CAIIB · Bank Financial Management · Module C — Treasury Management
CAIIB BFM Unit 24 — Derivative Products: 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 24 — Derivative Products (Module C — Treasury 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 C183 MCQs in the Mock Centre5 free belowPaper on 12 December
Key facts examiners test from this unit
Derivatives, market types and forwards — a derivative takes its value from an underlying; OTC products are tailored and bilateral, exchange products standardised and margined; a forward fixes a rate, at the cost of any better market rate.
Options — an option gives the holder a right without obligation for an upfront premium; its premium is intrinsic value plus time value.
Futures and interest rate swaps — futures are standardised forwards with the exchange as counterparty and daily margins; an interest rate swap changes the basis of interest on a notional amount that never changes hands.
Changed since the textbook
Rupee derivative curbs withdrawn (20 Apr 2026). On 1 April 2026 RBI barred banks from offering non-deliverable rupee derivatives, from rebooking cancelled rupee FX derivatives and from rupee FX derivatives with related parties; on 20 April it withdrew the circular except the related-party bar, so on 30 June 2026 users could again freely cancel and rebook. Source: Finnovate
Cap on banks' net open rupee positions (27 Mar 2026). A.P. (DIR Series) Circular No. 24 of 27 March 2026 requires every authorised dealer to keep its net open position in the rupee in the onshore deliverable market within USD 100 million at the end of each business day, from 10 April 2026. Source: TheTaxCorp
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
What happens if a forward contract is not delivered on its expiry date?
Why (b): 24.3.1 says that if the currency is not delivered or taken on the expiry date, the contract is cancelled and the difference between the spot and forward rates is credited to or recovered from the client. (a) is wrong: There is no automatic extension. (c) is wrong: Only the rate difference is settled. (d) is wrong: RBI is not a party.
Question 2 of 5
A company's bonds let it repay the debt early on a set date. What kind of option is this?
Why (b): 24.3.2 says a bond with a call lets the issuer prepay the debt on a set date; such embedded options directly affect the bond's price. (a) is wrong: A put lets the investor sell the bond back early. (c) is wrong: A convertible lets the holder convert into equity. (d) is wrong: A swaption is an option on a swap.
Question 3 of 5
By convention, who is the buyer of an interest rate swap?
Why (b): 24.4.1: the fixed-rate payer is the buyer and the fixed-rate receiver the seller. (a) is wrong: The receiver of fixed is the seller. (c) is wrong: The label depends on the leg, not on who is the bank. (d) is wrong: Both sides share one notional amount.
Question 4 of 5
Why is the counterparty risk on an IRS much smaller than its notional amount?
Why (c): 24.4.1: the risk is limited to the net interest payable at the end of each reset period. (Strictly, what is at risk is the cost of replacing the swap, its positive mark-to-market value, which is still far smaller than the notional amount.) (a) is wrong: RBI does not guarantee swaps. (b) is wrong: Swaps are documented under ISDA agreements. (d) is wrong: Swaps are mostly between banks and companies.
Question 5 of 5
How may AD Category-I banks that do not meet the criteria, and urban or state co-operative banks, take part in the exchange currency options market?
Why (d): 24.5 allows them to take part only as clients, subject to RBI approval. (a) is wrong: Membership needs the criteria. (b) is wrong: Client access is allowed. (c) is wrong: Clearing membership also needs the criteria.
0 of 5 answered.
Traps in this unit
Exchange counterparty risk is remote, not "totally absent".
Opportunity cost: no gain if the market moves in your favour.
Intrinsic value: "whichever is more", not "less".
Practise all 183 questions on Unit 24. 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.