CAIIB · Bank Financial Management · Module B — Risk Management
CAIIB BFM Unit 11 — Risk and Basic Risk Management Framework: 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 11 — Risk and Basic Risk Management Framework (Module B — Risk Management). The CAIIB Mock Centre holds 188 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 B188 MCQs in the Mock Centre5 free belowPaper on 12 December
Key facts examiners test from this unit
What is risk? — risk is uncertainty that turns out adverse against plan; once it can be described by a probability distribution it can be measured and priced.
Risk, capital and return — capital is the cushion for losses, return must reward risk, and RAROC is the yardstick; risk must be kept within the capacity to bear it.
Organisation and risk identification — the Board owns risk, its Risk Management Committee sets limits, ALCO, CRMC and ORMC implement, and the CRO's department measures and reports; every transaction carries several risks.
Changed since the textbook
ESMA recognises CCIL as a Tier 1 third-country CCP (30 Jun 2026). ESMA recognised the Clearing Corporation of India Ltd as a Tier 1 third-country central counterparty, so it can clear for EU members; this ended a dispute that began in October 2022. RBI recognised CCIL as a Qualified Central Counterparty in 2014. Source: ESMA
Repo rate cut to 5.25% (5 Dec 2025). The MPC cut the policy repo rate by 25 basis points, from 5.50% to 5.25%; it was unchanged on 30 June 2026. Source: Business Standard
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 188 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
Under RBI's final expected credit loss (ECL) norms, a loan in Stage 1 carries:
Why (c): Stage 1 loans carry 12-month ECL; Stages 2 and 3 carry lifetime ECL. (a) is wrong: Lifetime ECL is for Stage 2 and Stage 3. (b) is wrong: Stage 1 still needs a 12-month ECL provision. (d) is wrong: The norms set no fixed 100% provision for Stage 1.
Question 2 of 5
Who has the overall responsibility for managing risks in a bank?
Why (b): 11.4.1 says the Board has the overall responsibility, setting risk policies, procedures and aggregate limits. (a) is wrong: The CRO heads the supporting department. (c) is wrong: ALCO is a senior-executive sub-group. (d) is wrong: Audit reviews the system; it does not own it.
Question 3 of 5
Which committee clears new credit products or processes put up by business units?
Why (c): The textbook says CRMC clears new credit products and processes. (a) is wrong: ALCO handles liquidity and interest rates. (b) is wrong: ORMC clears products other than credit. (d) is wrong: The Audit Committee is not one of the textbook's risk sub-groups.
Question 4 of 5
If volatility is computed from weekly closing prices, the result is:
Why (a): The textbook says weekly observations give weekly volatility, as in Table 11.1. (b) is wrong: Daily volatility needs daily prices. (c) is wrong: Monthly volatility needs monthly prices or the square-root rule. (d) is wrong: Weekly data give weekly volatility unless scaled.
Question 5 of 5
RBI required banks to move to MCLR from:
Why (d): The textbook says RBI mandated migration to MCLR from 1 April 2016. (a) is wrong: That is the Base Rate date. (b) is wrong: That is the external benchmark start date. (c) is wrong: That is the date the textbook gives for external benchmarks (and the actual date for medium enterprises).
0 of 5 answered.
Traps in this unit
Uncertainty ≠ risk.
Zero risk means zero variation, and a lower return.
Higher profit does not mean higher RAROC.
Practise all 188 questions on Unit 11. The free CAIIB demo opens Units 1–2 of every paper with full explanations; the BFM Online Mock Centre unlocks all 7,600+ BFM questions, the full-length papers with caselets and key-ins, module mocks and Smart Revision for 18 months (₹1,499).
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.