IMP CASE STUDIES
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 65 rapid-fire Q&A cards.
In a case study where a bank's VaR at 99% confidence level is Rs. 10 crore, what does this figure imply?
It implies that there is a 1% probability that the bank's losses will exceed Rs. 10 crore on any given day, and a 99% probability that losses will be within this threshold.
In a case study where a bank's Capital Conservation Buffer is breached, what restriction is immediately imposed?
Dividend and bonus payouts are restricted to conserve capital.
A bank holds a trading portfolio with a 10-day VaR of Rs. 50 crore; how is the 1-day VaR derived under Basel norms?
The 1-day VaR is derived by dividing the 10-day VaR by the square root of 10, giving approximately Rs. 15.81 crore, as VaR scales with the square root of time.
A bank's Tier 2 capital includes a subordinated debt of Rs. 100 crore with 3 years remaining; how much is eligible under Basel III?
Only 60% i.e. Rs. 60 crore is eligible due to amortisation rules.
In a credit risk case study, a borrower's PD is 2% and LGD is 60% with EAD of Rs. 5 crore; what is the Expected Loss?
The Expected Loss (EL) = PD × LGD × EAD = 0.02 × 0.60 × 5 crore = Rs. 6 lakh, representing the average anticipated credit loss.
In a case study on credit risk migration, a borrower migrates from BB to B rating; what is the primary capital impact?
Risk weight increases, requiring higher capital allocation by the bank.
A bank uses the Standardised Approach for credit risk; how is the risk weight assigned to a corporate borrower rated BBB by an external rating agency?
Under Basel II Standardised Approach, a BBB-rated corporate borrower attracts a 100% risk weight, as ratings between BBB+ and BB- carry this standard risk weight.
A bank's ALM report shows negative repricing gap in short-term buckets; what interest rate movement benefits the bank?
A fall in interest rates benefits the bank in negative gap position.
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