Bank exams jaiib

*WhatisCCIL?

OpenPosition:

Anopenpositionisatradethathasbeen

established,butwhichhasnotyetbeenclosedout

withanopposingtrade.

Ifaninvestorpurchases100sharesofastock,then

hehasanopenpositioninthatstockuntilitissold.

LongPosition:(buy)

Alongpositionreferstothepurchaseofanasset

withtheexpectationitwillincreaseit’svalueinnear

future.

ShortPosition:(sell)

Ashortpositionreferstoatradingtechniquein

whichaninvestorsellsasecuritywithplanstobuy

itlater.

TheGuidelinesforforeignExchangebusiness:

RBIhasissuedInternalControlGuidelines(ICG)in

2011forforeignexchangebusinesswhichcovers

variousaspectofdealingroomoperations,codeof

conductfordealersandbrokersandotheraspect

ofriskcontrolguidelines,includingsetupofthe

dealingroom,backofficeandriskmanagement

structure.

UnderICGbanksarerequiredtoputinplace

variousdealinglimitsfortheirFOREXoperationas

discussedbelow:

1-Overnightlimit:

Maximumamountofopenpositionorexposurea

bankcankeepovernight,whenmarketsinitstime

zoneareclosed.

2-Daylightlimit:

Maximumamountofopenpositionorexposure,

thebankcanexposeitselfatanytimeduringthe

day,tomeetcustomer’sneedsorforitstrading

operations.

3-GapLimit:

Maximuminterperiod/monthexposureswhicha

bankcankeep,arecalledgaplimit.

4-CounterPartyLimit:

Maximumamountthatabankcanexposeitselfto

aparticularcounterparty.

5-Countryrisk:

Maximumexposureonasinglecountry.

6-Dealerlimits:

Maximumamountadealercankeepexposure

duringtheoperatinghours.

7-StopLossLimit:

Maximummovementofratesagainsttheposition

held,soastotriggerthelimit—orsaymaximum

losslimitforadversemovementofrates.

8-Settlementrisk:

Maximumamountofexposuretoanyentity,upto

spotdateandalsoonfuturedate.(riskthattrade

willnotsettle)

9-Dealsizelimit:

Highestamountforwhichadealcanbeentered.Join

Thelimitisfixedtorestricttheoperationalriskon

largedeals.

*WhileRBIhasprescribedthebroadmacro

guidelineonoperationsandriskmanagement.

*MicroguidelineshavebeenissuedbyFIDAIon

certainaspectsofFXdealing.

MitigationofSettlementRisk-Indianscenario:

InIndia,CCIL(ClearingCorporationofIndia)

conductsnettedsettlementsforvarioussegments

ofmoneyandFOREXmarkets.

CCILactsasCentralCounterParty(CCP)andtakes

overthesettlementrisk,forwhichitcreatesalarge

poolofresources,calledSettlementGuarantee

Fund(SGF)whichisusedtocovertheoutstanding

ofanyparticipantsincaseofdefaults.

IncaseofsettlementofFOREXdeals,the

participantbanksendsafilewithdetailsofdealsto

besettled,givingamountsinforeigncurrency,

dealsrates,amountinRupee,andvaluedatesJoin

alongwithcounterpartybanks,whichCCTLsettles

onnettedbasis,leadingtoonlyoneinflowor

outflowofforeigncurrencyandINRforonebank.

Theonlyconditionisthatboththecounterparties

shouldbememberofCCIL.

ClearingCorporationofIndia(CCIL):

CCILisaninstitutioncreatedforthepurposeof

clearingandsettlementinRepos,CBLOs

(CentralizedBorrowingandLendingMarket),gilts

andinterbankFOREXdeals.

Itisaclearingcorporation,whichtakesoverthe

settlementrisksofthebanks,andundertakes

settlementinvariousinstrumentsonnetsettled

basis.