d. 2.5%
Ans - c
Explanation :
Bank borrow US $ for 3 months @ 3%
Same will invest in CP for 3 months @ 5%
So, it gains 2% by interest rate margin here.
But when bank repay its borrowing in $, it has pay 0.5% extra because US $ will be costly by 0.5% as US $ is at premium.
So it will reduce bank gain by 0.5%.
2.0% - 0.5 %
= 1.5%
(i) Bills buying, (ii) Bills selling, (iii) TT selling
a. Only (i) and (ii)
b. Only (i) and (iii)
c. Only (ii) and (iii)
d. (i), (ii) and (iii)
Ans - b
2. You had negotiated an export bill of your customer in May, 2015. This bill has been returned by the overseas buyer for some reasons and the AD has to debit his customer's account with Indian rupees. The rate to be applied will be ......
(i) Bills buying, (ii) Bills selling, (iii) TT selling
a. Only (i) and (ii)
b. Only (i) and (iii)
c. Only (ii) and (iii)
d. (i), (ii) and (iii)
Ans - a
3. Mr. Raj purchases a call option for 400 shares of A with strike price of Rs. 100 having maturity after 03 months for Rs. 20 and also buy a put option for 200 shares of B with strike price of Rs. 200 having maturity after 03 months for Rs. 30. On maturity, shares of A were priced at Rs. 130 and shares of B were priced at Rs. 180. What is the profit/lost for the individual on the transaction (without taking the interest cost and exchange commission into calculation)?
a. Profit of Rs. 4000
b. Profit of Rs. 2000
c. Loss of Rs. 4000
d. Loss of Rs. 2000
Ans - b
Explanation.
First one is a call option, so it is assumed that,
He will purchase 400 shares of A at a price of 100
Total value of shares is = 40000
Then he will sell the total shares in the market at a price of 130.
400 × 130 = 52000
But he paid the premium for call options @ 20 × 400 = 8000
So profit in this first transaction will be
52000 - 40000 - 8000
=4000 (Profit of Rs. 4000)
Second one is a put option, so it is assumed that,
He will sell 200 shares of A at a price of 200
Total value of shares is = 40000
Then he will buy the total shares in the market at a price of 180.
200 × 180 = 36000
But he has to paid Rs. 30 per share to buy put options.
=30 × 200 = 6000
So profit in this transaction will be
40000 - 36000 - 6000
= -2000 (loss of Rs. 2000)
So taking both the transactions,
4000-2000 = 2000 (Profit of Rs. 2000)
4. ...............risk can be controlled by putting in place state of art system, specified contingencies.
a. Sovereign Risk
b. Country risk
c. operational risk
d. Systematic Risk
Ans - c
5. When Foreign currency is fixed and value of home currency is variable, it is called ......
a. Direct Rate
b. Indirect Rate
c. Cross Rate
d. Variable Rate
Ans - a
6. Inflow of USD 200,000.00 by TT for credit to your exporter's account, being advance payment for exports (credit received in Nostro statement received from New York correspondent). What rate you will take to quote to the customer, if the market is 55.21/25?
a. 55.21
b. 55.21-Bank commission
c. 55.25
d. 55.25- Bank commission
Ans - b
Explanation :
It will be purchase of USD from customer for which USD will have to be sold in the market. Say when USD/Rs is being quoted as 55.21/25, meaning that market buys USD at Rs 55.21and sells at Rs 55.25. We shall have to quote rate to the customer on the basis of market buying rate, i.e. 55.21, less our margin, as applicable, to arrive at the TT Buying Rate applicable for the customer transaction.
7. Retirement of import bill for GBP 100,000.00 by TT Margin 0.20%, ignore cash discount/premium, GBP/USD 1.3965/75, USD/INR 55.16/18. Compute Rate for Customer.
a. 76.5480
b. 76.6985
c. 77.1140
d. 77.2682
Ans - d
Explanation :
For retirement of import bill in GBP, we need to buy GBP, to buy GBP we need to give USD and to get USD, we need to buy USD against Rupee, i.e. sell Rupee.
At the given rates, GBP can be bought at 1.3975 USD, while USD can be bought at 55.18. The GBP/INR rate would be 77.1140. (1.3975 x 55.18), at which we can get GBP at market rates. Thus the interbank rate for the transaction can be taken as 77.1140.
Add Margin 0.20% 0.1542.
Rate would be 77.1140 + 0.1542 = 77.2682 for effecting import payment. (Bill Selling Rate).
8. XYZ Bank’s foreign correspondent maintaining a Nostro Rupee account with XYZ bank, wants to fund his account by purchase of Rs. 10.00 million, against US dollars. Assuming that the USD/INR interbank market is at 56.2380/2420, what rate would be quoted to the correspondent, ignoring exchange margin?
a. 56.2380
b. 56.2400
c. 56.2420
d. 56.2425
Ans - a
Explanation :
The transaction is to sell Rs 10.00 million, against US dollars, and hence the XYZ Bank would quote the lower of the two rates, i.e. 56.2380 (Sell low maxim).
9. On which of the following TT Selling rate will not be applied?
(i) crystallization of overdue export bills,
(ii) crystallization of overdue import bills,
(iii) cancellation of outward TT/MT
a. Only (i) and (ii)
b. Only (i) and (iii)
c. Only (ii) and (iii)
d. (i), (ii) and (iii)
Ans - c
10. When the strike price is equal to the spot price for the call option, the option is ......
a. at the money
b. out of money
c. in the money
d. any of the above
Ans - a
11. which is world’s first Exchange traded currency future contract.
a. Bretton Woods exchange
b. The Chicago Mercantile Exchange
c. Philadelphia stock exchange
d. Shangai stock exchange
Ans - b
12. A bank borrows US $ for 03 months @ 3.0% and swaps the same in to INR for 03 months for deployment in CPs @ 5%. The 3 months premium on US $ is 0.5%. What is the margin(gain/loss) generated by the bank in the transaction?
a. 2%
b. 3%
c. 1.5%
d. 2.5%
Ans - c
Explanation :
Bank borrow US $ for 3 months @ 3%
Same will invest in CP for 3 months @ 5%
So, it gains 2% by interest rate margin here.
But when bank repay its borrowing in $, it has pay 0.5% extra because US $ will be costly by 0.5% as US $ is at premium.
So it will reduce bank gain by 0.5%.
2.0% - 0.5 %
= 1.5%