RBI Grade B Finance and Management (FM) Syllabus

How does a futures contract differ from a forward contract?

Futures are standardised, exchange-traded, and cleared through a clearinghouse with daily mark-to-market and margins; forwards are customised, OTC, with counterparty risk and settlement at maturity.

What is the difference between a call option and a put option?

A call option gives the holder the right (not obligation) to buy the underlying at the strike price; a put option gives the right to sell the underlying at the strike price, before/at expiry.

What is a swap in derivatives, and name a common type?

A swap is an agreement to exchange cash flows over time; the most common is an interest-rate swap, where fixed-rate payments are exchanged for floating-rate payments on a notional principal.

What is a mutual fund and how is its price (NAV) determined?

A mutual fund pools investors' money to invest in a diversified portfolio managed by an AMC. NAV (Net Asset Value) = (Total assets - liabilities) / number of outstanding units, computed daily.

Differentiate open-ended from close-ended mutual fund schemes.

Open-ended funds allow continuous buying/redemption at NAV with no fixed maturity. Close-ended funds have a fixed maturity and a set number of units, traded on the exchange after the NFO.

What is the National Pension System (NPS) and who regulates it?

A voluntary, defined-contribution retirement savings scheme with market-linked returns and tier-I/tier-II accounts; regulated by the PFRDA (Pension Fund Regulatory and Development Authority).

What are Development Financial Institutions (DFIs) and give Indian examples.

DFIs provide long-term finance for industrial/infrastructure/sectoral development. Examples: NABARD (agriculture/rural), SIDBI (small industries), EXIM Bank (trade), NHB (housing), and the National Bank for Financing Infrastructure and Development (NaBFID).

What is an NBFC and how does it differ from a bank?

A Non-Banking Financial Company lends and invests but cannot accept demand deposits, is not part of the payment/settlement system, and does not issue cheques. Unlike banks, depositors lack DICGC insurance.

Name the RBI's four-layered NBFC scale-based regulation structure.

Base Layer (NBFC-BL), Middle Layer (NBFC-ML), Upper Layer (NBFC-UL), and Top Layer (NBFC-TL, normally empty unless risk warrants), introduced under the Scale Based Regulation framework (2022).

What are the three principal types of risk faced by banks?

Credit risk (borrower default), Market risk (loss from price/rate/forex movements), and Operational risk (loss from failed processes, people, systems, or external events). Liquidity risk is also key.

What is credit risk and how is it measured under Basel?

The risk of loss from a borrower/counterparty failing to meet obligations. Measured via Probability of Default (PD), Loss Given Default (LGD), and Exposure at Default (EAD); Expected Loss = PD x LGD x EAD.

Distinguish liquidity risk from market risk.

Liquidity risk is the inability to meet obligations or fund assets without large losses (funding/market liquidity). Market risk is loss from adverse movements in interest rates, equity prices, exchange rates, or commodity prices.

What is the Basel Framework and which body issues it?

A set of international banking-supervision standards on capital adequacy, risk management, and liquidity, issued by the Basel Committee on Banking Supervision (BCBS) under the Bank for International Settlements (BIS).

What are the three pillars of Basel II?

Pillar 1: Minimum Capital Requirements (credit, market, operational risk); Pillar 2: Supervisory Review Process; Pillar 3: Market Discipline (disclosure).

What new requirements did Basel III introduce over Basel II?

Higher and better-quality capital (CET1), a Capital Conservation Buffer, a Countercyclical Buffer, a Leverage Ratio, and two liquidity standards — the Liquidity Coverage Ratio (LCR) and Net Stable Funding Ratio (NSFR).

What is the minimum total Capital Adequacy Ratio (CRAR) under Basel III, and the higher Indian (RBI) norm?

Basel III minimum total capital = 8% of risk-weighted assets (plus a 2.5% capital conservation buffer = 10.5%). RBI mandates a minimum CRAR of 9% for Indian banks (effectively 11.5% with the buffer).

State the formula for the Capital Adequacy Ratio (CRAR).

CRAR = (Tier 1 Capital + Tier 2 Capital) / Risk-Weighted Assets x 100.

What is the Liquidity Coverage Ratio (LCR) under Basel III?

LCR = High-Quality Liquid Assets (HQLA) / Total net cash outflows over 30 days; it must be at least 100%, ensuring banks can survive a 30-day stress scenario.

Define the Time Value of Money concept.

The principle that a rupee today is worth more than a rupee in the future because of its earning capacity (interest) and inflation; money available now can be invested to grow over time.

State the future value (FV) formula for compound interest.

FV = PV x (1 + r)^n, where PV = present value, r = interest rate per period, and n = number of periods.

State the present value (PV) formula and explain discounting.

PV = FV / (1 + r)^n. Discounting converts a future cash flow into its equivalent value today using the discount rate r over n periods.

What is the difference between effective annual rate and nominal rate under compounding?

Nominal rate is the stated annual rate; effective annual rate (EAR) reflects compounding frequency: EAR = (1 + r/m)^m - 1, where m = number of compounding periods per year. EAR exceeds nominal when m > 1.

Outline the evolution of management thought through its major schools.

Classical (Scientific Management - Taylor; Administrative - Fayol; Bureaucratic - Weber), Neo-classical/Behavioural (Hawthorne studies - Mayo, human relations), and Modern (Systems approach, Contingency approach, Quantitative/Management Science).

What is Taylor's Scientific Management known for?

F.W. Taylor's approach (the 'Father of Scientific Management') emphasising time-and-motion studies, standardisation, scientific selection/training of workers, differential piece-rate pay, and the one-best-way to do work.

List Henri Fayol's five functions of management.

Planning, Organising, Commanding (Directing), Coordinating, and Controlling. (Modern texts often list Planning, Organising, Staffing, Directing, and Controlling — POSDC.)

What is the difference between a functional and a divisional organisational structure?

Functional structure groups jobs by specialised function (marketing, finance, production). Divisional structure groups by product, geography, or customer, each division operating semi-autonomously with its own functions.

Explain Maslow's Hierarchy of Needs in order.

From lowest to highest: Physiological, Safety, Social (Love/Belonging), Esteem, and Self-actualisation. A satisfied need no longer motivates; people seek the next level up.

What does Herzberg's Two-Factor Theory state?

Hygiene factors (salary, working conditions, policies) prevent dissatisfaction but don't motivate; Motivators (achievement, recognition, growth, responsibility) drive satisfaction and motivation. The two operate on separate scales.

Contrast McGregor's Theory X and Theory Y.

Theory X assumes employees are lazy, avoid work, and need control/coercion. Theory Y assumes employees are self-motivated, seek responsibility, and exercise self-direction, favouring participative management.

What are the main styles of leadership in Lewin's classification?

Autocratic (leader decides alone), Democratic/Participative (decisions shared with the group), and Laissez-faire (minimal interference, group decides). Democratic generally yields higher satisfaction and quality.

Name the key elements of the communication process and a common barrier.

Sender, encoding, message, channel/medium, receiver, decoding, and feedback (with 'noise' interfering). Common barriers: semantic (language), physical, psychological, and organisational barriers.

What is corporate governance and which Indian committee laid early groundwork for it?

Corporate governance is the system of rules, practices, and processes by which a company is directed and controlled, balancing stakeholder interests (transparency, accountability, fairness, responsibility). In India, the Kumar Mangalam Birla Committee (1999) and later SEBI's Clause 49 / LODR shaped the framework.