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Bfm numericals (all mods)

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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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Bfm numericals (all mods)

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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Bfm numericals (all mods)

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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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8. 8. 3) 6.89 4) 8.01 ANS: 100-99*365*100/99*50=36500/4950=7.37 ans 19. One of your exporter


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.

Bfm numericals (all mods)

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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18.

19.

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Bfm numericals (all mods)

(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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23.

24.

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Bfm numericals (all mods)

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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27.

28.

29.

30.

Bfm numericals (all mods)

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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32.

33.

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Bfm numericals (all mods)

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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Bfm numericals (all mods)

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