Question

    Which of the following are off-balance sheet item in the

    balance sheet of a bank or financial institution? i. Letter of credit ii. Bank Guarantee iii. Buyer’s credit iv Derivative contracts
    A Only i and ii Correct Answer Incorrect Answer
    B Only i, ii and iii Correct Answer Incorrect Answer
    C Only ii, iii and iv Correct Answer Incorrect Answer
    D Only i, ii and iv Correct Answer Incorrect Answer
    E All the above Correct Answer Incorrect Answer

    Solution

    Off balance sheet (OBS) items refer to assets or liabilities that do not appear on a company's balance sheet but that are nonetheless effectively assets or liabilities of the company. In letter of credit, bank guarantee and derivative contracts there is no direct exposure by the bank, but in case of contingency there may a liability for the bank.

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