Ever feel overwhelmed by tricky forex numericals or confused between ECB usage rules and LC processes?
📚 CAIIB Study Resources 📚
👉 Check Here
👉 Check Here
👉 Check Here
👉 Get Tests Here
👉 Check Here
👉 Click Here
👉 Click Here
In this 3rd session of CAIIB BFM Module A Questions Series, we break down 10+ high-yield MCQs covering everything from LRS Form A2 conditions, FX forward risk mitigation, EXIM Bank’s credit programs, to Forex swap vs forward contracts and Letter of Credit workflows. You’ll also learn how to calculate forward buying rates and apply exchange margins practically.
This session is a goldmine for:
- CAIIB students
- Banking professionals preparing for June 2025 exam
- Anyone who wants conceptual clarity in BFM Module A
🎯 So, grab your notebook and calculator – and don’t forget to drop your answers and doubts in the comments!
👉 Watch this video for a complete breakdown:
00:01 – Understanding LRS & Form A2 Declaration
Question: When is Form A2 required under the Liberalised Remittance Scheme?
LRS allows remittance up to USD 250,000 per financial year by Indian residents. For each transaction exceeding USD 25,000, Form A2 must be submitted. Smaller amounts qualify for simplified documentation.
Many bankers and students confuse the purpose of Form A2, assuming it’s a one-time submission, but RBI mandates it for each individual transaction above a threshold. The purpose is to ensure compliance under FEMA guidelines.
05:08 – Tech in Trade Finance: Reducing Errors with OCR
Correct Answer: Embedded OCR with Auto-Fill speeds up transaction processing and reduces errors.
Trade finance involves bulky documentation. OCR (Optical Character Recognition) automates this, extracting data and reducing manual input errors, improving efficiency and accuracy.
07:44 – IFSC Units & Their Lending Powers
Units in GIFT City work like foreign banks and are exempt from CRR/SLR. They can raise funds from abroad and lend to both residents and non-residents. This allows IBUs to operate with greater financial freedom and flexibility.
Permitted Lending Activities:
- FCY loans to NR corporates
- INR loans to resident entities
11:53 – Basel III LCR & HQLA Explained
Answer: Diversified HQLA portfolio helps convert assets into cash with minimal market impact. LCR helps ensure banks can withstand liquidity stress scenarios.
High Quality Liquid Assets (HQLA) are assets easily convertible to cash. LCR mandates banks hold enough HQLA to survive a 30-day stress period without central bank funding.
16:53 – EXIM Bank Buyer vs Supplier Credit
EXIM Bank offers structured financing:
- Buyer Credit: Direct loan to foreign buyer to purchase Indian goods
- Supplier Credit: Loan to Indian exporter for deferred payment structure
These programs support India’s export ecosystem while ensuring risk mitigation through government-backed mechanisms.
22:11 – Immediate Payment to Exporters (Q26)
Correct Answer: Advance payment or LC under sight terms.
LCs are powerful trade tools. In Sight LCs, payment is made immediately after presentation of compliant documents, securing both buyer and seller in the trade cycle.
27:00 – Risk Mitigated by FX Forward Cover
Answer: Transaction + Gap Risk
Forward contracts fix the rate for future transactions. They reduce unpredictability from exchange rate fluctuations and protect profit margins for exporters/importers.
33:23 – Forex Rate Calculation with Forward Points (Q27A)
- Spot Rate: 102.10/40
- Forward Points (2-month): 35/40
Answer: 102.10 + 0.35 = 102.45
Always use buy side forward points when calculating forward buying rate. Check for premium/discount using forward points comparison.
38:23 – ECB Prohibited End-Uses (Q28)
Under ECB rules, funds can’t be used for:
- Real estate activities
- Capital market investments
- Working capital (unless from FPH)
- On-lending
ECB Limit: USD 750 million per FY (under automatic route)
[FREE PDF] CAIIB BFM Module A | Previous Year Questions & Most Important MCQs #2
45:58 – Exchange Margin Application on Selling Rate (Q28B)
- Base Rate: 87.70 INR/USD
- Exchange Margin: 0.10%
Answer: 87.70 + 0.0877 = 87.78 INR/USD (rounded)
Rule: Add margin to selling rate; subtract from buying rate. Margins represent cost/profit of currency exchange.
50:14 – FX Swap vs Forward Contract (Q29)
FX Swap: Two-legged deal (spot + forward)
Forward: Single settlement in future
Swaps help in liquidity and hedging strategies where parties want to lock rates but retain underlying exposure.
52:06 – Negotiating Bank’s Role in LC (Q30)
Negotiating Bank:
- Scrutinizes shipping documents
- Has 5 banking days to check compliance
- Claims payment from issuing bank if documents are clean
Negotiation is done without recourse to the exporter if LC is confirmed and irrevocable.
Conclusion
This session decoded critical BFM concepts with clarity and confidence. We tackled LRS usage, IFSC lending powers, liquidity ratios, ECB restrictions, FX calculations, and LC processing.
🎯 Key Action Steps:
- Note down tricky formula’s
- Review definitions and RBI limits
- Revise with mock quizzes
Stay curious, stay prepared — and keep pushing. Your CAIIB success is within reach. Subscribe, practice daily, and don’t hesitate to reach out with queries.
📄 Download PDF Notes
Get this session’s complete PDF with Q&A + detailed explanations:
Also Like:
