CAIIB Paper 2 Module C Quiz 1

Correct answer: A depository receipt representing shares of a company and traded in an international market. A GDR represents underlying shares deposited with a custodian and is issued through a depositary arrangement for trading in overseas markets. Exam takeaway: understand the underlying treasury principle and verify changeable regulatory rates, eligibility criteria and operating rules against the latest RBI/IIBF instructions.

Correct answer: A foreign company to raise funds in India through receipts representing its shares, subject to rules. IDRs are rupee-denominated depository receipts representing underlying shares of a foreign company and are subject to applicable Indian regulatory requirements. Exam takeaway: understand the underlying treasury principle and verify changeable regulatory rates, eligibility criteria and operating rules against the latest RBI/IIBF instructions.

Correct answer: Commercial loans raised by eligible Indian entities from recognised non-resident lenders, subject to the framework. ECBs are external borrowings governed by the applicable RBI/FEMA framework, including eligible borrowers, recognised lenders, maturity, cost and reporting conditions. Exam takeaway: understand the underlying treasury principle and verify changeable regulatory rates, eligibility criteria and operating rules against the latest RBI/IIBF instructions.

Correct answer: Credit extended for imports of goods, including supplier‘s or buyer‘s credit under applicable rules. Trade credit finances imports of goods and may take the form of supplier‘s credit or buyer‘s credit, within the regulatory framework. Exam takeaway: understand the underlying treasury principle and verify changeable regulatory rates, eligibility criteria and operating rules against the latest RBI/IIBF instructions.

Correct answer: Integrated treasury. Integrated treasury coordinates funding, liquidity, investments and foreign exchange so the bank can manage its overall position and risks. Exam takeaway: understand the underlying treasury principle and verify changeable regulatory rates, eligibility criteria and operating rules against the latest RBI/IIBF instructions.

Correct answer: To separate deal-making from confirmation and settlement. Front office executes deals; back office independently confirms, settles and records them. Separation reduces fraud, error and unauthorised-trading risk. Exam takeaway: understand the underlying treasury principle and verify changeable regulatory rates, eligibility criteria and operating rules against the latest RBI/IIBF instructions.

Correct answer: It seeks risk-adjusted earnings within approved limits and policy. Treasury can generate income through dealing, investments and funding management, but profitability must remain subject to risk appetite, controls and regulation. Exam takeaway: understand the underlying treasury principle and verify changeable regulatory rates, eligibility criteria and operating rules against the latest RBI/IIBF instructions.

Correct answer: Independent risk monitoring and limit oversight. The middle office independently measures and monitors market risk, limit utilisation and performance; back office focuses on confirmation, settlement and accounting. Exam takeaway: understand the underlying treasury principle and verify changeable regulatory rates, eligibility criteria and operating rules against the latest RBI/IIBF instructions.

Correct answer: Cross-border currencies, time zones and linked market risks. Global markets connect rates, currencies and liquidity across jurisdictions, increasing the need for coordinated dealing, monitoring and controls. Exam takeaway: understand the underlying treasury principle and verify changeable regulatory rates, eligibility criteria and operating rules against the latest RBI/IIBF instructions.

Correct answer: Use maker-checker controls and recorded deal confirmations. Documented limits, independent confirmations, audit trails and maker-checker controls provide accountability and help detect errors or misconduct. Exam takeaway: understand the underlying treasury principle and verify changeable regulatory rates, eligibility criteria and operating rules against the latest RBI/IIBF instructions.

Correct answer: A consolidated view of liquidity, exposures and transfer prices. Centralisation supports a consolidated view of cash flows, market positions, liquidity and pricing, though it cannot eliminate risk or guarantee profit. Exam takeaway: understand the underlying treasury principle and verify changeable regulatory rates, eligibility criteria and operating rules against the latest RBI/IIBF instructions.

Correct answer: Asset-Liability Management Committee (ALCO). ALCO oversees structural liquidity and interest-rate positioning and sets/monitors ALM policies, with treasury implementing decisions within delegated authority. Exam takeaway: understand the underlying treasury principle and verify changeable regulatory rates, eligibility criteria and operating rules against the latest RBI/IIBF instructions.

Correct answer: Commercial paper. Commercial paper is a short-term money-market instrument issued by eligible entities, generally unsecured and issued at a discount or with a specified return. Exam takeaway: understand the underlying treasury principle and verify changeable regulatory rates, eligibility criteria and operating rules against the latest RBI/IIBF instructions.

Correct answer: A short-term deposit instrument issued by an eligible bank or institution. Certificates of deposit evidence time deposits and may be negotiable, subject to applicable issuance rules and market conventions. Exam takeaway: understand the underlying treasury principle and verify changeable regulatory rates, eligibility criteria and operating rules against the latest RBI/IIBF instructions.

Correct answer: Treasury bill. Treasury bills are short-term government securities commonly issued at a discount and redeemed at face value; the return is the difference. Exam takeaway: understand the underlying treasury principle and verify changeable regulatory rates, eligibility criteria and operating rules against the latest RBI/IIBF instructions.

Correct answer: Buy suitable fixed-rate bonds, subject to risk limits. Bond prices generally move inversely to market yields. Falling yields can increase fixed-rate bond prices, although credit, liquidity and duration risks remain. Exam takeaway: understand the underlying treasury principle and verify changeable regulatory rates, eligibility criteria and operating rules against the latest RBI/IIBF instructions.

Correct answer: Money market. The money market facilitates short-term liquidity management through instruments such as T-bills, repos, CDs and commercial paper. Exam takeaway: understand the underlying treasury principle and verify changeable regulatory rates, eligibility criteria and operating rules against the latest RBI/IIBF instructions.

Correct answer: Sale of securities with an agreement to repurchase them later. A repo involves sale of securities with a commitment to repurchase them at an agreed price and date; it is commonly used for secured short-term funding. Exam takeaway: understand the underlying treasury principle and verify changeable regulatory rates, eligibility criteria and operating rules against the latest RBI/IIBF instructions.

Correct answer: Option. An option gives the buyer a right without an obligation to exercise, while the option seller has the corresponding obligation if exercised. Exam takeaway: understand the underlying treasury principle and verify changeable regulatory rates, eligibility criteria and operating rules against the latest RBI/IIBF instructions.

Correct answer: New securities are issued to investors. The primary market raises funds through new issues; secondary markets provide trading in securities already issued. Exam takeaway: understand the underlying treasury principle and verify changeable regulatory rates, eligibility criteria and operating rules against the latest RBI/IIBF instructions.