Treasury Risk Management
Chapter notes, video classes, MCQ practice tests and quick-revision one-liners for Bank Financial Management — CAIIB.
One-liners from this chapter
Free sample — 8 of 104 rapid-fire Q&A cards.
Define a derivative and state its core characteristic.
Financial contract whose value derives from underlying (currency, rate, bond, equity, commodity, index); has no independent value.
List three objectives of bank treasuries using derivatives.
Manage on-balance-sheet and ALM risk; meet customer hedging requirements; take proprietary trading/speculative positions within RBI limits.
What is the primary counterparty risk in OTC derivatives?
Direct bilateral exposure: if counterparty defaults, other party suffers direct loss; no central clearing house intermediation.
How do exchange-traded derivatives eliminate counterparty risk?
Central counterparty (clearing corporation) guarantees all trades; exchange acts as buyer to seller and seller to buyer.
State the current single-user limit for exchange-traded currency derivatives in India.
USD 100 million equivalent across all INR currency pairs (USD-INR, EUR-INR, GBP-INR, JPY-INR) combined, without underlying exposure requirement.
Define a forward contract and its three defining features.
OTC contract to deliver fixed foreign currency at fixed rate on fixed date. Features: obligation (not option); no upfront fee; opportunity cost if spot moves favorably.
Distinguish between a call option and a put option.
Call: right to buy at strike price. Put: right to sell at strike price. Both require premium upfront; neither is an obligation.
What exercise styles are permitted for currency options in India?
European-style only: exercisable only on expiry date, not before. Applies to exchange-listed and OTC INR options per RBI master direction.
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