bfi test answers

8/2/2019 Bfi Test Answers

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ANSWERS.

SEBI.

Securities and Exchange Board of India (SEBI) is an apex bodyfor overall development and regulation of the securities

market. It was set up on April 12,1988. To start with, SEBI was

set up as a non-statutory body. Later on it became a statutory

body under the Securities Exchange Board of India Act, 1992.

The Act entrusted SEBI with comprehensive powersoverpractically all the aspects ofcapital marketoperations.Management of the Board

The Board shall consist of the following members, namely:-

A Chairman, Two members. One from amongst the officials of the Ministry

of the Central Government dealing with Finance and second

from administration of the Companies Act, 1956. Another

member from amongst the officials of the Reserve Bank of

India.

Five other members of whom at least three shall be thewhole-time members to be appointed by the centralGovernment .

Objective of sebi.

The primary objective of SEBI is to promote healthy andorderly growth of the securities market and secure investor

protection.
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To protect the interest of investors, so that, there is a steadyflow of savings into the capital market.

To regulate the securities market and ensure fair practices. To promote efficient services by brokers, merchant bankers,

and other intermediaries, so that, they become competitive

and professional.

Functions of sebi.

The SEBI Act, 1992 has entrusted with two functions, they

are

Regulatory functions

Regulation of stock exchange and self regulatoryorganizations.

Registration and regulation of stock brokers, sub-brokers,

Registrars to all issues, merchant bankers,underwriters, portfolio managers etc.

Registration and regulation of the working of collectiveinvestment schemes including mutual funds.

Prohibition of fraudulent and unfair trade practicesrelating to securities market.

Prohibition of insider trading Regulating substantial acquisition of shares and

takeover of companies


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Developmental functions

Promoting investors education Training of intermediaries Conducting research and publishing information useful

to all market participants.

Promotion of fair practices Promotion of self regulatory organizations

Power of sebi.

Power to call periodical returns from recognized stockexchanges.

Power to compel listing of securities by publiccompanies.

Power to levy fees or other charges for carrying out thepurposes of regulation.

Power to call information or explanation fromrecognized stock exchanges or their members.

Power to grant approval to bye-laws of recognizedstock exchanges

Power to control and regulate stock exchanges.


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Power to direct enquiries to be made in relation toaffairs of stock exchanges or their members.

Power to make or amend bye-laws of recognized stockexchanges. Power to grant registration to market intermediaries. Power to declare applicability of Section 17 of the

Securities Contract (Regulation) Act 1956, in any State

or area, to grant licenses to dealers in securitiesSebi & central gvt.

The Central Government has power to issue directionsto SEBI Board, supersede the Board, if necessary and to

call for returns and reports as and when necessary.

The Central Government has also power to give anyguideline or to make regulations and rules for SEBI and

its operations.

The activities of SEBI are financed by grants fromCentral Government, in addition to fees, charges etc.

collected by SEBI. The fund called SEBI General Fund is

set up, to which, all fees, charges and grants are

credited. This fund is used to meet the expenses of the

Board and to pay salary of staff and members of the

body.


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RBI.

As the Central Bank of the country Nerve centre of the financial & monetary system Main regulator of the banking system As an apex institution, it has been guiding, monitoring,

regulating, controlling & promoting the banking as well

as the financial system

Functions of Rbi.

To maintain monetary stability so that the businessand economic life can deliver welfare gains of a

properly functioning mixed economy

To maintain financial stability and ensure soundfinancial institutions so that monetary stability can be

safely pursued and economic units can conduct their

business with confidence

To promote the development of the financialinfrastructure in terms of market & system, and to

enable it to operate efficiently

To ensure that credit allocation by the financial systembroadly reflects the national economic priorities &

social concerns


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To regulate the overall volume of money & credit inthe economy, with a view of ensuring a reasonable

degree of price stability.

Role of Rbi.

Note issuing authority Government Banker Bankers Bank Supervising authority Exchange control authority Promoter of the financial system Regulator of money & credit

ALM.

An attempt to match:Assets and Liabilities

In terms of:Maturities and Interest Rates Sensitivities

To minimize:Interest Rate Riskand Liquidity Risk


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ALM Definition:

ALM is an integral part of the financial managementprocess of any bank.

ALM is concerned with strategic balance sheetmanagement involving risks caused by changes in theinterest rates, exchange rates and the liquidity position

of the bank.

While managing these three risks forms the crux ofALM, credit risk and contingency risk also form a part

of the ALM

ALM can be termed as a risk management techniquedesigned to earn an adequate return while maintaining

a comfortable surplus of assets beyond liabilities.

It takes into consideration interest rates, earningpower, and degree of willingness to take on debt and

hence is also known as Surplus Management


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ALM is all about efficient management of balancesheet dynamics with regard to its size, constituents and

quality.

It is the process of managing the Net Interest Margin(NIM) within the overall risk bearing ability of a bank

ALM process depends on the understanding of thebalance sheet; the availability, accuracy, adequacy and

expediency of the data and the MIS system


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Success of alm

The ALM process rests on Three Pillars:

1.ALM Information Systems:

Decision Support and Reporting Tool Comparison between different Branches Product Analysis Duration Gap Analysis Risk Planning and Management Flexible Design Strategic Planning of the Asset-Liability Mix Simulation Analysis

Transfer- Pricing Mechanism

2.ALM Organisation :

Strong Commitment of Senior Management ALCO should comprise the Senior Management( including the CEO)

A Support Group of Operational Staff


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3.ALM Process:

The scope of ALM function can be described as follows: Liquidity Risk Management Management of Market Risks Trading Risk Management Funding and Capital Planning Profit Planning and Growth Projection

Risk in ALM:

Interest Rate Risk: It is the risk of having a negativeimpact on a banks future earnings and on the market

value of its equity due to changes in interest rates.

Liquidity Risk: It is the risk of having insufficient liquidassets to meet the liabilities at a given time.

Forex Risk: It is the risk of having losses in foreignexchange assets and liabilities due to exchanges in

exchange rates among multi-currencies under

consideration.


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BASEL Committee Recomondations:

On June 26, 1974, German regulators forced the troubled Bank Herstatt into

liquidation .That day a number of banks had released

payment to Herstatt in Frankfurt in exchange for US$ that was

to be delivered in New York.

Because of the time- zone differences, Herstatt ceasedoperation between the times of the respective payments. The

counter party banks did not receive their US$ payments.

Responding to the cross-jurisdictional implications of Herstattdebacle, the G-10 countries (the G-10 is actually eleven

countries: Belgium, Canada, France,Germany, Italy, Japan,

Netherlands, Sweden,Switzerland, the United Kingdom and

the United States)formed a standing committee under the

auspices of Bank of International Settlements (BIS) called theBasel Committee or (Basle Committee)

The Basel Committee on Banking Supervision (BCBS) is acommittee of banking supervisory authorities that was

established by thecentral bankgovernors of theGroup of

Tencountries in 1974.

It provides a forum for regular cooperation on bankingsupervisory matters.

Its objective is to enhance understanding of key supervisoryissues and improve the quality of banking supervision

worldwide.

The Committee also frames guidelines and standards indifferent areas - some of the better known among them are
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the international standards on capital adequacy, the Core

Principles for Effective Banking Supervision and the Concordat

on cross-border banking supervision

The Committee's members comefromArgentina,Australia,Belgium,Brazil,Canada,China,Fran

ce,Germany,Hong Kong

SAR,India,Indonesia,Italy,Japan,Korea,Luxembourg,Mexic

o, theNetherlands,Russia,Saudi Arabia,Singapore,South

Africa,Spain,Sweden,Switzerland,Turkey, theUnited

Kingdomand theUnited States.

The Committee's Secretariat is located at theBank forInternational Settlements (BIS)inBasel, Switzerland.

However, the BIS and the Basel Committee remain two

distinct entities.

The Basel Committee formulates broad supervisory standardsand guidelines and recommends statements of best practice

in banking supervision in the expectation that member

authorities and other nations' authorities will take steps to

implement them through their own national systems,

whether in statutory form or otherwise.

The purpose of BCBS is to encourage convergence towardcommon approaches and standards. The Committee is not aclassical multilateral organization, in part because it has no

founding treaty. BCBS does not issue binding regulation;

rather, it functions as an informal forum in which policy

solutions and standards are developed.
http://en.wikipedia.org/wiki/Argentinahttp://en.wikipedia.org/wiki/Argentinahttp://en.wikipedia.org/wiki/Argentinahttp://en.wikipedia.org/wiki/Australiahttp://en.wikipedia.org/wiki/Australiahttp://en.wikipedia.org/wiki/Australiahttp://en.wikipedia.org/wiki/Belgiumhttp://en.wikipedia.org/wiki/Belgiumhttp://en.wikipedia.org/wiki/Belgiumhttp://en.wikipedia.org/wiki/Brazilhttp://en.wikipedia.org/wiki/Brazilhttp://en.wikipedia.org/wiki/Brazilhttp://en.wikipedia.org/wiki/Canadahttp://en.wikipedia.org/wiki/Canadahttp://en.wikipedia.org/wiki/Canadahttp://en.wikipedia.org/wiki/Chinahttp://en.wikipedia.org/wiki/Chinahttp://en.wikipedia.org/wiki/Chinahttp://en.wikipedia.org/wiki/Francehttp://en.wikipedia.org/wiki/Francehttp://en.wikipedia.org/wiki/Francehttp://en.wikipedia.org/wiki/Francehttp://en.wikipedia.org/wiki/Germanyhttp://en.wikipedia.org/wiki/Germanyhttp://en.wikipedia.org/wiki/Germanyhttp://en.wikipedia.org/wiki/Hong_Kong_SARhttp://en.wikipedia.org/wiki/Hong_Kong_SARhttp://en.wikipedia.org/wiki/Hong_Kong_SARhttp://en.wikipedia.org/wiki/Hong_Kong_SARhttp://en.wikipedia.org/wiki/Indiahttp://en.wikipedia.org/wiki/Indiahttp://en.wikipedia.org/wiki/Indiahttp://en.wikipedia.org/wiki/Indonesiahttp://en.wikipedia.org/wiki/Indonesiahttp://en.wikipedia.org/wiki/Indonesiahttp://en.wikipedia.org/wiki/Italyhttp://en.wikipedia.org/wiki/Italyhttp://en.wikipedia.org/wiki/Italyhttp://en.wikipedia.org/wiki/Japanhttp://en.wikipedia.org/wiki/Japanhttp://en.wikipedia.org/wiki/Japanhttp://en.wikipedia.org/wiki/South_Koreahttp://en.wikipedia.org/wiki/South_Koreahttp://en.wikipedia.org/wiki/South_Koreahttp://en.wikipedia.org/wiki/Luxembourghttp://en.wikipedia.org/wiki/Luxembourghttp://en.wikipedia.org/wiki/Luxembourghttp://en.wikipedia.org/wiki/Mexicohttp://en.wikipedia.org/wiki/Mexicohttp://en.wikipedia.org/wiki/Mexicohttp://en.wikipedia.org/wiki/Mexicohttp://en.wikipedia.org/wiki/Netherlandshttp://en.wikipedia.org/wiki/Netherlandshttp://en.wikipedia.org/wiki/Netherlandshttp://en.wikipedia.org/wiki/Russiahttp://en.wikipedia.org/wiki/Russiahttp://en.wikipedia.org/wiki/Russiahttp://en.wikipedia.org/wiki/Saudi_Arabiahttp://en.wikipedia.org/wiki/Saudi_Arabiahttp://en.wikipedia.org/wiki/Saudi_Arabiahttp://en.wikipedia.org/wiki/Singaporehttp://en.wikipedia.org/wiki/Singaporehttp://en.wikipedia.org/wiki/Singaporehttp://en.wikipedia.org/wiki/South_Africahttp://en.wikipedia.org/wiki/South_Africahttp://en.wikipedia.org/wiki/South_Africahttp://en.wikipedia.org/wiki/South_Africahttp://en.wikipedia.org/wiki/Spainhttp://en.wikipedia.org/wiki/Spainhttp://en.wikipedia.org/wiki/Spainhttp://en.wikipedia.org/wiki/Swedenhttp://en.wikipedia.org/wiki/Swedenhttp://en.wikipedia.org/wiki/Swedenhttp://en.wikipedia.org/wiki/Switzerlandhttp://en.wikipedia.org/wiki/Switzerlandhttp://en.wikipedia.org/wiki/Switzerlandhttp://en.wikipedia.org/wiki/Turkeyhttp://en.wikipedia.org/wiki/Turkeyhttp://en.wikipedia.org/wiki/Turkeyhttp://en.wikipedia.org/wiki/United_Kingdomhttp://en.wikipedia.org/wiki/United_Kingdomhttp://en.wikipedia.org/wiki/United_Kingdomhttp://en.wikipedia.org/wiki/United_Kingdomhttp://en.wikipedia.org/wiki/United_Stateshttp://en.wikipedia.org/wiki/United_Stateshttp://en.wikipedia.org/wiki/United_Stateshttp://en.wikipedia.org/wiki/Bank_for_International_Settlementshttp://en.wikipedia.org/wiki/Bank_for_International_Settlementshttp://en.wikipedia.org/wiki/Bank_for_International_Settlementshttp://en.wikipedia.org/wiki/Bank_for_International_Settlementshttp://en.wikipedia.org/wiki/Baselhttp://en.wikipedia.org/wiki/Baselhttp://en.wikipedia.org/wiki/Baselhttp://en.wikipedia.org/wiki/Baselhttp://en.wikipedia.org/wiki/Bank_for_International_Settlementshttp://en.wikipedia.org/wiki/Bank_for_International_Settlementshttp://en.wikipedia.org/wiki/United_Stateshttp://en.wikipedia.org/wiki/United_Kingdomhttp://en.wikipedia.org/wiki/United_Kingdomhttp://en.wikipedia.org/wiki/Turkeyhttp://en.wikipedia.org/wiki/Switzerlandhttp://en.wikipedia.org/wiki/Swedenhttp://en.wikipedia.org/wiki/Spainhttp://en.wikipedia.org/wiki/South_Africahttp://en.wikipedia.org/wiki/South_Africahttp://en.wikipedia.org/wiki/Singaporehttp://en.wikipedia.org/wiki/Saudi_Arabiahttp://en.wikipedia.org/wiki/Russiahttp://en.wikipedia.org/wiki/Netherlandshttp://en.wikipedia.org/wiki/Mexicohttp://en.wikipedia.org/wiki/Mexicohttp://en.wikipedia.org/wiki/Luxembourghttp://en.wikipedia.org/wiki/South_Koreahttp://en.wikipedia.org/wiki/Japanhttp://en.wikipedia.org/wiki/Italyhttp://en.wikipedia.org/wiki/Indonesiahttp://en.wikipedia.org/wiki/Indiahttp://en.wikipedia.org/wiki/Hong_Kong_SARhttp://en.wikipedia.org/wiki/Hong_Kong_SARhttp://en.wikipedia.org/wiki/Germanyhttp://en.wikipedia.org/wiki/Francehttp://en.wikipedia.org/wiki/Francehttp://en.wikipedia.org/wiki/Chinahttp://en.wikipedia.org/wiki/Canadahttp://en.wikipedia.org/wiki/Brazilhttp://en.wikipedia.org/wiki/Belgiumhttp://en.wikipedia.org/wiki/Australiahttp://en.wikipedia.org/wiki/Argentina


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NARSIMHA COMMITTEE RECOMONDATIONS:

1969-Banks NationalizationEffects

Phenomenal increase in the geographical coverage of ourbanking and financial institutions.

Despite impressive quantitative achievement-low efficiencyand productivity, bad portfolios performance, and eroded

profitability.

Several public sector banks and financial institutions wereincurring losses year after year

PROBLEMS :

Directed Investment Programme : The committee objected tothe system of maintaining high liquid assets by commercial

banks in the form of cash, gold and unencumberedgovernment securities. It is also known as the statutory

liquidity Ratio (SLR). In those days, in India, the SLR was as

high as 38.5 percent. According to the M. Narasimham's

Committee it was one of the reasons for the poor profitability

of banks. Similarly, the Cash Reserve Ratio- (CRR) was as high

as 15 percent. Taken together, banks needed to maintain 53.5

percent of their resources idle with the RBI

About the committee:

1991 -RBI proposed the committee chaired by M.Narasimham, former RBI Governor to review the Financial

System


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Review-aspects relating to the Structure, Organization,Procedures and Functioning of the financial system

Constituted in 1991, the Committee submitted two reports, in1992 and 1998, which laid significant thrust on enhancing the

efficiency and viability of the banking sector

The Narasimham Committee laid the foundation for thereformation of the Indian banking sector

BANCASSURANCE:

Banc assurance is an alliance between banks and insurancecompanies for the sale of insurance through banks

According to IRDA, bancassurance refers to banks acting ascorporate agents for insurers to distribute insurance products

Literature on bancassurance does not differentiate if thebancassurance refers to selling of life insurance products or

non-life insurance products

Accordingly, here bancassurance is defined to mean banksdealing in insurance products of both life and non-life type in

any forms

According to Swiss Re 2002, the bancassurance is defined asa strategy adopted by banks or insurance companies aiming

to operate in the financial services market in a more or less

integrated mannerand is the distribution of insurance

products by banks

Although different models of bancassurance are in vogue inIndia, corporate agency model is most popular


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Joint Venture Model Corporate Agency Model Build Insurance or Bank Model Merger of Bank with an Insurance Company or vice versa

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