Unit 4: Bank investments - Practice Quiz

1 A bank's investment policy is primarily approved and reviewed by which body?

2 Which of the following is a key objective of a bank's investment policy?

3 In India, SLR stands for which of the following?

4 The Cash Reserve Ratio (CRR) is maintained by banks with which institution?

5 SLR is calculated as a percentage of a bank's:

6 Which of the following is an example of a non-SLR investment?

7 Non-SLR investments are those securities that:

8 Which instrument is typically classified under non-SLR investments?

9 As per RBI norms, a bank's investment portfolio is classified into how many broad categories?

10 In investment classification, the abbreviation HTM stands for:

11 Securities acquired by a bank with the intention of trading in the short term are classified as:

12 The AFS category in a bank's investment portfolio stands for:

13 Securities under the Held to Maturity (HTM) category are generally valued at:

14 The practice of valuing securities at their current market price is called:

15 Securities in the AFS and HFT categories are required to be:

16 Credit risk in bank investments refers to the risk that:

17 Which type of investment generally carries the lowest credit risk?

18 Concentration risk arises when a bank:

19 The best way for a bank to reduce concentration risk is to:

20 Liquidity risk in investments refers to the risk that:

21 A commercial bank has Net Demand and Time Liabilities (NDTL) of crore. If the SLR is and the CRR is , what is the total amount the bank must maintain under both statutory reserve requirements combined?

22 Which of the following best explains why CRR, unlike SLR, cannot be satisfied by holding government securities?

23 A bank buys a government security with the clear intention of holding it till maturity to earn coupon income. Under the three-category classification framework, where should this security be placed?

24 A security kept in the Held for Trading (HFT) category must generally be sold within a prescribed time frame. What is this limit under the traditional norms?

25 Under traditional valuation norms, how are investments classified under the Held to Maturity (HTM) category generally valued?

26 For securities under the Available for Sale (AFS) category, net depreciation in any classification group is recognised in the accounts while net appreciation is ignored. What accounting principle does this reflect?

27 A bank holds AFS securities in a group where some scrips show appreciation of crore and others show depreciation of crore. Under mark-to-market norms, what will the bank recognise?

28 Which of the following is an example of a non-SLR investment for a commercial bank?

29 A bank wishes to improve yield by investing in non-SLR instruments. Which risk primarily increases as a result of this strategy compared to holding government securities?

30 A bank's board-approved investment policy typically specifies exposure limits per issuer and per category. What is the main purpose of setting such limits?

31 Which of the following is NOT typically a component addressed in a bank's investment policy?

32 A bank is comparing two corporate bonds with identical yields and maturities. Bond A is rated AAA and Bond B is rated BBB. In terms of credit risk, which statement is correct?

33 Which measure most directly helps a bank mitigate the credit risk arising from its non-SLR investment portfolio?

34 A bank's investment book shows that of its corporate bond holdings are issued by companies in a single industry sector. This situation is a classic example of which risk?

35 Which action would most effectively reduce concentration risk in a bank's investment portfolio?

36 A bank holds a large block of thinly traded corporate bonds. When it urgently needs cash, it can only sell them at a steep discount. This difficulty best illustrates which risk?

37 Why are government securities generally preferred over corporate bonds when a bank wants to manage liquidity risk in its investment book?

38 A bank issues a large letter of credit on behalf of a client. The client defaults and the bank must honour the obligation. This exposure is an example of which type of risk?

39 Which of the following instruments typically creates off-balance sheet risk for a commercial bank?

40 A bank decides to shift a security from the HTM category to the AFS category. Which treatment typically applies to such a shift of investments between categories?

41 A bank has NDTL of crore. The SLR is and CRR is . The bank currently holds crore in SLR-eligible securities and crore as CRR balances. By how much is the bank short or in excess on its SLR obligation?

42 Under RBI's three-category classification (HTM, AFS, HFT prior to the 2023 revised framework), which statement about shifting securities between categories is correct?

43 A security held in AFS was purchased at (face ). At the valuation date its market price is . Under the traditional valuation norms, how is this treated?

44 HTM securities are carried at acquisition cost. If a security is purchased at a premium to face value, what is the correct accounting treatment?

45 Which of the following instruments would count as a non-SLR investment for a commercial bank?

46 A bank holds a crore corporate bond rated AA. The issuer is downgraded to BBB. Ignoring interest-rate moves, which risk has primarily materialised and what is the most direct balance-sheet consequence?

47 A bank's non-SLR portfolio of crore has crore exposure to a single business group and crore to the real-estate sector. Which statement best captures the concern?

48 A large portion of a bank's HTM portfolio consists of long-dated G-Secs. During a sudden deposit run, why can this still pose liquidity risk despite G-Secs being high quality?

49 A bank writes an interest-rate swap and issues several letters of credit and guarantees. Why do these create risk even though they are not recorded as on-balance-sheet assets?

50 A well-structured bank investment policy must primarily balance which triad of objectives?

51 A bank's AFS portfolio has three scrips: A shows appreciation of , B shows depreciation of , C shows depreciation of (all within the same classification group). What provision must be made?

52 Which statement correctly distinguishes CRR from SLR?

53 To mitigate credit risk in its non-SLR bond portfolio, a bank sets internal exposure caps based on external ratings. The most prudent structure would:

54 RBI prudential norms on non-SLR investments historically restricted banks' investment in unrated non-SLR debt securities primarily because:

55 A bank funds long-dated non-SLR corporate bonds largely with short-term wholesale deposits. Which risk does this maturity profile most directly create?

56 A security intended to be sold within days to profit from short-term price movements would most appropriately be classified under which category (pre-2023 framework)?

57 In capital-adequacy computation, off-balance-sheet exposures are brought into risk-weighted assets using a credit conversion factor (CCF). The CCF primarily reflects:

58 Which portfolio action would most effectively reduce concentration risk in a bank's investment book?

59 A bank's investment policy sets a duration ceiling on its bond portfolio. The primary purpose of this limit is to control:

60 A bank's NDTL rises sharply mid-fortnight due to large deposit inflows. Regarding CRR maintenance, which statement is correct?