The worked question on this page is original educational practice. It is not represented as a question from an official previous-year examination paper.
01 / UNDERSTANDING
Review the question
Write an original cash-gap scenario asking which risk appears when refinancing becomes uncertain. Use otherwise similar secured and unsecured cases to isolate one feature. An original checkpoint is: What risk arises if the borrower must replace maturing short-term funding when expected receipts are delayed? Supported answer: Rollover risk. Explain the decisive fact, then alter one condition and solve again. This is an original practice method, not a claim that the question appeared in an official past paper.
02 / UNDERSTANDING
The concept in context
Money-market instruments can carry credit, liquidity and rollover risk even when their contractual maturity is short. A useful study check is to record maturity, issuer and collateral features, then identify dependence on replacement funding. Explain why the method fits the stated facts before applying it to a changed situation.
03 / UNDERSTANDING
A worked learning case
A fictional firm needs funds for thirty days until customer receipts arrive. One proposed arrangement is unsecured borrowing; another uses eligible securities as collateral. Both bridge a short timing gap, but collateral and counterparty exposure differ. If expected receipts are delayed, the firm may need replacement funding, illustrating rollover risk rather than proving that short-term borrowing is automatically safe.
ORIGINAL EDUCATIONAL PRACTICE
Try it before you check.
What risk arises if the borrower must replace maturing short-term funding when expected receipts are delayed?
Show the answer and reasoning
Rollover risk.
The borrower still owes the maturing amount even though its planned receipt has not arrived. It may need a new funding arrangement, which might be unavailable or more costly. That refinancing uncertainty is rollover risk. Short maturity limits the contractual horizon but does not guarantee that replacement liquidity will be accessible.
Two traps to watch for.
- Equating short maturity with the absence of risk.
- Ignoring collateral when comparing funding instruments.
YOUR TOPIC-SPECIFIC LEARNING MAP
Learn from the attempt
Record maturity, issuer and collateral features.
Trace the intended repayment cash flow.
Identify dependence on replacement funding.
Explain the idea, apply it to a new situation, then check what changed in your reasoning.
BANKERS TUTORIAL · SOURCE NOTES
Keep the source alongside your notes.
Official links provide subject context and authoritative reference material. This guide’s explanation, scenario and question are original Bankers Tutorial learning content.
- m.rbi.org.in https://m.rbi.org.in/commonman/english/scripts/FAQs.aspx?Id=711
- rbi.org.in https://rbi.org.in/scripts/PublicationsView.aspx?Id=18086
For RBI preparation, check the current official notice before relying on changing dates, rules or examination requirements.
