Bfm numericals (all mods)

BFM- quantitatives ( collection by Hanumantha Rao)

1. Probability of occurrence=4

Potential financial impact=4 Impact of internal control=0%

What is the estimated level of operational risk?

A.3 B.2

C.0 D.4

=(4*4*(1-0))square.5=4, So ans is d (look for page295 BFM)

Estimated level of operational risk=Estd probability of occurrence(4)*Estd potential financial impact(4) *estimated impact of

internal controls

2 If there is an asset of Rs 120 in the doubt ful-I cat and the

realization value of security is rs 90 only , what will be the provision

requirement.

A Rs 48

B Rs 57

C Rs 39

D Rs 75

Ans : 48 since it a doubtful-I cat so provisioning will be 20% of

realization value Rs 90 i.e Rs 18 and 100% of short Fall that is 120-

90= 30. So ans will be 30+1-8= 48

3(a). If there is an asset of Rs 120 only in the doubt ful-II cat and

the realization value of security is Rs 90 if above mentioned asset in

doubtful-ii category what will be the provision requirement.

A 39

B 57

C 66

D 75

Ans : b since it a doubtful-II cat so 30% realization value of Rs

90 i.e Rs 27 and 100% of short Fall that is 120-90= 30 so ans will

be 30+27= 57

3(b). If there is an assets of Rs 120 only in the doubt ful-III cat and

the realization value of security is Rs 90 if above mentioned asset in

doubt-III than what will be the provision requirement.

A 120

B 48

C 57

D 108

Ans : a since it a doubtful-III cat so 100% of realization value Rs 90

i.e Rs 90 and 100% of short Fall that is 120-90= 30 so ans will be

90+30=120

4. A preshipment account above 3 years as on mar 31 2004 has debit

balance of Rs 4 lakh. Principle security value is 1.50 lakh and ECGC

cover is available at 50 %. What provision will be made on the a/c as

on 31.05.2025 .

A Rs 2.15 lac

B 2.0 lac

C 1.92 lac

D 2.25 lac

Ans : a do not know pl.. solved any body I m unable to

5. A/C of ABC has become doubtful with balance of Rs. 6 lac . The

collateral security value is Rs 3 lac and that of principle security is 2

lac. Guarantors worth is Rs 10 lac . A/c is in more than 1 Yr and up

to 3 yr doubtful category . What will be amount of provision as on

mar 2013.

A Rs 1.50 lac

B 2.50 lac

C 1.80 lac

D 3.0 lac

Ans : B since it is in more than two yr in doubtful category it

should be treated as doubtful-II cat and allow 30% of realisation

value that is 3+2=5 , 30% of 5 will be Rs 1.50 lac and 100% of

short fall that is 6-5=1 lac so 1.50+1.0=2.50 lac ans

6. Provisions to be made for a standard asset....teaser housing loan

A)0.25%

B)0.40%

C)1%

D) 2%

Ans: 2%

7. A 5-year 6% semi-annual bond @ market yield of 8%, having a price of

Rs. 92, falls to Rs. 91.80 at a yield of 8.10%, what is Basis Point Value

(BPV)?

1) Rs. 0.20 2) Rs. 0.10 3) Rs. 0.02 4) Rs. 0.05

BPV=92-91.80/8.10%-8%=.2/.10*100=.2/10=.02

8. Received order of USD 50000(CIF) to Australia on 1.1.11 when USD/INR Bill Buying Rate is 43.50. How much preshipment finance will be released

considering profit margin of 10% and Insurance and freight cost@ 12%.

ans

FOB Value = CIF – Insurance and Freight – Profit (Calculation at Bill Buying

Rate on 1.1.11) i.e

= 50000X43.5 = 2175000 – 216000(12%) – 191400(10% of 1914000) =

1722600

Pre-shipment Finance = FOB value -25%(Margin) = 1722600-

430650=1291950.

9. Spot Rate ((Forward Rates)) is 35.6000/6500 Forward 1M=3500/3000

2M=5500/3000, 3M=8500/8000, Transit Period ----20 days, Exchange

Margin = 0.15%.

Find Bill Buying Rate & 2 M Forward Buying Rate

a)31.6979

b)34.6979

c)27.6979

d)25.6979

ans: Bill Buying Rate (Ready) : Bill Date +20 days

Spot Rate = 35.6000 Less Forward Discount 1M (0.3500) Less Exchange

Margin 0.15% (0.529)

i.e. 35.6000-.3500-.0529(0.15% of 35.2500) = 35.1971

3 Month Forward Buying Rate will be applied. 20 days + 2M

Spot Rate = 35.6000 Less Forward Discount of 3M (.8500) Less Exchange

Margin (.0521)

i.e. 35.6000-.8500-.0521(0.15% of 34.7500) = 34.6979 Ans.

10.Issue of DD on New York for USD 25000. The spot Rate is IUSD =

34.3575/3825 1M forward rate is 34.7825/8250

Exchange margin: 0.15%

a ) 32.4341

b ) 34.4341

c ) 36.4341

d ) 38.4341

Ans: Issue of DD on New York for USD 25000. The spot Rate is IUSD =

34.3575/3825 IM forward rate is 34.7825/8250


Solution:

TT Selling Rate will Apply

Spot Rate = 34.3825 Add Exchange margin (.15%) i.e. 0.516

TT Selling Rate = Spot Rate + Exchange Margin = 34.4341 Ans.

11 Exporter received Advance remittance by way of TT French Franc

100000. The spot rates are in India IUSD = 35.85/35.92 1M forward =.50/.60

The spot rates in Singapore are 1USD = 6.0220/6.0340 1M forward =.0040/.0045

Exchange margin = 0.8% a ) INR 4.9366

b ) INR 5.9366

c ) INR 6.9366 d ) INR 7.9366

Solution

Cross Rate will apply

USD will be bought in the local market at TT Buying rate and sold at Spot

Selling Rates in Singapore for French

Francs:

TT Buying Rates USD/INR = Spot rate – Exchange margin = 35.8500-.0287

= 35.8213

Spot Selling Rate for USD/Francs = 6.0340

Inference:

6.0340 Franc = 1USD

= INR 35.8213

1 franc = 35.8213/6.0340 = INR 5.9366 Ans.

12. On 12th Feb, received Import Bill of USD-10000. The bill has to be retired to debit the account of the customer. Interbank spot rate

=34.6500/7200. The spot rate for March is 5000/4500. The exchange margin for TT selling is .15% and Exchange margin for Bill selling is .20%.

Quote rate to be applied.

a ) 31.8415 b ) 34.8415

c ) 35.8415 d ) 39.8415

Solution

Bill Selling Rate will be applied.

Spot Rate + Exchange margin for TT Selling + Exchange margin for Bill

selling = 34.7200+.0520+.0695 = 34.8415

13 On 15th July, Customer presented a sight bill for USD 100000 for

Purchase under LC. How much amount will be credited to the account of the Exporter. Transit period is 20 days and Exchange margin is 0.15%. The spot

rate is 34.75/85. Forward differentials: Aug: .60/.57 Sep:1.00/.97 Oct: 1.40/1.37

a ) 28.0988 b ) 34.0988

c ) 40.0988 d ) 44.0988

Solution

Bill Buying rate will be applied.

Spot Rate----34.75 Less discount .60 = 34.15

Less Exchange Margin O.15% i.e. .0512 =34.0988 Ans.

14. Bank received MT of USD 5000 on 15th Sep. The Nostro account was already credited. What amount will be paid to the customer: Spot Rate

34.25/30. Oct Forward Differential is 22/24. Exchange margin is .80% a ) 38.2226

b ) 34.2226 c ) 30.2226

d ) 32.2226

Solution

TT buying Rate will be applied

34.25 - .0274 = 34.2226 Ans.

15. Spot Rate ((Forward Rates)) is 35.6000/6500 Forward 1M=3500/3000 2M=5500/3000 3M=8500/8000

Transit Period ----20 days, Exchange Margin = 0.15%. Find Bill Buying Rate & 2 M Forward Buying Rate

a ) 31.6979 b ) 34.6979

c ) 27.6979 d ) 25.6979

Solution

Bill Buying Rate (Ready) : Bill Date +20 days


Margin 0.15% (0.529)

i.e. 35.6000-.3500-.0529(0.15% of 35.2500) = 35.1971



Margin (.0521)

i.e. 35.6000-.8500-.0521(0.15% of 34.7500) = 34.6979 Ans.

16 Issue of DD on New York for USD 25000. The spot Rate is IUSD =

34.3575/3825. 1M forward rate is 34.7825/8250, Exchange margin: 0.15%. Calculate TT Selling rate

a ) 32.4341 b ) 34.4341

c ) 36.4341

d ) 38.4341

Issue of DD on New York for USD 25000. The spot Rate is IUSD =

34.3575/3825, 1M forward rate is 34.7825/8250


Solution:




17. Exporter received Advance remittance by way of TT French Franc


The spot rates in Singapore are 1USD = 6.0220/6.0340 1M forward

=.0040/.0045, Exchange margin = 0.8% a ) INR 4.9366

b ) INR 5.9366 c ) INR 6.9366

d ) INR 7.9366

Ans: 6.0220*.008=.0481, -0040= 5.97



Selling Rates in Singapore for French Francs:


= 35.8213


Inference:

6.0340 Franc = 1USD

= INR 35.8213

1 franc = 35.8213/6.0340 = INR 5.9366 Ans.

18.A 91 days T Bill, after 41 days is trading at 99, calculate the yield on T

bill..

1) 7.35 2) 7.37

3) 6.89

4) 8.01

ANS: 100-99*365*100/99*50=36500/4950=7.37 ans

19. One of your exporter customers has received an export order for USD

100,000/- (Present conversion rate USD 1= RS 47/-). The contract is for CIF

value. Freight is estimated at 10% and insurance premium will be

approximately 5%. Your branch has prescribed a margin of 10%. What will

be the eligible packing credit loan amount?

1. 32,13,000

2. 37,80,000 3. 42,00,000

4. 35,95,000*

Ans FOB value= 100000*47=4700000-(15% freight)705000=3995000

Pre shipment= FOB- Margin=3995000-399500=3595000ans

20. You are required to negotiate an export bill for USD 150000.00 at 60

days after sight drawn under a LC. Assuming the following rates in the inter

bank market calculate the exchange rate to be quoted bearing in mind that

the required exchange margin is 0.150% , NTP is 20 days and interest is to

be collected at 11% p.a. at the time of negotiation and recoverable from the

customer.

SPOT USD1= Rs.48.2000/48.2500 and premia are

one month-0.0800/0100, 2 month 0.1500/0.1650 and 3 month

0.2300/0.2400

ANS: Since the NTP is 20 days and usance of the bill is 60 days the forward

rate should be that as applicable to 80 days. Since this is a buying

transaction the premium for 2 months is only considered because of the

principle “give less”. The working of the rate is as under:

Inter bank rate + premium= 48.200+ 0.1500 = 48.3500

Exchange margin @ 0.150% is reduced from the above = 48.3500- 0.0545

= 48.2955 and when rounded off it is 48.2950

Amount payable to the customer = 150000* 48.3500 =Rs.7252500

Interest recoverable = {7252500* 80*11}/ 36500= Rs174854.79

20 A bond with Rs 100 par value has a coupon rate of 14 %. The required rate of return on the bond is 13 % and it matures in 5 years. Find the value

of bond. ? FORMULA :

COUPON RATE / (1*ROR) N

SO : 14/1.13+ 14/(1.13)2 +14/(1.13)3 +14/(1.13)4 + 114/(1.13)5

:- 12.38 + 10.96 + 9.70 + 8.86 + 61.87 = 103.77

21.COST / UNIT

RAW MATERIAL 50

DIRECT LABOUR 20 OVERHEADS 40

TOTAL COST 110 NO OF UNITS 10,000

NO OF UNITS SOLD ON CREDIT 8000 AVERATE RAW MATERIAL IN STOCK : 1 MONTH

AVERAGE WORK IN PROGRESS : 0.5 MONTH AVERAGE FINISHED GOODS IN STOCK : 0.5 MONTH

CREDIT BY SUPPLIER : 1 MONTH CREDIT TO DEBTOR : 2 MONTHS

TAKE 1 YEAR = 12 MONTHS

INVESTMENT IN WORKING CAPITAL FOR FINISHED GOODS IS

NO OF UNIT * COST OF PRODUCTION PRICE * FINISHED GOODS DAY / 365 10000 * 110 * .05/12 = 45833

GROSS PROFIT : 8

NET PROFIT : 5

DEPRECTIATION : 3 SALES : 80

PURCHASE : 60 CAPITAL : 50

CC BANK : 20 TERM LOAN : 10

TERM LOAN ( INSTALL FALL ) 2 CREDITORS : 12

OTHER O/S EXP : 6 FIXED ASSETS : 65

INVESTMENT : 10

DEBTOR : 8 CLOSING STOCK: 7

CASH AND BANK : 5 LOAN AND ADVANCE : 5

INT. ON TERM LOAN : 1.5

1) GROSS PROFIT RATIO G.P / SALES * 100 : 8/80*100 = 10

2) NET PROFIT RATIO N.P. / SALES * 100 : 5 / 80 * 100 = 6.25

3) CURRENT RATIO

C.A. / C.L. ( INCL T/L) ( 8 + 7 + 5 + 5 ) / ( 2 + 12 + 6 +20) = 6.25

4) DEBT EQUIRY RATION

DEBT / EQRY : ( 20 + 10 + 2 12 + 6 ) / ( 50)

5) CREDITOR PAYMENT PERIOD CREDITORS / PURCHASE * 365 : 12/60 *365 = 60.83

6) STOCK HOLDING PERIOD STOCK / PURCHASE * 365 7 / 80 *365 = 31.93

DSCR : ( PAT + DEPRE+INT ON T/L ) / INT IN T/L AND INSTL OF T/L)

( 5 + 3 1.5 ) / ( 2 + 1.5)

QTN. RS.1000 TREASURE BOND WITH COUPON RATE OF 6 % . TODAY

PRICE AT RS 1010.77 AND SELL IT NEXT YEAR AT THE PRICE OF RS 1020. SO WHAT IS RATE OR RETURN ON BOND ?

FORMULA : % + DIFFERENCE / INVESTMENT

SO : 60 + 9.23 / 1010.77 = 6.86

33.A bank is holding bond portfolio having BPV of Rs 51000 per Cr. The

book value of the holding is Rs 9780 Cr having present market value of Rs

10543 Cr. Total face value of the holding is Rs 10124 Crs. What would

be the gain/loss on the holding if the portfolio yield increases by 12 basis points ?

a) Loss of Rs 1265.16

b) loss of Rs 1214.68

c) loss of Rs 612000

d) Insufficient data

Ans : c Yield is inversely proportionate to market price..

So increase in yield..

Will decrease the market price. ..

Means loss in holding the portfolio. ..

BPV is Change in price by 1 basis point ( 0.01%) change in yield..

So by change in the yield by 12 basis points or 12 BPV..

Change in price will be..

= 12 × 51000

= 612000

Loss of rs 6,12,000 per Cr

34. A 20 YR 11% Semi-annual bond @ market yield of 9.80% has 15 Yr remaining for maturity> Mc Cauley’S duration of the bond is 9.2 Yr.

What is the approximate change in price if the market yield goes down by 1% ?

a) Price increases by 8.70%

b) Price increases by 8.77%

c) Price decreases by 8.87%

d) Price decreases by 9.20%

ans : b Modified duration is McCauley's duration discounted by one period

yield to maturity

Modified duration =

McCauley's duration / ( 1 + yield )

= 9.2 / ( 1 + 9.8%) = 9.2 / ( 1 +0.098)

= 9.2 / ( 1.098) = 8.37 = modified duration

% change in price = - modified duration × yield change

= - 8.37× (-1%) = (+)8.37 %

+ means increase in price

So 8.37 % increase in price. .

My magnitude of answer Is different from answer b

35. Say Mr. X purchase 2000 shares of stock ‘A’ at Rs 125 per share and 1000 shares of stock ‘B’ at Rs 90 per share. The price is expected

to fluctuate 2% daily for stock ‘A’ and 1.25% daily stock ‘ B’ (daily volatility figure estimated from past data) . He estimates daily potential

loss to be Rs 6350 approximately. The market factor sensitivity of the portfolio is……..

a) Rs 6350

b) Rs 3000

c) Rs 6.35

d) None of these

ans:d should be ....d

Because market factor sensitivity of portfolio is...

1% of total position. .

Here total position in portfolio is..

125×2000 + 90× 1000

= 250000 + 90000

= 340000

1 % of total position

= 3400 rs

36. A bond portfolio having a bond A (market Value Rs 300 Crs and

MD of 3.5 Yr) and bond B (market value Rs 500 Crs and MD of 05 Yrs) What is the BPV of the portfolio ?

a) Rs 44375 per crore

b) Rs 4437.50 per crore

c) Rs 44375 per million

d) Rs 4437.50 per million

Explanation. .

BPV of bond A ...

Change in price =

Modified duration × yield change

= 3.5 × 0.01 (basis point change)

=0.035

BPV of bond B

Samilarily

Change in price = Modified duration × yield change

= 5.0 × 0.01 (basis point change) = 0.050

BPV of portfolio is equal to. .

Weighted average of BPV

= (0.035×300 + 0.050× 500)/800

= (10.5 + 25)/ 800

= 35.5 / 800 = 0.044375

That is on 100 face value

For per crore we should multiply by 100000

So we get 4437.50 per crore..

Answer b

37. Say Mr. X purchase 2000 shares of stock ‘A’ at Rs 125 per share

and 1000 shares of stock ‘B’ at Rs 90 per share. The price is expected to fluctuate 2% daily for stock ‘A’ and 1.25% daily stock ‘ B’ (daily

volatility figure estimated from past data) . He estimates daily potential loss to be Rs 6350 approximately. What is the VaR of 99% confidance

interval(corresponding to 2.33 standard deviation) (Assume that the stocks have zero correlation)

a) Rs 14795.50

b) Rs 6350

c) Rs 19050

d) None of these

ans: a refer page 251 and 252

How they arrive at option a..

Daily estimated loss is 6350

Daily percentage loss is..

= (daily loss / total position)× 100

Daily loss = 6350 Total position

= 2000 × 125 + 1000 × 90

= 250000 + 90000

= 340000

Daily percentage loss = (6350/340000)× 100

= 0.018676 × 100 = 1.8676 %

So for getting loss at 99 % confidence level...

Defeasance factor

= Daily percentage loss × standard deviation = 1.8676 × 2.33

= 4.3516 %

So VaR of portfolio is.

= tatal position × Defeasance factor = 340000 × 4.3516

= 14795.4999 = 14795.50

That is option a

38. Two stocks A and B have negative correlation of 80% between them the portfolio consists of 100 units of stock a ( market price Rs 100 ) and

200 units of stock b ( market price Rs 200) if price of stock A moves up by 10 % what would be gain/loss on the portfolio ?

a) gain Rs 4200

b) loss Rs 2200

c) Loss rs 600

d) non of these

ans : b Explanation. .

Co relation is 80% = 0.80

Which is negative. .

Means. . two stock price is inversely related. ..

If price of stock a goes up

Then price of stock b goes down. ..

Factor is by 0.80..

Here stock price of a goes up by 10 %.. Current price of stock a is 110 rs...

Also price of stock b is goes down by 10%×0.80 = 8%

Current price of stock b..

Will be 200× (1-.08%)

= 184 rs. .

Gain in stock a = 110×100 - 100×100

= 11000 - 10000 = 1000

Loss in sock b

= 184×200 - 200×200 = 36800 - 40000

= -3200

In totally. . = 1000+(-3200)

= -2200

= loss of 2200

39 What would be issue price of a CP carrying an interest rate of 8 % and maturity of 06 manths expressed as% of notional value ?

a) 100 %

b) 92.59%

c) 96.15%

d) none of these

ans:c

= (100/104)× 100

= 96.15384

= 96.15

Interest rate = 8 % annual

For six months it should be 4 %

CPs are issued at discount prices. .

So if face value is 100..

Then 8 % annual.

4% for semi annual. .

Issue price × (1+ 4%) = 100

Issue price × 1.04 = 100

Issue price = 100/1.04

= 96.15384

= 96.15

41. On a 5 point scale (very high,high,average,modete &

Low),probability of occurrence of an activity has been estimated at

an average level. Potential financial impact is estimated at an high

level, given that the impect of internal control is 40% what is the

estimated level of operational level ?

1) Very high to high

2) High to average

3) Average to moderate

4) Moderate to Low

Ans: c

Estimated level of operational risk =

Estimated probability of occurrence × estimated potential financial impact × Estimated impact of internal controls

Firstly we assume 5 level risk in numbers. ..

Scale of risk. .

Very high - 4

High - 3 Average - 2

Moderate - 1 Low - 0

So probability of occurrence

= average = 2

Potential financial impact = high = 3

Impact of internal control

= 40 %

For calculation. .


Square root of (2 × 3 × ( 1-40%)) = square root of (6 × 0.60)

= square root of 3.6 = more than 1 and less than 2

= more than moderate and less than average

Answer ..c.. Average to moderate

Reference page no 294, 295

BFM McMillan book

42. For estimating level of operational risk, abank estimates probability of

occurrence on historical frequency and maps it on a 5 point scale where

1. implies negligible risk

2. Implies low risk

3. implies medium risk

4. implies high risk

5. implies very high risk

For estimating potential financial impact it relies on past observations and

severly of impact I s also mapped on a scale of 5 as mentioned above

In one of the OR category the bank finds that probability of occuerence

stands mapped at 2 and potential financial impact is mapped at 5

Estimateed impact of internal control is 50% . What is the level of

operational risk for the given OR category?

a) Low risk

b) Medium risk

c) High risk

d) Very high risk

Ans : b

Explanation. ...

.


Estimated probability of occurrence × estimated potential financial

impact × Estimated impact of internal controls

Firstly we assume 5 level risk in numbers. ..

Scale of risk. .

Very high - 5

High - 4

Medium - 3

Low - 2

Negligible - 1

So probability of occurrence

= average = 2

Potential financial impact

= high = 5

Impact of internal control

= 50 %

For calculation. .


Square root of (2 × 5 × ( 1-50%))

= square root of (10 × 0.50)

= square root of 5

= 2.23

= medium risk

Answer ..b

43. A 91day T bill remaining maturity of 73 days is priced at 99%

a) 5%

b) 5.05%

c) 4.95%

d) 5.20%

ans : b y= (100-p)/p *365/d *100 (100-99/99)*365/73*100=5.05

43.A bank,s G sec portfolio has 100 day VaR at 95% confidance level

of 4% based on yield.What is the worst case scenario over 25 days ?

a) increase in yield by 0.4%

b) Decrease in yield by 0.4%

c) Increase in yield by 2%

d) Decrease in yield by 2%

ans: 100 day VaR is 4 %

So one day Var is..

4 = one day VaR × square root of 100

4 = one day VaR × 10

One day VaR = 0.4 %

25 day VaR = 0.4 × suare root of 25

= 0.4 × 5

= 2 %

In worst case scenario yield will always increase. .

Because this will decrease the market price or value. .

Answer is increase in yield by 2 %

44. A bank,s G sec portfolio has 100 day VaR at 95%

confidance level of 4% based on yield.What is the worst case

scenario over 25 days

in case the portfolio size of the bank,s (mentioned above ) G

sec portfolio is rs 10000 croeres with average modified duration of

3, then worst case loss that the bank may suffer overnight is

a) RS 120 crores in terms of market value

b) loss of Rs 40 crores by way of interest income

c) Gain of Rs 40 crores by way of interest income

d) none of these

ans: 3*.4*10000/100=120 cr

45. 100 day VaR of a given security is 5% with 90 % confidence

interval. In a year (250 working days) , How many days VaR may

be observed at more than 5% ?

a) 12.5 days

b) 10 days

c) 25 days

d) None of these

46. VaR for US/INR rate at 95 % confidence interval is 50 BPs

over night. If the day closes at Rs 44.30 spot for USD, What is the

worst possible rate for imports the day after ?

a) Rs 44.80

b) Rs 43.80

c) 45

d) 45.01

ans: questions for worst situation for import if bP will be added in

export BP will be deducted. So ans will be 44.30+.50=44.80 ans will

be a

Because In worst situation for import price for USD will always increase. ...

47. a 10 Yr bond with semi annual coupon rate@ 8% is being

traded in the market at rS 95/- Th YTM of the bond is

a) 8.42%

b) It can,t be determinded based on data given

c) it may be determined and is expected to be above 8%

d)it may be determined and is expected to be below 8%

ans : c

Ytm different from current yield...

Simple rule is that regarding YTM is.

When market price is below face value.. Then YTM will be greater than the interest or coupon rate...

And when market price greater than the face value ...

Then it will be definitely YTM is lower than the interest or coupon rate

48. A bond having a duration of 6 Yr is yielding 8% at present .

if yield increase by .50% . what would be the impact on price of the

bond ?

a) Bond price would go up by 2.7%

b) Bond price would fall by 2.7%

c) Bond price would go up by 2.8%

d) Bond price would fall by 2.8%

ans : d Modified duration is McCauley's duration discounted by one period

yield to maturity

Here we are talking McCauley's duration is 6 years. .as if no McCauley's

duration is given

Modified duration =McCauley's duration / ( 1 + yield )

= 6 / ( 1 + 8%)

= 6/ ( 1 +0.08)

= 6/ ( 1.08)

= 5.556 = modified duration

% change in price =- modified duration × yield change

= - 5.556× (+0.50%)

= (-)2.7778 %

= (-) 2.8

( - )means decrease in price

2.8 % decrease in price. .

49. Currency X having 6% risk free rate for 6 months has a

spot rate of 30Y . where Y is another currency and has 4% risk

free rate for 06 months period. The 6 months forward rate of X in

terms of Y would be

a) 29.70 B

b) 29.71 B

c) 30.30 B

d) 30.29 B

ans : b

According to interest rate parity..

(Fyx/ Syx) = (1+Interest of y)/(1+Interest of x)

F = Forward rate

S = Spot rate

yx means..expression of exchange rate...

Here exchange rate is given in

Terms of..

1 x = 30 y..

Thatswhy x is in the denominator. .yx

Fyx / 30Y = (1+2%)/(1+3%)

Fyx = ( 1.02/1.03) × 30Y

Fyx = 0.99029 × 30Y

Fyx = 29.7087 Y

Fyx = 29.71 Y

50 An individual purchases a call option for 500 shares of A with

strike price at Rs 120 (Present price Rs 100) and remaining maturity of

03 months at a premium of Rs 40 . On maturity shares of A was

priced at Rs 140. Taking interest cost @ 12% p.a . what is the profit

earned by the individual on the transaction ?

a) No loss no profit

b) Rs 600 loss

c) Rs 10600 loss

d) None of these

Ans : c Explanation. .

Call option ..

He will pushase 500 shares of A..at a price of 120

Tatal value of shares is..

60000

Then he will sell the total shares in the market at a price of 140..

500 × 140

= 70000

So profit of 10000 in the transaction. .

But he has to pay the premium for call options. .

Which is 40 × 500

= 20000

And for getting this much fund interest cost is..

= 20000 × 3 % for 3 months (12% p.a for 03 months 12/4=3)

= 600

Total premium + premium cost

= 20000 + 600

= 20600

In totality. ..

= 10000 - 20600

= - 10600

51. A financial institution buys a specified no of futures at NSE on

a stock Rs 90 each when spot price of the stocks Rs 95 . At the

maturity of the contract the FI takes delivery of the shares. During

the period of Rs 3. The acquisition cost to the FI per share is (

ignore any commission charged by exchange)

a) Rs 95

b) Rs 90

c) Rs 97

d) None of these

ans : b

52. A fixed for floating swap on a notional amount of Rs 10 crores

exchanges 9% fixed against 2% over MIBOR. Settlement is up

front based on closing MIBOR of the immediately preceding quarter. If

the MIBOR is 4% on the last day of the quarter, what is amount of

settlement and who pays it ? Given risk free rate is 5%

a) Rs 12,50,000 floating rate payer

b) Rs 12,34,567 fixed rate payer

c) Rs 7,40,740 fixed rate payer

d) Rs 7,50,000 fixed arte payer

ans: Here question is for..

Exchange of interest rate payment. .

Only difference amount of interest will be paid...

By one party to another party. ..

two parties

1... fixed interest rate payer who will pay 9 % fixed interest rate

2 ...floating interest rate payer...

Who will pay 2 + MIBOR interest rate

MIBOR is at the end of last quarter is 4 %

So total floating rate us 6 %..

And difference of interest rate is..

= 9 - 6= 3 %

Means fixed interest rate payer will pay the difference of interest to floating

interest rate party..

Notional value..

10 crore. .

Difference interest rate for the one quarter is..

= 3 / 4= 0.75%

So 0.75 % of 10 crore

= 750000

That is Answer... d

53. A bank borrows US $ for 03 months @ 2.5% and swaps the

same in to INR for 03 months for deployment in CPs @ 5.5%.

The 3 months premium on US $ 0.75%. the margin generated by

the bank in the transaction is

a) 3%

b) 2.25%

c) 5.5%

d) non of these

ans:b

Bank borrow US $ for 3 months @ 2.5%

Same will invest in CP foe 3 months @ 5.5 %..

Then here gaining 3% by interest rate margin...

But when bank repay his borrowing in $..

So bank has pay 0.75 extra because US $ will become costly by 0.75%..

US $ is at premium. .

So it will reduce bank gain by 0.75 %..

3.0% - 0.75 % = 2.25

54. A bank makes provision in account with out standing balance

of Rs 100 Crs (Risk Weight 150%) of Rs 30 Crs. The amount

that will qualify for Tier ii capital is

a) Rs 1.25 Crs

b) Rs 30 Crs

c) Nil

d) Non of these

ans is c

55. A company enjoys cash credit account with a bank . HE also has a

term looan account with o/s balance of Rs 15 Crs as on 31-03-2010 the

bank has also subscribed to the bonds issued by the borrower company

amounting to Rs 3 Crs. As on 31-03-2010 the CC account with o/s balance

of Rs 1.20 Crs is required to be classified as NPA there is no default in

payment of interest and installment in the term loan and bonds. The amount

that will become NPA on account of this borrow company is

a) Rs 1.20 Crs

b) Rs 16.20 Crs

c) 19.20 Crs

d) none of these

ans: c = 15+3+1.20=19.20

56. A bank has deposits worth ZMW 3,00,000 billion. The interest rate on

this is 12%. SRR to be maintaioned by the bank is 8% effective cost to

deposit is....

1) 12% 2) 15.23%

3) 13.04% 4) 14.66%

Ans: 3 From 300000

8 % should be made for SLR requirements

So available fund for making loans(asset)

= 300000 - 8% of 300000

= 300000 - 24000

= 276000

For this fund 276000

Bank is paying 12 % on 300000

Cost of fund is 36000

So making no loss ..

Bank has to lend money at that interest rate..

Which will cover this cost of funding that is 36000

36000 = 276000 × r /100

36000/276000 = r / 100

0.1304 = r / 100

r = 13.04 %

57. in a loan a/c the balance outstanding is 4.20 lacs and a cover of 75% is

available from CGFTMSE .the a/c has been doubtful since 25.08.2009.and

the value of security held is 1,50,000.the total provision in the a/c as on 31.03.2013 will be

1.2,10,000 2.2,17,500

3.1,26,000 4.2,65,000

Answer should be 2

Explanation ...

Outstanding. .balance. . Is .....420000

Security available is..

150000

CGFTMSE...on remaining amount

Which is. . = 420000- 150000

= 270000

Coverage is only 75 %..

So uncovered amount. .

We will take as a Provisioning. . Which is ..

= 25% of 270000

= 67500

Since loan is in doubtful category for more than 3 years

So we will take 100 % Provisioning for security value. . Which is.

= 150000

So totality. .

Provisioning is.. = 150000 + 67500

= 217500

58. A customer covers its receivable under exchange fluction risk cover

scheme of ECGC . On due date the currency appreciate by 45%. The customer will gain on the transaction due to currency fluction.

a) 45%

b) 12%

c) 10%

d) 2%

Ans: bAny loss or gain..

Within the range of 2 % to 35%..

Will go in ecgc account. .

Thatswhy. .

Gain of 45%

Of that...33% will go in ecgc account. .

So profit only. .12%..

For customer

59. A claim of Rs 45 lacs has been settled by ECGC in favour of a bank

againt default of Rs 60 lacs. Subsequently the bank realizes Rs 20 lacs collaterals available to it.What is the loss suffered by the bank on this loan

? a) Rs 10 lacs

b) Rs 5 lacs c) Rs 20 lacs

d) Non of these ans: A Because of ecgc settled the 45 lakhs on default of 60 lakhs. .

Which means. .ecgc settled the 75 % of default. .

here 20 lakhs is realised security. ...

Which means claim amount will be only..

40 lakhs towards ecgc...

And ecgc will settle obly 75 % amount. .

And 25 % will be bear by bank..

So loss of 25% of 40 lakhs.

Means loss 10 lakhs will bear by bank

60. A claim of Rs 45 lacs has been settled by ECGC in favour of a bank againt default of Rs 60 lacs. Subsequently the bank realizes Rs 20 lacs

collaterals available to it.What is thenet amount paid to ECGC ? a) Rs 30 lacs

b) 45 lacs c) 20 lacs

d) None of these Because of ecgc settled the 45 lakhs on default of 60 lakhs. .

Which means. .ecgc settled the 75 % of default. .

here 20 lakhs is realised security. ...

Which means claim amount will be only..

40 lakhs towards ecgc...

And ecgc will settle obly 75 % amount. .

And 25 % will be bear by bank..

So 75% of 40 lakhs.

Means 30 lakhs will settled by ecgc

61.

an advance of Rs 235000/- has been declared sub standard on 31/05/2012. It is covered by securities with realizable value of Rs 168000/-. Total

provision in the account as on 31/03/2013 will amount to:

1) 35250 2) 30200

3) 47000 4) 83800

right ans should be. ..2

Explanation. .

We take provision. .

10 % for secured portion.

20% for unsecured portion

= 10% of 168000 + 20% of of 67000 = 16800 + 13400

= 30200

62. The ovenight VaR of 1yr govt security yield is 0.20% with a current yield of 7.50%. A prospective seller of the security may expect the yield to be on

next day 1) 7.50%

2)7.70% 3) 7.30%

4) inadequate information to make the calculation.

right ans is B any one explain

In worst case scenario prospective seller of security may expect rise in

the yield so ans is 7.50+0.20=7.70......

Same case vl diffrent fr prospective buyer as he expect the yield to fall

so 7.70-.20=7.30

Qtn 63. Received order of USD 50000(CIF) to Australia on 1.1.11 when USD/INR Bill Buying Rate is 43.50. How much preshipment finance will be

released considering profit margin of 10% and Insurance and freight cost@ 12%. And margin is 25%.

ans

FOB Value = CIF – Insurance and Freight – Profit (Calculation at Bill Buying

Rate on 1.1.11)

= 50000X43.5 = 2175000 – 216000(12%) – 191400(10% of 1914000) =

1722600

Pre-shipment Finance = FOB value -25%(Margin) = 1722600-

430650=1291950.

Qtn 64 Spot Rate ((Forward Rates)) is 35.6000/6500 Forward 1M=3500/3000 2M=5500/3000 3M=8500/8000

Transit Period ----20 days Exchange Margin = 0.15%.

Find Bill Buying Rate & 2 M Forward Buying Rate a ) 31.6979

b ) 34.6979 c ) 27.6979

d ) 25.6979

Dinesh Jawalkar Solution



Margin 0.15% (0.529)

i.e. 35.6000-.3500-.0529(0.15% of 35.2500) = 35.1971



Margin (.0521)

i.e. 35.6000-.8500-.0521(0.15% of 34.7500) = 34.6979 Ans.

Qtn 65

https://www.facebook.com/ddnsh



Exchange margin: 0.15% a ) 32.4341

b ) 34.4341 c ) 36.4341

d ) 38.4341

Dinesh Jawalkar Issue of DD on New York for USD 25000. The spot Rate is

IUSD = 34.3575/3825 IM forward rate is

34.7825/8250


Solution:




Qtn:65 Exporter received Advance remittance by way of TT French Franc 100000.

The spot rates are in India IUSD = 35.85/35.92 1M forward =.50/.60 The spot rates in Singapore are 1USD = 6.0220/6.0340 1M forward

=.0040/.0045 Exchange margin = 0.8%

a ) INR 4.9366

b ) INR 5.9366 c ) INR 6.9366

d ) INR 7.9366





Francs:


= 35.8213


Inference:

6.0340 Franc = 1USD



= INR 35.8213

1 franc = 35.8213/6.0340 = INR 5.9366 Ans.

Qtn 66 On 12th Feb, received Import Bill of USD-10000. The bill has to retired to debit the account of the customer. Interbank

spot rate =34.6500/7200. The spot rate for March is 5000/4500. The exchange margin for TT selling is .15%

and Exchange margin for Bill selling is .020%. Quote rate to be applied. a ) 31.8415

b ) 34.8415 c ) 35.8415

d ) 39.8415


Bill Selling Rate will be applied.

Spot Rate + Exchange margin for TT Selling + Exchange margin for Bill

selling = 34.7200+.0520+.0695 = 34.8415

qtn:66 On 15th July, Customer presented a sight bill for USD 100000 for

Purchase under LC. How much amount will be

credited to the account of the Exporter. Transit period is 20 days and Exchange margin is 0.15%. The spot rate is

34.75/85. Forward differentials: Aug: .60/.57 Sep:1.00/.97 Oct: 1.40/1.37

a ) 28.0988 b ) 34.0988

c ) 40.0988 d ) 44.0988

Solution

Bill Buying rate will be applied.

Spot Rate----34.75 Less discount .60 = 34.15

Less Exchange Margin O.15% i.e. .0512 =34.0988 Ans.

Qtn 67Bank received MT of USD 5000 on 15th Sep. The Nostro account was

already credited. What amount will be paid to the customer: Spot Rate 34.25/30. Oct Forward Differential is 22/24.

Exchange margin is .80% a ) 38.2226

b ) 34.2226 c ) 30.2226

d ) 32.2226


Solution

TT buying Rate will be applied

34.25 - .0274 = 34.2226 Ans.

Qtn 67Spot Rate ((Forward Rates)) is 35.6000/6500 Forward 1M=3500/3000 2M=5500/3000 3M=8500/8000

Transit Period ----20 days Exchange Margin = 0.15%. Find Bill Buying Rate & 2 M Forward Buying Rate

a ) 31.6979 b ) 34.6979

c ) 27.6979 d ) 25.6979

Solution



Margin 0.15% (0.529)

i.e. 35.6000-.3500-.0529(0.15% of 35.2500) = 35.1971



Margin (.0521)

i.e. 35.6000-.8500-.0521(0.15% of 34.7500) = 34.6979 Ans.

Qtn 67Issue of DD on New York for USD 25000. The spot Rate is IUSD =


Exchange margin: 0.15% a ) 32.4341

b ) 34.4341 c ) 36.4341

d ) 38.4341


34.3575/3825 IM forward rate is

34.7825/8250


Solution:




Qtn 67 Exporter received Advance remittance by way of TT French Franc


The spot rates in Singapore are 1USD = 6.0220/6.0340 1M forward =.0040/.0045

Exchange margin = 0.8% a ) INR 4.9366...See More

Hitesh Kothari 6.0220*.008=.0481, -0040= 5.97




Francs:


= 35.8213


Inference:

6.0340 Franc = 1USD

= INR 35.8213

1 franc = 35.8213/6.0340 = INR 5.9366 Ans.

68. International Advisors, Inc. (IAI) is receiving a payment of 100,000

Euros in three months. The spot rate for the Euro is currently $0.92 per

Euro, but IAI has entered into a three-

month forward contract with their bank at $0.94 per Euro. How much will IAI

receive in

three months?

a. $92,000

b. $94,000

c. $106,383

d. $108,696

https://www.facebook.com/hitesh.kothari.73

ANS : B

69. One year T-bill rate is 9% and the rate on one year zero

coupon debenture issued by LM ltd is 12.50% , the probabililty of

default is …..

a) 4%

b) 3%

c) 5%

d) non of these

ans: b formula for probability of default is 1-P= 1- ( (1+i)/(1+k))

=1-((1.09/1.125))=1-.969=.03=3% ( Page 284 of bFM).

70. A bond with acupon rate of 7.38% maturing in 2015 and trading

at Rs 106.32 will have yield of…………….

a) 6.94%

b) 14.40%

c)7.84%

d) non of these

ans : a = current yield= coupon rate/ Prevailing mkt value=

.0738/106.32= 6.94%

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Bfm numericals (all mods)