SECTION “A” (MULTIPLE CHOICE QUESTIONS)
1. Choose the correct answer for each from the given options:
(i) These banks are not enlisted with the Central Bank:
* Commercial banks
* Statutory banks
* Non-scheduled banks
* Specialized banks.
(ii) A Commercial bank provides advice to clients on these matters:
(iii) Current account is more suitable for:
* Salaried people
* Business persons
(iv) “Monopoly on Notes issue” is a characteristics of:
* Industrial Bank
* Commercial Banks
* Exchange Bank
* Central Bank
(v) This term is used as a measure of monetary control:
* Bank Rate
* Exchange Rate
* Wages Rate
* Market Rate
(vi) Movement of this is diminished because of Clearing House:
* Credit money
* Metallic money
* Cash money
* Gold and Silver
(vii) Specimen signature card is maintained:
* to compare the signature on the cheque
* to do an exercise of signing
* to complete the documentary formalities
* to obtain new cheque book
(viii) Pay-in-slip is a written proof of:
* Transferring money
* Depositing money
* Withdrawing money
* Receiving money
(ix) The process of transferring a credit instrument is called:
(x) Crossing, which includes the name of bank, is called:
* Regular Crossing
* Irregular Crossing
* General Crossing
* Special Crossing
(xi) The amount of a Bill of exchange can be received from a bank, before maturity:
* by overdrafts
* by renewal
* by discounting
* by presenting to drawee
(xii) The head office of Zarai Taraqiati Bank Ltd. (ZTBL) is at:
(xiii) This type of securities is more marketable:
* Documents of relevant goods
* Shares, bonds and debentures
* Documents of Immovable property
* Documents of Machinery
(xiv) A rise in Bank Rate discourages the:
* business person
(xv) The drawee of cheque is:
(xvi) Commercial banks keep a certain amount of cash at hand:
* to meet public demand
* to meet the liquidity requirements of Central bank
* to have a feeling of satisfaction
* to expand their business
SECTION B (SHORT-ANSWER QUESTIONS)
NOTE: Answer 7 questions from this section.
2.(i) Explain the difference between Central Bank and Commercial Bank.
(1) Central bank does not accept deposit from customers whiles commercial bank does.
(2) Central bank is responsible for issuing of currencies whiles commercial bank does not.
(3) Central bank is accountable to the government whiles commercial bank is accountable to the share holders.
(4) Central bank is not set up for profit but commercial bank is set up for profit.
(5) Central bank is governed by an act of parliament whiles commercial bank is set up by an incorporation.
(6) Central bank formulates monetary policies whiles commercial bank does not.
(ii) Describe the secondary functions of Commercial Bank.
Along with the primary functions each commercial bank has to perform several secondary functions too. It includes many agency functions or general utility functions. The secondary functions of. commercial banks can be divided into agency functions and utility functions.
A. Agency Functions : Various agency functions of commercial banks are
- To collect and clear cheques, dividends and interest warrant.
- To make payment of rent, insurance premium, etc.
- To deal in foreign exchange transactions.
- To purchase and sell securities.
- To act as trusty, attorney, correspondent and executor.
- To accept tax proceeds and tax returns.
B. General Utility Functions : The general utility functions of the commercial banks include
- To provide safety locker facility to customers.
- To provide money transfer facility.
- To issue traveler’s cheques.
- To act as referees.
- To accept various bills for payment e.g. phone
- bills, gas bills, water bills, etc.
- To provide merchant banking facility.
- To provide various cards such as credit cards,
- debit cards, Smart cards, etc.
(iii) Mention the kinds of bank accounts.
ANSWER:Please see Q.no. 2(i) of 2013 Regular
(iv) Define the terms cheque and bill of exchange as given in Negotiable Instruments Act 1881.
ANSWER: Please see Q.2 (ix) of 2014 Regular
(v) In which two ways is a bill of exchange dishonoured?
A bill of exchange- is said to be dishonored when the. drawee refuses to accept or make payment on the bill. A bill may be dishonored by non-acceptance or non-payment.
1. If the drawee refuses to accept the bill when it is presented before him for acceptance, it is called dishonor by non-acceptance. When a bill is dishonored by non-acceptance, an immediate right of recourse against the drawer and endorser accrues to the holder. In this case, presentment for payment is not necessary:
2. If the drawer has accepted the bill, but on the due date, he refuses to make payment of the bill, it is called dishonor by non-payment. In this case the holder has immediate right of recourse against each party to the bill.
(vi) Define Endorsement and describe any three of its types.
ANSWER:Please see Q. 2(viii) of 2013 Regular
(vii) How does the Central Bank act as a banker to the government?
Banker to the Government:
The State Bank of Pakistan acts as the banker of both federal and provisional government. The State Bank of Pakistan makes all receipts and payments of government. The bank also extend unlimited amount of credit to the government for a maximum period of 3 months without any collateral security.
(viii) Explain objectives of exchange control.
Objectives of Exchange Control:
Exchange Controls are a set of rules, regulations and procedures which govern all foreign currency transactions between residents of The Bahamas and residents of foreign countries, referred to as non-residents.
Exchange Control is therefore used as a tool of economic and monetary policy, to:
Preserve the country’s external reserves and safeguard the balance of payments;
• Maintain the ‘fixed rate parity with the United States Dollar;
• Control expansion in the money supply, as well as speculation in the currency by non-residents;
• Provide a statistical means of monitoring the inflows and outflows of foreign currency
(ix) State the profitable and non-profitable uses of bank funds.
ANSWER: Please see Q. 5 of 2013 Private
(x) Describe the relationship of scheduled banks with the State Bank of Pakistan.
As banker to the scheduled banks, SBP:
Holds deposits made by them as a part of their required reserves-5% at this time.
Lends them funds as a “lender of the last resort” to meet their pressing needs by discounting their bills of exchange and other Acts as a Clearing House:
Provides facilities, physical and/or electronic, to scheduled banks to clear cheques and other claims drawn against each other-deposited by their customers for collection-by adding up .what they owe or owed them and transfer funds from their accounts at SBP.
SECTION “C” (DETAILED-ANSWER QUESTIONS)
NOTE: Attempt any Two questions.
3. Classify and explain the functions of Commercial Bank.
ANSWER: Please see Q. 3 of 2012 Private
4. What is meant by Gredit Control? Describe the quantitative measures taken by the State Bank of Pakistan for controlling Credit in Pakistan.
ANSWER: Please see Q.-3(or) of 2013 Regular
5. Explain the difference between the balance trade and balance of Payments. How can unfavourable balance of Payments be improved?
Difference between the balance trade and balance of Payments
Please see Q.2 (vii) of 2014 Private
Correction of a deficit in the balance of payments:
When there is a deficit, a country has to adopt various methods to correct it. The methods that can be applied include:
(a) Export promotion:
One of the best way to promote, export is to provide subsidies to exporters and applying tax exemption and trade fairs. These can encourage and empower the exporters, and with more production and export the disequilibrium can be reduced or corrected altogether.
(b) Reducing expenditure on imports:
This can be done by imposing high import tariffs, thus importation of goods will be reduced thus domestic goods will have to be more production of domestic goods, the outflow of the government funds will be reduced.
(c) Devaluation policy:
The reduction of currency is made in order to promote exports and discourage imports, as when a currency is devalued exports become cheaper while imports become more expensive.
(d) Increasing production:
In this, the production of export goods is increased hand in hand with the increase of the production of goods which would otherwise be imported.
(e) International cooperation:
International organizations such as IMF, the World Bank and the World Trade Organization, cap help to correct the balance of payment through aids, grants and loans.
(f) Financial assistance from donor countries:
Friendly nations can assist financially a country with deficit in balance if payment.