caiib paper 1

262 Pages·2016·2.22 MB·English

CAIIB MADE SIMPLE
ADVANCED BANK MANAGEMENT
( CAIIB PAPER -1)
Version 2.0
(FOR JUNE 2016 EXAMINATION)
(A Very useful book for Day to Day Banking and all
Knowledge Based Examinations)
COMPILED BY
Sanjay Kumar Trivedy
(Divisional Manager )
Canara Bank, Government Link Cell, Nagpur, PGNS Complex, Modi No. 3, First Floor,
Sitabuldi, Nagpur-440012,: 0712 – 2522271,2522272 / 07774069639
E-mail: [email protected]; [email protected]
Preface
Dear Friends,
Banking/Financial sector in our country is witnessing a sea change & banker’s business has
become more complex & difficult in this driven era of knowledge & technology. There are
mass retirements happening due to super annuation & many new recruits are joining the Bank.
More than 50% staff strength is newly recruited in last five years. An official working in the
Banking sector has to keep pace with Updated knowledge, skills & attitude, as the same is
required everywhere. There is need to issue a comprehensive book covering all the aspects so
that new recruits get updated very fast without referring many voluminous books.
This book titled “ CAIIB MADE SIMPLE ” has many unique features to its credit & consists
of all topics/syllabus required for CAIIB examination with clear concept & simple language
with latest changes during 2015-16 (upto 31.12.2015 as per IIBF/ JAIIB exams. requirements)
also included. This Book is divided into four Modules namely A,B,C & D & Practice Teat
Papers / Teat Yourself based on latest IIBF syllabus for CAIIB examination.
The Book also covers the full syllabus (latest) of CAIIB examination and also recalled
questions & MCQ based on IIBF examination Pattern will be helpful to all aspirants who are
taking up CAIIB examination
During preparation of this book, I have received tremendous support from my wife Mrs Renu,
who is also a banker, my son Master Ritwiz Aryan & Special thanks to Sri B P Desai Sir (Our
Ex. AGM & now Faculty on Contract at RSTC, Mumbai) for vetting & compilation of this
book.
As any work will have always scope for further improvement, I shall be grateful if any
feedback is provided for improvement in contents of the book.
I wish you all the best for the written test & hope the study material will help in achieving the
goal.
Place : Mumbai SANJAY KUMAR TRIVEDY
Date : 27.05.2016 Divisional Manager, GovernmentLinkCell,Nagpur
CompiledbySanjayKumarTrivedy,DivisionalManager,Govt.Linkcell,Nagpur 1|P age
ADVANCED BANK MANAGEMENT - INDEX
SI. Page No.
CONTENTS
No
1 ABOUT CAIIB EXAMINATION 03-05
2 MODULE : A ( ECONOMIC ANALYSIS ) 06-68
3 MODULE : B ( BUSINESS MATHEMATICS ) 69-88
4 MODULE : C ( HRM IN BANKS ) 89-117
5 MODULE : D ( CREDIT MANAGEMENT ) 118-219
6 PRACTICE TEST PAPERS 220-261
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ABOUT CAIIB EXAMINATION
CAIIB EXAMINATION–June2016
OBJECTIVE
CAIIBaims at providing advancedknowledge necessaryforbetterdecision makingcovering risk, financial
andgeneralbank management.
MEDIUMOF EXAMINATION:EitherinHindiorEnglish
ELIGIBILITY:CandidatesmusthavecompletedJAIIBorPART-1oftheAssociateExamination,andtheir
membershipsubscriptionshouldnotbeinarrears.
SUBJECTOFEXAMINATION
I.CompulsoryPaper
AdvancedBankManagement
1.
BankFinancialManagement
2.
II.ElectivePapers(CandidatestochooseanyoneoftheirChoice)
1. CorporateBanking 7. HumanResourcesManagement
2. RuralBanking 8. InformationTechnology
3. InternationalBanking 9. RiskManagement
4. RetailBanking 10. CentralBanking
5. Co-operativeBanking 11. TreasuryManagement
6. Financialadvising
Thereisnoexemptioninanyoftheabovesubject/sforpriorqualification/s.
TheInstitutehasintroducedelectivestogiveopportunitiesforcandidatestospecializeintheverticaloftheir
choice.Candidatesmaychoosetheelectiveintheareatheyarecurrentlyworkingorintheareatheywould
liketoworkinfuture.Itissuggestedthatthecandidatesmaychoos electiveintheareatheyarecurrently
ethe
working and later move to other elective as this will enable appropriate skills / build up for handling
differentbankingverticals.
Cut-offDateofGuidelines/ImportantDevelopmentsforExaminations
InrespectoftheexamstobeconductedbytheInstituteduringMay/Juneofacalendaryear,instructions/
guidelinesissuedbytheregulator(s)andimportantdevelopmentsinbankingandfinanceupto31st
Decemberofthepreviousyearwillonlybeconsideredforthepurposeofinclusioninthequestionpapers.In
respectoftheexamstobeconductedbytheInstituteduringNovember/Decemberofacalendaryear,
instructions/guidelinesissuedbytheregulator(s)andimportantdevelopmentsinbankingandfinanceup
to30Juneofthatyearwillonlybetheconsideredforthepurposeofinclusioninthequestionpapers.
Reference:IIBFMonthlyMagazine:VISION.
Further, questions based on current developments in banking and finance may be asked.
Candidates are advised to refer to financial news papers / periodicals more particularly "IIBF VISION" and
"BANK QUEST" published bytheInstitute.
MODEOFEXAMINATION
Examination will be conducted in Online Mode at majority of centres and under offline mode (paper and
pencil) at selected centres as per the notification given on the web site in this regard. Examination will be
held on threeconsecutive Sundays (one paper on each Sunday).
PROCEDUREFOR APPLYINGFOREXAMINATION
Application for examination should be made online from the Institute's website www.iibf.org.in. No physical
formwillbeacceptedbytheInstitutewitheffectfrom1January,2013.
PATTERN OF EXAMINATION : EachQuestionPaperwillcontainapproximately100objectivetypemultiple
choice questions, carrying 100 marks including questions based on case study / case lets. The Institute
may, however, vary the number of questions to be asked for a subject. There will NOT be negative
markingfor wrong answers.
Further, questions based on current developments in banking and finance may be asked.
Candidates are advised to refer to financial news papers / periodicals more particularly "IIBF VISION" and
"BANK QUEST" published bytheInstitute.
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QuestionsfortheCAIIBExaminationwillbeasked for:
(a) Knowledge testing, (b) Conceptual grasp, (c) Analytical / logical exposition, (d) Problem
solving,(e)Caseanalysis
TYPES OF QUESTIONS
100ObjectiveTypeMultipleChoiceQuestions- carrying100marks–120minutesandquestionwillbe
basedonKnowledgeTesting,ConceptualGrasp,Analytical/LogicalExposition,ProblemSolving&Case
Analysis.
TypeofQuestions–Basicallyfour types of MultipleChoiceQuestions askedinExamof
WhichType–A:ConceptbasedStraightQuestions(40-50QUES-0.5MARKS EACH);
Type–B:Problems&Solutions (15-20QUES- 1.0MARKS EACH);Type–C: Applied
theorybasedQuestions (15-20QUES-2.0MARKS EACH); Type–D:CaseStudy&Case-
letsbasedQuestions(10-15QUES -2.0MARKS EACH)
QUESTIONSMODELS : TYPES OF QUESTIONS
Type–A: MULTIPLECHOICE– QUESTIONS &ANSWERS
TheBestMethodforassessingworkingcapitallimitusedbythebankforseasonalIndustriesis:
1. OperatingCycleMethod,2.ProjectedNetworkingMethod,3.ProjectedTurnoverMethod&4.Cash
BudgetMethod
Type–B: MULTIPLECHOICE– PROBLEMS&SOLUTIONS
Mr.RamKumarishavingoverdraftaccountwithCanarabankuptoRs.100,000.ThepresentDebitBalance
intheaccountwasRs.80550.00.ThebankhasreceivedattachmentorderfromIncometaxdeptt.ForRs.
16,200.00.Whatcanthebankdointhissituation?
- Unlessthebankisadebtor,therecanbenoattachment andan unutilizedoverdraftaccountdoes
notrenderthebankadebtor(butcreditor)&hencecannotattach.
Type–C: MULTIPLECHOICE – APPLIEDTHEORY–QUES.&ANS
FinancialInstitutionwishtohavethemoneylentbythemrepaidintime.Securedadvancessanctionedby
bankspossesswhatkindofsecurity?
- SecuredAdvanceshaveimpersonalsecurityi.e.TangibleSecurity
Type–D: MULTIPLECHOICE– CASESTUDIES&CASELETS(PROBLEMS&SOLUTIONS)
EconomicdevelopmentofacountrytoalargeextentdependsuponAgril.&Industrialsectors.
Developmentofagril.Dependsuponirrigationfacilitieswhileindustrialdevelopmentonavailabilityof
power,goodtransportandfastcommunicationfacilities.Allthesearecalledinfrastructure.Readthecaselet
&explainwhichindustriesconstituteinfrastructure?
a. Energy,Transport&Communication
b. Irrigation,constructionofbridges&damsoverRivers&stablegovt.atCentre.
c. AvailabilityofFundsforPMEGP,SJSRY&IndiraAwasYojana
DURATIONOFEXAMINATION:Thedurationoftheexaminationwillbeof2hours.
PERIODICITYANDEXAMINATIONCENTRES
TheexaminationwillbeconductednormallytwiceayearinMay/JuneandNovember/Decemberon
Sundays.
Pass:Minimummarksforpassineverysubject-50outof100marks.
Candidate securing at least 45 marks in each subject with an aggregate of 50% marks in all
subjects of CAIIB examination in a single attempt will also be declared as having passed JAIIB
Examination.
Candidateswillbeallowedtoretaincreditsforthesubject/stheyhavepassedinoneattempttilltheexpiryof
thetimelimitforpassingtheexaminationasmentionedbellow,
TIMELIMITFORPASSINGTHEEXAMINATION
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Candidates will be required to pass CAIIB examination within a time limit of 2 years (i.e. 4 consecutive
attempts).Initiallyacandidatewillhavetopayexaminationfeeforablockofoneyeari.e.fortwoattempts.
IncaseacandidateisnotabletopassCAIIBexaminationwithin1stblockof2attempts,he/shecanappear
fora furtherperiodof1year(2ndblock)i.e. 2attemptsonpaymentofrequisitefee. Candidateswhohave
exhaustedthefirstblockof2attempts,shouldnecessarilysubmittheexaminationapplicationformforthe
nextattempt,withoutanygap.Iftheydonotsubmittheexaminationformimmediatelyafterexhaustingthe
first block, the examination conducted will be counted as attempts of the second block for the purpose of
timelimitforpassing.
CandidatesnotabletopassCAIIBexaminationwithinthestipulatedtimeperiodoftwoyearsarerequiredto
re-enroll themselvesafreshbysubmittingfreshExamination Application Form. Such candidateswillnot be
grantedcredit/sforsubject/spassed,ifany,earlier.
Attempts will be counted from the date of application irrespective of whether a candidate appears at
anyexaminationorotherwise.
“CLASSOFPASS”CRITERIA
TheInstitutewillconsidertheFIRSTPHYSICALATTEMPTofthecandidateattheexaminationasfirstattempt
forawardingclass.Inotherwords,thecandidateshouldnothaveattemptedanyofthesubject/spertainingto
theconcernedexaminationanytimeinthepastandhastopassallthesubjectsasperthepassingcriteriaand
secure prescribed marks for awarding class. Candidate re-enrolling for the examination after exhaustingall
permissibleattemptsasperthetimelimitrulewillnotbeconsideredforawardingclass.
First Class: 60% or more marks in aggregate and pass in all the subjects in the FIRST PHYSICAL
ATTEMPT. First Class with Distinction: 70% or more marks in aggregate and 60 or more marks in
eachsubjectintheFIRSTPHYSICALATTEMPT.
CAIIB EXAMINATION –June 2016
(Lastdateforapplyingforexamination:05/04/2016)
ONLINEMODE
ExaminationDATE TIME SUBJECTS
05/06/2016Sunday ONLINE-WillbegivenintheadmitLetter Advanced BankManagement
12/06/2016Sunday ONLINE-WillbegivenintheadmitLetter Bank Financial Management
Corporate Banking
Rural Banking
International Banking
Retail Banking
Co-operative Banking
19/06/2016Sunday ONLINE-WillbegivenintheadmitLetter Financial Advising
HumanResources Management
InformationTechnology
Risk Management
Central Banking
TreasuryManagement
Last Date for receipt of Change of Centre Requests at the respective Zonal Offices for the CAIIB/Electives
ExaminationsscheduledforJune2016:21stApril2016
([email protected]%wef15.11.2015-EligibleforMembersOnly)
(ExaminationEligibleforMembersOnly)
Sr.No. NameoftheExam Attempts ForMembers(Rs)
1 CAIIB FirstBlockof2attempts 3092
SecondBlockof2attempts 3092
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Module: A
Economic Analysis
SYLLABUS
The fundamentals of Economics: Scarcity and Efficiency - Microeconomics
& Macroeconomics in brief - Types of economies - Market, Command and
Mixed Economies - Macroeconomics: Business cycles - Money and
banking - Unemployment & inflation - Interest rate determination and
various types of interest rates.
Indian Economy (a) Overview of the Indian economy including recent
reforms (b)Interaction between fiscal, monetary & exchange rate policies in
India - Financial Markets (i) Money Market (ii) Capital Market (iii) Foreign
Exchange Market - globalisation and its impact - Challenges ahead -
Banking & Finance - current issues
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THE FUNDAMENTAL OF ECONOMICS
Economics is a social science. It is one of the most important branches of knowledge at present. In this
branch of knowledge we try to understand how the economy of a particular region, a country or the global
economyworks. Theterm 'Economics' owes itsorigintotheGreekWord'Oikonomia' meaning
household. The ancient Greeks applied this to the management of a city state, which they called 'Polis'. Thus
political economycameinto existence. It emerged as afull-fledgedsocial science inthe latter half
of the 18th Centurywith the publication of Adam Smith'smaster piece,
Economists have given different definitions of Economics from time to time as per their understanding of
different situations needing attention for economic solutions. Few of the definitions given by renowned
economist arediscussedbelowfor understanding of thesubject matter.
A) WEALTH DEFINITIONS:
This definition of economics is propagated by Adam Smith, David Ricardo, J.B.Say and J.S.Mill. They have
assumedEconomicsasa science of wealth.
"Economic is a subject concerned with an enquiry into the nature and causes of wealth of nations"-
Adam Smith
"Economic is a science which treats of wealth" - J.B. Say.
"Economics is the name of that part of knowledge which relates to wealth" — Walker.
The Science which treats of nature, production and distribution of wealth is economics" — Daven Port.
"Economics is ascience of wealth in relationtoman" — J.S.Mill.
B) WELFARE DEFINITIONS:
Alfred Marshall was thefirst economist who shifted emphasis of economics from wealth to welfare. Other
economistswho joinedthis thought of stream areProf. Cannon, Prof. A.C. Pigouand Prof. Penson.
"Political economy or economics is a study of mankind in the ordinarily business of life, it examine that part of
individual and social actions which most closely connected with the attainment and with the use of material
requisites of well being"— Alfred Marshall.
-Aim of political economy is the explanation of general causes on which the material welfare of the human
beings depends" — Prof. Cannon.
"Economics is the study of Economics welfare, economic welfare being that part of social welfare which can
be brought directlyor indirectlyinto relation with the measuring rod of money" — Prof. A.C. Pigou.
"Economicsis ascienceof material welfare" — Prof. Penson.
The important features of Marshall's definition are as follows:
Economics studies only the ordinary business of life. Ordinary business of life relates to what a normal
human being ordinarily does for his living. In other words, it includes the income earning and income-
spending activities of thehumanbeings.
Economics is a social science. It studies the economic problems of those individuals who live in an organized
society. Men like Robinson Crusoeliving aloof from the societydo not fall under the purviewof economics.
Economics studies only the material requisites of well-being. There may be other, viz, political, social, and
religious activities of human beings. But these activities cannot be measured through the measuring rod of
money. Therefore, Marshall restricted the scope of economics to the study of only those economic activities
which can have amoneymeasure.
C) SCARCITY DEFINITIONS:
Prof. Robin developed this definition of economics, According to Robin, "Economics is a science which
studies human behaviour asarelationship between ends andscarcemeans, which have alternative uses".
The definition of Robbins brings home the following fundamental conditions:
Economics is a sciencea positive science. As ascience it studies howthe human beings adjust their multiple
wants to scarce mean. Economics is, therefore, not related to the welfare 6-6 such. Economics studies
human behaviour. It is the choice-making behaviour not related to welfare as such, but to ends and scarce
means. Ends: Ends. refer to the human wants which are unlimited. Man has multiple wants. As one particular
want is satisfied, another want emerges.Therefore, all wants cannever besatisfiedin their totality.
Scarce Means: Human wants are unlimited, while the means (material resources, time, etc.) to satisfy them
are scarce. Man is confronted with theeconomicproblem when thesupplyof resoursesis short as
compared to their demand. Most of goods satisfying human want have limited supply. When resources are
scarce, certain wantsgo unsatisfied.
Alternative uses of scarce means: There would have been no problem of allocation, had the scarce
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means only single use. But, the real difficulty arises because the means have alternative uses and all
uses do not have the same intensity. Choice is to be made between the different uses. When we opt for
one thing we have to forgo the other.
ID) WANTLESSNESS DEFINITIONS:
This definition is given by Prof. J.K. Mehta. According to the definition, "Economics is a Science that
studies human behavior as a means to the end of wantlessness". Wantlessness means a process of
reducing number of wants to "zero - wants" level. According to Prof. Mehta our ultimate goal should be
to reach at a stage of wantlessness.
E) GROWTH-ORIENTED DEFINITIONS:
Growth oriented definitions are based on the concept of economic development. Some of the important
growth orienteddefinitions aregiven below:
"Economics is a study of how, in a civilized society" one obtains a share in what other people have produced
and of howthetotal product of societychanges and is determined" - HenrySmith.
"Economics studies human behaviour which is concerned with changes and growth in means in relation to
growth" K.G. Seth
"Economics is a study of the factors affecting employment and standard of living" - Benham
"Economic is the study of how men and society choose with or without the use of money to employee
scarce productive resources which could have alternative uses to produce various commodities over
time, and distribute them for consumption now and in future among various people and groups of
society" - P.A. Samuelson.
"Economics is a study of the Economic allocation of scares physical and human being among competing
and, anallocation that achieves a stipulated opiiiiiizing or maximising objectives". - C.E. Feruguson
Economic as a Positive Science
According to Classical, the science of economics should be concerned only with "what is" and not "what
ought to be". In other words they maintained, economics is only a positive science. According to Classical
school of thought, "Economics should not explain rightness and wrongness of things and economists
should not pass moral judgements".
Economics as a Normative Science
Marshall, Pigou. and Historical School, challenged the classical school, according to them economic is a
normative science because it has norms, viz., more practical, more realistic, useful science, maximum
welfarefrom limitedresources andgrowth oriented.
Micro and Macro Economics
Microeconomics
1. Micro economics is a branch of economics that studies how households and firms make decisions to
allocate limitedresources, typicallyin markets wheregoodsor services are being bought andsold.
2. Microeconomics examines how these decisions and behaviours affect and supply and demand for
goods and services, which determines prices; and how prices, in turn, determine the supply and demand for
goodsand services.
3. Microeconbmics analyses the market behavior of individual consumers and firms in an attempt to
understandthedecision-making processof firmsand households.
Macroeconomics:
1. Macroeconomicsisconcernedwiththeoverallperformanceoftheeconomy.
2. Macroeconomics did not exist in its modernform until 1936, when John Maynard Kaynes published his
revolutionarybook titled General Theoryof Employment, Interest andMoney.
3. In his new theory, Keynes developed an analysis of what causes business cycles, with alternating
spells of high unemployment and highinflation.
4. Macroeconomics examines a wide variety of areas, such as how total investment and consumption
are determined, how central banks manage money and interest rates, what cause international financial
crises, and whysome nationsgrowrapidlywhile othersstagnate.
5. Macroeconomics is a branch of Economics that deals with the performance, structure and behavior of
a national or regional economyas awhole.
6. It is thestudyof thebehavior and decision-making of entireeconomies.
7. Macroeconomists study aggregated indicators such as GDP, unemployment rates and price indices to
understandhowthe whole economyfunctions.
8. Macroeconomists develop models that explain the relationship among such factors as national income,
output, consumption, unemployment, inflation, saving, investment, international trade and international
finance.
9. Microeconomics isprimarilyfocusedontheactions of individual agents, such asfirms and
consumers, and howtheir behavior determines prices andquantitiesin specificmarkets.
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TYPESOFECONOMIES
Three fundamental problems faced by any economy: what commodities are produced, how these goods
aremade, andfor whom theyare produced.
1. A society must determine how much of each of the many possible goods and services it will make and
when they will be produced.
2. How are goods produced?: A society must determine who will do the production, with what resources,
and what production techniquestheywill use.
3. For whom are goods produced? Who gets to eat the fruit of economic activity? Is the distribution of
income and wealth fair and equitable? How is the national product divided among different households? Are
many people poor and a few rich? Do high incomes go to teachers or athletes or auto workers or venture
capitalists?Will societyprovide minimal consumption tothe poor or must people work if theyaretoeat?
MARKET, COMMAND, AND MIXED ECONOMIES: Therearebasicallytwo ways of organizing an
economy. Inthefirst method, government makesmost economic decisions, with people ontopof the
hierarchygiving economic commandstothosefurther down the ladder. Inthe secondmethod, decisions
aremade inmarkets, where individuals or enterprises voluntarilyagreetoexchangegoodsand services,
usuallythroughpayments of money.
MarketEconomy/CapitalisticEconomy:
1. in major parts of the world, andin theUnited States, thereis concept of market economy.
2. A market economy is one in which individuals and private firms make the major decisions about
production andconsumption.
3. A system or prices, of markets, of profits and losses, of incentives and rewards determines what, how,
andfor whom.
4. Firms produce the commodities that yield the highest profits (the what) by the techniques of production
that areleast costly(thehow).
5. Consumption is determined by individuals' decisions about how to spend the wages and property
incomes,generated bytheir labour andpropertyownership (for whom).
6. The extreme case of a market economy, in which the government does not interface in economic
decisions, is called alaissez-faire' economy.
SocialisticEconomy/CommandEconomy:
1. A command economy is one in which the government makes all important decisions about production
and distribution.
2. In a command economy, the government owns most of the means of production (land and capital); it
also owns and directs the operations of enterprises in most industries; it is the employer of most workers and
tells them how to do their jobs; and it decides how the output of the society is to be divided among different
goodsand services.
3. In short, in a command economy, the government addresses major economic questions by virtue of its
ownership of resourcesand its power to enforcedecisions.
MixedEconomy:
1. No contemporary society or economy falls completely into either of these extreme categories. Rather,
all societies are mixed economies, with elements of both market and command economies. There has never
been a 100per centmarket economy.
2. Today most decisions in the United States are made in the marketplace. But the government plays an
important role in overseeing the functioning of the market; government passes laws that regulate economic
life, produce goods and services, and control pollution. Most societies/nations today operate as mixed
economies.
3. India, right from the beginning of its economic planning, has been a mixed economy where public
sector, private sector and joint coexist andcomplement each other.
Supply and Demand
Demand
Demand isthe desire backedbyabilityand willingnesstopayfor acommodity
Demand generally means the desire or want for a thing. But in Economics mere desire or want for a thing is
not demand. Only when the desire for a commodity is backed by the ability and willingness to pay for it, the
desire becomes demand. Acommoditymaybeanygoodthat is producedfor sale inthemarket. In
economics, market means all the areas in which buyers and sellers are in contact with each other for the
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