Treasury Products Questions Answers – IIBF Certifications

TREASURY PRODUCTS

1) Which of the following currency is not fully convertible?
a) USD b) EURO c) INR d) GBP

2) What are the Spot Trades?
a) It is the process of settlement where payment and receipts of funds are settled in respective currencies.
b) The settlement takes place within 2 working days from the trade date.
c) Currency may be bought or sold with settlement on the same date i.e. To day (TOD)
d) The settlement can be on the -next day. Tomorrow (TOM)

3) Which of the following is significant about spot trade?
a) All rates quoted on the screen are for spot trade unless otherwise mentioned
b) TOD and TOM rates are generally quoted at a discount to the spot rate.
c) TOD and TOM rates are less favourable to buyers d) All these

4) What is a forward contract?
a) It is a contract for the purchase and sale of currency at a future date.
b) The exchange rate for a future contract is quoted on the day of the contract.
c) The contract between buyer and seller is called a forward contract.
d) All the above

5) Which of the following is true regarding a forward contract?
a) Treasury may have forward contracts with customers or Banks as counterparties.
b) Customers cover currency risk through forward contracts.
c) Treasury may cover its customer exposure by taking a reverse position in the Inter-Bank market.
d) All the above

6) The features of forward rates are:
a) They are not projected on the basis of exchange rate movement in the market
b) Forward rates are decided on the basis of the interest rate differential of two currencies.
c) The interest rate differential is added to the spot rate for low-interest-yielding currency and deducted
from the spot rate for high interest-yielding currency
d) All the above

7) Which of the following is True?
a) Forward rate reflects interest rate differential only in perfect markets.
b) Perfect markets are where the currency is fully convertible and highly liquid.
c) When a currency is not fully convertible the demand for forward contracts influences
the forward exchange rate d) All these

8) The features of a swap are:
a) A combination of spot and forward transactions is called a swap.
b) Buying in the spot market and selling the same amount in the forward market or vice-versa is a swap.
c) Swap is mainly used for funding requirements_ d) All these

9) A Bank may have foreign exchange surpluses from the following sources:
a) Profit from overseas Branch operations
b) Forex Borrowing in the foreign domestic market
c) Foreign currency and convertible rupee deposits with branches
d) All the above

10) A Treasury may have surplus forex from the following sources:
a) Surpluses net of Bank’s -lending in foreign currency
b) Floating funds on account of customer transactions
c) EEFC funds maintained in current account d) All these

11) The surplus forex can be invested by a Treasury in:
a) Inter-Bank loans b) Short-term investments c) Nostro Account
d) Any or all of these

12) Which of the following are the sources for short-term investments?
a) Treasury Bills issued by foreign governments
b) Commercial paper
c) Other debt instruments issued by multi-lateral institutions
d) All the above

13) What is a Nostro Account?
a) This is a current account denominated in foreign currency maintained by a Bank with the correspondent Bank in the
home country of the currency.
b) Nostro Account does not attract any interest.
c) Many correspondent Banks provide automatic investment facilities for funds held
overnight which earn nominal interest. d) All these

14)What is Money Market?
a) It is the place for raising and deploying short-term resources where maturity does not exceed one year.
b) Inter-Bank market is divided into call money and term money.
c) Call money market is also an overnight market where borrowed funds are repaid on the next working day.
d) Notice money market is where funds are placed beyond overnight and up to 14 days.

15) The participants in the call/notice money market are:
a) The major players are Banks and primary dealers.
b) Non-Banking financial companies can only lend the surplus funds upto specified limit_
c) NBFC can not participate in this market d) Both (a) and (c)

16) Which of the following are the features of Treasury Bills?
a) The T-Bills are issued by the RBI on behalf of the central govt. for a pre-determined amount.
b) The interest is by way of a discount.
c) The price is determined through an auction process d) All these

17) The maturity period of T-Bills is:
a) 91 days b) 364 days c) (a) and (b) both d) None of these

18) Which of the following is relevant to T-Bills?
a) Each issue of 91 days T-Bill is for Rs_ 500 crore and the auction is conducted weekly on Wednesday.
b) Each issue of 364 days is for Rs. 1000 crore and it is auctioned fortnightly
c) The Banks park short-term funds in T-Bills d) All these

19) The Benefits of T-Bills are:
a) It is Risk-free investment
b) It yields interest higher than the call money market.
c) It is possible to trade T-Bill in the secondary market d) All these

20) Which of the following is correct regarding T-Bill?
a) It is in Electronic form and held in SGL Account maintained by Banks with RBI.
b) Depository participants can also operate through SGL Account.
c) The settlement of T-Bills is through the Clearing Corporation of India d) All these

21) If a T-Bill of 91 days is priced at 99.26, what does it signify?
a) It will yield interest at 2.99%
b) This is known as implicit yield.
c) (a) and (b) both d) None of these

22) The_ features of the commercial paper are:
a) It is an unsecured money market instrument issued in the form of the promissory note.
b) The highly rated corporate Borrowers can raise short-term funds through this instrument.
c) It is an additional instrument to the investing community d) All these

23) -The time limit for issuing a CP is:
a) Minimum maturity 7 days b) Maximum maturity one year
c) (a) and (b) both d) None of these

24) The requirements for issuing a commercial paper are:

a) The company issuing CP should have a minimum credit rating of P2.
b) Banks can invest in CP only if it is issued in D-mat form
c) The minimum amount of CP is Rs. 5 lac d) All these

25) Who issues guidelines for the issue of CP?
a) RBI
b) Market practices prescribed by FIMMDA (Fixed Income and Money Market and Derivatives Association of India) c) (a)
and (b) both d) None of these

26) A company issuing CP must satisfy the conditions:
a) Tangible Net worth of the company should not be less than Rs. 4 crore
b) The company should be enjoying a working capital limit with Bank/financial institution
c) The Borrowal Account should be classified as a standard Asset d) All these

27) How does Tangible Net Worth is arrived at?
a) Capital b) Free Reserves c) (a) + (b) — Intangible Assets if any
d) None of these

28) Which of the following is relevant about commercial paper?
a) It is issued for discounted amount i.e. less than face value
b) The price is quoted for face value
c) It is a negotiable instrument d) All these

29) Which of the following statements regarding commercial paper is
not correct?
a) CP is a substitute for working capital
b) Interest rates are at par with PLR
c) It should be compulsory in D-mat form
d) Purchase and sale of CP is effected through the depository participants

30) Banks prefer to invest in CP through Treasury because :
a) Credit Risk is relatively low.
b) Yield on CP is higher than inter-bank money market.
c) There is no liquidity risk d) All these

31) Which of the following- Credit Rating Agencies have been authorized by RBI for
Rating?
a) ICRA b) CRISIL c) CARE and FITCH Ratings India Ltd. d) All these

32) The provisions for the issue of commercial paper are:
a) Maximum period for subscription to an issue of CP is two weeks from the date of opening of the issue.
b) CPs can be issued on a single date or in parts on different dates.
c) The same issue of CP should have the same date of maturity d) All these

33) The process of issuing a CP involves:
a) The Bank is appointed as issuing and paying agent.
b) The Bank would assess the requirement and the extent to which the CP issue is linked with the credit limit.
c) The potential investors are given a copy of IPA certificates d) All these

34) The features of a certificate of Deposit are:
a) It is a debt instrument issued by Bank against a deposit of funds
b) It is a negotiable instrument
c) It bears an interest rate higher than regular deposits of the Bank. d) All these

35) The requirements of the certificate of Deposit are:
a) Minimum amount of deposit is Rs. 1 lac
b)_ The maturity period may range from 7 days to one year
c) It is an additional source of investment to Banks and corporates d) All these

36) What is a Reverse Repo?
a) It is a contract to buy securities and then to sell them back at an agreed future date and price.
b) It provides an opportunity for short-term investments of surplus funds
c) (a) and (b) both d) None of these

37) What is Repo?
a) It is an instrument of borrowing funds for a short period.
b) It involves selling security and simultaneously agreeing to repurchase it at a future date for a slightly higher price.
c) The price difference is called interest d) All these

38) The significance of Repo is:
a) It is a tool used by RBI for open market operations.

b) It affects liquidity in the system.
c) None of this d) Both (a) and (b)

39) commercial Banks participate in Repo transactions because of:
a) To meet shortfall of CRR —
b) To meet shortfall in SLR
e) The interest on Repo is lower than the call market d) All these

40) Repo transactions are regulated by:
a) RBI b) Securities Contracts Regulations Act c) (a) and (b) both d) None

41) Which of the following statements is correct?
a) Repo is a short-term money market instrument
b) The Repo Rate and period are announced by RBI,c) (a) and (b) both d) None of these

42) What is the Repo Rate with effect from 16th Sept 2010?
a) 5% b) 5.25% C) 5.75% d) 6% e) None of these

43) What is the Reverse Repo Rate with effect from Sept 2010?
a) 4% b) 4.25% c) 4.75% d) 5% e) None of these

44) The process of the Repo transaction is:
a) A Bank may sell securities to the counterparty with an agreement to repurchase the same securities after a certain
period at a pre-determined price.
b) The bank gets cash in exchange for securities and pays back the cash after a certain period and get back the securities.
c) The difference between the sale price and the repurchase price is interest d) All these

45) The advantage to the counterparty under a Repo transaction is:
a) It earns interest on secured [ending.
b) It holds securities that serve the purpose of meeting SLR requirements.
c) The value of securities is higher by a margin to cover price Risk. d) All these

46) Which of the following statements is correct?
a) The margin maintained on Repo securities is called hair cut as the principal amount exchanged against
securities are lower than the market value of securities
b) RBI uses Repo to control liquidity
c) Banks and primary dealers sell govt. securities to RBI and avail liquidity d) All these

47) Which of the following statements is not correct?
a) RBI uses Repo Transactions under the liquidity adjustment facility
b) Liquidity is not affected through lending to Banks under a Repo Transaction.
c) Absorption of liquidity is done by accepting deposits from Banks.
d) Absorption of liquidity by accepting deposits from Banks is known as Reverse Repo.

48) Which of the following statements is correct?
a) RBI has commercial repo auctions on an overnight basis.
b) Repo and Reverse Repo Rates have been pre-fixed.
c) RBI has full discretion to change the frequency of the auction. d) All these

49) The process of Bill Re-discounting is:
a) Treasury will discount Bills of Exchange of short-term nature which are already discounted with the banks.
b) Rediscounting is done at money market rates.
c) The rediscounting rates are negotiable between the lending Bank and the borrowing Bank. d) All the above

50) The advantage of the lending Bank is:
a) The surplus funds are invested at a term money rate
b) Credit Risk is low as the lending Bank has recourse to the discounting Bank
c) (a) and (b) both d) None of these

51) The benefits of borrowing Bank are:
a) It is able to infuse liquidity from existing Assets
b) Its capital adequacy ratio is improved or rediscounted bills are added to Inter-Bank liability c) (a) and (b) both
d) All these

52) Which of the following is significant regarding government securities?
a) They are issued by the Public Debt Office of RBI.
b) State govt. Issue state development Bonds.
c) Govt. securities are sold through auctions conducted by RBI d) All these

53) Which of the following is correct?
a) Interest is paid on the face value of the bond at coupon rate.
b) RBI arrives at a cut-off price based on bids submitted by Banks and primary dealers.

c) The price may be higher or lower than the face value d) All these

54) Price movement of Bond depends on:
a) Demand for the Bond which depends on liquidity in the system.
b) The yield on the Bond is different from the coupon rate.
c) (a) and (b) both d) None of these

55) If 10 years G. sec. at 7.37 per cent is priced at 104.80, what would be the yield’
a) 6.67% b) 5.42% c) 6.15% d) None of these

56) The interest rates in the economy depend on:
a) Rate of inflation b) GDP growth c) Other economic indicators
d) A combination of all these

57) The variety of Bonds may include: a) Step up coupons b) Coupons linked to inflation c) Floating rate coupons
d) Any of these

58) What is STRIPS:
a) Separately registered interest and principal securities
b) Under this process principal and interest are treated as separate zero coupon securities c) (a) and (b) both
d) None of these

59) What is corporate debt paper?
a) It includes medium and long-term bonds and debentures issued by corporates and financial institutions
b) Yield on Bonds is higher than the govt. securities
c) They are called non-SLR securities where banks can invest d) All these

60) Which of the following statements is not correct?
a) Tier-2 capital Bonds issued by Banks fall under the category of corporate debt paper.
b) Bonds issued by corporates are not that liquid_
c) The bonds are issued in D-mat form.
d) Bank Treasury finds an attractive investment in corporate debt paper.

61) Which of the following statements is correct regarding corporate debt paper?
a) Higher the credit risk higher is the yield.
b) Global ratings are necessary if the debt paper is issued in the International market.
c) Treasury can invest FCNR deposit funds and other forex surpluses in global debt paper. d) All the above

62) Which of the following is correct?
a) Debentures are issued by private companies.
b) Bonds mainly issued by public sector companies.
c) Government does not provide guarantee on PSU Bonds d) All these

63) The material difference between debentures and bonds is:
a) Debentures are governed by relevant provisions of company law.
b) Debentures are transferable on registration
c) Bonds are negotiable instruments governed by the Law of Contract. d) All these

64) The Bond can be: a) a Zero Coupon Bond b) a Floating Rate Bond c) a Deep Discount Bond
d) Any of these

65) Which of the following is not correct?
a) Debenture and Bonds can be issued with redemption in instruments over a period.
b) They can be issued with a premium or redemption.
c) There are no Bonds with put and call option
d) Bonds secured by stocks or other collateral are called collateralised obligations

66) Which of the following is relevant regarding the issue of Bonds and debentures?
a) The holders have prior legal claims over the equity and preference stockholders.
b) The Trustee appointed by issuing company protects the rights of debenture holders.
c) The Trustee can initiate legal action against the company in case of any default.
d) All of the above

67) Companies is suing unsecured debentures and bonds have to comply with the
provision of :
a) Companies Acceptance of Deposit Rules 1975 b) SEBI
c) (a) and (b) both d) None of these

68) What is a convertible Bond?
a) It is a mix of Debt and Equity.
b) Bondholder has the option to convert debt into equity on a fixed date.

c) The conversion price is pre-determined d) All these

69) The advantages of convertible Bonds are:
a) If the stock price is higher than the prefixed conversion price, the investor would convert debt into Equity.
b) Company will have no debt repayment
c) The Equity of the company will be strengthened d) All these

70) Which of the following are derivative products treated on the stock exchange?
a) Index features b) Index options c) Stock futures and options d) All these

71) Provisions to invest in Equities are:
a) Banks can invest in Equities up to 20% of their net owned funds
b) Stock prices are highly volatile
c) Banks prefer low-risk investments d) All these

72) The provision on Fll investments are:
a) Foreign currency funds are converted into rupees for portfolio investors.
b) Rupee funds with profits are converted into foreign currency for repatriation
c) Falls are allowed to invest in the debt market d) All these

73) What are External Commercial Borrowings?
a) Indian companies can borrow on the global market through Bank loans or the issue of debt paper.
b) The debt can be repaid by reconversion of rupee funds into foreign currency
c) (a) and. (b) both d) None of these

74) The guidelines for investment of foreign currency funds of Banks are?
a) FCNR deposits can be invested in overseas markets and for domestic lending:n foreign currency.
b) Banks are permitted to borrow/invest in overseas markets 50% of Tier-I Capital.
c) (a) and (b) both d) None of these

75) What is Export Earners Foreign Currency Account?
a) Exporters are allowed to hold 100% of export proceeds in a Current Account. with
b) No interest is paid on such deposits
c) (a) and (b) both d) None of these

76) What are Gilts?
a) Securities issued by the government or Treasuries.
b) They do not have any credit Risk, c) (a) and (b) both d) None of these

77) SGL Account is:
a) Subsidiary General Ledger
b) It is maintained by the public debt office of the RBI
c) Banks maintain exclusively government Securities Accounts d) All of these

78) Which of the following is correct?
a) Counterparty is the other party to a Transaction
b) Yield is the internal rate of return where interest is also reinvested at the original coupon rate.
c) Foreign currency deposits are denominated in foreign currency d) All of these

79) The features of FCNR deposit are:
a) They are denominated either in USD, GBP, JPY or EURO, Can- Dollar and Aus Dollar.
b) The deposits are maintained by non-resident Indians.
c) Interest on FCNR deposits is regulated by RBI d) All of these

80) Broad money or M3 consists of :
a) Currency in circulation b) Demand and time deposits with Banks
c) Deposits of Banks and other deposits with RBI d) All of these

81) Monetary policy of RBI aims at:
a) Controlling rate of inflation b) Ensuring the stability of the financial market
c) Regulating money supply d) All of these

82) The tools in the hands of RBI for direct control of the money supply are:
a) CRR b) SLR c) (a)-and (b) both d) None of these

83) CRR is calculated on net Demand and Time liabilities which contain:
a) Demand deposits and Time deposits
b) Overseas Borrowings
c) Foreign outward remittances and other demand and time liabilities d) All of these

84) The Demand deposits include:
a) Current and Savings Deposits b) Margin Money for Letter of Credits
c) Overdue Fixed Deposits d) All these

85) Other Demands and Time Liabilities include:
accrued Interest b) Credit Balance in Suspense Account
c) Any other liability d) All these

86) In which of the following categories only a 3% minimum CRR is required to be
maintained?
a) Net Inter-Bank call borrowing/deposits where maturity does not exceed 14 days,
b) Credit Balance in ACU (Asian Currency Unit) Accounts
c) Demand and Time liabilities in respect of offshore Banking units d) None of these

87) Banks need not maintain CRR on :
a) Paid up capital, reserves, retained profits, and refinance from apex institutions.
b) Excess provision for Income tax.
c) Claims received from DICGC/ECGC d) All these

88) Which of the following is correct?
a) CRR need not be maintained on Inter-Bank term deposits of original maturity upto one year
b) RBI does not pay interest on CRR Balance
c) The Demand and Time l label i ties as on the reporting Friday of second previous
the fortnight will be the basis for CRR calculation d) All these

89) SLR can be maintained in the form of the following Assets:
a) Cash Balance in excess of CRR requirements
b)Gold at the current market price
c) Approved securities valued as per RBI norms D) All these

90) What is a Liquidity Adjustment Facility?
a) It is the mechanism whereby RBI lends funds to the Banking sector through repo instrument
b) This is used to monitor day-to-day market liquidity
c) This is exclusively applicable to the repo and reverses repo transactions with RBI
d) All these

91) The features of Negotiated Dealing System are:
a) This is a system where securities clearing against assured payment is handed by the Clearing Corporation of India.
b) Physical delivery of cheques is not required.
c) All Inter-Bank Money Market deals are done through Negotiated Dealing System
d) All the above

92) The feature of Real Time Gross Settlement System are:
a) All Inter-Bank payments are settled instantly.
b) Banks’ Accounts with all the Branch offices of RBI are also integrated.
c) Since it is an instant payment system, Banks need to maintain adequate funds
throughout the day.
d) All the above

93) Which of the following is correct?
a) Asian currency unit is a mechanism for payment to/from members of Asian clearing union.
b) Offshore Banking units render special Banking services only to overseas customers.
c) SWIFT is a secure worldwide financial messaging system exclusive to Banks.
d) All the above

94) What is DVP?
a) Delivery versus Payment system where one account is debited and another account is credited at the same time.
b) In the case of securities purchase funding account is debited and the securities account is credited.
c) This facilitates prompt settlement of security transactions. d) All these

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