Jaiib books macmillan 3rd edition pdf download

Duration - 2 Hours. Pass: Minimum marks for pass in every subject - 50 out of marks. If you do not pass the exam within the specified time, then you have to be enrolled for the exam by registering again with a new Exam Application. You will not be granted any kind of credit for passed subject. There are no negative marks for wrong answers. First attempt fee. Second Attempt fee. Third Attempt fee. Fourth Attempt Fee. Candidates are allowed to attempt the examination either in Hindi or English, and should clearly fill in their choice of medium at the time of registration of application.

In any case change of medium will not be allowed at a later stage. You are required to login with your personal membership number and password. In the JAIIB online application you are required to fill details like mode, medium, center for the exam as also the place of work etc. Please follow the instructions carefully. Step - 1. Download Telegram App From Play store. Step - 2. Login with Your Mobile Number. Let us now run through the illustration 1. Consider the following annuity cash flow schedule: End of each period.

In order to calculate the future value of the annuity, we have to calculate the future value of each cash flow. Let us assume that you are receiving Rs. The following diagram shows how much you would have at the end of the five-year period: End of each period 1 1, Since, we have to add the future value of each payment, you may have noticed that, if you have an ordinary annuity with many cash flows, it would take a long time to calculate all the future values and then add them together.

Note that the Rs. Each of the values of the first calculation must be rounded to the nearest paise. The more you have to round numbers in a calculation the more likely rounding errors will occur. Therefore, the above formula not only provides a short cut to finding FV of an ordinary annuity but also gives a more accurate result.

You would use this formula as part of a bond pricing calculation. The PV of ordinary annuity calculates the present value of the coupon payments that you will receive in the future. For the illustration 2, we will use the same annuity cash flow schedule as we did in the illustration 1.

To obtain the total discounted value, we need to take the present value of each future payment and, as we did in the illustration 1, add the cash flows together.

End of each period 1. Again, calculating and adding all these values will take a considerable amount of time, especially if we expect many future payments. As such, we can use a mathematical shortcut for PV of ordinary annuity. Here is the calculation of the annuity represented in the diagram for Illustration 2: [ 0.

Since, each payment in the series is made one period sooner; we need to discount the formula one period later. A slight modification to the FV-of-an-ordinary-annuity formula accounts for payments occurring at the beginning of each period. In the following Illustration 3, let's illustrate why this modification is needed when each Rs. Payment paid or received at beginning of each period 1, 1.

For example, if Rs. When calculating the present value, we assume that the first payment made was today. We could use this formula for calculating the present value of your future rent payments as specified in a lease you sign with your landlord. Let us say for the illustration that you make your first rent payment at the beginning of the month and are evaluating the present value of your five-month lease on that same day.

Your present value calculation would work as follows: End of each period 2. The present value of an ordinary annuity is less than that of an annuity due because the further back we discount a future payment, the lower is its present value: each payment or cash flow in ordinary annuity occurs one period further into future.

Now you can see how annuity affects and how you calculate the present and future value of any amount of money. Remember that the payment frequencies, or number of payments, and the time at which these payments are made whether at the beginning or end of each payment period , are all variables you need to account for in your calculations.

Illustration Find the compound amount of Rs. Using formula, we could find the value of compound amount. However, in these kinds of problems, generally we use compound interest for the full interest period and simple interest for the fractional interest period.

Here we find the compound interest for 13 interest periods and simple interest for 1 month. The simple interest in 3 years and the compound interest in 2 years on a certain sum at the same rate are Rs.

Find i the rate of interest, ii the principal, iii the difference between the C. P and rate of interest be R per centp. The population of an industrial town is increasing by 5 per cent every year.

If the present population is 1 million, estimate the population five years hence. Also, estimate the population three years ago. Illustration Avichal Publishers buy a machine for Rs. The rate of depreciation is 10 per cent. Find the depreciated value of the machine after 3 years.

Also, find the amount of depreciation. What is the average rate of depreciation? The first and most common method is the amortisation method. By using this method to liquidate an interest-bearing debt, a series of periodic payments, usually equal, are made. Each payment pays the interest on the unpaid balance and repays a part of the outstanding principal. As time goes on, the outstanding principal is gradually reduced and interest on the unpaid balance decreases. When a debt amortises, by equal payments at equal payment intervals, the debt becomes the discounted value of an annuity.

The common commercial practice is to round the payment up to the next rupee. Thus, an annuity is a sequence of payments made at regular periods over a given time interval e.

The total time, is called the term of the annuity. The regular periods, where the repayments are made, are called the payment periods. Annuities, where the payments are made at the end of the payment period, are called ordinary annuities. When the payments are made at the beginning of the payment period, the process is called an annuity due.

The present value of the annuity involves 'moving' each of the payments R to the present. Not an easy task, for the monthly payments of a 25 year loan. R per payment period, for n periods, at the rate r per period. For an illustration, if the plan is to get paid Rs. What will be the monthly repayments at 18 per cent compounded monthly?

Both loans require a repayment of equal monthly payments made at the end of the month for the next five years. What is the monthly payment? Assume 10 per cent compounded monthly Bring everything back to the present value. It turns out that we can calculate this; using a loan amortisation formula. We can think of Arlene as lending the bank Rs. When a loan is repaid in equal instalments, part of the payment covers interest and the rest covers principal.

The formula for paying back a loan in equal instalments is known as the amortisation formula. Plugging in Rs. This says that by lending investing her Rs. If there were no inflation, then Arlene would receive exactly Rs. If there is inflation of, say, 2 per cent per year, then the nominal interest rate will be 5 per cent and the real interest rate will be 3 per cent. Arlene will receive Rs. That is, each year, her annuity payment will rise 2 per cent, in order to keep up with inflation.

Adjusting for inflation is what makes this a real annuity. In the real world, there are some complications. First, not all annuities are adjusted for inflation.

Although inflation is important, all too often the elderly live on fixed incomes, which are annuities that do not adjust for inflation. Second, insurance companies need to earn a profit. If the insurance company earns 0. This will. If Arlene dies early, say in 5 years, she will not have collected her annuity and the insurance company earns a windfall gain. Conversely, if she defies the actuarial tables and lives for 25 years, the insurance company may take a loss, because the Rs. When interest-bearing debts are amortised by means of a series of equal payments at equal intervals, it is important to know how much goes for interest from each payment and how much goes for the reduction in principal.

For an illustration, this may be a necessary part of determining one's taxable income or tax deductions. We construct an amortisation schedule, which shows the progress of the amortisation of the debt. A debt of Rs. Make out an amortisation schedule showing the distribution of the payments as to interest and the repayment of principal. The interest due at the end of the first quarter is 2.

The first payment of Rs. Thus, the outstanding principal after the first payment is reduced to Rs. The interest due at the end of the second quarter is 2. The second payment of Rs. The outstanding principal now becomes Rs. This procedure is repeated and the results are tabulated below in the amortisation schedule.

It should be noted that the fifth payment is only Rs. The totals at the bottom of the schedule are for checking purposes. The total amount of principal repaid must equal the original debt. In addition, the total of the periodic payments must equal the total interest and the total principal returned. Note that the entries in the principal repaid column except the final payment are in the ratio That is,.

This formula, can also be rewritten as where R is the periodic payment that must be made to amount to S at the end of the term. Investing this way to meet some future obligation is commonly called sinking fund. How much will you have in the bank after 7 years? How much will you have in the bank after 25 years? How long will it take to have Rs. In problems 4 and 5, you deposit Rs. How much will you have in the bank after one year?

After four years? In problems 6 and 7, you deposit Rs. If you deposit Rs. Suppose that you deposit Rs. How much will you have after you make your deposit at the start of the tenth year? Suppose that you want to have Rs. How much will you have to deposit each year? In the problems , suppose that you have Rs. What is the annuity payment? Suppose that the inflation rate is 2 per cent per year.

What is the real interest rate that would be used to calculate a real annuity payment? Calculate the real annuity payment assuming that inflation is 2 per cent per year. The annuity payment in the first year is equal to the real annuity payment. Calculate the annuity payment for the second year and for the third year. Suppose that you have Rs. If the inflation rate is 5 per cent, calculate the real annuity. Calculate the actual annuity payments for each of the four years.

Show that the annuity works. That is, for each year, fill out a table with the beginning balance, interest earned, annuity paid, and ending balance. Show that after four years the ending balance is exactly zero. Do the same calculations as in the problem The formula for finding the monthly payment on a mortgage or an auto loan is the same as the formula for an annuity. However, the interest rate is the annual interest rate divided by 12, and the number of periods, n, is the number of years times Find the monthly payment on a thirty year mortgage with a Rs.

Find the monthly payment on a five year auto loan with a Rs. Such a fund is called a sinking fund. Sinking funds are used to pay-off debts, to redeem bond issues, to replace worn-out equipment, to buy new equipment, or in one of the depreciation methods. Since the amount needed in the sinking fund, the time the amount is needed and the interest rate that the fund earns are known, we have an annuity problem in which the size of the payment, the sinking-fund deposit, is to be determined.

A schedule. Illustration 1. If you wish an annuity to grow to Rs. The monthly payment should be Rs. An annuity consists of monthly repayments of Rs. How much money will a student owe at graduation if she borrows Rs. A construction company plans to purchase a new earthmover for Rs. Determine the annual savings required to purchase the earthmover if the return on investment is 12 per cent. Usually, the deposits into the sinking fund are made at the same times as the interest payments on the debt are made to the lender.

The sum of the interest payment and the sinking-fund payment, is called the periodic expense or cost of the debt. It should be noted that the sinking fund remains under the control of the borrower. At the end of the term of the loan, the borrower returns the whole principal as a lumpsum payment by transferring the accumulated value of the sinking fund to the lender.

When the sinking-fund method is used, we detain the book value of the borrower's debt at any time as the original principal, minus the amount in the sinking fund. The book value of the debt, may be considered as the outstanding balance of the loan. In 10 years, a Rs. A new machine at that time is expected to sell for Rs. In order to provide funds for the difference between the replacement cost and the salvage value, a sinking fund is set up into which equal payments are placed at the end of each year.

If the fund earns 7 per cent compounded annually, how much should each payment be? This fee is called 'interest' 'simple' interest or 'flat rate' interest. The amount of simple interest paid each year is a fixed percentage of the amount borrowed or lent at the start. This is compounding of interest or more simply stated compound interest. Compounding Period: The time interval, between the moment at which interest is added to the account is called compounding period.

The Rule of The rule allows us to determine the number of years it takes your money to double whether in debt or investment. Here is how to do it. Divide the number 72 by percentage rate you are paying on your debt or earning on your investment Annuities: They are essentially a series of fixed payments required from you or paid to you at a specified frequency over the course of a fixed period of time.

Sinking Fund: When there is a need for a specified amount of money at a specified future date, it is a good practice to accumulate systematically a fund by means of equal periodic deposits. Sinking funds are used to pay-off debts, to redeem bond issues, to replace wornout equipment, to buy new equipment, or in one of the depreciation methods. A person invests Rs. Calculate: i the interest for the first year. A man saves every year Rs.

Calculate the total amount of his savings at the end of the third year. The simple interest on a certain sum for 3 years is Rs. Find the rate of interest and the principal. A sum of money is lent out at compound interest for two years at 20 per cent p.

If the same sum of money is lent out at a compound interest at the same rate per cent per annum, C. Calculate the sum of money lent out. A man borrowed a certain sum of money and paid it back in 2 years in two equal instalments. If the rate of compound interest was 4 per cent per annum and if he paid back Rs. A sum of Rs. Find the annual payment. A loan of Rs. The interest is compounded annually at 10 per cent.

Find the value of each instalment. A man borrows Rs. He repays Rs. Calculate the amount outstanding at the end of the third payment. Give your answer to the nearest Re. Find the amount which he has to pay at the end of the fourth year.

Divide Rs. The rate of compound interest is 5 per cent per annum. Two partners A and B together invest Rs. After 3 years, A gets the same amount as B gets after 5 years. Find their shares in the sum of Rs. A debtor may discharge a debt by paying a Rs. If money is worth 5 per cent compounded semi-annually to him, which alternative should he accept?

At the birth of a daughter, a father wishes to invest sufficient amount to accumulate at 12 per cent compounded semi-annually to Rs. How much should he invest? In buying a house, X pays Rs. At 6 per cent compounded semi-annually, find the cash value of the home. The cost of a refrigerator is Rs. If it depreciates at 10 per cent per annum, find its value 3 years hence.

The present value of a machine is Rs. If its value depreciates 6 per cent in the first year, 5 per cent in the second and 4 per cent in the third year, what will be its value after. If rate of interest is 15 per cent compounded annually, what is the present worth of the mobike? If the rate of depreciation is 10 per cent, what will be the resale value after 7 years?

A person buys a land at Rs. Assuming that land appreciates at 20 per cent annually and building depreciates at 20 per cent for first 2 years and at 10 per cent thereafter, find the total value of property after 5 years from date of purchase of land. The rate of interest charged is 20 per cent annually.

Find the amount of each instalment. The population of a town increased from 2 lakh to 8 lakh in last 10 years. If the same trend continues, in how many years will it become 1. Find the nominal rate compounded monthly equivalent to 6 per cent compounded semi-annually. Also find the effective rate of interest. The machinery of a certain factory is valued at Rs. If it is supposed to depreciate each year at 8 per cent of the value at the beginning of the year, calculate the value of the machine at the end of and If Mr.

X takes a housing loan of Rs. Find out EMI if loan is Rs. He should accept b Rs. PartB 1. A couple is saving a down payment for a home.

They want to have Rs. How much must be deposited in the fund at the end of each year? Make out a schedule showing the growth of the fund. A company wants to save Rs. Make out schedule for this problem. What quarterly deposit is required in a bank account to accumulate Rs. Prepare a schedule for this problem.

What quarterly deposits for the next 5 years will cause the fund to grow to Rs. How much is in the fund at the end of 3 years? A cottagers' association decides to set up a sinking fund to save money to have their cottage road widened and paved. What annual deposit is required per cottager if there are 30 cottages on the road? Show the complete schedule.

Find the quarterly deposits necessary to accumulate Rs. Find the amount in the fund at the end of 9 years and complete the rest of the schedule.

A city needs to have Rs. Make out the rest three and last three lines of the schedule. What monthly deposit is required to accumulate Rs. A couple wants to save Rs. They can save Rs. How many years to the nearest quarter will it take them, and what is the size of the final deposit? In its manufacturing process, a company uses a machine that costs Rs.

The company sets up a sinking fund to finance the replacement of the machine, assuming no change in price, with level payments at the end of each year. Find the value of the sinking fund at the end of the 1 Oth year. PartC 1. A homeowners' association decided to set up a sinking fund to accumulate Rs.

What monthly deposits are required if the fund earns 5 per cent compounded daily? Show the first three and the last two lines of the sinking-fund schedule. Consider an amount that is to be accumulated with equal deposits R at the end of each interest period for 5 periods at rate i per period.

Hence, the amount to be accumulated is Rs. Do a complete schedule for this sinking fund. Verify that the sum-of-the-interest column plus the sumof-the-deposit column equals the sum of the increase-in-the-fund column, and both sums equal the final amount in the fund. If the fund contains Rs. PartD 1. A borrower of Rs. How much is in the sinking fund at the end of 4 years? A city borrows Rs. What is the total annual expense of the debt? A company issues Rs.

Find a the semi-annual expense of the debt; b the book value of the company's indebtedness at the end of the fifteenth year. Find a the semi-annual expense of the debt; b the book value of the city's indebtedness at the beginning of the sixteenth year.

On a debt of Rs. The distinctive feature of the Herstatt failure was the way it disrupted the clearing mechanism for spot foreign exchange transactions, which in turn, had damaging effects on the international interbank market.

There were widespread losses affecting several West German banks as well as Italian and Japanese banks whose own national authorities at that time were poorly placed to provide emergency dollar support. Consequently, in , a standing committee of Bank Supervisors, 'Committee on Banking Regulation and Supervisory Practices' now known as Basel Committee on Banking Supervision , was set up under the auspices of the Bank for International Settlements, Basel 'not to harmonise national laws and practices but rather to interlink disparate regulatory regimes with a view to ensuring that all banks are supervised according to certain broad principles', Cooke The third world debt crisis of the early s also exposed the fragility of the international banking system and the urgency of preventing capital erosion and strengthening banks' balance sheets.

Against this background, the initiative for global regulation and supervision was taken by regulators of two Central Banks: Bank of England and the US Federal Reserve Board, who first entered into a bilateral agreement in January The G supervisors joined in, resulting in the historic Basel Capital Accord agreement of July , viz. Basel I was originally designed to apply only to internationally active banks in the G countries. It was, however, increasingly adopted as a standard for banks across the development spectrum because of its focus on the level of capital in the major banking systems and a 'level playing field'.

The Basel committee on banking supervision had come out with a new consultative paper on 'New Capital Adequacy Framework' in June, After much discussion, revisions and comments, the new framework called the international Convergence of Capital Measures and Capital Standards: A Revised Framework' popularly known as the 'Basel IF, was adopted on 26th June, It came into effect by end By end, the most advanced approaches to risk measurement were to become effective. The new standards are mandatory for Internationally active banks.

Basel II norms are centred on sustained economic development over the long haul and include. The new proposal is based on three mutually reinforcing pillars that allow banks and supervisors to evaluate properly the various risks that banks face and realign the regulatory capital more closely with the underlying risks. Each of these three pillars has risk mitigation as its central plank. The new risk sensitive approach seeks to strengthen the safety and soundness of the industry by focusing on: Risk-based capital Pillar 1 - assessment of minimum capital requirement for banks Risk-based supervision Pillar 2 - supervision to review bank's capital adequacy and internal assessment process Risk disclosure to enforce market discipline Pillar 3 - use of market discipline for greater transparency and disclosure and encouraging best international practices Basel II Framework.

The first pillar sets out the minimum capital requirement. The new framework maintains the minimum capital requirement of 8 per cent of risk assets. In this, the calculation is based on credit, market and operational risk. It sets the minimum ratio of capital to risk weighted assets and in doing so, maintains the current definition of capital. What is Capital Adequacy? Basel II focuses on improvement in measurement of risks. The revised credit risk measurement methods are more elaborate than the current accord.

It proposes, for the first time, a measure for operational risk, while the market risk measure remains unchanged. Influence of level ofNPAs - High non-performing assets exacerbate the pressure on bank's capital by reducing the ratio of capital to risk-weighted assets the absolute value of capital and leaking revenue availability of less free capital.

Supervisory review process has been introduced to ensure, not only that banks have adequate capital to. Thus, it deals with 'Operational control and compliance with Pillar 1 Requirements'. The process has four key principles: a Banks should have a process for assessing their overall capital adequacy in relation to their risk profile and a strategy for monitoring their capital levels. The Third Pillar - Market Discipline. Market discipline imposes strong incentives to banks to conduct their business in a safe, sound and effective manner.

It is proposed to be effected through a series of disclosure requirements on the capital, risk exposure, etc. These disclosures should be made at least semi-annually and more frequently if appropriate. Qualitative disclosures such as risk management objectives and policies, definitions, etc. The requirements under this pillar are common to all regulated firms. To ensure that risks e. Credit Loss within the entire banking group are considered, improvements in the measurement of credit risks have been made in Basel II.

For the measurement of credit risk, Basel II proposes three principle options:. Standardised approach, or Internal rating-based approach IRB.

The IRB method proposes two approaches: a Foundation approach b Advanced approach The IRB approach maintains internal risk weighing functions for retail portfolios and acknowledges financial maturity as an additional risk factor. Securitisation frame work. Alternative methods for computing capital requirement for credit risk are depicted below. Credit Risk. Three approaches have been proposed for the measurement of operational risks: 1 Basic Indicator approach It utilises one indicator of operational risk for a bank's total activity; 2 Standardised approach It specifies different indicators for different business lines; 3 Advanced measurement It requires the banks to utilise their internal loss data in the estimation of the required capital.

Approaches for measurement of operational risk Operational Risk. Market Risks RBI has issued detailed guidelines for computation of capital charge on market risk in June The guidelines address the issues involved in computing capital charge for interest rate related instruments in the trading book, equities in the trading book and foreign exchange risk including gold and precious metals in both trading and banking books.

Trading book includes: Securities included under the 'Held for Trading' category Securities included under the 'Available for Sale' category 'Open Gold' position limits 'Open Foreign Exchange' position limits Trading position in derivatives and derivatives entered into for hedging trading book exposures. As per the guidelines, the minimum capital requirement is expressed in terms of two separately calculated charges: a. Specific risk, and b. General market risk Specific Risk: Capital charge for specific risk is designed to protect against an adverse movement in price of an individual security due to factors related to the individual issuer.

This is similar to credit risk. The specific risk charges are divided into various categories such as investments in Govt securities, claims on banks, investments in mortgage backed securities, securitised papers, etc. General Market Risk: Capital charge for general market risk is designed to capture the risk of loss arising from changes in market interest rates.

The Basel committee suggested two broad methodologies for computation of capital charge for market risk, i. As banks in India are still in a nascent stage of developing internal risk management models, in the guidelines, it is proposed that to start with, the banks may adopt the 'Standardised Method'.

As the duration method is a more accurate method of measuring interest rate risk, RBI prefers that banks measure all of their general market risk by calculating the price sensitivity modified duration of each position separately.

For this purpose, detailed mechanics to be followed, time bands, assumed changes in yield, etc. We have the dominance of Government ownership coupled with significant private shareholding in the public sector banks, which in turn, continue to have a dominant share in the total banking system.

We also have cooperative banks in large numbers, which also pose a challenge because of the multiplicity of regulatory and supervisory authorities. There are also the Regional Rural Banks with links to their parent commercial banks. Foreign bank branches operate profitably in India and, by and large, the regulatory standards for all these banks are uniform. The process of providing financial services is changing rapidly from traditional banking to a one-stop shop of varied financial services, as the old institutional demarcations are getting increasingly blurred.

Approach to Prudential Norms The Reserve Bank's approach to the institution of prudential norms has been one of gradual convergence with international standards and best practices, with suitable country-specific adaptations. The aim has been to reach global best standards in a deliberately phased manner, through a consultative process evolved within the country. This has also been the guiding principle in the approach to the new Basel Accord, e.

On the other hand, banks in India are still in the process of implementing capital charge for market risk, prescribed in the Basel document as Basel norms take into account only the trading portfolio.

Ensuring that the banks have a suitable risk management framework, oriented towards their requirements; dictated by the size and complexity of business, risk philosophy, market perceptions and the expected level of capital.

The framework adopted by banks would need to be adaptable to changes in the business, size, market dynamics and to introduction of innovative products by banks in future. Encouraging banks to formalise their 'Capital Adequacy Assessment Programme' CAAP , in alignment with the business plan and performance budgeting system.

This, together with adoption of risk-based supervision, would aid in factoring the Pillar II requirements under Basel II. Enhancing the area of disclosures Pillar III , so as to have greater transparency of the financial position and risk profile of banks. Improving the level of corporate governance standards in banks. These are largely in alignment with the international best practices.

The non-fund based exposures to entities, whose fund based exposures are classified as NPAs do not attract a provisioning requirement as per the present RBI regulations. In terms of AS Provisions, contingent liabilities and contingent assets; banks will be required to subject their contingent liabilities to an impairment test and if there is a likelihood of the bank incurring a.

As a rule, compliance implies confirming to a rule, for example, a particular, approach, standard or law. Administrative consistence portrays the objective that organizations try to accomplish in their endeavors to guarantee that they know about and find a way to agree to pertinent laws, arrangements, and controls. Because of the expanding number of regulations and requirement for operational straightforwardness, associations are progressively embracing the utilization of solidified and fit arrangements of consistence controls.

This approach is utilized to guarantee that all essential administrative necessities can be met without the superfluous duplication of effort and activity from assets.