CAIIB · Bank Financial Management · Module B — Risk Management
CAIIB BFM Unit 14 — Market Risk: 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 14 — Market Risk (Module B — Risk Management). The CAIIB Mock Centre holds 183 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 B183 MCQs in the Mock Centre5 free belowPaper on 12 December
Key facts examiners test from this unit
Framework, organisation, identification — answer four questions through four processes, with limits, models and reports; the Board owns it, the middle office checks it independently, and new products need corporate clearance.
Sensitivity, BPV and duration — sensitivity is change per unit move; BPV is change per basis point; duration is the PV-weighted time to cash flows, and modified duration turns it into a % price change.
VaR, back testing, stress testing — VaR is the loss not exceeded at a confidence level over a period in normal markets; back testing checks it against reality; stress tests look at abnormal moves.
Changed since the textbook
ESMA recognises CCIL (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. Source: ESMA
Financial Stability Report, June 2026 (30 Jun 2026). RBI's Financial Stability Report showed banks with CRAR of 17.7% and CET1 of 15.3% in March 2026. Its interest rate stress test: a 250 bp parallel rise in yields would cut CRAR by about 99 bp and CET1 by 100 bp; modified duration was about 2.4 years for AFS and 5.4 years for fair-value-through-P&L holdings; equity falls of 25%, 35% and 55% would cut CRAR by 14, 20 and 32 bp. Source: ABC Live
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 183 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
When a bond's credit rating is lowered, its price usually:
Why (c): The market demands a higher yield on a riskier instrument, and a higher yield means a lower price. (a) is wrong: A downgrade raises the yield. (b) is wrong: The market reprices the bond. (d) is wrong: Rating agencies do not set prices.
Question 2 of 5
Which body is responsible for pricing deposits and advances and for transfer pricing?
Why (b): Both appear in ALCO's list of roles. (a) is wrong: The RMC sets guidelines and limits. (c) is wrong: The middle office monitors risk independently. (d) is wrong: The Board sets policy and aggregate limits.
Question 3 of 5
Which group analyses, monitors and reports risk profiles to ALCO and recommends the action needed?
Why (c): The ALM support (market risk) group does this and examines the effect of possible changes in market variables. (a) is wrong: The Board sets policy. (b) is wrong: Internal audit is not named for this role. (d) is wrong: The RMC sets guidelines and limits.
Question 4 of 5
Which of these raises a bond portfolio's duration?
Why (c): The textbook says duration rises when higher-duration instruments are added or low-duration ones reduced. (a) is wrong: That lowers duration. (b) is wrong: That lowers duration. (d) is wrong: Cash has no duration, so more cash lowers it.
Question 5 of 5
Conditional VaR is also called:
Why (a): The textbook says Conditional VaR is also called Expected Shortfall. (b) is wrong: The measure is about losses, not surplus. (c) is wrong: The term is "expected", not "unexpected". (d) is wrong: Stressed VaR is a different Basel measure.
0 of 5 answered.
Traps in this unit
ALCO does not set the Board's aggregate limits.
The middle office does not report to the treasury.
A coupon bond's duration is below its maturity.
Practise all 183 questions on Unit 14. 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.