CAIIB BFM Formulas Cheat Sheet 2026 — Forex, Duration, ALM & CRAR on One Page

Last updated by BankersClub on June 30, 2026

Quick Answer: This is the complete CAIIB BFM formula reference covering all 4 modules — Forex (Module A/C), Bond Pricing & Duration (Module C), Asset-Liability Management/Gap Analysis (Module C), Market Risk/VaR (Module B), and Balance Sheet Management ratios (Module D). Forex formulas are covered in depth in our dedicated forex calculations guide — this page summarises them plus everything else BFM tests numerically.

CAIIB BFM Formulas Cheat Sheet 2026 — Forex, Duration, ALM & CRAR on One Page

BFM is the most calculation-dense CAIIB paper. Beyond forex, you need bond pricing and duration (Module C’s hardest sub-topic), gap analysis for interest rate risk (ALM), Value at Risk basics (Module B), and balance sheet ratios (Module D). None of these formulas are individually difficult — the challenge is volume and unfamiliarity. This page puts every BFM formula in one place with the context for when to use each.

1. Forex Formulas — Summary

Full worked examples for every forex formula are in our dedicated forex calculations guide. Quick reference below:

Formula	Expression
Cross Rate	FC1/FC3 = FC1/FC2 × FC2/FC3
Forward Rate (Premium)	Spot + Swap Points
Forward Premium % (p.a.)	[(F−S)/S] × (12/n) × 100
Interest Rate Parity	F = S × (1+r_d·t)/(1+r_f·t)
TT Buying Rate	Spot Bid − Exchange Margin
TT Selling Rate	Spot Ask + Exchange Margin
Bill Buying Rate	TT Buying − Transit Interest

2. Bond Pricing & Duration

2.1 — Bond Pricing

Bond Price (Present Value of Cash Flows)

Price = Σ [C / (1+y)ᵗ] + [FV / (1+y)ⁿ]

C = coupon, y = yield, FV = face value, n = years to maturity

Current Yield

Current Yield = Annual Coupon / Market Price

Simplest yield measure — ignores time value and capital gain/loss

Worked Example — Bond Price

Q: A bond has face value ₹1,000, coupon rate 8% (paid annually), 3 years to maturity, and the market yield is 10%. Find the bond price.

Annual coupon (C) = 8% × 1,000 = ₹80

Price = 80/(1.10)¹ + 80/(1.10)² + 80/(1.10)³ + 1000/(1.10)³
= 72.73 + 66.12 + 60.11 + 751.31
= ₹950.27

Bond trades at a discount (₹950.27 < ₹1,000 face value) because coupon (8%) < market yield (10%)

2.2 — Macaulay Duration & Modified Duration

Macaulay Duration

D = Σ[t × PV(CFₜ)] / Bond Price

Weighted average time to receive cash flows

Modified Duration

MD = Macaulay Duration / (1 + y)

y = yield per period; measures price sensitivity to yield

Price Change Estimate

% ΔPrice = −MD × Δy × 100

Negative sign: price and yield move inversely

Rupee Price Change

ΔPrice = −MD × Δy × Bond Price

Absolute price impact in rupees

Worked Example — Macaulay & Modified Duration

Q: A 3-year bond, face value ₹1,000, 8% annual coupon, yield 10%, has a price of ₹950.27 (from above). Cash flows: Year 1 = ₹80, Year 2 = ₹80, Year 3 = ₹1,080. Find Macaulay Duration and Modified Duration.

Year (t)	CF	PV of CF @10%	t × PV(CF)
1	80	72.73	72.73
2	80	66.12	132.24
3	1080	811.42	2,434.26
Total		950.27	2,639.23

Macaulay Duration = 2,639.23 / 950.27 = 2.778 years
Modified Duration = 2.778 / 1.10 = 2.525

If yield rises by 0.5% (50 bps):
% Price Change = −2.525 × 0.005 × 100 = −1.26%
Bond price falls by approximately 1.26% if yield rises 50 bps.

3. Asset-Liability Management — Gap Analysis

Gap analysis measures a bank’s exposure to interest rate risk by comparing Rate Sensitive Assets (RSA) and Rate Sensitive Liabilities (RSL) within a given time bucket.

Gap

Gap = RSA − RSL

Positive Gap (RSA > RSL) or Negative Gap (RSL > RSA)

Impact on NII

ΔNII = Gap × Δ Interest Rate

NII = Net Interest Income

Gap Ratio

Gap Ratio = RSA / RSL

>1 = Positive gap, <1 = Negative gap, =1 = Zero gap

Worked Example — Positive Gap, Rising Rates

Q: A bank has RSA = ₹500 crore and RSL = ₹350 crore in the 0–1 year bucket. Interest rates rise by 1%. Find the Gap and the impact on Net Interest Income.

Gap = RSA − RSL = 500 − 350 = ₹150 crore (Positive Gap)

ΔNII = Gap × Δ Interest Rate = 150 × 1% = ₹1.5 crore increase

With a positive gap, rising rates INCREASE NII (more assets reprice upward than liabilities)

Memory rule: Positive Gap + Rising Rates = Good for bank. Negative Gap + Rising Rates = Bad for bank. Positive Gap + Falling Rates = Bad for bank. Negative Gap + Falling Rates = Good for bank.

4. Market Risk — Value at Risk (VaR)

VaR (Parametric Method)

VaR = Z × σ × √t × Portfolio Value

Z = confidence level factor, σ = volatility (daily), t = holding period (days)

Z-values to memorise

90% confidence → Z = 1.28
95% confidence → Z = 1.65
99% confidence → Z = 2.33

Worked Example

Q: A forex portfolio is worth ₹50 crore. Daily volatility (σ) is 1.2%. Find the 1-day VaR at 99% confidence.

VaR = 2.33 × 1.2% × √1 × 50,00,00,000
= 2.33 × 0.012 × 1 × 50,00,00,000
= 0.02796 × 50,00,00,000
= ₹13,98,000

There is a 99% confidence that the portfolio will not lose more than ₹13.98 lakh in a single day.

10-day VaR extension: VaR(10-day) = VaR(1-day) × √10 = ₹13,98,000 × 3.162 = ₹44.2 lakh (square-root-of-time rule)

5. Balance Sheet Management Ratios

Ratio	Formula	What it Shows
Net Interest Margin (NIM)	NII / Average Earning Assets × 100	Core profitability from lending/investing
Spread	Yield on Assets − Cost of Funds	Gross interest rate margin before costs
Burden	Non-Interest Expense − Non-Interest Income	Net non-fund-based cost; lower is better
Net Interest Income (NII)	Interest Income − Interest Expense	Absolute interest profit
Cost of Deposits	Interest Paid on Deposits / Average Deposits × 100	Funding cost efficiency
Yield on Advances	Interest on Advances / Average Advances × 100	Return from the loan book
CRAR (Basel III)	(Tier I + Tier II) / RWA × 100	Capital adequacy; min 11.5% in India
LCR	HQLA / Net Cash Outflows (30-day) ≥ 100%	Short-term liquidity buffer

Note on CRAR and LCR: These ratios are tested in both ABM (Module D — Compliance) and BFM (Module D — Balance Sheet Management). The formula is identical; only the context of the question changes. See our ABM Formulas Cheat Sheet for the complete Basel ratio table including Tier I, CET1, and Leverage Ratio.

All BFM Formulas — One Reference Table

Formula Name	Expression	Module
Cross Rate	FC1/FC2 × FC2/FC3	A/C — Forex
Forward Rate	Spot ± Swap Points	A/C — Forex
Interest Rate Parity	S×(1+r_d·t)/(1+r_f·t)	A/C — Forex
Bond Price	Σ[C/(1+y)ᵗ] + FV/(1+y)ⁿ	C — Treasury
Macaulay Duration	Σ[t·PV(CFₜ)] / Price	C — Treasury
Modified Duration	Macaulay Duration / (1+y)	C — Treasury
Price Change %	−MD × Δy × 100	C — Treasury
Gap	RSA − RSL	C — ALM
NII Impact	Gap × ΔInterest Rate	C — ALM
VaR	Z × σ × √t × Portfolio Value	B — Risk Mgmt
NIM	NII / Avg Earning Assets × 100	D — Balance Sheet
Spread	Yield on Assets − Cost of Funds	D — Balance Sheet
Burden	Non-Int Exp − Non-Int Income	D — Balance Sheet
CRAR	(Tier I + Tier II) / RWA × 100	D — Balance Sheet
LCR	HQLA / Net Cash Outflows ≥ 100%	D — Balance Sheet

Frequently Asked Questions — BFM Formulas

Which BFM formula category has the most exam weight?

Forex (30–35 marks) is the largest, followed by bond pricing/duration and ALM/gap analysis combined (roughly 15–20 marks), then balance sheet ratios (10–12 marks), and VaR/market risk (5–8 marks). Prioritise your study time in that order.

Is duration calculation difficult to learn?

The concept is straightforward once you see one worked example — it’s a weighted average of when you receive cash flows. The arithmetic is repetitive (multiple PV calculations) rather than conceptually hard. Practice 5–6 duration problems and the process becomes automatic. The bigger trap is forgetting to discount the final cash flow’s redemption value along with its coupon.

Do I need to memorise present value factor tables?

No — use the calculator provided in the CBT exam to compute (1+y)ⁿ directly. You don’t need PV tables. What you must know is the formula structure and which numbers go in the numerator versus denominator.

What’s the easiest way to remember the Gap Analysis rules?

Think of it as “Positive Gap likes rising rates, Negative Gap likes falling rates.” A positive gap means more assets reprice than liabilities — so when rates rise, your income rises faster than your costs. The reverse logic applies for negative gap. Draw this out once on paper and the four scenarios become intuitive.