CAIIB · Bank Financial Management · Module D — Balance Sheet Management
CAIIB BFM Unit 29 — Liquidity Management: 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 29 — Liquidity Management (Module D — Balance Sheet Management). The CAIIB Mock Centre holds 337 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 D337 MCQs in the Mock Centre5 free belowPaper on 12 December
Key facts examiners test from this unit
Why liquidity matters — liquidity is an everyday risk that buys a bank the time to fix every other problem.
What liquidity is — enough funds, fast, at a fair price: that is adequate liquidity.
Liquidity management: purposes, adequacy and ways to raise funds — meet every obligation, cheaply and on time, without selling in a panic.
Changed since the textbook
Financial Stability Report, June 2026 (30 Jun 2026). Scheduled commercial banks' LCR 124.2% and NSFR 122.1% in March 2026, above the minimums but moderating; under a severe stress scenario three banks could fail to meet the minimum LCR. Source: ABC Live summary
LCR run-off changes (1 Apr 2026). An extra 2.5% run-off on retail and small business deposits that can be withdrawn through internet and mobile banking (stable 7.5%, less stable 12.5%); Level 1 government securities valued at market value less LAF/MSF haircuts; run-off on funding from non-financial trusts, partnerships and LLPs cut from 100% to 40%. RBI expected the aggregate LCR to rise by about 6 percentage points. Source: DD News
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 337 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
Hit by an unexpected outflow and holding few liquid assets, a bank has to sell part of its long-term bond portfolio in a falling market, booking a loss of ₹40 crore. Which purpose of liquidity management has it failed to achieve?
Why (c): Good liquidity management lets a bank raise cash from liquid reserves or by repo of surplus securities, without selling assets at fire-sale prices instead of their going-concern value; the ₹40 crore loss is that cost. (a) is wrong: The loss comes from a forced sale, not from a signal to the market. (b) is wrong: No loan commitment is involved. (d) is wrong: The default risk premium is a separate purpose.
Question 2 of 5
Which of these is NOT among RBI's seven illustrative stock ratios?
Why (c): Net loans to total deposits is one of the textbook's own nine ratios, not in RBI's list of seven. (a) is wrong: This is RBI's ratio 2. (b) is wrong: This is RBI's ratio 6. (d) is wrong: This is RBI's ratio 7.
Question 3 of 5
On what basis is the net funding requirement calculated under the gap method?
Why (d): 29.4: "net funding requirement is calculated on the basis of residual maturities of assets and liabilities ... based on the past behaviour pattern of assets and liabilities as well as off-balance sheet exposures.". (a) is wrong: The textbook uses residual maturities. (b) is wrong: Rates are for interest rate risk. (c) is wrong: Not the basis.
Question 4 of 5
A bank's structural liquidity statement shows: next day, outflows ₹500 crore and inflows ₹490 crore; 2–7 days, outflows ₹700 crore and inflows ₹620 crore. Its limit for the cumulative mismatch up to 7 days is 10% of cumulative outflows. Is it within the limit?
Why (b): RBI's limits apply to cumulative mismatches: up to 7 days, outflows total ₹1,200 crore and inflows ₹1,110 crore, so the ₹90 crore negative mismatch is 7.5% of cumulative outflows, within 10%. Testing the 2–7 day bucket alone, or against that bucket's outflows, misreads the rule. (a) is wrong: The test is cumulative, not bucket by bucket. (c) is wrong: The base is cumulative outflows of ₹1,200 crore, not ₹700 crore. (d) is wrong: Negative mismatches are allowed within the limits.
Question 5 of 5
What is the last bucket in RBI's list of maturity buckets?
Why (b): The eleventh bucket is "over 5 years". (a) is wrong: The list continues to 3 and 5 years. (c) is wrong: One more bucket follows. (d) is wrong: The list ends at over 5 years.
0 of 5 answered.
Traps in this unit
"Normal, everyday" does not mean minor: SVB lost about a quarter of its deposits in one day (2023).
Basel III did not invent liquidity management; it added two minimum ratios.
Liquidity is not "cash in hand"; it is about absorbing liability falls and funding asset growth.
Practise all 337 questions on Unit 29. 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.