30 Questions
What is the main focus of the provided text?
Definition of risk in Forex operations
Which section of the CAIIB exam deals with Retail Banking?
Paper 3
How many questions are included in a Full length Mock for CAIIB Paper-II - Bank Financial Management?
500 questions
What is the purpose of the provided text snippet?
To advertise online mock tests for CAIIB exams
Which paper combo includes Paper 1 ABM and Paper 2 BFM for the CAIIB exam?
CAIIB Combo (Paper 1 ABM+ Paper 2 BFM)
What is the total number of questions provided across all the mock tests mentioned in the text?
~2700 questions
What is the primary purpose of a Letter of Credit (LC) transaction?
To facilitate international trade between buyers and sellers in different countries
Which of the following parties is responsible for opening and issuing the Letter of Credit?
The applicant/opener
What is the role of the advising bank in the Letter of Credit transaction?
To authenticate the signatures and SWIFT messages related to the LC
What is the purpose of the confirming bank in the Letter of Credit transaction?
To add its confirmation to the LC at the request of the beneficiary and the opening bank
What is the maximum amount that a bank can expose itself to a particular counter party called?
Counter party limit
What is the role of the beneficiary in the Letter of Credit transaction?
To ship the goods to the buyer
What is the relationship between two banks that have mutual accounts with each other known as?
Correspondent banking relationship
Which party is responsible for negotiating the documents and receiving payment in the Letter of Credit transaction?
The advising bank
Which of the following limits restricts the operational risk on large deals?
Deal size limit
What is a derivative based on?
Underlying financial asset
Which limit specifies the maximum amount of exposure up to the spot date and future date?
Settlement risk limit
What does a deal size limit determine?
Highest amount for which a deal can be entered
Who is responsible for providing reimbursement authorization instructions to the reimbursing bank?
Issuing bank
Which bank pays and presents a reimbursement claim to the reimbursing bank?
Claiming bank
What is the role of the reimbursing bank in a letter of credit transaction?
Providing reimbursement authorization instructions
Who provides reimbursement in a letter of credit transaction?
Reimbursing bank
When is the reimbursing bank bound by provisions in the Letter of Credit?
Never
What is the responsibility of the issuing bank regarding compliance certificates?
Not to request such certificates from the claiming bank
What is the primary purpose of pre-shipment finance or Packing Credit Loan (PCL)?
To provide working capital for procuring, processing, and manufacturing goods meant for export
Which of the following is a pre-sanction requirement for availing pre-shipment finance?
The borrower's name should not appear on the RBI's caution list
What should the bank do to prevent the borrower from availing multiple pre-shipment finance facilities against the same order or Letter of Credit?
Note the fact of its credit facility on the reverse side of the original LC or contract
Which of the following is NOT a pre-sanction requirement for availing pre-shipment finance?
The borrower must have a minimum net worth specified by the bank
What should the bank do to assess the creditworthiness of the foreign buyer?
Call for credit reports or status reports on the foreign buyer
What is the purpose of the Export/Import Code number (IEC) for the borrower?
To identify the borrower's export and import transactions
Study Notes
Risk Management
- Counterparty limit: maximum amount a bank can expose to a particular counterparty
- Country risk: maximum exposure on a single country
- Dealer limits: maximum amount a dealer can keep exposure during operating hours
- Stop loss limit: maximum movement of rates against the position held, triggering the limit
- Settlement risk: maximum amount of exposure to any entity, up to spot date and future date
- Deal size limit: highest amount for which a deal can be entered, fixed to restrict operational risk on large deals
Derivatives
- A derivative is a contract between two or more parties whose value is based on an agreed-upon underlying financial asset or set of assets
- Common underlying instruments include bonds, commodities, currencies, interest rates, market indexes, and stocks
Correspondent Banking
- Correspondent banking refers to the relationship between two banks with mutual accounts or one having an account with the other
- In a larger sense, it means a relationship and servicing of banking needs as agents, without having an account relationship
Letter of Credit
- Definition: a written commitment to pay the beneficiary when the terms and conditions are fulfilled
- Operating process:
- Buyer and seller enter into a sales contract and agree to cover the transaction under a Letter of Credit
- Buyer's bank issues the LC and sends it to the beneficiary through its branch or correspondent
- Advising bank in the seller's country advises the LC to the beneficiary after authenticating signatures/swift
Reimbursement
- Definition: instructions/authorization issued by the issuing bank to a reimbursing bank to reimburse the claiming bank
- Reimbursement authorization is a separate transaction from the credit
- Issuing bank is responsible for providing information required to the reimbursing bank
Pre-shipment Finance
- Definition: working capital advance for procuring/processing/manufacturing of goods meant for export
- Eligibility criteria:
- Borrower is a bank's customer
- Export/Import Code number (IEC) allotted by Director General of Foreign Trade
- Not on the caution list of RBI or the Specific Approval list of ECGC
- Capacity to execute the order within the stipulated time with a genuine and valid export order or Letter of Credit
Prepare for the CAIIB (Certified Associate of Indian Institute of Bankers) exam with this online mock test series. The mock tests cover Paper-I (Advanced Bank Management) and Paper-II (Bank Financial Management), with unit wise mocks, case study mocks, full length mocks, and memory based mocks available for practice.
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