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Transféré par Devesh Rai

This is a very important document for CAIIB aspirants . It should be read by everyone . Hence it is a very informative document .

- Foreign exchange management
- CAIIB Financial Management
- CAIIB1
- Caiib Made Simple Paper Second Skt
- Treasury Bills
- Iibf Question Paper
- CAIIB BFM Numerical Case Study by Murugan
- caiib_gbm_ib_a
- Yield
- Bond Dynamics
- CAIIB-Low
- Caiib Fm Moda
- Fumdamentals of Foreign Exchange
- Bond Valuation
- Bfm Sample Questions
- chap03-1
- CAIIB-Revise FM Question and answers.doc
- 72533276 CAIIB Super Notes Bank Financial Management Module a International Banking Exchange Rates and Forex Business
- Functions in Excel
- Investment

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= 250000 + 90000 = 340000 Daily percentage loss = (6350/340000) 100 = 0.018676 100 = 1.8676 %

So for getting loss at 99...

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Means. . two stock price is inversely related. .. If price of stock a goes up Then price of stock b goes down. ..

Factor i...

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ans:c = (100/104) 100 = 96.15384 = 96.15 Interest rate = 8 % annual For six months it should be 4 % CPs

are issued at dis...

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Very high - 4 High - 3 Average - 2 Moderate - 1 Low - 0 So probability of occurrence = average = 2 Potential

financial imp...

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For estimating potential financial impact it relies on past observations and severly of impact I s also mapped on a

scale ...

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For calculation. . Estimated level of operational risk = Square root of (2 5 ( 1-50%)) = square root of (10

0.50) = ...

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25 day VaR = 0.4 suare root of 25 = 0.4 5 = 2 % In worst case scenario yield will always increase. .

Because this will...

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ans: questions for worst situation for import if bP will be added in export BP will be deducted. So ans will be

44.30+.50=...

= 6/ ( 1.08) = 5.556 = modified duration % change in price =- modified duration yield change = - 5.556

(+0.50%) = (-)2....

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Fyx = 29.71 Y 50 An individual purchases a call option for 500 shares of A with strike price at Rs 120 (Present

price Rs 1...

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a) Rs 95 b) Rs 90 c) Rs 97 d) None of these ans : b 52. A fixed for floating swap on a notional amount of Rs

10 crores exc...

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53. A bank borrows US $ for 03 months @ 2.5% and swaps the same in to INR for 03 months for deployment

in CPs @ 5.5%. The ...

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So it will reduce bank gain by 0.75 %.. 3.0% - 0.75 % = 2.25 54. A bank makes provision in account with out

standing balan...

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So available fund for making loans(asset) = 300000 - 8% of 300000 = 300000 - 24000 = 276000 For this

fund 276000 Bank is p...

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= 270000 Coverage is only 75 %.. So uncovered amount. . We will take as a Provisioning. . Which is .. = 25%

of 270000 = 67...

59. A claim of Rs 45 lacs has been settled by ECGC in favour of a bank againt default of Rs 60 lacs.

Subsequently the bank...

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So 75% of 40 lakhs. Means 30 lakhs will settled by ecgc 61. an advance of Rs 235000/- has been declared

sub standard on 31...

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Same case vl diffrent fr prospective buyer as he expect the yield to fall so 7.70-.20=7.30 Qtn 63. Received

order of USD 5...

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Issue of DD on New York for USD 25000. The spot Rate is IUSD = 34.3575/3825 IM forward rate is

34.7825/8250 Exchange margi...

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= INR 35.8213 1 franc = 35.8213/6.0340 = INR 5.9366 Ans. Qtn 66 On 12th Feb, received Import Bill of

USD-10000. The bill h...

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Solution TT buying Rate will be applied 34.25 - .0274 = 34.2226 Ans. Qtn 67Spot Rate ((Forward Rates)) is

35.6000/6500 For...

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Qtn 67 Exporter received Advance remittance by way of TT French Franc 100000. The spot rates are in India

IUSD = 35.85/35....

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ANS : B 69. One year T-bill rate is 9% and the rate on one year zero coupon debenture issued by LM ltd is

12.50% , the pro...

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1. 1. BFM- quantitatives ( collection by Hanumantha Rao) 1. Probability of occurrence=4 Potential financial

impact=4 Impact of internal control=0% What is the estimated level of operational risk? A.3 B.2 C.0 D.4

=(4*4*(1-0))square.5=4, So ans is d (look for page295 BFM) Estimated level of operational risk=Estd

probability of occurrence(4)*Estd potential financial impact(4) *estimated impact of internal controls 2 If

there is an asset of Rs 120 in the doubt ful-I cat and the realization value of security is rs 90 only , what

will be the provision requirement. A Rs 48 B Rs 57 C Rs 39 D Rs 75 Ans : 48 since it a doubtful-I cat so

provisioning will be 20% of realization value Rs 90 i.e Rs 18 and 100% of short Fall that is 120- 90= 30.

So ans will be 30+1-8= 48 3(a). If there is an asset of Rs 120 only in the doubt ful-II cat and the

realization value of security is Rs 90 if above mentioned asset in doubtful-ii category what will be the

provision requirement. A 39 B 57 C 66 D 75

2. 2. Ans : b since it a doubtful-II cat so 30% realization value of Rs 90 i.e Rs 27 and 100% of short Fall

that is 120-90= 30 so ans will be 30+27= 57 3(b). If there is an assets of Rs 120 only in the doubt ful-III

cat and the realization value of security is Rs 90 if above mentioned asset in doubt-III than what will be the

provision requirement. A 120 B 48 C 57 D 108 Ans : a since it a doubtful-III cat so 100% of realization

value Rs 90 i.e Rs 90 and 100% of short Fall that is 120-90= 30 so ans will be 90+30=120 4. A

preshipment account above 3 years as on mar 31 2004 has debit balance of Rs 4 lakh. Principle security

value is 1.50 lakh and ECGC cover is available at 50 %. What provision will be made on the a/c as on

31.05.2025 . A Rs 2.15 lac B 2.0 lac C 1.92 lac D 2.25 lac Ans : a do not know pl.. solved any body I

m unable to 5. A/C of ABC has become doubtful with balance of Rs. 6 lac . The collateral security value

is Rs 3 lac and that of principle security is 2 lac. Guarantors worth is Rs 10 lac . A/c is in more than 1 Yr

and up to 3 yr doubtful category . What will be amount of provision as on mar 2013. A Rs 1.50 lac B

2.50 lac C 1.80 lac D 3.0 lac Ans : B since it is in more than two yr in doubtful category it should be

treated as doubtful-II cat and allow 30% of realisation

3. 3. value that is 3+2=5 , 30% of 5 will be Rs 1.50 lac and 100% of short fall that is 6-5=1 lac so

1.50+1.0=2.50 lac ans 6. Provisions to be made for a standard asset....teaser housing loan A)0.25%

B)0.40% C)1% D) 2% Ans: 2% 7. A 5-year 6% semi-annual bond @ market yield of 8%, having a price

of Rs. 92, falls to Rs. 91.80 at a yield of 8.10%, what is Basis Point Value (BPV)? 1) Rs. 0.20 2) Rs.

0.10 3) Rs. 0.02 4) Rs. 0.05 BPV=92-91.80/8.10%-8%=.2/.10*100=.2/10=.02 8. Received order of

USD 50000(CIF) to Australia on 1.1.11 when USD/INR Bill Buying Rate is 43.50. How much

preshipment finance will be released considering profit margin of 10% and Insurance and freight cost@

12%. ans FOB Value = CIF Insurance and Freight Profit (Calculation at Bill Buying Rate on 1.1.11)

i.e = 50000X43.5 = 2175000 216000(12%) 191400(10% of 1914000) = 1722600 Pre-shipment

Finance = FOB value -25%(Margin) = 1722600- 430650=1291950. 9. Spot Rate ((Forward Rates)) is

35.6000/6500 Forward 1M=3500/3000 2M=5500/3000, 3M=8500/8000, Transit Period ----20 days,

Exchange Margin = 0.15%. Find Bill Buying Rate & 2 M Forward Buying Rate a)31.6979 b)34.6979

c)27.6979 d)25.6979

4. 4. ans: Bill Buying Rate (Ready) : Bill Date +20 days Spot Rate = 35.6000 Less Forward Discount 1M

(0.3500) Less Exchange Margin 0.15% (0.529) i.e. 35.6000-.3500-.0529(0.15% of 35.2500) =

35.1971 3 Month Forward Buying Rate will be applied. 20 days + 2M Spot Rate = 35.6000 Less

Forward Discount of 3M (.8500) Less Exchange Margin (.0521) i.e. 35.6000-.8500-.0521(0.15% of

34.7500) = 34.6979 Ans. 10.Issue of DD on New York for USD 25000. The spot Rate is IUSD =

34.3575/3825 1M forward rate is 34.7825/8250 Exchange margin: 0.15% a ) 32.4341 b ) 34.4341 c )

36.4341 d ) 38.4341 Ans: Issue of DD on New York for USD 25000. The spot Rate is IUSD =

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34.3575/3825 IM forward rate is 34.7825/8250 Exchange margin: 0.15% Solution: TT Selling Rate will

Apply Spot Rate = 34.3825 Add Exchange margin (.15%) i.e. 0.516 TT Selling Rate = Spot Rate +

Exchange Margin = 34.4341 Ans. 11 Exporter received Advance remittance by way of TT French Franc

100000. The spot rates are in India IUSD = 35.85/35.92 1M forward =.50/.60 The spot rates in

Singapore are 1USD = 6.0220/6.0340 1M forward =.0040/.0045 Exchange margin = 0.8% a ) INR

4.9366 b ) INR 5.9366 c ) INR 6.9366 d ) INR 7.9366

5. 5. Solution Cross Rate will apply USD will be bought in the local market at TT Buying rate and sold at

Spot Selling Rates in Singapore for French Francs: TT Buying Rates USD/INR = Spot rate Exchange

margin = 35.8500-.0287 = 35.8213 Spot Selling Rate for USD/Francs = 6.0340 Inference: 6.0340

Franc = 1USD = INR 35.8213 1 franc = 35.8213/6.0340 = INR 5.9366 Ans. 12. On 12th Feb,

received Import Bill of USD-10000. The bill has to be retired to debit the account of the customer.

Interbank spot rate =34.6500/7200. The spot rate for March is 5000/4500. The exchange margin for TT

selling is .15% and Exchange margin for Bill selling is .20%. Quote rate to be applied. a ) 31.8415 b )

34.8415 c ) 35.8415 d ) 39.8415 Solution Bill Selling Rate will be applied. Spot Rate + Exchange margin

for TT Selling + Exchange margin for Bill selling = 34.7200+.0520+.0695 = 34.8415 13 On 15th July,

Customer presented a sight bill for USD 100000 for Purchase under LC. How much amount will be

credited to the account of the Exporter. Transit period is 20 days and Exchange margin is 0.15%. The

spot rate is 34.75/85. Forward differentials: Aug: .60/.57 Sep:1.00/.97 Oct: 1.40/1.37 a ) 28.0988 b )

34.0988 c ) 40.0988 d ) 44.0988

6. 6. Solution Bill Buying rate will be applied. Spot Rate----34.75 Less discount .60 = 34.15 Less Exchange

Margin O.15% i.e. .0512 =34.0988 Ans. 14. Bank received MT of USD 5000 on 15th Sep. The Nostro

account was already credited. What amount will be paid to the customer: Spot Rate 34.25/30. Oct

Forward Differential is 22/24. Exchange margin is .80% a ) 38.2226 b ) 34.2226 c ) 30.2226 d )

32.2226 Solution TT buying Rate will be applied 34.25 - .0274 = 34.2226 Ans. 15. Spot Rate

((Forward Rates)) is 35.6000/6500 Forward 1M=3500/3000 2M=5500/3000 3M=8500/8000 Transit

Period ----20 days, Exchange Margin = 0.15%. Find Bill Buying Rate & 2 M Forward Buying Rate a )

31.6979 b ) 34.6979 c ) 27.6979 d ) 25.6979 Solution Bill Buying Rate (Ready) : Bill Date +20 days

Spot Rate = 35.6000 Less Forward Discount 1M (0.3500) Less Exchange Margin 0.15% (0.529) i.e.

35.6000-.3500-.0529(0.15% of 35.2500) = 35.1971 3 Month Forward Buying Rate will be applied. 20

days + 2M Spot Rate = 35.6000 Less Forward Discount of 3M (.8500) Less Exchange Margin (.0521)

i.e. 35.6000-.8500-.0521(0.15% of 34.7500) = 34.6979 Ans. 16 Issue of DD on New York for USD

25000. The spot Rate is IUSD = 34.3575/3825. 1M forward rate is 34.7825/8250, Exchange margin:

0.15%. Calculate TT Selling rate a ) 32.4341 b ) 34.4341

7. 7. c ) 36.4341 d ) 38.4341 Issue of DD on New York for USD 25000. The spot Rate is IUSD =

34.3575/3825, 1M forward rate is 34.7825/8250 Exchange margin: 0.15% Solution: TT Selling Rate will

Apply Spot Rate = 34.3825 Add Exchange margin (.15%) i.e. 0.516 TT Selling Rate = Spot Rate +

Exchange Margin = 34.4341 Ans. 17. Exporter received Advance remittance by way of TT French Franc

100000. The spot rates are in India IUSD = 35.85/35.92 1M forward =.50/.60 The spot rates in

Singapore are 1USD = 6.0220/6.0340 1M forward =.0040/.0045, Exchange margin = 0.8% a ) INR

4.9366 b ) INR 5.9366 c ) INR 6.9366 d ) INR 7.9366 Ans: 6.0220*.008=.0481, -0040= 5.97 Cross

Rate will apply USD will be bought in the local market at TT Buying rate and sold at Spot Selling Rates in

Singapore for French Francs: TT Buying Rates USD/INR = Spot rate Exchange margin =

35.8500-.0287 = 35.8213 Spot Selling Rate for USD/Francs = 6.0340 Inference: 6.0340 Franc =

1USD = INR 35.8213 1 franc = 35.8213/6.0340 = INR 5.9366 Ans. 18.A 91 days T Bill, after 41 days

is trading at 99, calculate the yield on T bill.. 1) 7.35 2) 7.37

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customers has received an export order for USD 100,000/- (Present conversion rate USD 1= RS 47/-).

The contract is for CIF value. Freight is estimated at 10% and insurance premium will be approximately

5%. Your branch has prescribed a margin of 10%. What will be the eligible packing credit loan amount?

1. 32,13,000 2. 37,80,000 3. 42,00,000 4. 35,95,000* Ans FOB value= 100000*47=4700000-(15%

freight)705000=3995000 Pre shipment= FOB- Margin=3995000-399500=3595000ans 20. You are

required to negotiate an export bill for USD 150000.00 at 60 days after sight drawn under a LC.

Assuming the following rates in the inter bank market calculate the exchange rate to be quoted bearing in

mind that the required exchange margin is 0.150% , NTP is 20 days and interest is to be collected at 11%

p.a. at the time of negotiation and recoverable from the customer. SPOT USD1= Rs.48.2000/48.2500

and premia are one month-0.0800/0100, 2 month 0.1500/0.1650 and 3 month 0.2300/0.2400 ANS:

Since the NTP is 20 days and usance of the bill is 60 days the forward rate should be that as applicable to

80 days. Since this is a buying transaction the premium for 2 months is only considered because of the

principle give less. The working of the rate is as under: Inter bank rate + premium= 48.200+ 0.1500 =

48.3500 Exchange margin @ 0.150% is reduced from the above = 48.3500- 0.0545 = 48.2955 and

when rounded off it is 48.2950

9. 9. Amount payable to the customer = 150000* 48.3500 =Rs.7252500 Interest recoverable =

{7252500* 80*11}/ 36500= Rs174854.79 20 A bond with Rs 100 par value has a coupon rate of 14

%. The required rate of return on the bond is 13 % and it matures in 5 years. Find the value of bond. ?

FORMULA : COUPON RATE / (1*ROR) N SO : 14/1.13+ 14/(1.13)2 +14/(1.13)3 +14/(1.13)4 +

114/(1.13)5 :- 12.38 + 10.96 + 9.70 + 8.86 + 61.87 = 103.77 21.COST / UNIT RAW MATERIAL

50 DIRECT LABOUR 20 OVERHEADS 40 TOTAL COST 110 NO OF UNITS 10,000 NO OF

UNITS SOLD ON CREDIT 8000 AVERATE RAW MATERIAL IN STOCK : 1 MONTH

AVERAGE WORK IN PROGRESS : 0.5 MONTH AVERAGE FINISHED GOODS IN STOCK :

0.5 MONTH CREDIT BY SUPPLIER : 1 MONTH CREDIT TO DEBTOR : 2 MONTHS TAKE 1

YEAR = 12 MONTHS INVESTMENT IN WORKING CAPITAL FOR FINISHED GOODS IS NO

OF UNIT * COST OF PRODUCTION PRICE * FINISHED GOODS DAY / 365 10000 * 110 *

.05/12 = 45833 GROSS PROFIT : 8 NET PROFIT : 5 DEPRECTIATION : 3 SALES : 80

PURCHASE : 60 CAPITAL : 50 CC BANK : 20 TERM LOAN : 10 TERM LOAN ( INSTALL

FALL ) 2 CREDITORS : 12 OTHER O/S EXP : 6 FIXED ASSETS : 65

10. 10. INVESTMENT : 10 DEBTOR : 8 CLOSING STOCK: 7 CASH AND BANK : 5 LOAN AND

ADVANCE : 5 INT. ON TERM LOAN : 1.5 1) GROSS PROFIT RATIO G.P / SALES * 100 :

8/80*100 = 10 2) NET PROFIT RATIO N.P. / SALES * 100 : 5 / 80 * 100 = 6.25 3) CURRENT

RATIO C.A. / C.L. ( INCL T/L) ( 8 + 7 + 5 + 5 ) / ( 2 + 12 + 6 +20) = 6.25 4) DEBT EQUIRY

RATION DEBT / EQRY : ( 20 + 10 + 2 12 + 6 ) / ( 50) 5) CREDITOR PAYMENT PERIOD

CREDITORS / PURCHASE * 365 : 12/60 *365 = 60.83 6) STOCK HOLDING PERIOD STOCK /

PURCHASE * 365 7 / 80 *365 = 31.93 DSCR : ( PAT + DEPRE+INT ON T/L ) / INT IN T/L AND

INSTL OF T/L) ( 5 + 3 1.5 ) / ( 2 + 1.5) QTN. RS.1000 TREASURE BOND WITH COUPON

RATE OF 6 % . TODAY PRICE AT RS 1010.77 AND SELL IT NEXT YEAR AT THE PRICE OF

RS 1020. SO WHAT IS RATE OR RETURN ON BOND ? FORMULA : % + DIFFERENCE /

INVESTMENT SO : 60 + 9.23 / 1010.77 = 6.86 33.A bank is holding bond portfolio having BPV of Rs

51000 per Cr. The book value of the holding is Rs 9780 Cr having present market value of Rs

11. 11. 10543 Cr. Total face value of the holding is Rs 10124 Crs. What would be the gain/loss on the

holding if the portfolio yield increases by 12 basis points ? a) Loss of Rs 1265.16 b) loss of Rs 1214.68

c) loss of Rs 612000 d) Insufficient data Ans : c Yield is inversely proportionate to market price.. So

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12.

13.

14.

15.

16.

increase in yield.. Will decrease the market price. .. Means loss in holding the portfolio. .. BPV is Change

in price by 1 basis point ( 0.01%) change in yield.. So by change in the yield by 12 basis points or 12

BPV.. Change in price will be.. = 12 51000 = 612000 Loss of rs 6,12,000 per Cr 34. A 20 YR 11%

Semi-annual bond @ market yield of 9.80% has 15 Yr remaining for maturity> Mc CauleyS duration of

the bond is 9.2 Yr. What is the approximate change in price if the market yield goes down by 1% ? a)

Price increases by 8.70% b) Price increases by 8.77% c) Price decreases by 8.87% d) Price decreases

by 9.20%

12. ans : b Modified duration is McCauley's duration discounted by one period yield to maturity Modified

duration = McCauley's duration / ( 1 + yield ) = 9.2 / ( 1 + 9.8%) = 9.2 / ( 1 +0.098) = 9.2 / ( 1.098) =

8.37 = modified duration % change in price = - modified duration yield change = - 8.37 (-1%) =

(+)8.37 % + means increase in price So 8.37 % increase in price. . My magnitude of answer Is different

from answer b 35. Say Mr. X purchase 2000 shares of stock A at Rs 125 per share and 1000 shares of

stock B at Rs 90 per share. The price is expected to fluctuate 2% daily for stock A and 1.25% daily

stock B (daily volatility figure estimated from past data) . He estimates daily potential loss to be Rs

6350 approximately. The market factor sensitivity of the portfolio is.. a) Rs 6350 b) Rs 3000 c) Rs

6.35 d) None of these ans:d should be ....d Because market factor sensitivity of portfolio is... 1% of total

position. .

13. Here total position in portfolio is.. 1252000 + 90 1000 = 250000 + 90000 = 340000 1 % of total

position = 3400 rs 36. A bond portfolio having a bond A (market Value Rs 300 Crs and MD of 3.5 Yr)

and bond B (market value Rs 500 Crs and MD of 05 Yrs) What is the BPV of the portfolio ? a) Rs

44375 per crore b) Rs 4437.50 per crore c) Rs 44375 per million d) Rs 4437.50 per million Explanation.

. BPV of bond A ... Change in price = Modified duration yield change = 3.5 0.01 (basis point

change) =0.035 BPV of bond B Samilarily Change in price = Modified duration yield change = 5.0

0.01 (basis point change) = 0.050 BPV of portfolio is equal to. .

14. Weighted average of BPV = (0.035300 + 0.050 500)/800 = (10.5 + 25)/ 800 = 35.5 / 800 =

0.044375 That is on 100 face value For per crore we should multiply by 100000 So we get 4437.50 per

crore.. Answer b 37. Say Mr. X purchase 2000 shares of stock A at Rs 125 per share and 1000 shares

of stock B at Rs 90 per share. The price is expected to fluctuate 2% daily for stock A and 1.25%

daily stock B (daily volatility figure estimated from past data) . He estimates daily potential loss to be Rs

6350 approximately. What is the VaR of 99% confidance interval(corresponding to 2.33 standard

deviation) (Assume that the stocks have zero correlation) a) Rs 14795.50 b) Rs 6350 c) Rs 19050 d)

None of these ans: a refer page 251 and 252 How they arrive at option a.. Daily estimated loss is 6350

Daily percentage loss is.. = (daily loss / total position) 100 Daily loss = 6350 Total position = 2000

125 + 1000 90

15. = 250000 + 90000 = 340000 Daily percentage loss = (6350/340000) 100 = 0.018676 100 =

1.8676 % So for getting loss at 99 % confidence level... Defeasance factor = Daily percentage loss

standard deviation = 1.8676 2.33 = 4.3516 % So VaR of portfolio is. = tatal position Defeasance

factor = 340000 4.3516 = 14795.4999 = 14795.50 That is option a 38. Two stocks A and B have

negative correlation of 80% between them the portfolio consists of 100 units of stock a ( market price Rs

100 ) and 200 units of stock b ( market price Rs 200) if price of stock A moves up by 10 % what would

be gain/loss on the portfolio ? a) gain Rs 4200 b) loss Rs 2200 c) Loss rs 600 d) non of these ans : b

Explanation. . Co relation is 80% = 0.80 Which is negative. .

16. Means. . two stock price is inversely related. .. If price of stock a goes up Then price of stock b goes

down. .. Factor is by 0.80.. Here stock price of a goes up by 10 %.. Current price of stock a is 110 rs...

Also price of stock b is goes down by 10%0.80 = 8% Current price of stock b.. Will be 200

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17.

18.

19.

20.

21.

(1-.08%) = 184 rs. . Gain in stock a = 110100 - 100100 = 11000 - 10000 = 1000 Loss in sock b =

184200 - 200200 = 36800 - 40000 = -3200 In totally. . = 1000+(-3200) = -2200 = loss of 2200 39

What would be issue price of a CP carrying an interest rate of 8 % and maturity of 06 manths expressed

as% of notional value ? a) 100 % b) 92.59% c) 96.15% d) none of these

17. ans:c = (100/104) 100 = 96.15384 = 96.15 Interest rate = 8 % annual For six months it should be

4 % CPs are issued at discount prices. . So if face value is 100.. Then 8 % annual. 4% for semi annual. .

Issue price (1+ 4%) = 100 Issue price 1.04 = 100 Issue price = 100/1.04 = 96.15384 = 96.15 41.

On a 5 point scale (very high,high,average,modete & Low),probability of occurrence of an activity has

been estimated at an average level. Potential financial impact is estimated at an high level, given that the

impect of internal control is 40% what is the estimated level of operational level ? 1) Very high to high 2)

High to average 3) Average to moderate 4) Moderate to Low Ans: c Estimated level of operational risk =

Estimated probability of occurrence estimated potential financial impact Estimated impact of internal

controls Firstly we assume 5 level risk in numbers. .. Scale of risk. .

18. Very high - 4 High - 3 Average - 2 Moderate - 1 Low - 0 So probability of occurrence = average =

2 Potential financial impact = high = 3 Impact of internal control = 40 % For calculation. . Estimated level

of operational risk = Square root of (2 3 ( 1-40%)) = square root of (6 0.60) = square root of 3.6

= more than 1 and less than 2 = more than moderate and less than average Answer ..c.. Average to

moderate Reference page no 294, 295 BFM McMillan book 42. For estimating level of operational risk,

abank estimates probability of occurrence on historical frequency and maps it on a 5 point scale where 1.

implies negligible risk 2. Implies low risk 3. implies medium risk 4. implies high risk 5. implies very high

risk

19. For estimating potential financial impact it relies on past observations and severly of impact I s also

mapped on a scale of 5 as mentioned above In one of the OR category the bank finds that probability of

occuerence stands mapped at 2 and potential financial impact is mapped at 5 Estimateed impact of

internal control is 50% . What is the level of operational risk for the given OR category? a) Low risk b)

Medium risk c) High risk d) Very high risk Ans : b Explanation. ... . Estimated level of operational risk =

Estimated probability of occurrence estimated potential financial impact Estimated impact of internal

controls Firstly we assume 5 level risk in numbers. .. Scale of risk. . Very high - 5 High - 4 Medium - 3

Low - 2 Negligible - 1 So probability of occurrence = average = 2 Potential financial impact = high = 5

Impact of internal control = 50 %

20. For calculation. . Estimated level of operational risk = Square root of (2 5 ( 1-50%)) = square

root of (10 0.50) = square root of 5 = 2.23 = medium risk Answer ..b 43. A 91day T bill remaining

maturity of 73 days is priced at 99% a) 5% b) 5.05% c) 4.95% d) 5.20% ans : b y= (100-p)/p *365/d

*100 (100-99/99)*365/73*100=5.05 43.A bank,s G sec portfolio has 100 day VaR at 95% confidance

level of 4% based on yield.What is the worst case scenario over 25 days ? a) increase in yield by 0.4% b)

Decrease in yield by 0.4% c) Increase in yield by 2% d) Decrease in yield by 2% ans: 100 day VaR is 4

% So one day Var is.. 4 = one day VaR square root of 100 4 = one day VaR 10 One day VaR =

0.4 %

21. 25 day VaR = 0.4 suare root of 25 = 0.4 5 = 2 % In worst case scenario yield will always

increase. . Because this will decrease the market price or value. . Answer is increase in yield by 2 % 44.

A bank,s G sec portfolio has 100 day VaR at 95% confidance level of 4% based on yield.What is the

worst case scenario over 25 days in case the portfolio size of the bank,s (mentioned above ) G sec

portfolio is rs 10000 croeres with average modified duration of 3, then worst case loss that the bank may

suffer overnight is a) RS 120 crores in terms of market value b) loss of Rs 40 crores by way of interest

income c) Gain of Rs 40 crores by way of interest income d) none of these ans: 3*.4*10000/100=120 cr

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22.

23.

24.

25.

45. 100 day VaR of a given security is 5% with 90 % confidence interval. In a year (250 working days) ,

How many days VaR may be observed at more than 5% ? a) 12.5 days b) 10 days c) 25 days d) None

of these 46. VaR for US/INR rate at 95 % confidence interval is 50 BPs over night. If the day closes at

Rs 44.30 spot for USD, What is the worst possible rate for imports the day after ? a) Rs 44.80 b) Rs

43.80 c) 45 d) 45.01

22. ans: questions for worst situation for import if bP will be added in export BP will be deducted. So ans

will be 44.30+.50=44.80 ans will be a Because In worst situation for import price for USD will always

increase. ... 47. a 10 Yr bond with semi annual coupon rate@ 8% is being traded in the market at rS 95/Th YTM of the bond is a) 8.42% b) It can,t be determinded based on data given c) it may be determined

and is expected to be above 8% d)it may be determined and is expected to be below 8% ans : c Ytm

different from current yield... Simple rule is that regarding YTM is. When market price is below face

value.. Then YTM will be greater than the interest or coupon rate... And when market price greater than

the face value ... Then it will be definitely YTM is lower than the interest or coupon rate 48. A bond

having a duration of 6 Yr is yielding 8% at present . if yield increase by .50% . what would be the impact

on price of the bond ? a) Bond price would go up by 2.7% b) Bond price would fall by 2.7% c) Bond

price would go up by 2.8% d) Bond price would fall by 2.8% ans : d Modified duration is McCauley's

duration discounted by one period yield to maturity Here we are talking McCauley's duration is 6 years.

.as if no McCauley's duration is given Modified duration =McCauley's duration / ( 1 + yield ) = 6 / ( 1 +

8%) = 6/ ( 1 +0.08)

23. = 6/ ( 1.08) = 5.556 = modified duration % change in price =- modified duration yield change = 5.556 (+0.50%) = (-)2.7778 % = (-) 2.8 ( - )means decrease in price 2.8 % decrease in price. . 49.

Currency X having 6% risk free rate for 6 months has a spot rate of 30Y . where Y is another currency

and has 4% risk free rate for 06 months period. The 6 months forward rate of X in terms of Y would be

a) 29.70 B b) 29.71 B c) 30.30 B d) 30.29 B ans : b According to interest rate parity.. (Fyx/ Syx) =

(1+Interest of y)/(1+Interest of x) F = Forward rate S = Spot rate yx means..expression of exchange

rate... Here exchange rate is given in Terms of.. 1 x = 30 y.. Thatswhy x is in the denominator. .yx Fyx /

30Y = (1+2%)/(1+3%) Fyx = ( 1.02/1.03) 30Y Fyx = 0.99029 30Y Fyx = 29.7087 Y

24. Fyx = 29.71 Y 50 An individual purchases a call option for 500 shares of A with strike price at Rs

120 (Present price Rs 100) and remaining maturity of 03 months at a premium of Rs 40 . On maturity

shares of A was priced at Rs 140. Taking interest cost @ 12% p.a . what is the profit earned by the

individual on the transaction ? a) No loss no profit b) Rs 600 loss c) Rs 10600 loss d) None of these Ans

: c Explanation. . Call option .. He will pushase 500 shares of A..at a price of 120 Tatal value of shares is..

60000 Then he will sell the total shares in the market at a price of 140.. 500 140 = 70000 So profit of

10000 in the transaction. . But he has to pay the premium for call options. . Which is 40 500 = 20000

And for getting this much fund interest cost is.. = 20000 3 % for 3 months (12% p.a for 03 months

12/4=3) = 600 Total premium + premium cost = 20000 + 600 = 20600 In totality. .. = 10000 - 20600 =

- 10600 51. A financial institution buys a specified no of futures at NSE on a stock Rs 90 each when spot

price of the stocks Rs 95 . At the maturity of the contract the FI takes delivery of the shares. During the

period of Rs 3. The acquisition cost to the FI per share is ( ignore any commission charged by exchange)

25. a) Rs 95 b) Rs 90 c) Rs 97 d) None of these ans : b 52. A fixed for floating swap on a notional

amount of Rs 10 crores exchanges 9% fixed against 2% over MIBOR. Settlement is up front based on

closing MIBOR of the immediately preceding quarter. If the MIBOR is 4% on the last day of the quarter,

what is amount of settlement and who pays it ? Given risk free rate is 5% a) Rs 12,50,000 floating rate

payer b) Rs 12,34,567 fixed rate payer c) Rs 7,40,740 fixed rate payer d) Rs 7,50,000 fixed arte payer

ans: Here question is for.. Exchange of interest rate payment. . Only difference amount of interest will be

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26.

27.

28.

29.

30.

paid... By one party to another party. .. two parties 1... fixed interest rate payer who will pay 9 % fixed

interest rate 2 ...floating interest rate payer... Who will pay 2 + MIBOR interest rate MIBOR is at the end

of last quarter is 4 % So total floating rate us 6 %.. And difference of interest rate is.. = 9 - 6= 3 %

Means fixed interest rate payer will pay the difference of interest to floating interest rate party.. Notional

value.. 10 crore. . Difference interest rate for the one quarter is.. = 3 / 4= 0.75% So 0.75 % of 10 crore

= 750000 That is Answer... d

26. 53. A bank borrows US $ for 03 months @ 2.5% and swaps the same in to INR for 03 months for

deployment in CPs @ 5.5%. The 3 months premium on US $ 0.75%. the margin generated by the bank

in the transaction is a) 3% b) 2.25% c) 5.5% d) non of these ans:b Bank borrow US $ for 3 months @

2.5% Same will invest in CP foe 3 months @ 5.5 %.. Then here gaining 3% by interest rate margin... But

when bank repay his borrowing in $.. So bank has pay 0.75 extra because US $ will become costly by

0.75%.. US $ is at premium. .

27. So it will reduce bank gain by 0.75 %.. 3.0% - 0.75 % = 2.25 54. A bank makes provision in

account with out standing balance of Rs 100 Crs (Risk Weight 150%) of Rs 30 Crs. The amount that will

qualify for Tier ii capital is a) Rs 1.25 Crs b) Rs 30 Crs c) Nil d) Non of these ans is c 55. A company

enjoys cash credit account with a bank . HE also has a term looan account with o/s balance of Rs 15 Crs

as on 31-03-2010 the bank has also subscribed to the bonds issued by the borrower company amounting

to Rs 3 Crs. As on 31-03-2010 the CC account with o/s balance of Rs 1.20 Crs is required to be

classified as NPA there is no default in payment of interest and installment in the term loan and bonds. The

amount that will become NPA on account of this borrow company is a) Rs 1.20 Crs b) Rs 16.20 Crs c)

19.20 Crs d) none of these ans: c = 15+3+1.20=19.20 56. A bank has deposits worth ZMW 3,00,000

billion. The interest rate on this is 12%. SRR to be maintaioned by the bank is 8% effective cost to deposit

is.... 1) 12% 2) 15.23% 3) 13.04% 4) 14.66% Ans: 3 From 300000 8 % should be made for SLR

requirements

28. So available fund for making loans(asset) = 300000 - 8% of 300000 = 300000 - 24000 = 276000

For this fund 276000 Bank is paying 12 % on 300000 Cost of fund is 36000 So making no loss .. Bank

has to lend money at that interest rate.. Which will cover this cost of funding that is 36000 36000 =

276000 r /100 36000/276000 = r / 100 0.1304 = r / 100 r = 13.04 % 57. in a loan a/c the balance

outstanding is 4.20 lacs and a cover of 75% is available from CGFTMSE .the a/c has been doubtful since

25.08.2009.and the value of security held is 1,50,000.the total provision in the a/c as on 31.03.2013 will

be 1.2,10,000 2.2,17,500 3.1,26,000 4.2,65,000 Answer should be 2 Explanation ... Outstanding.

.balance. . Is .....420000 Security available is.. 150000 CGFTMSE...on remaining amount Which is. . =

420000- 150000

29. = 270000 Coverage is only 75 %.. So uncovered amount. . We will take as a Provisioning. . Which is

.. = 25% of 270000 = 67500 Since loan is in doubtful category for more than 3 years So we will take

100 % Provisioning for security value. . Which is. = 150000 So totality. . Provisioning is.. = 150000 +

67500 = 217500 58. A customer covers its receivable under exchange fluction risk cover scheme of

ECGC . On due date the currency appreciate by 45%. The customer will gain on the transaction due to

currency fluction. a) 45% b) 12% c) 10% d) 2% Ans: bAny loss or gain.. Within the range of 2 % to

35%.. Will go in ecgc account. . Thatswhy. . Gain of 45% Of that...33% will go in ecgc account. . So

profit only. .12%.. For customer

30. 59. A claim of Rs 45 lacs has been settled by ECGC in favour of a bank againt default of Rs 60 lacs.

Subsequently the bank realizes Rs 20 lacs collaterals available to it.What is the loss suffered by the bank

on this loan ? a) Rs 10 lacs b) Rs 5 lacs c) Rs 20 lacs d) Non of these ans: A Because of ecgc settled the

45 lakhs on default of 60 lakhs. . Which means. .ecgc settled the 75 % of default. . here 20 lakhs is

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31.

32.

33.

34.

realised security. ... Which means claim amount will be only.. 40 lakhs towards ecgc... And ecgc will settle

obly 75 % amount. . And 25 % will be bear by bank.. So loss of 25% of 40 lakhs. Means loss 10 lakhs

will bear by bank 60. A claim of Rs 45 lacs has been settled by ECGC in favour of a bank againt default

of Rs 60 lacs. Subsequently the bank realizes Rs 20 lacs collaterals available to it.What is thenet amount

paid to ECGC ? a) Rs 30 lacs b) 45 lacs c) 20 lacs d) None of these Because of ecgc settled the 45

lakhs on default of 60 lakhs. . Which means. .ecgc settled the 75 % of default. . here 20 lakhs is realised

security. ... Which means claim amount will be only.. 40 lakhs towards ecgc... And ecgc will settle obly 75

% amount. . And 25 % will be bear by bank..

31. So 75% of 40 lakhs. Means 30 lakhs will settled by ecgc 61. an advance of Rs 235000/- has been

declared sub standard on 31/05/2012. It is covered by securities with realizable value of Rs 168000/-.

Total provision in the account as on 31/03/2013 will amount to: 1) 35250 2) 30200 3) 47000 4) 83800

right ans should be. ..2 Explanation. . We take provision. . 10 % for secured portion. 20% for unsecured

portion = 10% of 168000 + 20% of of 67000 = 16800 + 13400 = 30200 62. The ovenight VaR of 1yr

govt security yield is 0.20% with a current yield of 7.50%. A prospective seller of the security may expect

the yield to be on next day 1) 7.50% 2)7.70% 3) 7.30% 4) inadequate information to make the

calculation. right ans is B any one explain In worst case scenario prospective seller of security may expect

rise in the yield so ans is 7.50+0.20=7.70......

32. Same case vl diffrent fr prospective buyer as he expect the yield to fall so 7.70-.20=7.30 Qtn 63.

Received order of USD 50000(CIF) to Australia on 1.1.11 when USD/INR Bill Buying Rate is 43.50.

How much preshipment finance will be released considering profit margin of 10% and Insurance and

freight cost@ 12%. And margin is 25%. ans FOB Value = CIF Insurance and Freight Profit

(Calculation at Bill Buying Rate on 1.1.11) = 50000X43.5 = 2175000 216000(12%) 191400(10%

of 1914000) = 1722600 Pre-shipment Finance = FOB value -25%(Margin) = 1722600430650=1291950. Qtn 64 Spot Rate ((Forward Rates)) is 35.6000/6500 Forward 1M=3500/3000

2M=5500/3000 3M=8500/8000 Transit Period ----20 days Exchange Margin = 0.15%. Find Bill Buying

Rate & 2 M Forward Buying Rate a ) 31.6979 b ) 34.6979 c ) 27.6979 d ) 25.6979 Dinesh Jawalkar

Solution Bill Buying Rate (Ready) : Bill Date +20 days Spot Rate = 35.6000 Less Forward Discount 1M

(0.3500) Less Exchange Margin 0.15% (0.529) i.e. 35.6000-.3500-.0529(0.15% of 35.2500) =

35.1971 3 Month Forward Buying Rate will be applied. 20 days + 2M Spot Rate = 35.6000 Less

Forward Discount of 3M (.8500) Less Exchange Margin (.0521) i.e. 35.6000-.8500-.0521(0.15% of

34.7500) = 34.6979 Ans. Qtn 65

33. Issue of DD on New York for USD 25000. The spot Rate is IUSD = 34.3575/3825 IM forward

rate is 34.7825/8250 Exchange margin: 0.15% a ) 32.4341 b ) 34.4341 c ) 36.4341 d ) 38.4341

Dinesh Jawalkar Issue of DD on New York for USD 25000. The spot Rate is IUSD = 34.3575/3825

IM forward rate is 34.7825/8250 Exchange margin: 0.15% Solution: TT Selling Rate will Apply Spot

Rate = 34.3825 Add Exchange margin (.15%) i.e. 0.516 TT Selling Rate = Spot Rate + Exchange

Margin = 34.4341 Ans. Qtn:65 Exporter received Advance remittance by way of TT French Franc

100000. The spot rates are in India IUSD = 35.85/35.92 1M forward =.50/.60 The spot rates in

Singapore are 1USD = 6.0220/6.0340 1M forward =.0040/.0045 Exchange margin = 0.8% a ) INR

4.9366 b ) INR 5.9366 c ) INR 6.9366 d ) INR 7.9366 Dinesh Jawalkar Solution Cross Rate will apply

USD will be bought in the local market at TT Buying rate and sold at Spot Selling Rates in Singapore for

French Francs: TT Buying Rates USD/INR = Spot rate Exchange margin = 35.8500-.0287 = 35.8213

Spot Selling Rate for USD/Francs = 6.0340 Inference: 6.0340 Franc = 1USD

34. = INR 35.8213 1 franc = 35.8213/6.0340 = INR 5.9366 Ans. Qtn 66 On 12th Feb, received

Import Bill of USD-10000. The bill has to retired to debit the account of the customer. Interbank spot

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rate =34.6500/7200. The spot rate for March is 5000/4500. The exchange margin for TT selling is .15%

and Exchange margin for Bill selling is .020%. Quote rate to be applied. a ) 31.8415 b ) 34.8415 c )

35.8415 d ) 39.8415 Dinesh Jawalkar Solution Bill Selling Rate will be applied. Spot Rate + Exchange

margin for TT Selling + Exchange margin for Bill selling = 34.7200+.0520+.0695 = 34.8415 qtn:66 On

15th July, Customer presented a sight bill for USD 100000 for Purchase under LC. How much amount

will be credited to the account of the Exporter. Transit period is 20 days and Exchange margin is 0.15%.

The spot rate is 34.75/85. Forward differentials: Aug: .60/.57 Sep:1.00/.97 Oct: 1.40/1.37 a ) 28.0988 b

) 34.0988 c ) 40.0988 d ) 44.0988 Solution Bill Buying rate will be applied. Spot Rate----34.75 Less

discount .60 = 34.15 Less Exchange Margin O.15% i.e. .0512 =34.0988 Ans. Qtn 67Bank received MT

of USD 5000 on 15th Sep. The Nostro account was already credited. What amount will be paid to the

customer: Spot Rate 34.25/30. Oct Forward Differential is 22/24. Exchange margin is .80% a ) 38.2226

b ) 34.2226 c ) 30.2226 d ) 32.2226

35. 35. Solution TT buying Rate will be applied 34.25 - .0274 = 34.2226 Ans. Qtn 67Spot Rate ((Forward

Rates)) is 35.6000/6500 Forward 1M=3500/3000 2M=5500/3000 3M=8500/8000 Transit Period ---20 days Exchange Margin = 0.15%. Find Bill Buying Rate & 2 M Forward Buying Rate a ) 31.6979 b )

34.6979 c ) 27.6979 d ) 25.6979 Solution Bill Buying Rate (Ready) : Bill Date +20 days Spot Rate =

35.6000 Less Forward Discount 1M (0.3500) Less Exchange Margin 0.15% (0.529) i.e.

35.6000-.3500-.0529(0.15% of 35.2500) = 35.1971 3 Month Forward Buying Rate will be applied. 20

days + 2M Spot Rate = 35.6000 Less Forward Discount of 3M (.8500) Less Exchange Margin (.0521)

i.e. 35.6000-.8500-.0521(0.15% of 34.7500) = 34.6979 Ans. Qtn 67Issue of DD on New York for

USD 25000. The spot Rate is IUSD = 34.3575/3825 IM forward rate is 34.7825/8250 Exchange

margin: 0.15% a ) 32.4341 b ) 34.4341 c ) 36.4341 d ) 38.4341 Issue of DD on New York for USD

25000. The spot Rate is IUSD = 34.3575/3825 IM forward rate is 34.7825/8250 Exchange margin:

0.15% Solution: TT Selling Rate will Apply Spot Rate = 34.3825 Add Exchange margin (.15%) i.e.

0.516 TT Selling Rate = Spot Rate + Exchange Margin = 34.4341 Ans.

36. 36. Qtn 67 Exporter received Advance remittance by way of TT French Franc 100000. The spot rates

are in India IUSD = 35.85/35.92 1M forward =.50/.60 The spot rates in Singapore are 1USD =

6.0220/6.0340 1M forward =.0040/.0045 Exchange margin = 0.8% a ) INR 4.9366...See More

Hitesh Kothari 6.0220*.008=.0481, -0040= 5.97 Cross Rate will apply USD will be bought in the local

market at TT Buying rate and sold at Spot Selling Rates in Singapore for French Francs: TT Buying Rates

USD/INR = Spot rate Exchange margin = 35.8500-.0287 = 35.8213 Spot Selling Rate for

USD/Francs = 6.0340 Inference: 6.0340 Franc = 1USD = INR 35.8213 1 franc = 35.8213/6.0340 =

INR 5.9366 Ans. 68. International Advisors, Inc. (IAI) is receiving a payment of 100,000 Euros in three

months. The spot rate for the Euro is currently $0.92 per Euro, but IAI has entered into a three- month

forward contract with their bank at $0.94 per Euro. How much will IAI receive in three months? a.

$92,000 b. $94,000 c. $106,383 d. $108,696

37. 37. ANS : B 69. One year T-bill rate is 9% and the rate on one year zero coupon debenture issued by

LM ltd is 12.50% , the probabililty of default is .. a) 4% b) 3% c) 5% d) non of these ans: b formula for

probability of default is 1-P= 1- ( (1+i)/(1+k)) =1-((1.09/1.125))=1-.969=.03=3% ( Page 284 of bFM).

70. A bond with acupon rate of 7.38% maturing in 2015 and trading at Rs 106.32 will have yield

of. a) 6.94% b) 14.40% c)7.84% d) non of these ans : a = current yield= coupon rate/

Prevailing mkt value= .0738/106.32= 6.94%

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