CAIIB · Bank Financial Management · Module A — International Banking
CAIIB BFM Unit 1 — Exchange Rates and Forex Business: Free MCQs with Explanations
By Swarnakshi Jha (ex-banker) · Updated 29 October 2026 · Paper II of the December 2026 cycle (Saturday 12 December 2026)
This is the free practice page for CAIIB BFM Unit 1 — Exchange Rates and Forex Business (Module A — International Banking). The CAIIB Mock Centre holds 461 questions on this unit alone, every one with a why-right / why-wrong explanation; below are the facts examiners keep returning to, five practice questions with explanations, and the traps that cost marks.
BFM · Module A461 MCQs in the Mock Centre5 free belowIn the free demoPaper on 12 December
Key facts examiners test from this unit
Foreign exchange and the forex market — Foreign exchange is foreign currency, or the exchange of one currency for another, dealt in a global, 24-hour, mostly OTC market.
What moves exchange rates — Demand and supply price a currency; fundamental, technical and speculative forces shift them, and a floating rate shows it daily.
Value dates and forward margins — The value date is the day money moves; a forward rate is spot plus a premium or minus a discount, driven mainly by the interest gap.
Changed since the textbook
NOP-INR: swap positions excluded (23 Jun 2026). A circular of 8 June 2026 let banks exclude swap positions from FCNR(B) deposits, ECBs and overseas foreign-currency borrowings under RBI's swap facility when computing NOP-INR; a circular of 23 June 2026 made the exclusion mandatory for positions from such hedged transactions. Source: RBI A.P. (DIR Series)
RBI swap facility for FCNR(B) deposits, ECBs and overseas borrowings (8 Jun 2026). Banks may swap dollars from fresh FCNR(B) deposits of 3 to 5 years with RBI at the FBIL reference rate, both legs at the same rate. A second window covers ECBs of eligible public sector undertakings and banks' overseas foreign-currency borrowings, at a fixed 1.5% a year. Source: RBI circular
5 free practice questions — tap an option
Five practice questions from this unit. Answers lock on the first tap, exactly as in the exam, and an explanation opens underneath. The Mock Centre has all 461 questions on this unit, from easy to tough, with caselets and key-in numericals, why every other option is wrong and the exam tip — and tracks your score and revision dates.
Question 1 of 5
Which pairing of an exchange-rate influence with its usual time horizon is correct?
Why (a): Fundamental factors such as the balance of payments, growth and inflation shape the long-term level of a currency, while in the short run their effect is weaker and technical factors and speculation drive most moves. The other pairings reverse the horizons or deny the short-run effect. (b) is wrong: Technical factors and speculation do move rates in the short run. (c) is wrong: Technical factors and speculation act mainly in the short run. (d) is wrong: Fundamentals shape long-term rates, not intraday moves.
Question 2 of 5
One "per mille" means:
Why (c): Per mille means per thousand, e.g. ₹1 per ₹1,000, while per cent means per hundred. (a) is wrong: One part per hundred is per cent. (b) is wrong: One part per ten thousand is a basis point. (d) is wrong: One part per million is "ppm".
Question 3 of 5
A bank's loan to a foreign state-owned shipping company defaults, and the company claims immunity from recovery proceedings because it is owned by the state. Which risk has materialised?
Why (b): Sovereign risk is the part of country risk in which a state-owned entity invokes its sovereign status to claim immunity from recovery. Transfer risk arises when a willing borrower cannot convert or remit funds because of exchange controls; exchange risk comes from rate movements, and settlement risk from failure during settlement. (a) is wrong: Transfer risk arises when a willing borrower cannot remit because of exchange controls. (c) is wrong: Exchange risk comes from rate movements. (d) is wrong: Settlement risk is failure during the settlement of a deal.
Question 4 of 5
How are the legs paid in a fixed-to-floating zero coupon swap?
Why (c): In a fixed-to-floating zero coupon swap the fixed leg is 'zero coupon': its payments are rolled up and paid once, at maturity, while the floating-rate payer makes regular periodic payments. Reversing the legs, or paying both legs the same way, describes a different structure. (a) is wrong: It reverses the legs. (b) is wrong: The floating leg is paid periodically. (d) is wrong: The fixed leg is paid once, at maturity.
Question 5 of 5
A customer wants to extend a forward contract. Under FEDAI Rule 6, how is the extension effected?
Why (d): Under FEDAI Rule 6, extending a forward contract means cancelling it and simultaneously rebooking a new one at current rates; any profit is passed on to the customer and any loss recovered from him. The old rate cannot simply be rolled over, a flat fee does not settle the rate difference, and RBI's approval is not needed. (a) is wrong: The old rate cannot be rolled; the contract is cancelled at current rates. (b) is wrong: The rate difference, not a flat fee, is settled. (c) is wrong: Extensions are at the bank's discretion, not RBI's.
0 of 5 answered.
Traps in this unit
Most turnover comes from investment, hedging and speculation, not trade.
"Unaffected by government policies" is not a characteristic.
Domestic tourism does not move exchange rates.
Practise all 461 questions on Unit 1. This unit is part of the free CAIIB demo: register with your e-mail and the whole unit opens, with full why-right / why-wrong explanations, a 60-question test in each paper and Smart Revision of your mistakes.
Independent study aid — not affiliated with, endorsed by, or sponsored by the Indian Institute of Banking & Finance (IIBF). Exam pattern, dates, fees and passing criteria are set by IIBF — always confirm the current rules at iibf.org.in. CAIIB content follows rules and developments up to IIBF's cut-off of 30 June 2026 (where a rule changed later, the update box says so); verify from official sources before relying on them in practice.