IBSL Intermediate in Applied Banking and Finance (IABF) Exam cheat sheet

Payment systems: RTGS settles high-value, irrevocable, same-day interbank payments individually; ACH/batch systems net and settle lower-value, higher-volume payments.

KYC/CDD: identity verification, beneficial ownership identification, and risk rating precede account opening; enhanced due diligence applies to PEPs and high-risk jurisdictions.

Nostro account = our account held at a correspondent bank in their currency; vostro account = a correspondent's account held with us.

Loan loss provisioning: expected credit loss = PD x LGD x EAD, discounted over the exposure's lifetime for non-credit-impaired assets.

Capital adequacy (Basel III): CET1 minimum 4.5%, Tier 1 minimum 6%, total capital minimum 8% of risk-weighted assets, plus capital conservation buffer 2.5%.

Liquidity ratios (Basel III): LCR = high-quality liquid assets / net cash outflows over 30 days, minimum 100%; NSFR = available stable funding / required stable funding, minimum 100%.

Double-entry ledger rule: every transaction debits one account and credits another by equal amounts; assets = liabilities + equity must hold after each posting.

Reconciliation control: the difference between internal ledger balance and external statement must equal the sum of items in transit (deposits, withdrawals, charges).

Operational risk event categories: internal fraud, external fraud, employment practices, clients/products/business practices, damage to physical assets, business disruption, execution/delivery/process management.

Time value: FV = PV(1+r)^n; PV = FV/(1+r)^n; for m compounding periods per year use r/m and n*m periods.

Annuity present value (ordinary): PV = PMT x [1 - (1+r)^-n]/r; annuity due multiplies this by (1+r).

Bond price = sum of coupon/(1+y)^t plus face/(1+y)^n; price and yield move inversely, with longer duration giving greater price sensitivity.

Duration approximates price change: %change in price ≈ -modified duration x change in yield; modified duration = Macaulay duration/(1+y).

CAPM: required return = risk-free rate + beta x (market return - risk-free rate); beta measures systematic, not diversifiable, risk.

NPV rule: accept a project if NPV > 0 at the cost of capital; IRR is the discount rate making NPV zero, and IRR can mislead when comparing scale or non-conventional cash flows.

Interest rate parity: forward premium/discount ≈ interest rate differential; covered parity links spot, forward, and the two risk-free rates.

Money multiplier = 1/reserve requirement ratio (simple model); central banks set policy rates and reserve requirements to influence credit creation.

Real return ≈ nominal return - inflation (Fisher approximation); exact: (1+nominal) = (1+real)(1+inflation).