Examination Paper of Risk Management
IIBM Institute of Business Management 1
IIBM Institute of Business Management
Examination Paper MM. 100
Risk Management
Section A: Objective Type (30 Marks)
• This section consists of Multiple Choice questions & short questions.
• Answer all the questions.
• Part one questions carry 1 mark each & Part Two questions carry 5 marks each.
Part One:
Multiple Choices:
1. Which of the following is the characteristic of forward contract?
a. Is traded over the counter?
b. Is a customized financial product
c. Is a credit derivative
d. Both a & b
2. Coordinating all the operational risk activities of the bank, working towards achievement of the stated goals & objective are the task attributed to-
a. Operational risk management committee
b. Operational risk management department
c. Operational risk management officers
d. Chief risk officer
3. This is the risk of adverse deviations of the mark-to-market value of the trading portfolio, due to market movements; during the period required to liquidate the transactions.
a. Market Risk
b. Liquidation Risk
c. Market liquidity Risk
d. Credit & counterparty Risk
4. A fraud acts by a third party, of a type intended to defraud, misappropriate property or circumvent the law is called-
a. Internal fraud
b. External fraud
c. Damage to physical assets
d. Clients, products & business practices
Examination Paper of Risk Management
IIBM Institute of Business Management 2
5. In the standardized approach, bank’s activities are divided into how many business lines?
a. 4
b. 6
c. 8
d. 10
6. Credit risk management committee & credit policy & procedures committee monitors-
a. Market risk
b. Credit risk
c. Operational risk
d. All of the above
7. Which of the following are the duties of risk management committee for credit-
a. Implementation of risk management policy for credit strategy
b. Monitor credit risk
c. Regulatory/ Legal compliances
d. All of the above
8. Duration is defined as__________
a. Time to maturity
b. Average time
c. Weighted average time to maturity
d. Remaining maturity
9. ALCO stands for __________
10. RAROC stands for _____________________.
Part Two:
1. List the principles of risk management.
2. Discuss the sources of risk.
3. What is ‘Asset liability management’? List its objectives in banks.
4. Write a short note on Interest rate risk.
END OF SECTION A
Section B: Caselets (40 Marks)
Examination Paper of Risk Management
IIBM Institute of Business Management 3
• This section consists of Caselets.
• Answer all the questions.
• Each caselet carries 20 marks.
• Detailed information should form the part of your answer (Word limit 150 to 200 words).
Caselet 1
Everybody Bank was set up with a registered office at Gwalior in 1995-96 by a leading financial organization, when the government liberalized its policies and allowed private sector banks to operate. The branch at Gwalior was established on November 13, 1995. Everybody bank was the first private sector bank to commerce its operations at Gwalior. The bank had the advantage of being the first and got good business. Subsequently, other private sector banks also opened their branches in Gwalior. Dinesh joined the branch as branch head in june-1998. His focus was to retain the leadership of the bank with improved profitability. He adopted a multi-programmed strategy which yielded good results during the three years of working. The bank not only continued to be a leader in private sector banks but also established nationalized banks. In 2001, it stood to the State Bank of India. Profitability also improved during these years.
Dinesh had joined Everybody Bank in 1997, after serving more than 20 years in a leading nationalized bank. After serving for 1.5 years in other branches, he was posted at the Gwalior’s branch as the Branch head in June 1998. The new generation of banks was setup with a clear focus on the corporate sector during its initial phases. The Gwalior branch of everybody bank also had the same focus with 85 percent of total advances in the corporate sector and a residual 15 percent in the retail sector. Gradual opening up of the economy, and increasing competition, forced the corporate sector to improve the quality of services and to reduce the cost. In its search, the interest component gained focus and the corporate started looking for avenues to mobilize low cost funds. RBI also gradually reduced the bank rate resulting in reduction of the margin of profit, in the banks.
The deposits of the Gwalior branch consisted of high cost funds, namely, certificate of deposits at the rate of 13-14 percent. The need of the hour was to collect the resources; therefore, all resources were tapped irrespective of their costs. Considering the reduction in the margin of corporate sector, the bank changed its focus from the corporate to the retail segment. It came up with the portfolio of schemes in the housing loans, car loans, educational loans, loan against demat shares and personal loans. It resulted in the increases of the share of retail segment from 15 percent to 50 percent and corresponding reduction in the corporate segment from 85 percent to 15 percent. The strategy resulted in the improvement of the margin of the bank to a level of 3-4 per cent.
Another strategy adopted by the bank, with a view to reduce the cost of resources, was to concentrate on saving bank account and current account. With a view to tap the low cost funds, the strategy adopted was to setup a network of branches in various cities. In 1998, there was only one branch in the city and by the end of 2001 the number of ATMs across
Questions:
1. Critically analyze the strategies adopted by Dinesh to retain the leading position.
2. What additional steps Dinesh could have taken to improve the profitability?
Caselet 2
Established in 1950 Ramakrishna Motors Ltd.is one of the India’s pioneers in vehicle Manufacturing with a total investment of Rs.500 crore and currently has a gross capital Employed of Rs 906 crores (Annexure I).Over the years, Ramakrishna Motors Ltd, has Established a reputation as a quality-conscious company with a unique corporate culture. The company had collaboration with Tshi Mishu, Japan Ramakrishna Motors Ltd. Was Recognized internationally for its expertise in design and manufacture of a wide range of Products from general purpose engines to specialty, technology and processes. Ramakrishna Motors had a single product in the car segment named Amanda. Ramakrishna Motors Ltd. Is a part of Ramakrishna group, which besides automobile manufacturing also had an Export company? The company had enjoyed a monopoly in the passenger car segment for 50 years. However it had failed to diversify into other related products or introduce cars; in different segments. It had started its operations throughout the country and had plants located at Rajkot, Nagpur, Bangalore and Agra.
AGRA PLANT
The Agra plant was established in April, 1989 with an investment of Rs 150 crores. The project was an ambitious venture started with the intention of converting Agra into the Detroit of India. The required investment of Rs.150 crores was funded by the promoter as Well as various financial institutions such as International Financial Corporation (IFC), Asian Development Bank, IDBI, IFCI and ICICI. The institutions provided the funds on The basis of the future projections of
the Agra plant. The plant was able to acquire funds at The rate of 6.25% from foreign financial institution namely, IF..
of 5%. The finance manager was seriously considering this proposal and was analyzing the investment decision on the basis of Accounting Rate of Return.
Questions:
1. Evaluate the company’s investment decision with specific reference to the Agra plant.
2. Had you been the finance manager, would you accept Ford Motors proposal? Why?
3. Do you think the finance manager needs to be concerned about the low depreciation provision? Why?
4. What according to you is the source of finance available to Ramakrishna Motors Ltd in case it is required to finance the Ford proposal for the Agra plant?
END OF SECTION B
Section C: Applied Theory (30 Marks)
• This section consists of Long Questions.
• Answer all the questions.
• Each question carry 15 marks each.
• Detailed information should from the part of your Answer (Word limit 200 to 250 words)
1. Define “Risk”, Explain types of risk faced by a bank or financial institutions?
2. What is “Credit risk management”? Explain its objectives?
END OF SECTION C
IIBM Institute of Business Management 1
IIBM Institute of Business Management
Examination Paper MM. 100
Risk Management
Section A: Objective Type (30 Marks)
• This section consists of Multiple Choice questions & short questions.
• Answer all the questions.
• Part one questions carry 1 mark each & Part Two questions carry 5 marks each.
Part One:
Multiple Choices:
1. Which of the following is the characteristic of forward contract?
a. Is traded over the counter?
b. Is a customized financial product
c. Is a credit derivative
d. Both a & b
2. Coordinating all the operational risk activities of the bank, working towards achievement of the stated goals & objective are the task attributed to-
a. Operational risk management committee
b. Operational risk management department
c. Operational risk management officers
d. Chief risk officer
3. This is the risk of adverse deviations of the mark-to-market value of the trading portfolio, due to market movements; during the period required to liquidate the transactions.
a. Market Risk
b. Liquidation Risk
c. Market liquidity Risk
d. Credit & counterparty Risk
4. A fraud acts by a third party, of a type intended to defraud, misappropriate property or circumvent the law is called-
a. Internal fraud
b. External fraud
c. Damage to physical assets
d. Clients, products & business practices
Examination Paper of Risk Management
IIBM Institute of Business Management 2
5. In the standardized approach, bank’s activities are divided into how many business lines?
a. 4
b. 6
c. 8
d. 10
6. Credit risk management committee & credit policy & procedures committee monitors-
a. Market risk
b. Credit risk
c. Operational risk
d. All of the above
7. Which of the following are the duties of risk management committee for credit-
a. Implementation of risk management policy for credit strategy
b. Monitor credit risk
c. Regulatory/ Legal compliances
d. All of the above
8. Duration is defined as__________
a. Time to maturity
b. Average time
c. Weighted average time to maturity
d. Remaining maturity
9. ALCO stands for __________
10. RAROC stands for _____________________.
Part Two:
1. List the principles of risk management.
2. Discuss the sources of risk.
3. What is ‘Asset liability management’? List its objectives in banks.
4. Write a short note on Interest rate risk.
END OF SECTION A
Section B: Caselets (40 Marks)
Examination Paper of Risk Management
IIBM Institute of Business Management 3
• This section consists of Caselets.
• Answer all the questions.
• Each caselet carries 20 marks.
• Detailed information should form the part of your answer (Word limit 150 to 200 words).
Caselet 1
Everybody Bank was set up with a registered office at Gwalior in 1995-96 by a leading financial organization, when the government liberalized its policies and allowed private sector banks to operate. The branch at Gwalior was established on November 13, 1995. Everybody bank was the first private sector bank to commerce its operations at Gwalior. The bank had the advantage of being the first and got good business. Subsequently, other private sector banks also opened their branches in Gwalior. Dinesh joined the branch as branch head in june-1998. His focus was to retain the leadership of the bank with improved profitability. He adopted a multi-programmed strategy which yielded good results during the three years of working. The bank not only continued to be a leader in private sector banks but also established nationalized banks. In 2001, it stood to the State Bank of India. Profitability also improved during these years.
Dinesh had joined Everybody Bank in 1997, after serving more than 20 years in a leading nationalized bank. After serving for 1.5 years in other branches, he was posted at the Gwalior’s branch as the Branch head in June 1998. The new generation of banks was setup with a clear focus on the corporate sector during its initial phases. The Gwalior branch of everybody bank also had the same focus with 85 percent of total advances in the corporate sector and a residual 15 percent in the retail sector. Gradual opening up of the economy, and increasing competition, forced the corporate sector to improve the quality of services and to reduce the cost. In its search, the interest component gained focus and the corporate started looking for avenues to mobilize low cost funds. RBI also gradually reduced the bank rate resulting in reduction of the margin of profit, in the banks.
The deposits of the Gwalior branch consisted of high cost funds, namely, certificate of deposits at the rate of 13-14 percent. The need of the hour was to collect the resources; therefore, all resources were tapped irrespective of their costs. Considering the reduction in the margin of corporate sector, the bank changed its focus from the corporate to the retail segment. It came up with the portfolio of schemes in the housing loans, car loans, educational loans, loan against demat shares and personal loans. It resulted in the increases of the share of retail segment from 15 percent to 50 percent and corresponding reduction in the corporate segment from 85 percent to 15 percent. The strategy resulted in the improvement of the margin of the bank to a level of 3-4 per cent.
Another strategy adopted by the bank, with a view to reduce the cost of resources, was to concentrate on saving bank account and current account. With a view to tap the low cost funds, the strategy adopted was to setup a network of branches in various cities. In 1998, there was only one branch in the city and by the end of 2001 the number of ATMs across
Questions:
1. Critically analyze the strategies adopted by Dinesh to retain the leading position.
2. What additional steps Dinesh could have taken to improve the profitability?
Caselet 2
Established in 1950 Ramakrishna Motors Ltd.is one of the India’s pioneers in vehicle Manufacturing with a total investment of Rs.500 crore and currently has a gross capital Employed of Rs 906 crores (Annexure I).Over the years, Ramakrishna Motors Ltd, has Established a reputation as a quality-conscious company with a unique corporate culture. The company had collaboration with Tshi Mishu, Japan Ramakrishna Motors Ltd. Was Recognized internationally for its expertise in design and manufacture of a wide range of Products from general purpose engines to specialty, technology and processes. Ramakrishna Motors had a single product in the car segment named Amanda. Ramakrishna Motors Ltd. Is a part of Ramakrishna group, which besides automobile manufacturing also had an Export company? The company had enjoyed a monopoly in the passenger car segment for 50 years. However it had failed to diversify into other related products or introduce cars; in different segments. It had started its operations throughout the country and had plants located at Rajkot, Nagpur, Bangalore and Agra.
AGRA PLANT
The Agra plant was established in April, 1989 with an investment of Rs 150 crores. The project was an ambitious venture started with the intention of converting Agra into the Detroit of India. The required investment of Rs.150 crores was funded by the promoter as Well as various financial institutions such as International Financial Corporation (IFC), Asian Development Bank, IDBI, IFCI and ICICI. The institutions provided the funds on The basis of the future projections of
the Agra plant. The plant was able to acquire funds at The rate of 6.25% from foreign financial institution namely, IF..
of 5%. The finance manager was seriously considering this proposal and was analyzing the investment decision on the basis of Accounting Rate of Return.
Questions:
1. Evaluate the company’s investment decision with specific reference to the Agra plant.
2. Had you been the finance manager, would you accept Ford Motors proposal? Why?
3. Do you think the finance manager needs to be concerned about the low depreciation provision? Why?
4. What according to you is the source of finance available to Ramakrishna Motors Ltd in case it is required to finance the Ford proposal for the Agra plant?
END OF SECTION B
Section C: Applied Theory (30 Marks)
• This section consists of Long Questions.
• Answer all the questions.
• Each question carry 15 marks each.
• Detailed information should from the part of your Answer (Word limit 200 to 250 words)
1. Define “Risk”, Explain types of risk faced by a bank or financial institutions?
2. What is “Credit risk management”? Explain its objectives?
END OF SECTION C
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