JAIIB MADE SIMPLE - VIBEWA

157 Pages·2015·1.34 MB·English

JAIIB MADE SIMPLE
ACCOUNTING AND FINANCE FOR BANKERS
( JAIIB PAPER -2)
Version 1.0
(A Very useful book for Day to Day Banking and all
Knowledge Based Examinations)
COMPILED BY
Mr. SANJAYKUMAR TRIVEDY( Sr. Manager & College-in-charge )
& Team RSTC, Mumbai
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REGIONAL STAFF TRAINING COLLEGE : MUMBAI
Maker Tower E , 13th Floor , 85, G D Somani Marg, Cuffe Parade , Mumbai 400005
Phone :[phone] 22185980 Fax: email: [email protected]
Preface
Dear Friends,
Banking/Financial sector in our country is witnessing a sea change and 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 40% staff strength is newly recruited in last three to four 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 “ JAIIB MADE SIMPLE ” has many unique features to its credit & consists
of all topics/syllabus required for JAIIB examination with clear concept & simple language
with latest changes during 2015-16 ( upto June/July 2015 as per IIBF/ JAIIB exams.
requirement ) 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 JAIIB examination.
The Book also covers the full syllabus (latest) of JAIIB examination and also recalled
questions (one line approach & MCQ (based on IIBF examination Pattern ) will be helpful to
all aspirants who are taking up JAIIB examination
During preparation of this book, I have received tremendous support from Team RSTC,
Mumbai, many friends & colleagues especially my wife Mrs Renu, who is also a banker, my
son Master Ritwiz Aryan & our clerk Mr Sanjeev V Karamchandani. 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 scope for some 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: 16.11.2015 Senior Manager & College-in-Charge
RSTC, MUMBAI
CompiledbySanjayKumarTrivedy&TeamRSTC,Mumbai 1|Page
CONTENTS
TOPIC PAGE NO.
ABOUT JAIIB EXAMINATION …………………….……03-05
1.
MODULE : A ( B. MATHEMATICS & FINANCE)….…06-23
2.
MODULE : (BOOK KEEING & ACCOUNTANCY )....24-54
3.
MODULE : C ( FINAL ACCOUNTS ) .............................55-79
4.
MODULE : D ( BANKING OPERATIONS ) ........ 80-122
5.
PRACTICE TEST PAPERS .......................................123-156
6.
CompiledbySanjayKumarTrivedy&TeamRSTC,Mumbai 2|Page
ABOUT JAIIB EXAMINATION
JAIIB&CAIIB EXAMINATION–Nov/Dec2015
OBJECTIVE
JAIIBaimsatprovidingrequiredlevelofbasicknowledgeinbankingandfinancialservices,banking
technology,customerrelations,basicaccountancyandlegalaspectsnecessaryforcarryingoutdayto
daybankingoperations.
MEDIUM OF EXAMINATION:EitherinHindiorEnglish
Cut-offDateofGuidelines/ImportantDevelopmentsforExaminations
InrespectoftheexamstobeconductedbytheInstituteduringMay/Juneofacalendaryear,instructions/
guidelinesissuedbytheregulator(s)andimportantdevelopmentsinbankingandfinanceupto31st
Decemberofthepreviousyearwillonlybeconsideredforthepurposeofinclusioninthequestionpapers.
InrespectoftheexamstobeconductedbytheInstituteduringNovember/Decemberofacalendaryear,
instructions/guidelinesissuedbytheregulator(s)andimportantdevelopmentsinbankingandfinanceup
to30Juneofthatyearwillonlybetheconsideredforthepurposeofinclusioninthequestionpapers.
Reference:IIBFMonthlyMagazine:VISION,June2015,Pageno.7.
PATTERNOFEXAMINATION: EachQuestionPaperwillcontainapproximately120objectivetype
multiplechoicequestions,carrying100marksincludingquestionsbasedoncasestudy/caselets.The
Institutemay,however,varythenumberofquestionstobeaskedforasubject.TherewillNOTbenegative
markingforwronganswers.
TYPES OF QUESTIONS
120ObjectiveTypeMultipleChoiceQuestions- carrying100marks–120minutesandquestionwillbe
basedonKnowledgeTesting,ConceptualGrasp,Analytical/LogicalExposition,ProblemSolving&Case
Analysis
A. MULTIPLECHOICE (EachQuestions0.5Marks)– QUESTIONS&ANSWERS(70-74QUES)
B. MULTIPLECHOICE–(EachQuestions01Marks)– PROBLEMS&SOLUTIONS(18-20QUES)
C. MULTIPLECHOICE–(EachQuestions02Marks)– APPLIEDTHEORY–QUES.&ANS.
(10-14QUES)
D. MULTIPLECHOICE–(EachQuestions02Marks)– CASESTUDIES&CASELETS(PROBLEMS&
SOLUTIONS)(12-15QUES )
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?
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- 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
TypeofQuestions–Basicallyfour types of MultipleChoiceQuestions askedinExamof
WhichType–A:ConceptbasedStraightQuestions(70-71QUES-0.5MARKS EACH);
Type–B:Problems&Solutions (20-25QUES- 1.0MARKS EACH);Type–C: Applied
theorybasedQuestions (10-15QUES-2.0MARKS EACH); Type–D:CaseStudy&Case-
letsbasedQuestions(10-15QUES -2.0MARKS EACH)
DURATIONOFEXAMINATION:Thedurationoftheexaminationwillbeof2hours.
ImportantdatesforJAIIBareFirstpaper:Principles&PracticesofBanking- 15.11.2015
Secondpaper:Accounting&FinanceforBankers–22.11.2015
Thirdpaper:Legal&RegulatoryAspectsofBanking–29.11.2015
PERIODICITYANDEXAMINATIONCENTRES;Theexaminationwillbeconductednormallytwicea
yearinMay/JuneandNovember/DecemberonSundays.
Pass:Minimummarksforpassineverysubject-50outof100marks.
Candidatesecuringatleast45marksineachsubjectwithanaggregateof50%marksinall
subjectsofJAIIBexaminationinasingleattemptwillalsobedeclaredashavingpassedJAIIB
Examination.
Candidateswillbeallowedtoretaincreditsforthesubject/stheyhavepassedinoneattempttilltheexpiry
ofthetimelimitforpassingtheexaminationasmentionedbellow:
TIMELIMITFORPASSINGTHEEXAMINATION
CandidateswillberequiredtopassJAIIBexaminationwithinatimelimitof2years(i.e.4consecutive
attempts).Initiallyacandidatewillhavetopayexaminationfeeforablockofoneyeari.e.fortwoattempts.
IncaseacandidateisnotabletopassJAIIBexaminationwithin1stblockof2attempts,he/shecanappear
forafurtherperiodof1year(2ndblock)i.e.2attemptsonpaymentofrequisitefee.Candidateswhohave
exhaustedthefirstblockof2attempts,shouldnecessarilysubmittheexaminationapplicationformforthe
nextattempt,withoutanygap.Iftheydonotsubmittheexaminationformimmediatelyafterexhausting
thefirstblock,theexaminationconductedwillbecountedasattemptsofthesecondblockforthepurpose
oftimelimitforpassing.
CandidatesnotabletopassJAIIBexaminationwithinthestipulatedtimeperiodoftwoyearsarerequiredto
re-enrollthemselvesafreshbysubmittingfreshExaminationApplicationForm.Suchcandidateswillnotbe
grantedcredit/sforsubject/spassed,ifany,earlier.
Attemptswillbecountedfromthedateofapplicationirrespectiveofwhetheracandidateappearsat
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anyexaminationorotherwise.
“CLASSOFPASS”CRITERIA
TheInstitutewillconsidertheFIRSTPHYSICALATTEMPTofthecandidateattheexaminationasfirst
attemptforawardingclass.Inotherwords,thecandidateshouldnothaveattemptedanyofthesubject/s
pertainingtotheconcernedexaminationanytimeinthepastandhastopassallthesubjectsasperthe
passingcriteriaandsecureprescribedmarksforawardingclass.Candidatere-enrollingfortheexamination
afterexhaustingallpermissibleattemptsasperthetimelimitrulewillnotbeconsideredforawardingclass.
FirstClass:60%ormoremarksinaggregateandpassinallthesubjectsintheFIRSTPHYSICAL
ATTEMPT.
FirstClasswithDistinction:70%ormoremarksinaggregateand60ormoremarksineachsubject
intheFIRSTPHYSICALATTEMPT.
Candidatewhohavebeengrantedexemptioninthesubject/swillbegiven"PassClass"only.
JAIIBEXAMINATION–Nov/Dec2015
(Lastdateforapplyingforexamination:28/08/2015)
ONLINEMODE
ExaminationDATE TIME SUBJECTS
ONLINE-Willbegivenintheadmit
15/11/2015Sunday Principles&PracticesofBanking
Letter
ONLINE-Willbegivenintheadmit
22/11/2015Sunday Accounting&FinanceforBankers
Letter
ONLINE-Willbegivenintheadmit
29/11/2015Sunday Legal&RegulatoryAspectsofBanking
Letter
LastDateforreceiptofChangeofCentreRequestsattherespectiveZonalOfficesfortheJAIIBExaminationscheduledfor
Nov2015:10thOctober2015
RevisedExaminationFeesinclusiveSERVICETAX@14%witheffectfrom1stJune,2015
(ExaminationEligibleforMembersOnly)
Sr.No. NameoftheExam Attempts Fee(Rs)
1 JAIIB FirstBlockof2attempts 2736
SecondBlockof2attempts 2736
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Module: A
BUSINESS MATHEMATICS AND FINANCE
Syllabus
CalculationofInterestandAnnuities:CalculationofSimpleInterest&Compound
Interest;CalculationofEquatedMonthlyInstalments;FixedandFloatingInterestRates;
CalculationofAnnuities;InterestCalculationusingProducts/Balances;Amortisationofa
Debt;SinkingFunds
CalculationofYTM:Debt-Definition,Meaning.&SalientFeatures;Loans;Introductionto
Bonds;TermsassociatedwithBonds;CostofDebtCapital;Bondvaluewithsemi-annual
Interest;CurrentYieldonBond;CalculationofYield-toMaturityofBond;Theoremsfor
BondValue;DurationofBond;PropertiesofDuration;BondPriceVolatility
CapitalBudgeting :PresentValueandDiscounting;DiscountedTechniqueforInvestment
Appraisal;InternalRateofReturn(IRR);MethodofInvestmentAppraisal;NPVandIRR
compared;InvestmentOpportunitieswithCapitalRationing;InvestmentDecisionmaking
underconditionofuncertainty;ExpectedNPVRule;RiskAdjustedDiscountRateApproach
forNPVDetermination;SensitivityAnalysisforNPVDetermination;DecisionTreeAnalysis
forNPVEstimation;PaybackMethods;ARR.
DepreciationanditsAccounting:Depreciation, its types and methods; Comparing
Depreciation Methods
ForeignExchangeArithmetic:Fundamentals of Foreign Exchange; Forex Markets;
Direct and Indirect Quote; Some Basic Exchange Rate Arithmetic — Cross Rate, Chain
Rule, Value date, etc.; Forward Exchange Rates — Forward Points; Arbitrage; Calculating
Forward Points; Premium/discount; etc.
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CALCULATIONOF INTEREST
Banking business mainly consists of accepting deposits and lending. Bank pays interest to the
depositors On lending to customers, the bank charges a certain interest at a specified rate. The
interest is payable either at periodic intervals or at the end of a loan period. The calculation of the
interest will be based on the terms of agreement, i.e. whether at a definite interval or at the
period end. Sometimes, it also happens that the customer is interested in paying a part of
principal along with interest. As the customers pay the principal in instalments, the impact of the
interest gets reduced over the tenure of loan. It may also happen that the bank may want to
recover the loan in equal instalments called annuities. Annuities are essentially a series of fixed
payments required to be paid at a specified frequency over the course of a fixed period of time.
Payment of annuities may be at the beginning of each period or at the end of each period. The
calculations of annuities are different for each situation. Sometimes, the bank also needs to
make a cost-benefit analysis of the series of annuities and is required to calculate the present
value of all the annuities by suitably discounting the annuities receivable at the end of each
period. The sums of the present value of the annuities are compared with the cash outflow to
reach certain decisions.
Simpleinterest:Simple interest is paid by the borrower at the end of each year at a fixed rate
(called rate of interest). In other words no interest is paid on the amount of interest. The simple
interest can be calculated as: Interest = principal x rate x time i.e. I=PRT (where P is principal, R
is rate of interest and T is time).
Example : A lends Rs.30000 to B at 8% interest rate. The annual interest would be Rs.2400
i.e. (30000 x 1 x 8)1100. Total amount payable by the borrower to the lender = Principal +
interest.
Amount of instalments: Repayment of the loan can be made on a yearly, half-yearly, quarterly,
monthly or even weekly periodicity. Hence the total amount repayable can be divided by the
units of time period in a year. For example in the above case, the total loan repayable is
Rs.32400 (30000 + 2400). If repayment is half-yearly, the amount of instalment would be
Rs.16200 (32400/2), if it is quarterly it would be Rs.8100 (32400/4), if it monthly the amount
would be Rs.2700 (32400/12) and so on.
Compoundinterest:When interest is paid by the borrower not on the amount of principal only but
on the interest amount that has accrued also (i.e. accumulated portion of interest), it is called
compound interest. In this case, the formula for calculation of interest is not that simple as in case
of simple interest, Formula for calculation of amount due after a certain period on compound rate
of interest is: A= P (1+R)n where 'A' is total amount due after n years., 'P' is the principal amount
and 'R' is rate of interest per annum expressed as fraction.
Formula for half yearly compounding will be modified by reducing rate of interest to half its
original value and multiplying time by 2. Likewise for compounding of interest at quarterly rests,
the rate of interest will, be divided by 4 and time period multiplied by 4. So the formulae under
such dispensation will be:- A=P(1+r/2)2n for half yearly compounding and A=P(1+r/4)4n, for
quarterly compounding.
For monthly compounding, the annual rate will be_divided by 12 and time period multiplied by12
making the formula as A=P(1+r/12)12n
Compound interest will be CI =A-P where CI stands for compound interest, A for total amount due
and P for principal amount.
Q. 1 The simple interest in 3 years and the compound interest in 2 years on a certain sum at the
same rate are RS. 1,200 and RS. 832 respectively. Find (i) the rate of interest, (ii) the principal, (iii)
the difference between the C.I. and S.I. for 3 years.
Ans. Let the principal be RS. P and rate of interest be R per cent p.a. According to the first
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condition of the question, (p x R x 3)/100 = 1200, P x R= 40,000
According to the second condition of the question, (P+ 832) = P(1 + R/100)2, or, (P+ 832)/P= (1 +
R/100)2= (100)2(1 + 832/P) = (100 + R)2 or, (100)2 + 832(100)2/P= (100 + R)2,
By putting P= 40,000/R from equation 1, we get, [832*R*(100)2]/40,000 = (100 + R)2— (100)2
4[(100)2 + R2 + 2*100*R — (100)2] = 832 R , R2+ 200 R = 208 R = R2+ 200 R — 208 R = 0
R2— 8R = 0,R(R — 8) = 0, Either R = 0 or R — 8 = 0
Either R = 0 or R = 8, but R cannot be Rs.ero. Hence the
rate of interest = 8% p.a. On using (1), we get P x 8 =
40,000, so P = 5,000
(iii). Rate of compound interest = 8% p.a. and principal = RS. 5,000
Amount due after 3 years = RS. 5,000 x (1 + R)3,= RS. 5,000 x 1.2597 = RS. 6,298.56
Hence, C.I. for 3 years = A— P= RS. 6,298.56 — RS. 5,000 = 1,298.56
The difference between the C.I. and Si. for 3 years = RS. 1,298.56 — RS. 1,200 = RS. 98.56
Amountbecomingdoubleoftheamountlent:On a compounded basis, when the amount is lent
it becomes double after different time periods depending upon the rate of interest at which it has
been borrowed. For this purpose the Rule of 72 can be used. According to this rule, to find out the
time period during which the amount would become double, the number 72 is divided by the rate
of interest. For example, the money lent at 9% would become appx. double in 8 years and the
money lent at 8% would become appx. double in 9 years.
A depositor deposits Rs.20000 with the bank at prevailing interest rate of 12%. He wants to take
back nearly double the amount of the deposit. After how many years, he would get the amount
as per his desire: 6 years (72/12). He would get Rs.19738 with annual compounding and
Rs.20327 with quarterly compounding.
Rule of '72' enables us to calculate the period during which our deposit or loan will become
double. It is to divide'72' by annual rate of interest and the result will be the period during which
the amount will become double. For example if you availed a personaloan @12% as per rule of
'72' it will double in 6 years (72/12). Likewise if you have placed deposit with a bank at 8% rate
of interest, the amount of deposit will be double in 9 years (72/8).
There is a modified version of rule of '72' which is referred to as rule of '69'.It says that
period during which the amount will double will be calculated by dividing 69 by the rate of interest
+0.35. To illustrate with 9% rate of interest the period will be 69/9+0.35 i.e. 7.67+0.35 years i.e.
around 8.02 years.
Q 2 You borrowed RS. 1,000 at 6 per cent interest. Then, 72 divided by 6 is 12. That makes 12
the approximate number of years it would take for your debt to double to RS. 2,000, if you did not
make any payment.
Ans Similarly, a saving account with RS. 500 deposited in it, earning 4 per cent interest and
compounded yearly, will take 18 years for RS. 500 to double to RS. 1,000 if you do not make any
further deposit, as 72 divided by 4 is 18.
FIXED AND FLOATING INTEREST RATES : There are two different modes of interest. They are
Fixed Rates & 2. Floating Rates also called as variable rates.
Fixed Rate: In the fixed rate, the rate of interest is fixed. It will not change during entire period of
the loan. For example, if a home loan, taken at an interest rate of 12 per cent, is repayable in 10
years, the rate will remain the same during the entire tenure of 10 years even if the market rate
increases or decreases. The fixed rate is, normally, higher than floating rate, as it is not affected
by market fluctuations.
Floating Rate: In the floating rate or variable rate, the rate of interest changes, depending upon
the market conditions.Under floating rate, the interest rate is usually linked to a benchmark rate
which could be the base rate of the bank or any other benchmark rate of the banking industry. It
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may increase or decrease depending upon the change in the benchmark rate.For example, if a
home loan is taken at an interest rate of 12 per cent, repayable in 10 years, inApril 2014, and if
the benchmark rate increases to 12.5 per cent in April, 2015, the interest rate of this loan will also
be increased to 12.5 per cent. If the loan is under an EMI system, depending upon the change in
interest rate, the repayment period varies, but equated monthly instalment remains the same.
However, the borrower may choose to have the repayment period same and pay a higher EMI.
FRONT-END AND BACK-END INTEREST RATES
If the interest is deducted from the principal amount and only the net amount is disbursed, it is
called front-end interest. For example when the bank discounts a bill, the interest applicable for
the tenure of the bill is calculated and is deducted from the bill amount along with other charges
and the net amount is paid to the customer. However, the normal practice in banking industry is
to charge back-end interest rate which means that the full amount of the loan is disbursed and
the interest is charged subsequently on monthly/quarterly/agreed basis. For example, in a term
loan, the interest is calculated on the actual daily balances in the account during a period and
applied at the end of the period. Obviously, the front-end interest application results in effective
interest rate being more as the borrower gets less amount for use whereas, the interest is applied
on the full amount.
CALCULATION OF INTEREST USING PRODUCTS/BALANCES
Calculation of front end interest like in bill discounting is easy as the amount is assumed to be
constant over the entire period. For example, if the tenure of the bill of 2 lac is 3 months and the
rateof discount is 16% p.a., the interest amount will be 8000.
In banks, many of the cases of deposit and loan accounts involve calculation of interest on the
basis of daily balance in the customer's account. While this method was prevalent in case of the
loan accounts, even in case of Savings Account, the interest is now required to be calculated on
the basis of daily balances. In this method, the closing balance in the account is multiplied by the
number of days for which that balance remains unchanged.
ANNUITIES:At some point in your life, you may have had to make a series of fixed payments
over a period of time — such as rent or car payments — or have received a series of payments
over a period of time, such as bond coupons. These are called annuities. If you understand the
time value of money and have an understanding of the future and present value, it would be
easy to understand annuities.
Annuities are essentially a series of fixed payments required from you or paid to you at a
specified frequency over the course of a fixed period. The most common payment
frequencies are yearly (once a year), semi-annually (twice a year), quarterly (four times a
year), and monthly (once a month). There are two basic types of annuities: ordinary
annuities and annuities due.
Ordinary Annuity: Payments are required at the end of each period. For an illustration,
straight bonds usually make coupon payments at the end of every six months until the
bond's maturity date.
Annuity Due: Payments are required at the beginning of each period. Rent is an
illustration of annuity due. You are usually required to pay rent when you first move in at
the beginning of the month, and then on the first of each month thereafter.
Since the present and future value calculations for ordinary annuities and annuities due are
slightly different, we will first discuss the present and future value calculation for ordinary
annuities.
Time value of money : The money has a time value. Rs.5000 in hand with a person as at
present and an amount of Rs.5000 coming in his hand after, say a year, would carry different
values. The same amount of money received in future carries less value because of time
element, during which the money can earn interest. The present value of Rs.5000 to be available
after a year, would be less at present. Hence the concept of future value of an annuity and
present value of annuity comes in.
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