What is Large Exposures Framework (LEF)?
A bank’s exposures to its counterparties may result in a concentration of its assets to a single counterparty or a group of connected counterparties. To address this concentration risk RBI has fixed limits on bank exposures to an individual business concern and to business concerns of a group. As per current guidelines of RBI a…
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What is Investment Fluctuation Reserve (IFR)?
Banks are required to build up of adequate reserves for mark to market (MTM) losses on investments held in AFS and HFT with effect from the year 2018-19. The provisioning for each of these quarters may be spread equally over up to four quarters, commencing with the quarter in which the loss is incurred. The…
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How to convert volatility from annual to daily, weekly or monthly?
Converting volatility (standard deviation) from annual to daily is pretty simple. The thumb rule for calculation is that the volatility is proportional to the square root of time, and not to time itself. For example you have average of 256 days trading days in a year and you find that implied volatility of a particular…
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What is exposure norms?
The Reserve Bank of India has mandated the banks to fix limits on their exposure to specific industry or sectors and has prescribed regulatory limits on banks’ exposure to single and group borrowers in India. This measure of RBI is aimed at better risk management and avoidance of credit risks. In addition to credit exposure…
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What is current account convertibility?
All financial exchanges between one country and another country of the rest of the world are made up of the current account transactions (such as exports and imports of goods and services of a country) and the capital account transaction that reflects net change in ownership of national assets. Capital account includes all kinds of…
What is the difference between HTM and HFT securities?
Contrasting HTM (held to maturity) securities in which the holder has the intention to hold them until specific date of maturity, ‘Held for Trading’(HFT) investments are the securities that a holder purchases with the intent of selling them within a short period of time, with the sole intent of generating short term profits by taking…
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