CAIIB BFM Unit 26 MCQ Module D: Components of Assets and Liabilities in Bank’s Balance Sheet and their Management

Correct Answer: C. The initial investment made by the bank’s shareholders. Capital is the money initially invested by the owners to start the bank.

Correct Answer: C. Statutory Reserves. Statutory Reserves are a part of the accumulated profits of the bank.

Correct Answer: C. Demand Deposits. Demand Deposits, like Current Accounts, are a primary source of funds for a bank.

Correct Answer: C. From the Reserve Bank of India (RBI). Banks can borrow funds from the RBI, other banks, or financial institutions.

Correct Answer: C. Accrued interest payable. Accrued interest payable is an amount the bank owes but hasn’t paid yet, making it a liability.

Correct Answer: B. Physical currency held by the bank and the money it has with the RBI. This includes the cash needed for daily operations and the balances maintained with the central bank.

Correct Answer: C. Overnight. Call Money is for very short-term, usually one-day, interbank lending.

Correct Answer: C. 2 to 14 days. Notice Money involves funds lent for a period between two and fourteen days.

Correct Answer: C. Government Securities. Banks invest in various securities, including those issued by the government.

Correct Answer: C. To generate income through loans and credit. Advances represent the bank’s lending activities, which are a major source of revenue.

Correct Answer: C. Secured Advances have a backing of assets or guarantees, while Unsecured Advances do not. Security provides a form of protection for the bank in case of default.

Correct Answer: C. The building where the bank branch is located. Fixed Assets are tangible items used for the bank’s operations.

Correct Answer: C. Accrued interest receivable. This is interest that the bank has earned but has not yet received.

Correct Answer: C. The percentage of a bank’s Net Demand and Time Liabilities (NDTL) that it must hold as cash with the RBI. CRR is a tool used by the RBI to control the money supply.

Correct Answer: B. A certain percentage of their NDTL in the form of approved liquid assets like government securities. SLR ensures that banks have enough liquid assets to meet their obligations.

Correct Answer: C. Overnight lending and borrowing of funds between banks. This market helps banks manage their short-term liquidity.

Correct Answer: C. Between 2 and 14 days. Notice Money fills the gap between the very short-term Call Money and longer-term funding options.

Correct Answer: C. A guarantee issued by the bank on behalf of a customer. This is a potential obligation that depends on a future event.

Correct Answer: C. Total Income – Total Expenditure. Profit is what remains after deducting all expenses from the total income.

Correct Answer: C. Interest earned on loans given to customers. Lending is the core business of banks and generates the most interest income.

Correct Answer: C. Profit from the sale of investments. This income is generated from activities other than the core lending business.

Correct Answer: C. The interest paid by the bank on customer deposits and borrowings. This is a major expense for banks as they pay interest to those who provide them with funds.

Correct Answer: C. Salaries paid to bank employees. These are the costs associated with running the bank’s operations.

Correct Answer: C. A bank’s capital in relation to its risk-weighted assets. CAR indicates the financial strength and stability of a bank.

Correct Answer: B. Strategically managing the bank’s assets and liabilities. ALM is about making decisions on what the bank owns and owes to achieve its goals.

Correct Answer: C. Integrated and simultaneous decisions about assets and liabilities. ALM needs a coordinated approach to manage both sides of the balance sheet together.

Correct Answer: B. By helping them navigate fluctuations in interest and exchange rates. Market volatility can impact a bank’s profitability, and ALM helps manage this.

Correct Answer: B. Because it helps manage the risks that these new products might introduce. Innovation can bring new types of risks that ALM helps to address.

Correct Answer: C. The Bank for International Settlements (BIS) and the Reserve Bank of India (RBI). Regulatory bodies like these ensure banks manage risks effectively.

Correct Answer: C. Refinancing risk. If depositors withdraw early, the bank might need to find new, potentially more expensive, funding.

Correct Answer: C. Reinvestment risk. When loans are paid back early, the bank needs to find new avenues to invest those funds, possibly at a lower rate.

Correct Answer: C. To match the maturities of assets and liabilities. This helps in managing interest rate risk and liquidity.

Correct Answer: C. Interest rate risk. Fluctuations in interest rates can significantly impact a bank’s profitability.

Correct Answer: C. The Net Interest Margin (NIM). NIM is a measure of a bank’s profitability from its core business of lending and borrowing.

Correct Answer: B. To enhance the overall asset quality of the bank. High-quality assets reduce the risk of losses.

Correct Answer: C. The difference between interest earned and interest paid. NII shows the profitability from the bank’s main operations.

Correct Answer: C. Interest Income – Interest Expenses. This formula directly calculates the net earnings from interest-related activities.

Correct Answer: C. The profitability of interest-earning assets relative to their volume. NIM indicates how well a bank is using its interest-generating assets.

Correct Answer: C. (Interest Income – Interest Expenses) / Average Total Assets. This formula calculates NIM as a percentage of the bank’s average assets.