CAIIB ABFM, Check Top 50 Most Repetitive CAIIB ABFM MCQs

Saloni Singhal

5 months ago

Top 50 Most Repetitive CAIIB ABFM MCQs

The Certified Associate of Indian Institute of Bankers (CAIIB) exam is important for banking professionals aiming to advance their careers. Among the various subjects, Advanced Business and Financial Management (ABFM) is one of the most challenging yet rewarding papers. Preparing effectively for this subject requires a clear understanding of its key concepts and practicing the most frequently asked questions. This article provides the top 50 most repetitive CAIIB ABFM MCQs to help you excel in your preparation.

Why Focus on Repetitive Questions?

Repetitive questions give insights into the examiner’s mindset and highlight important topics. Practicing these questions helps:

Strengthen your understanding of core concepts.
Save time during revision.
Boost confidence for the exam.

Important Topics Covered in CAIIB ABFM

Before diving into the MCQs, it is essential to know the primary topics in ABFM:

Business Strategies and Policies
Financial Decision Making
Risk Management
Leadership and Organizational Dynamics
Performance Management
Economic Environment and Banking Trends

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Top 50 Most Repetitive CAIIB ABFM MCQs

Here are the most repetitive MCQs:

1. Which of the following is the primary objective of banking regulation in India?

A) Protecting the interests of borrowers
B) Ensuring soundness and stability of the banking system
C) Promoting financial inclusion
D) Encouraging high interest rates
Answer: B) Ensuring soundness and stability of the banking system

2. The concept of ‘regulatory forbearance’ refers to:

A) Allowing banks to operate without any regulation
B) Temporarily relaxing certain regulatory norms
C) Strictly enforcing all banking regulations
D) Granting banks autonomy in setting their own rules
Answer: B) Temporarily relaxing certain regulatory norms

3. Which of the following is NOT a function of the Reserve Bank of India (RBI)?

A) Issuing currency notes
B) Regulating the stock market
C) Maintaining monetary policy
D) Supervising financial institutions
Answer: B) Regulating the stock market

4. The Basel III norms primarily aim at:

A) Reducing non-performing assets
B) Strengthening the capital base of banks
C) Improving the customer service of banks
D) Increasing the profitability of banks
Answer: B) Strengthening the capital base of banks

5. What is the primary objective of Asset-Liability Management (ALM) in a bank?

A) Maximizing profits
B) Ensuring liquidity and managing interest rate risks
C) Reducing the cost of funds
D) Expanding the loan portfolio
Answer: B) Ensuring liquidity and managing interest rate risks

6. Which of the following is a characteristic of a well-capitalized bank?

A) Low levels of non-performing assets
B) High risk exposure
C) Adequate capital to absorb financial shocks
D) Limited operational costs
Answer: C) Adequate capital to absorb financial shocks

7. In banking, what does ‘micro-prudential regulation’ focus on?

A) The regulation of individual financial institutions
B) Ensuring the stability of the entire financial system
C) Long-term financial planning
D) Preventing market manipulations
Answer: A) The regulation of individual financial institutions

8. The Capital Adequacy Ratio (CAR) measures:

A) The total assets of a bank
B) The ability of a bank to absorb losses
C) The profitability of a bank
D) The risk appetite of a bank
Answer: B) The ability of a bank to absorb losses

9. What is the primary purpose of conducting stress tests in banks?

A) To measure the profitability of the bank
B) To assess the bank’s ability to withstand economic shocks
C) To improve customer satisfaction
D) To evaluate operational efficiency
Answer: B) To assess the bank’s ability to withstand economic shocks

10. Which of the following is a feature of a term deposit in banks?

A) High liquidity
B) Withdrawals can be made anytime
C) Fixed interest rate for a specified tenure
D) Interest is paid monthly
Answer: C) Fixed interest rate for a specified tenure

11. What is the ‘CAMELS’ rating system used to assess in banks?

A) The technological infrastructure of a bank
B) The financial health and soundness of a bank
C) The customer service quality of a bank
D) The loan recovery efficiency of a bank
Answer: B) The financial health and soundness of a bank

12. What does the term ‘NPA’ stand for in banking?

A) Non-Personal Account
B) Non-Performing Asset
C) Non-Paid Asset
D) Non-Profit Account
Answer: B) Non-Performing Asset

13. Which of the following is an example of a systematic risk in banking?

A) A bank’s failure due to bad loans
B) The overall economic downturn affecting all banks
C) A bank’s liquidity shortage
D) A bank’s operational inefficiency
Answer: B) The overall economic downturn affecting all banks

14. The SLR (Statutory Liquidity Ratio) is the percentage of a bank’s total deposits that it must maintain in the form of:

A) Cash
B) Government securities
C) Loans to customers
D) Reserves with the RBI
Answer: B) Government securities

15. In the context of risk management, the ‘Value at Risk’ (VaR) refers to:

A) The total capital required by a bank
B) The maximum potential loss in value of an asset over a given time period at a given confidence interval
C) The operational costs of a bank
D) The daily fluctuations in interest rates
Answer: B) The maximum potential loss in value of an asset over a given time period at a given confidence interval

16. Which of the following financial ratios is used to measure the liquidity position of a bank?

A) Debt-Equity Ratio
B) Current Ratio
C) Liquidity Coverage Ratio (LCR)
D) Return on Assets (ROA)
Answer: C) Liquidity Coverage Ratio (LCR)

17. Which of the following is a limitation of the ‘return on equity’ (ROE) ratio?

A) It ignores risk factors
B) It measures profitability relative to total assets
C) It does not account for capital structure
D) It does not measure operational efficiency
Answer: A) It ignores risk factors

18. Which of the following is a key feature of a ‘structured product’ in banking?

A) It offers high liquidity
B) It is a fixed-income security
C) It is created by combining different financial instruments
D) It is fully government-backed
Answer: C) It is created by combining different financial instruments

19. In banking, what is meant by ‘net interest margin’ (NIM)?

A) The difference between the interest income and interest expenses of a bank
B) The total interest income generated by a bank
C) The total expenses incurred by a bank in a given year
D) The rate at which a bank lends to its customers
Answer: A) The difference between the interest income and interest expenses of a bank

20. What is the primary objective of the KYC (Know Your Customer) norms in banking?

A) To increase profitability
B) To prevent money laundering and fraud
C) To improve customer service
D) To enhance market share
Answer: B) To prevent money laundering and fraud

21. Which of the following best defines ‘counterparty risk’ in a banking transaction?

A) The risk that a bank may fail to meet its payment obligations
B) The risk associated with economic downturns
C) The risk that a party involved in a transaction may default on its obligations
D) The risk associated with market fluctuations
Answer: C) The risk that a party involved in a transaction may default on its obligations

22. Which of the following is an example of a ‘systemic risk’ in banking?

A) Default by a single borrower
B) Default by a major financial institution
C) High operational costs
D) Increased competition in the market
Answer: B) Default by a major financial institution

23. Which of the following is a component of the ‘CAMELS’ rating system?

A) Capital adequacy
B) Market share
C) Customer satisfaction
D) Operational costs
Answer: A) Capital adequacy

24. Which of the following is a characteristic of a ‘shadow bank’?

A) It is fully regulated by RBI
B) It does not accept deposits
C) It primarily offers savings accounts
D) It is a commercial bank
Answer: B) It does not accept deposits

25. Which of the following is a potential disadvantage of a high capital adequacy ratio (CAR)?

A) It increases the bank’s risk exposure
B) It may reduce the bank’s profitability
C) It reduces the bank’s asset base
D) It limits the bank’s liquidity
Answer: B) It may reduce the bank’s profitability

26. What is the purpose of the ‘base rate’ in banking?

A) To determine the interest rate on savings accounts
B) To set the minimum interest rate for loans offered by banks
C) To regulate the stock market
D) To monitor the bank’s capital adequacy
Answer: B) To set the minimum interest rate for loans offered by banks

27. What is the ‘reverse repo rate’ used for by the Reserve Bank of India (RBI)?

A) To control inflation
B) To control money supply by borrowing from banks
C) To manage fiscal deficits
D) To encourage banks to lend more
Answer: B) To control money supply by borrowing from banks

28. What is ‘risk-based supervision’ in banking?

A) Focusing on high-risk activities
B) A supervisory approach that allocates resources based on risk exposure
C) Focusing on operational efficiency
D) Ensuring that banks comply with all regulations
Answer: B) A supervisory approach that allocates resources based on risk exposure

29. Which of the following is a key factor affecting a bank’s profitability?

A) Interest rate fluctuations
B) Customer satisfaction levels
C) The number of branches
D) Government regulations
Answer: A) Interest rate fluctuations

30. Which of the following describes ‘liquidity risk’ in banking?

A) The risk that a bank’s assets will decline in value
B) The risk that a bank cannot meet its short-term financial obligations
C) The risk of losing money on investments
D) The risk of not attracting enough customers
Answer: B) The risk that a bank cannot meet its short-term financial obligations

31. Which of the following is a characteristic of a ‘liquidity coverage ratio’ (LCR)?

A) It is used to determine the profitability of a bank
B) It measures the short-term liquidity position of a bank
C) It measures the long-term solvency of a bank
D) It determines the loan approval process in banks
Answer: B) It measures the short-term liquidity position of a bank

32. What does the term ‘asset quality review’ (AQR) refer to in banking?

A) A review of a bank’s asset portfolio for possible risks
B) A review of a bank’s capital adequacy
C) A review of a bank’s liquidity position
D) A review of a bank’s operational efficiency
Answer: A) A review of a bank’s asset portfolio for possible risks

33. What is the term used for the provision made by a bank to cover potential future loan losses?

A) Loan recovery
B) Loan write-off
C) Loan provision
D) Loan restructuring
Answer: C) Loan provision

34. Which of the following is considered a ‘leading indicator’ for a bank’s financial health?

A) Return on Assets (ROA)
B) Gross Non-Performing Assets (NPA)
C) Capital Adequacy Ratio (CAR)
D) Net Interest Margin (NIM)
Answer: A) Return on Assets (ROA)

35. What does ‘risk-adjusted return on capital’ (RAROC) help measure?

A) A bank’s total revenue
B) A bank’s profitability adjusted for its risk
C) A bank’s operational efficiency
D) A bank’s liquidity position
Answer: B) A bank’s profitability adjusted for its risk

36. Which of the following is a key factor in determining the strength of a bank’s internal controls?

A) Profit margin
B) Return on Equity (ROE)
C) The adequacy of governance and risk management frameworks
D) The geographical expansion of the bank
Answer: C) The adequacy of governance and risk management frameworks

37. What is meant by ‘financial inclusion’ in banking?

A) Providing loans only to high-income individuals
B) Expanding banking services to unbanked and underserved populations
C) Limiting banking services to urban areas
D) Offering only premium banking products
Answer: B) Expanding banking services to unbanked and underserved populations

38. What is the ‘net stable funding ratio’ (NSFR) designed to ensure?

A) That banks have sufficient short-term liquidity
B) That banks have adequate long-term funding relative to their assets
C) That banks have a high rate of return on equity
D) That banks have minimal operational risks
Answer: B) That banks have adequate long-term funding relative to their assets

39. In banking, the term ‘retail banking’ primarily refers to:

A) Lending to large corporations
B) Offering financial services to individual consumers
C) Providing investment banking services
D) Offering only savings accounts
Answer: B) Offering financial services to individual consumers

40. Which of the following refers to the ‘liability side’ of a bank’s balance sheet?

A) Loans provided to customers
B) Deposits from customers and borrowings
C) Bank’s investments
D) Income from assets
Answer: B) Deposits from customers and borrowings

41. What does ‘provision coverage ratio’ (PCR) indicate in banking?

A) The ratio of total income to provisions
B) The proportion of non-performing loans that a bank has adequately provided for
C) The amount of capital required for future losses
D) The liquidity position of the bank
Answer: B) The proportion of non-performing loans that a bank has adequately provided for

42. Which of the following best describes the role of ‘bank capital’?

A) To determine the profitability of the bank
B) To absorb losses and support the bank’s growth
C) To limit the amount of loans a bank can issue
D) To enhance the liquidity position of the bank
Answer: B) To absorb losses and support the bank’s growth

43. What is the primary function of the ‘bank’s credit committee’?

A) To decide on the interest rates for loans
B) To review and approve large loans and credit exposures
C) To determine the bank’s annual profit target
D) To supervise the bank’s day-to-day operations
Answer: B) To review and approve large loans and credit exposures

44. Which of the following is a key objective of conducting ‘due diligence’ in banking?

A) To determine a borrower’s creditworthiness
B) To forecast the bank’s profitability
C) To improve the customer service experience
D) To evaluate the bank’s operational efficiency
Answer: A) To determine a borrower’s creditworthiness

45. What is the term used for the process of restructuring a distressed loan in a bank?

A) Loan recovery
B) Loan rescheduling
C) Loan modification
D) Loan default
Answer: C) Loan modification

46. Which of the following is considered a ‘lagging indicator’ for bank performance?

A) Gross Non-Performing Assets (NPA)
B) Return on Assets (ROA)
C) Capital Adequacy Ratio (CAR)
D) Liquidity Coverage Ratio (LCR)
Answer: A) Gross Non-Performing Assets (NPA)

47. Which of the following is a primary purpose of the ‘Basel Accords’ in banking?

A) To promote financial inclusion
B) To establish international banking regulations and standards
C) To increase profitability for banks globally
D) To enhance customer satisfaction
Answer: B) To establish international banking regulations and standards

48. Which of the following financial instruments is used to reduce interest rate risk?

A) Equity shares
B) Derivatives (such as interest rate swaps)
C) Term deposits
D) Treasury bills
Answer: B) Derivatives (such as interest rate swaps)

49. The term ‘core banking solutions’ (CBS) refers to:

A) A system for issuing credit cards
B) A technology platform for managing banking operations centrally
C) A policy for reducing interest rates
D) A method of customer service enhancement
Answer: B) A technology platform for managing banking operations centrally

50. What does ‘off-balance-sheet financing’ refer to?

A) Loans that a bank provides directly to its customers
B) Financial transactions that do not appear on a bank’s balance sheet
C) The bank’s fixed deposit accounts
D) The bank’s equity capital
Answer: B) Financial transactions that do not appear on a bank’s balance sheet

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CAIIB ABFM Exam Preparation Tips

To make the most of these MCQs, follow these tips:

Understand Concepts: Go beyond rote memorization. Understand the logic behind answers.
Practice Regularly: Allocate daily time for solving MCQs.
Mock Tests: Attempt full-length mock exams to improve time management.
Revise Strategically: Focus more on weak areas.

Saloni Singhal

Hello there! I’m a dedicated Government Job aspirant turned passionate writer & content marketer. My blogs are a one-stop destination for accurate and comprehensive information on exams like Regulatory Bodies, Banking, SSC, State PSCs, and more. I’m on a mission to provide you with all the details you need, conveniently in one place. When I’m not writing and marketing, you’ll find me happily experimenting in the kitchen, cooking up delightful treats. Join me on this journey of knowledge and flavors!