Practice Test For Jaiib-principle & Practice Of Banking-module-a-test-1

The answer is true because the statement mentioned in the question is true.

This statement is true because it is a standard practice for banks to assess the various risk components they face, such as credit risk, market risk, and operational risk. After evaluating these risks, banks determine their risk-bearing capacity, which refers to the amount of risk they are willing and able to take on. Based on this assessment, banks then set risk limits, which are the maximum levels of risk they are willing to accept in each category. This helps banks manage their overall risk exposure and ensure they operate within their risk appetite.

The given statement is true. Operational risk, also known as operational risk, refers to the risk of loss that can occur as a result of inadequate or failed internal processes, people, systems, or external events. This includes risks associated with errors, fraud, legal and regulatory compliance, technology failures, and other operational factors. Therefore, the statement accurately defines operational risk as a risk of loss resulting from inappropriate or failed internal processes, people, systems, and external events.

To ensure effective risk management, it is important for each bank to have an independent risk management committee that is separate from other operational departments. This separation helps to maintain objectivity and avoid conflicts of interest. By having an independent committee, banks can better identify, assess, and mitigate risks in a transparent and unbiased manner. This promotes sound decision-making and enhances the overall stability and resilience of the bank's operations. Therefore, the statement is true.

The explanation for the given correct answer is that non-residents who acquire immoveable property in India using their own resources, through inheritance, or as a gift are allowed to remit the sale proceeds of that property to their NRO (Non-Residential Ordinary) account. There is no lock-in period for the sale of such property, meaning that the proceeds can be remitted without any restrictions or waiting period. Therefore, the statement "The sale proceeds of immoveable property acquired by the non-resident out of own resources in India/inherited/gifted can form the balance of NRO A/C and are permitted to be remitted up to a prescribed ceiling without any lock-in period of Sale of such property" is true.

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The given statement states that a full-fledged implementation of Basel III would be made effective from 31.03.2019. The term "Basel III" refers to a set of international banking regulations that were developed by the Basel Committee on Banking Supervision. These regulations aim to strengthen the regulation, supervision, and risk management of the banking sector. Therefore, if the statement is true, it means that the implementation of these regulations would be enforced from the specified date.

The explanation for the given correct answer is not available as the question does not provide any context or criteria for determining a preference.

A strong Management Information System (MIS) is essential for all risk management functions, including reporting, monitoring, and controlling. Reporting involves gathering and analyzing data to generate meaningful reports that provide insights into potential risks and their impact. Monitoring involves continuously tracking and evaluating risks to ensure timely identification and response. Controlling involves implementing measures and strategies to mitigate risks and minimize their impact. Therefore, a robust MIS is necessary for all these functions to effectively manage and mitigate risks.

LERMS stands for Liberalised Exchange Rate Management System. This system refers to a framework implemented by a country's central bank to manage and regulate its exchange rate. The liberalization aspect signifies the relaxation of restrictions on the exchange rate, allowing it to be determined by market forces rather than being fixed or tightly controlled by the government. This system enables greater flexibility in currency exchange rates and promotes international trade and investment.

LRM stands for Loan Review Mechanism. This mechanism is used to assess and evaluate loans in order to identify potential risks and ensure the quality of the loan portfolio. It involves a comprehensive review of loan applications, financial statements, collateral, and other relevant information to determine the creditworthiness of borrowers and the likelihood of loan repayment. The Loan Review Mechanism helps financial institutions to manage and mitigate credit risks effectively, improve loan underwriting processes, and maintain the overall health of their loan portfolios.

The given question asks for the preferred choice among the given options. Since option 1 is selected as the answer, it implies that the person likes option 1 the most out of all the available choices.

The correct answer is "Fiscal Responsibility and Budget Management." The FRBM Act was enacted to ensure fiscal discipline and to promote transparency and accountability in the management of the government's finances. It aims to reduce fiscal deficits and bring down the level of government debt. The Act sets targets for reducing fiscal deficits and mandates the government to adhere to principles of sound fiscal management. Therefore, the term "Fiscal Responsibility and Budget Management" accurately represents the purpose and objectives of the FRBM Act.

The G-10 countries assembled in 1985 to frame and formulate a set of global norms for maintaining a minimum level of capital based on risk perception of the assets of the bank's balance sheet after applying risk factors for both on balance sheet items and off balance sheet items. This means that the global norms apply to all assets on the bank's balance sheet, as well as any off balance sheet items that may pose a risk to the bank's capital.

The Conversion Factor (CVF) under Basel Accord is applicable for both non-fund assets and off-balance sheet assets. Non-fund assets refer to assets that are not funded by liabilities, such as fixed assets or equity investments. Off-balance sheet assets refer to assets that do not appear on the balance sheet, such as contingent liabilities or derivatives. Therefore, the correct answer is (2+4).

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Credit risk refers to the possibility that a borrower may fail to repay the principal amount and interest on a loan. This is commonly referred to as default risk. When a borrower defaults, it means they are unable or unwilling to fulfill their financial obligations, resulting in non-payment. Therefore, the correct answer is "Default."

Banks acting as Authorized Dealers (ADs) have the authority to allow advance remittance for service imports up to USD 100,000 without requiring a counter-guarantee from a reputable foreign bank. This means that ADs can facilitate the payment for services being imported up to this amount without the need for additional guarantees or collateral from the importing party.

As of June 2013, there were a total of 21 PDs in the Financial Market. Out of these, 13 were run by banks and known as Bank-PDs, while the remaining 8 were standalone non-bank entities registered as NBFCs in terms of Sec 45 I A of RBI Act 1934.

The National Securities Depository Limited (NSDL) is not an outcome of the post reforms period in terms of structural and instrument specific measures of RBI. NSDL is a depository organization that was established in 1996, prior to the post reforms period. It was created to facilitate the electronic holding, transfer, and settlement of securities in India. The other options, LAF, CBLO, and REPO, are all measures that were introduced by the RBI during the post reforms period to manage liquidity and regulate the financial system.

The correct answer is "Board for Financial Supervision". BFS in RBI stands for Board for Financial Supervision. This board is responsible for overseeing and regulating the financial institutions and ensuring their compliance with the necessary regulations and guidelines. They monitor the banking sector, supervise the functioning of banks, and take necessary actions to maintain the stability of the financial system.

The correct answer is S.S.Tarapore.

The correct answer is S.CHAKRABORTY. This answer is based on the information provided in the question, which states that a review of the working of the monetary system was done in terms of a committee in 1985. Out of the options given, S.CHAKRABORTY is the only name that represents a person who could have potentially been part of this committee.

BCBS (Bank for International Settlements) considers credit risk for the purpose of maintaining a minimum Capital Adequacy Ratio (CAR). The CAR is a measure of a bank's capital in relation to its risk-weighted assets. Credit risk refers to the risk of default by borrowers or counterparty failure. Therefore, it is important for BCBS to consider credit risk when determining the minimum CAR requirement.

The correct answer is "Aggregate Gap Limit". AGL refers to the Aggregate Gap Limit, which is the maximum amount of risk that a bank can take in terms of the difference between its assets and liabilities. This limit was previously set at a maximum of USD 100 million or 6 times the bank's Net Owned Funds (NOF), but since April 1996, it has been transferred to the bank.

The concept of Corporate Governance in Capital Market came into force in terms of K.M. Birla committee recommendations. This suggests that K.M. Birla, a prominent figure in the corporate world, made recommendations that were influential in establishing the principles and practices of corporate governance in the capital market.

Under LRS (Liberalized Remittance Scheme), resident individuals are allowed to remit a certain amount of money per financial year for any current or capital account transactions. The correct answer, 125,000 USD, indicates that individuals can remit up to this amount for any current or capital account or both transactions. This means that individuals have the freedom to transfer this specified sum of money for various purposes such as education, travel, investments, or any other permissible transactions.

All of the given options are examples of usance promissory notes. In each scenario, there is a promise to pay a certain amount of money after a specific period of time. In option A, the debtor promises to pay after 90 days, which is a form of usance promissory note. Option B describes a corporate raising short-term funds from a bank by issuing a paper for 90 days, which is also a usance promissory note. Option C mentions an individual depositing money with a bank at a negotiated rate of interest, which again falls under the category of usance promissory note. Therefore, all options are examples of usance promissory notes.

Legal risk is not considered a prerogative of market risk because it is a separate category of risk that is related to the potential for legal actions, lawsuits, or regulatory issues that can impact a company's financial stability. Market risk, on the other hand, refers specifically to the potential for losses due to changes in market conditions such as price fluctuations, interest rate changes, or changes in the value of investments. While legal risk can certainly impact a company's financial performance, it is not directly related to market risk.

The existing facility of private travel abroad other than Nepal and Bhutan up to USD 10,000 per financial year will continue to be available on a self-declaration basis. This means that individuals can continue to travel abroad for personal reasons and spend up to USD 10,000 without requiring any additional documentation or approval.

The correct answer is "Negotiated Dealing System". NDS is an acronym that stands for Negotiated Dealing System. This system is used in financial markets for the electronic trading of government securities. It allows market participants to negotiate and execute trades electronically, providing a transparent and efficient platform for trading.

The correct answer is NONE because all the entities mentioned in the question - NSDL, SHCIL, NSCCL, and CDSL - are depositories in India that facilitate the dematerialization of securities. Dematerialization is the process of converting physical share certificates into electronic form, and these entities play a crucial role in this process. Therefore, none of them can be excluded from the list as they all have the capability to dematerialize securities.

All categories of FX earners are permitted to retain 100% of their foreign exchange earnings in their EEFC (Exchange Earners Foreign Currency) account. This means that they can keep the entire amount of their earnings in this account without any restrictions or limitations. This allows them to have full control over their foreign currency earnings and use them as they deem fit.

SCB's (Settlement Clearing Banks) and PD's (Primary Dealers) are allowed to cover their short position with an extended period of 5 trading days. This means that if they have a short position, they have 5 trading days to buy back the securities they borrowed and return them to the lender. This extended period allows them to have more flexibility in covering their short position and reduces the risk of being forced to buy back the securities at unfavorable prices.

The correct answer is "Bassel, MARKET". This is because under the review process by the Bank for International Settlements (BIS), the Basel Accord not only considers credit risk but also prescribes a minimum Capital Adequacy Ratio (CAR) for market risk. This means that banks must have sufficient capital to cover potential losses arising from fluctuations in market prices, such as interest rates, exchange rates, and commodity prices.

The correct answer is "None" because all the other options (identification of risk, measurement, ongoing monitoring of risk, control and mitigation of risk) are relevant components of risk management in banks. The option "None" indicates that there is no irrelevant aspect in risk management in banks.

NRI's and PIO's have been permitted to remit up to USD 1,000,000 per calendar year for any bonafide purpose out of the balances in their NRO accounts. This means that they can transfer or send money up to this amount from their NRO accounts for legitimate reasons such as education, medical expenses, investments, etc. This limit allows them to freely use their funds for various purposes without any restrictions up to the specified amount.

Market risk refers to the potential for losses in investments due to changes in market conditions. Liquidity risk, exchange rate risk, interest rate risk, and equity and commodity price risk are all examples of market risks. Therefore, the correct answer is "None" because all the options listed are forms of market risk.

The question asks which risk does not pertain to market risk. Market risk refers to the potential for losses due to changes in market conditions, such as fluctuations in prices, interest rates, exchange rates, and liquidity. However, the answer "None" implies that all of the risks mentioned (price, interest rate, exchange rate, and liquidity) pertain to market risk. Therefore, the correct answer is "None" because all of the risks listed do pertain to market risk.