a$.$ Explain the difference between Direct Assignment and Participation Loan.

b$.$ A recent directive by RBI suggest that direct assignment should not be considered as a part of

securitized assets. Explain the rationale.

Write a short note any two:

a$.$ Capital Adequacy Ratio

b$.)$ Credit Swap

Letter of Credit

A bank holds a bond in its investment portfolio with a maturity of $5$ years, coupon rate of $8\%$ and yield

of $10\%.$ While market interest rates are currently at $10\%$ percent for comparable quality securities$,$ an

increase to $12$ percent is expected in the coming weeks. What change $($in percentage terms$)$ will the

bond's price experience if market interest rates change as anticipated?

a$.$ Suppose a bank reports interest$-$sensitive assets of Rs$.570$ crores and interest$-$sensitive

liabilities of Rs$.570$ crores. What is the bank's dollar interest$-$sensitive gap? Its relative interest$-$

sensitive gap and interest$-$sensitivity ratio? How can the bank immunize the risk arising out of

this condition?

b$.$ A bank has average asset duration of $3\mathrm{.}25$ years and an average liability duration of $1\mathrm{.}75$ years.

Its liabilities amount to Rs$.485$ crores, while its assets total Rs$.512$ crores. Suppose that interest

rates were $7$ percent and then rise to $8$ percent. What will happen to the value of the Bank's net $-$

worth as a result of $$dectine in interest rates?

Ride $($iverns$)$

Explain in detail the securitization process. As a risk taking investor, which tranche created under

securitization process would you like to invest in$?$ Explain the rationale.