JAIIB Paper 1 Module D Quiz 6

The spread is the ask minus the bid: 83.18 − 83.10 = 0.08 rupees per unit of the quoted base currency. It is one component of the transaction cost.

The investor receives ₹100 at maturity after paying ₹97, so the nominal gain is ₹3 before taxes and transaction costs. Annualised yield calculations require the exact day-count convention.

Call money refers to overnight unsecured borrowing and lending among eligible participants. It is suited to very short-term liquidity management, unlike longer-term capital-market instruments.

CDs are deposit-based money-market instruments issued by eligible institutions. CP is an unsecured short-term instrument issued by eligible issuers under applicable rules; the issuer eligibility and instrument structure differ.

Securities collateral can reduce loss given default, but the collateral’s value can change and liquidation may involve delays or costs. Haircuts and margining help manage this risk.

Central-bank liquidity operations affect short-term funding conditions and can support policy transmission. The design, tenor and collateral terms determine how liquidity is supplied or absorbed.

In a uniform-price auction, successful bids generally receive securities at the uniform cut-off price, subject to the auction’s specific rules. Auction formats and allocation conventions should be checked for the relevant issue.

Accrued interest reflects the coupon interest accumulated since the previous coupon date. In many bond markets, the buyer pays the seller accrued interest as part of the settlement amount, following market conventions.

The clean price is quoted without accrued interest. The dirty or invoice price generally includes accrued interest payable at settlement, according to market convention.

The spread is 9% − 7% = 2 percentage points, or 200 basis points. It may reflect credit risk, liquidity differences, tax and other factors, not credit risk alone.

Floating-rate coupons are reset at specified intervals using a benchmark/reference rate plus or minus a spread. The reset mechanism can reduce sensitivity to rate changes but does not eliminate credit or liquidity risk.

Duration provides a first-order estimate of price sensitivity to yield changes. Convexity captures curvature and can improve estimates for larger yield movements, subject to the bond’s features.

A corporate bond may offer a higher yield to compensate for issuer default risk, lower liquidity, subordination or other characteristics. The spread varies by issuer and market conditions.

SDLs are securities issued by state governments to raise funds. They are traded debt instruments and are available through eligible market channels, including the RBI Retail Direct framework where permitted.

RBI’s Retail Direct eligibility requirements include a rupee savings bank account in India, PAN, KYC documentation, valid email and registered mobile number. Exact requirements should be checked against current RBI guidance.

Primary Dealers have defined obligations and roles in government securities markets, including auction participation and market-making. Their regulatory status and duties differ from those of retail stock brokers.

Bond covenants can require the issuer to take or avoid specified actions, provide information or maintain certain conditions. They are intended to protect creditors, but enforcement depends on the documents and law.

Subordinated debt ranks lower than senior debt for repayment under the applicable terms. In distress, subordinated creditors may recover less, so they often demand higher returns.

A downgrade indicates a weaker credit assessment under the rating agency’s methodology. It can affect market yields and prices, but the price response depends on what investors had already expected and other conditions.

Liquidity risk arises when an asset cannot be sold quickly at a fair or expected price. Thin trading and wide bid-ask spreads can increase the cost of exiting a position.