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Advanced Bank Management For CAIIB Examination
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The content of this book has been developed keeping in view courseware for the. First paper of Advanced Bank Management of CAIIB, An attempt has been made to cover fully the syllabus prescribed for each. module subject and the presentation of topics may not always be in the same. sequence as given in the syllabus Candidates are also expected to take note of all. the latest developments relating to the subjects covered in the syllabus by referring. to RBI circulars financial papers economic journals latest books and publications. in the subjects concerned, Although due care has been taken in publishing this study material yet the. possibility of errors omissions and or discrepancies cannot be ruled out. We welcome suggestion for improving the book and its contents You may write. back to us at admin jaiibcaiib co in,About the Author. Vaibhav Awasthi has experience of 10 years in Banking He has done his. graduation from Kanpur University and MBA Finance from Delhi He also holds. the distinction of being part of maiden batch of Certified Banking Compliance. Professional conducted by IIBF ICSI, He has been mentoring students for JAIIB CAIIB since last 8 years and presently. works in middle management of leading Public Sector Bank He can be reached at. vaibhav awasthi16 gmail com, All rights reserved No part of this publication may be reproduced or transmitted in any.
form or by any means without permission Any person who does any unauthorized act in. relation to this publication may be liable to criminal proceedings and civil claim for. This book is meant for educational and learning purpose The author of this book has taken all reasonable care to ensure that the contents of. the book do not violate any existing copyright or other intellectual property rights of any person in any manner whatsoever. CAIIB Advanced Bank Management Correspondence Course Vaibhav Awasthi Page 2. Dedicated to the thought,Jodi Tor Dak Shune Keu Na Ashe Tobe Ekla Chalo Re. CAIIB Advanced Bank Management Correspondence Course Vaibhav Awasthi Page 3. Economic Analysis, CAIIB Advanced Bank Management Correspondence Course Vaibhav Awasthi Page 4. Unit 1 Fundamentals of Economics Microeconomics Macroeconomics and. Types of Economies, Adam smith was father of modern economics In his legendary book An Enquiry into the Nature and Causes of. wealth published 1776 he defined economics as study of wealth. Prof Alfred Marshall defined it as Economics is a study of mankind in the ordinary business of life According to. him wealth is the means to welfare His definition came to be known as welfare definition. Lionel Robins said Economics is the science which studies human behavior as a relationship between ends and. scarce means which have alternative uses Important points i Man has unlimited wants ii the means to satisfy. these wants are limited iii Even these limited means have alternative resources iv Man has to make a choice His. definition is known as scarcity definition, Microeconomics Branch of economics which studies individual household and firms. Macroeconomics Concept given in John Maynard Keynes book General Theory of Employment Interest and Money. It deals with the performance structure behavior of national or regional economy It studies GDP unemployment. rates and price indices, Three major problems of economics i What to produce ii How to produce iii For whom to produce.
How to solve these problems depend upon the type of economy which are given as below. Market Economy Individuals and private firms decide about what to produce and consume Firm produce. commodities which yield highest profit by techniques which are least costly Extreme case of market economy is. laissez faire economy, Command Economy Where Government decides what to produce for whom to produce and how to produce. Mixed economy Mixture of both market and command economy. CAIIB Advanced Bank Management Correspondence Course Vaibhav Awasthi Page 5. Unit 2 Supply and Demand, The demand curve is the graph depicting the relationship between the price of a certain commodity and. the amount of it that consumers are willing and able to purchase at that given price Presenting the data in. tabular form would result in a demand schedule an example of which is shown below. Demand Schedule,Demand Curve, By convention the demand curve displays quantity demanded as the independent variable the x axis and. price as the dependent variable the y axis The law of demand states that quantity demanded moves in. the opposite direction of price all other things held constant and this effect is observed in the downward. slope of the demand curve, When there is a change in an influencing factor other than price there may be a shift in the demand curve. to the left or to the right as the quantity demanded increases or decreases at a given price For example if. there is a positive news report about the product the quantity demanded at each price may increase as. demonstrated by the demand curve shifting to the right. Demand Curve Shift, CAIIB Advanced Bank Management Correspondence Course Vaibhav Awasthi Page 6.
A number of factors may influence the demand for a product and changes in one or more of those factors. may cause a shift in the demand curve Some of these demand shifting factors are. Customer preference,Prices of related goods, o Complements an increase in the price of a complement reduces demand shifting the. demand curve to the left, o Substitutes an increase in the price of a substitute product increases demand shifting the. demand curve to the right, Income an increase in income shifts the demand curve of normal goods to the right. Number of potential buyers an increase in population or market size shifts the demand curve to the. Expectations of a price change a news report predicting higher prices in the future can increase. the current demand as customer,The Supply Curve, Price usually is a major determinant in the quantity supplied For a particular good with all other factors held. constant a table can be constructed of price and quantity supplied based on observed data Such a table is. called a supply schedule as shown in the following example. Supply Schedule, By graphing this data one obtains the supply curve as shown below.
Supply Curve, As with the demand curve the convention of the supply curve is to display quantity supplied on the x axis. as the independent variable and price on the y axis as the dependent variable The law of supply states that. the higher the price the larger the quantity supplied all other things constant The law of supply is. demonstrated by the upward slope of the supply curve A change in price results in a change in quantity. supplied and represents movement along the supply curve. CAIIB Advanced Bank Management Correspondence Course Vaibhav Awasthi Page 7. Shifts in the Supply Curve While changes in price result in movement along the supply curve changes in. other relevant factors cause a shift in supply that is a shift of the supply curve to the left or right Such a. shift results in a change in quantity supplied for a given price level If the change causes an increase in the. quantity supplied at each price the supply curve would shift to the right. Supply Curve Shift, There are several factors that may cause a shift in a good s supply curve Some supply shifting factors. Prices of other goods the supply of one good may decrease if the price of another good increases. causing producers to reallocate resources to produce larger quantities of the more profitable good. Number of sellers more sellers result in more supply shifting the supply curve to the right. Prices of relevant inputs if the cost of resources used to produce a good increases sellers will be. less inclined to supply the same quantity at a given price and the supply curve will shift to the left. Technology technological advances that increase production efficiency shift the supply curve to. Expectations if sellers expect prices to increase they may decrease the quantity currently supplied. at a given price in order to be able to supply more when the price increases resulting in a supply. curve shift to the left,Supply and Demand, On this graph there is only one price level at which quantity demanded is in balance with the quantity. supplied and that price is the point at which the supply and demand curves cross. The law of supply and demand predicts that the price level will move toward the point that equalizes. quantities supplied and demanded To understand why this must be the equilibrium point consider the. situation in which the price is higher than the price at which the curves cross In such a case the quantity. CAIIB Advanced Bank Management Correspondence Course Vaibhav Awasthi Page 8. supplied would be greater than the quantity demanded and there would be a surplus of the good on the. market Specifically from the graph we see that if the unit price is 3 assuming relative pricing in dollars. the quantities supplied and demanded would be, Quantity Supplied 42 units Quantity Demanded 26 units. Therefore there would be a surplus of 42 26 16 units The sellers then would lower their price in order to. sell the surplus Suppose the sellers lowered their prices below the equilibrium point In this case the. quantity demanded would increase beyond what was supplied and there would be a shortage If the price. is held at 2 the quantity supplied then would be Quantity Supplied 28 units Quantity Demanded 38. unitsTherefore there would be a shortage of 38 28 10 units The sellers then would increase their prices. to earn more money, The equilibrium point must be the point at which quantity supplied and quantity demanded are in balance.
which is where the supply and demand curves cross From the graph above one sees that this is at a price. of approximately 2 40 and a quantity of 34 units, This is only a sample preview All pages of the book not. CAIIB Advanced Bank Management Correspondence Course Vaibhav Awasthi Page 9. Numerical Module A,Q1 Calculate broad money M3,Currency with public Rs 100000. Demand deposit with banking sys Rs 200000,Other deposit with RBI Rs 200000. Savings deposit of post office savings banks Rs40000. Time deposits with banking sys Rs 200000, All deposit with post office banking sys in cluding Rs 40000 of NSC total Rs 100000. a Rs 500000,b Rs 700000,c Rs 800000,d Rs 900000,Solution M3 m1 time deposit with banking system.
So M1 currency with public demand deposit with the bankingsys other deposits with rbi. M1 100000 200000 200000,Than m3 500000 200000,Ans m3 700000. Ques data of abc country,Recoveries of loan advance Rs 1000. Recoveries of short term loans and advances Rs300,from states and loans to govt servants. Misc capital receipt Rs 200,Market loans Rs 300,Short term borrowings Rs 500. External assistance Net Rs 200,Securities issued against small savings Rs 200.
State provident fund Rs 100,Other receipts Net Rs 400. Total non tax revenue Rs 3000,Net tax revenue Rs 1000. Draw down cash balance Rs 2000, total revenue receipt net tax revenue Total non tax revenue. 6 a calculate capital receipt, Ans This is sample preview All pages not displayed. CAIIB Advanced Bank Management Correspondence Course Vaibhav Awasthi Page 10. Business Mathematics, CAIIB Advanced Bank Management Correspondence Course Vaibhav Awasthi Page 11.
Chapter 12 Time value of money, If you are offered the choice between having Rs 10 000 today and having Rs 10 000 at a future date you. will usually prefer to hav Rs 10 000 now Similarly if the choice is between paying Rs10 000 now or. paying the sam Rs 10 000 at a future date you will usually prefer to pay Rs 10 000 later It is simple. common sense In the first case by accepting Rs 10 000 early you can simply put the money in the bank. and earn some interest Similarly in the second case by deferring the payment you can earn interest by. keeping the money in the bank Therefore the time gap allowed helps us to make some money This. incremental gain is time value of money Now let me ask a question if the bank interest was zero which is. generally not the case what would be the time value of money As you rightly guessed it would also be. zero As we understood above the interest plays an important role in determining the time value of. Compound Interest, If interest is calculated on original principal amount it is simple interest When interest is calculated on. total of previously earned interest and the original principal it compound interest Naturally the amount. calculated on the basis of compound interest rate is higher than when calculated with the simple rate. Question 1 An amount of 1 500 00 is deposited in a bank paying an annual interest rate of 4 3. compounded quarterly What is the balance after 6 years. Question 2 If you deposit Rs 4000 into an account paying 6 annual interest compounded yearly how. much money will be in the account after 5 years, Question 3How much money would you need to deposit todayat 9 annual interest compounded yearly. to have Rs 12000 in the account after 6 years, An annuity is a series of regular equally spaced payments over a defined period of time often called the. term at a constant rate of interest Example of annuities includes regular payments into a RD account or. superannuation fund loan payments,Annuities can be of two types.
i An Ordinary annuity is an annuity where the regular payment is made at the end of the successive time. periods For eg Ram invests Rs 1 lakh at the end of every year for 6 years is an example of ordinary. annuity Sneha invest Rs 5000 every month in her RD account for 2 years is an example of ordinary annuity. What we need to remember is that payment deposit need to be made at the end of the period That. period can be a week a month a quarter or year, CAIIB Advanced Bank Management Correspondence Course Vaibhav Awasthi Page 12. Let s take an example Ram invests Rs 1lakh at the end of every year what amount will he receive after 6. years if rate of interest is 5 Here what we are trying to find is that how much money will Ram get after 6. years For first year interest will be received on Rs 1lakh in next year on this compounded sum and so on. To calculate this the formula is, So in above question answer would be FV 100000 1 05 6 1 1 34 1 100000 Rs 6 80 000. Where Rs 80 000 represents the interest earned by the Ram on deposit. Questions 4 Shyama is planning to invest Rs 6000 every year for next 5 years in a RD If her bank is paying. 8 rate of interest how much money will shyama have at the end of 5 th year. Question 5 Prerna plans to buy her own house which she estimates will cost around Rs 40 lakh at the end. of 4 year How much money she should save every year if rate of interest is 10. Question 6 Subodh saves Rs 1 00 000 each year which he invests at the end of the year in a chit fund. scheme If interest received is 7 how much money can subodh expect to get after 7 years. The questions given above tell us how much money we will get in future if we invest equal sum of amount. regularly The questions can be modified a little and we can ask what is the present value of an annuity. For eg Ram receives Rs 5000 every year for 10 years What is the value of these cash flows at present if. rate of interest is 10 We know that Rs 5000 are received every year son 10 years we will get Rs 50 000. But these 50 000 are received over a period of 10 years what is their value today is the question. Let s see how to solve this using formula,PV ordinaryAnnuity. In the above example P 5000 r 10 t 10 yrs,PV 5000 1 1 10 10 5000 1 1. 0 10 0 10 1 10 10, 5000 1 59 Rs 30 695 Thus The 50 000 received over 10 years will be worth Rs 30 695 today.
CAIIB Advanced Bank Management Correspondence Course Vaibhav Awasthi Page 13. Future Value of Annuity Due, Annuity Due Payments are required at the beginning of each period Rent is an example of annuity due. You are usually required to pay rent when you first move in at the beginning of the month and then on the. first of each month thereafter, What is different here from ordinary annuity is that payment is made at the beginning For example you. invest one lakh rupee at the end of every year for 6 year rate of interest being 5 What is the amount. you will receive at the end of 5 years,Formula for calculating FV is. FV 1 00 000 1 05 6 1 1 05 1 00 000 1 34 1 1 05 Rs 7 14 000. Now compare it with the amount you received in ordinary annuity It was Rs 6 18 000 in annuity due it is. Rs 7 14 000 since period on which you earn interest is higher amount received will be higher. Questions 7 Shobhit pays Rs 10 000 annual rent at the beginning of every year for 4 years If rate of. interest is 8 what is the value of rent paid by Shobhit in 4 years. Question 8 Your mother is planning to retire this year Her firm has offered her a lump sum retirement. payment of 50 000 or a 6 000 lifetime annuity due whichever she chooses Your mother is in reasonably. good health and expects to live for at least 15 more years Which option should she choose assuming that. an 8 percent annual interest rate is appropriate to evaluate the annuity. Question 9 A loan of Rs 50 000 is due 10 years from today The borrower wants to make annual payments. at the beginning of each year into a sinking fund that will earn interest at an annual rate of 10 percent. What will the annual payments have to be,Present value of Annuity Due. Ram receives Rs 5000 every year in the beginning of the year for 10 years What is the value of these cash. flows at present if rate of interest is 10,PV 5000 1 1 10 10 1 10 5000 1 59 1 10.
0 10 0 10 2 59, Rs 33764 Thus we see when it was annuity due amount to be received was Rs 30 695 and in annuity due. amount is Rs 33764, CAIIB Advanced Bank Management Correspondence Course Vaibhav Awasthi Page 14. Unit 13 Sampling Methods, Population means an aggregate of items to be studied for investigation Population can be finite or infinite. It will not be always possible to study the whole population due to the massiveness of resources which will. be involved Thus a sample is chosen from the entire population By studying this sample behaviour. characteristic of the population is predicted For example during elections exit polls are conducted based. on which results for entire elections are predicted. There are two methods of calculating sample, i Random or probability sampling where each item has equal probability of being selected. ii Non Random or judgment sampling where identification is done on personal knowledge or opinion of. the investigator,RANDOM SAMPLING,There are four main types of random sampling.
1 Simple Random Sampling where samples are selected by a method that permit each possible sample. to have an equal probability of being picked up and each item in the entire population has an equal chance. of being included in the sample,2 Systematic Sampling. 3 Stratified Sampling To use stratified sampling we divide the population into relatively homogenous. groups called strata Stratified sampling is appropriate when the population is already divided into groups. of different sizes and we wish to acknowledge this fact Example middle class upper class lower middle. class etc or according to age race sex or any other stratification. 4 Cluster Sampling In cluster sampHng we divide the population into groups or clusters and then select a. random sample of these clusters We assume that these individual clusters are representative of the. population as a whole,Comparison of Stratified and Cluster Sampling. With both stratified and cluster sampling the population is divided into well defined groups We use. stratified sampling when each group has small variation within itself but there is wide variation between. the groups We use cluster sampling in the opposite case when there is considerable variation within each. group but the groups are essentially similar to each other. Concept of deviation and standard error, Standard Deviation often abbreviated as Std Dev or SD provides an indication of how far the. individual responses to a question vary or deviate from the mean SD tells the researcher how spread out. the responses are are they concentrated around the mean or scattered far wide. Let s say you ve asked respondents to rate your product on a series of attributes on a 5 point scale The. mean for a group of ten respondents labeled A through J below for good value for the money was 3 2. with a SD of 0 4 and the mean for product reliability was 3 4 with a SD of 2 1 At first glance looking at. the means only it would seem that reliability was rated higher than value But the higher SD for reliability. could indicate as shown in the distribution below that responses were very polarized where most. respondents had no reliability issues rated the attribute a 5 but a smaller but important segment of. CAIIB Advanced Bank Management Correspondence Course Vaibhav Awasthi Page 15.

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