Directions
(1-15): Read the following passage carefully and answer the questions given
below it. Certain words/phrases have been printed in bold to help you to locate
them while answering some of the questions.
(1-15): Read the following passage carefully and answer the questions given
below it. Certain words/phrases have been printed in bold to help you to locate
them while answering some of the questions.
The
structure and operations of banks have undergone a rapid transformation in
recent years. Consequent upon the revolution in information technology and the
associated increase in competition financial intermediaries have become
increasingly global in geographical coverage and universal in the financial
operations, encompassing a wide range of activities including banking,
securities markets activities and insurance. In the face of widespread concerns
about declining profitability of banks, the Basel capital adequacy norms were
enacted.
structure and operations of banks have undergone a rapid transformation in
recent years. Consequent upon the revolution in information technology and the
associated increase in competition financial intermediaries have become
increasingly global in geographical coverage and universal in the financial
operations, encompassing a wide range of activities including banking,
securities markets activities and insurance. In the face of widespread concerns
about declining profitability of banks, the Basel capital adequacy norms were
enacted.
Although the
Basel norms helped to arrest the erosion of banks, capital ratios, concerns
were raised regarding the mere applicability of baseline capital ratios in the
changed environment of operation. The blurring of both functional as well as
national divisions among the financial intermediaries, and the speed and
complexity of adjustment, made it difficult for regulators to keep up with the
growing pace change. In particular, the rule of ‘one-size-fits-all’ aspect of
the capital adequacy ratio was the subject of intense debate. Recent banking
crisis only emphasized the point that baseline capital adequacy norms were not
adequate to hedge against failures. In response to the same, the Basel
Committee on Banks’ Supervision came out with the new Consultative Paper on
Capital Adequacy. It invited suggestions from the policymakers, academia and
other institutes all over the world. After taking into consideration manifold
suggestions of the various organizations, the second Consultative Paper on
Capital Adequacy was released.
Basel norms helped to arrest the erosion of banks, capital ratios, concerns
were raised regarding the mere applicability of baseline capital ratios in the
changed environment of operation. The blurring of both functional as well as
national divisions among the financial intermediaries, and the speed and
complexity of adjustment, made it difficult for regulators to keep up with the
growing pace change. In particular, the rule of ‘one-size-fits-all’ aspect of
the capital adequacy ratio was the subject of intense debate. Recent banking
crisis only emphasized the point that baseline capital adequacy norms were not
adequate to hedge against failures. In response to the same, the Basel
Committee on Banks’ Supervision came out with the new Consultative Paper on
Capital Adequacy. It invited suggestions from the policymakers, academia and
other institutes all over the world. After taking into consideration manifold
suggestions of the various organizations, the second Consultative Paper on
Capital Adequacy was released.
The Accord
rests on three pillars; the first pillar of minimum capital requirement, the
second pillar of supervisory review process and the third pillar of market
discipline. The first pillar sets out the minimum capital requirements. The new
framework maintains both the current definition of capital and the minimum
requirement of 8% of capital to risk-weighted assets. The revised Accord will
be extended on a consolidation basis to holding companies of banking groups.
The Accord stresses upon the improvement in measurement of risks. The credit
risk measurement methods have been made more elaborate than those in the
existing Accord. The new framework also emphasizes the measurement of
operational risk. For measuring credit risk, two options have been proposed.
The first is the standardized approach and the second is the internal rating
based approach. Under the standardized approach, the existing approach for
credit risk remains conceptually the same, but the risk-weights have been
enlarged to encompass exposures to a broad category of borrowers with reference
to the rating provided by rating agencies.
rests on three pillars; the first pillar of minimum capital requirement, the
second pillar of supervisory review process and the third pillar of market
discipline. The first pillar sets out the minimum capital requirements. The new
framework maintains both the current definition of capital and the minimum
requirement of 8% of capital to risk-weighted assets. The revised Accord will
be extended on a consolidation basis to holding companies of banking groups.
The Accord stresses upon the improvement in measurement of risks. The credit
risk measurement methods have been made more elaborate than those in the
existing Accord. The new framework also emphasizes the measurement of
operational risk. For measuring credit risk, two options have been proposed.
The first is the standardized approach and the second is the internal rating
based approach. Under the standardized approach, the existing approach for
credit risk remains conceptually the same, but the risk-weights have been
enlarged to encompass exposures to a broad category of borrowers with reference
to the rating provided by rating agencies.
Q1. What
necessitated the creation of Basel capital adequacy norms?
necessitated the creation of Basel capital adequacy norms?
(a) To study
the profitability pattern in the banks.
the profitability pattern in the banks.
(b) The
banks wanted its capital reserve ratios to be kept above 8%.
banks wanted its capital reserve ratios to be kept above 8%.
(c)
Regulatory body of the banks wanted to have uniform policy.
Regulatory body of the banks wanted to have uniform policy.
(d)
Corporate buyers compelled the lending institutions to do so.
Corporate buyers compelled the lending institutions to do so.
(e) None of
these
these
Q2. Which of
the following factors are responsible for rapid transformation in banks in
recent years?
the following factors are responsible for rapid transformation in banks in
recent years?
(a) The
forces of privatization and international players have compelled the banks to
do so.
forces of privatization and international players have compelled the banks to
do so.
(b) Control
from regulators has become meaningless for the banks to survive.
from regulators has become meaningless for the banks to survive.
(c) Sudden
upsurge in economy.
upsurge in economy.
(d) The
competition has increased and information technology has undergone a sea
change.
competition has increased and information technology has undergone a sea
change.
(e) None of
these
these
Q3.
According to the passage activities encompassed by banks are:
According to the passage activities encompassed by banks are:
(a) insurance,
housing finance and low cost funds.
housing finance and low cost funds.
(b) market
discipline, profit maximization and priority sector banking.
discipline, profit maximization and priority sector banking.
(c)
securities markets, insurance and banking.
securities markets, insurance and banking.
(d)
geographical coverage, universalization and transformation.
geographical coverage, universalization and transformation.
(e) None of
these
these
Q4. The main
features of the standardized approach are:
features of the standardized approach are:
(a) the
credit risk management should encompass large corporate borrowers.
credit risk management should encompass large corporate borrowers.
(b) the
borrowers should not have more than 8% risk weighted assets.
borrowers should not have more than 8% risk weighted assets.
(c) banks
capital reserve ratios should be strictly maintained.
capital reserve ratios should be strictly maintained.
(d) the risk
weights should take into consideration the rating of rating agencies.
weights should take into consideration the rating of rating agencies.
(e) None of
these
these
Q5. The
consultative paper of Basel Committee was a result of:
consultative paper of Basel Committee was a result of:
(a) three
pillar accord of academic institutes.
pillar accord of academic institutes.
(b)
contribution from international policy makers, academicians and institutions.
contribution from international policy makers, academicians and institutions.
(c) failure
of structures and operations of banks in the world.
of structures and operations of banks in the world.
(d) erosion
of banks’ fixed assets owing to global competition.
of banks’ fixed assets owing to global competition.
(e) None of
these
these
Q6. How did
Basel norms help the Bank?
Basel norms help the Bank?
(a) It
changed the environment of operations.
changed the environment of operations.
(b) The
decline in capital ratios was arrested.
decline in capital ratios was arrested.
(c) The
banks could successfully keep market discipline.
banks could successfully keep market discipline.
(d) It did
not erode the quality of risk measurement.
not erode the quality of risk measurement.
(e) None of
these
these
Q7. Emphasis
on operational risk measurement was the main feature of:
on operational risk measurement was the main feature of:
(a) theory
of three pillars risk management.
of three pillars risk management.
(b) first
consultative paper on capital adequacy.
consultative paper on capital adequacy.
(c) second
consultative paper on capital adequacy.
consultative paper on capital adequacy.
(d) Basel
capital adequacy norms.
capital adequacy norms.
(e) None of
these
these
Q8. Which of
the following difficulties was faced by regulators on prescription of Basel
norms?
the following difficulties was faced by regulators on prescription of Basel
norms?
(a) The
regulators could not keep up with growing pace of change.
regulators could not keep up with growing pace of change.
(b) There
was no provision for risk measurement.
was no provision for risk measurement.
(c) The
minimum requirement of 8% of capital could not be met.
minimum requirement of 8% of capital could not be met.
(d) The
supervisory review process could not be carried out.
supervisory review process could not be carried out.
(e) None of
these
these
Q9. Which of
the following is NOT a recommendation of second consultative paper on capital
adequacy?
the following is NOT a recommendation of second consultative paper on capital
adequacy?
(a) The
minimum capital requirement for a bank has been prescribed.
minimum capital requirement for a bank has been prescribed.
(b)
Universal financial operations are permitted within limited geographical
coverage.
Universal financial operations are permitted within limited geographical
coverage.
(c) The
supervisory review should be more comprehensive.
supervisory review should be more comprehensive.
(d) The
market discipline has to be observed by each bank.
market discipline has to be observed by each bank.
(e) None of
these
these
Q10.
According to passage factor(s) responsible for declining profitability in banks
was/were:
According to passage factor(s) responsible for declining profitability in banks
was/were:
(A)
cut-throat competition and technology revolution.
cut-throat competition and technology revolution.
(B)
globalization of financial intermediaries.
globalization of financial intermediaries.
(C)
privatization of insurance.
privatization of insurance.
(a) Only (A)
(b) Only (B)
(c) Both (A)
and (B)
and (B)
(d) Both (B)
and (C)
and (C)
(e) Neither
(A) nor (B)
(A) nor (B)
Directions
(11-13): Choose the word which is most similar in meaning to the word printed
in bold as used in the passage.
(11-13): Choose the word which is most similar in meaning to the word printed
in bold as used in the passage.
Q11.
Elaborate
Elaborate
(a) precise
(b)
discernible
discernible
(c)
explanatory
explanatory
(d)
enumerate
enumerate
(e) implicit
Q12. Options
(a)
alternatives
alternatives
(b)
distracters
distracters
(c) answers
(d) paths
(e)
directions
directions
Q13. Erosion
(a)
longitude
longitude
(b)
depletion
depletion
(c) assets
(d)
replenishment
replenishment
(e)
reclamation
reclamation
Directions
(14-15): Choose the word which is most opposite in meaning to the word printed
in bold as used in the passage.
(14-15): Choose the word which is most opposite in meaning to the word printed
in bold as used in the passage.
Q14. Accord
(a) summit
(b) record
(c)
disagreement
disagreement
(d)
difference
difference
(e)
withdrawal
withdrawal
Q15.
Manifold
Manifold
(a) single
(b) alone
(c) lonely
(d) isolated
(e) multiple
Solutions
S1. Ans.(e)
Sol. None of these
S2. Ans.(d)
Sol. The competition has increased and information technology has undergone a
sea change.
sea change.
S3. Ans.(c)
Sol. securities markets, insurance and banking.
S4. Ans.(a)
Sol. the credit risk management should encompass large corporate borrowers.
S5. Ans.(c)
Sol. failure of structures and operations of banks in the world.
S6. Ans.(c)
Sol. The banks could successfully keep market discipline.
S7. Ans.(a)
Sol. theory of three pillars risk management.
S8. Ans.(a)
Sol. The regulators could not keep up with growing pace of change.S9. Ans.(b)
Sol. Universal financial operations are permitted within limited geographical
coverage.
coverage.
S10. Ans.(c)
Sol. Both (A) and (B)
S11. Ans.(c)
Sol. Elaborate- involving many carefully
arranged parts or details; detailed and complicated in design and planning.
arranged parts or details; detailed and complicated in design and planning.
S12. Ans.(a)
Sol. Options and alternatives are
similar in meaning.
similar in meaning.
S13. Ans.(b)
Sol. erosion-the process of eroding or
being eroded by wind, water, or other natural agents.
being eroded by wind, water, or other natural agents.
depletion- reduction in the number or quantity of something.
S14. Ans.(c)
Sol. accord-an official agreement or
treaty.
treaty.
S15. Ans.(a)
Sol. manifold -many and various.
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