SECTION “A” (MULTIPLE CHOICE QUESTIONS)
1. Choose the correct answer for each from the given options:
(i) The first ever regular bank in banking history is the:
* Bank of England
* Bank of India
* Bank of Venice
* Bank of Barcelona
(ii) Central bank advances loans to commercial banks by:
* Rediscounting bills of exchange
* Clearing house facility
* Credit control
* Maintaining cash reserves of the commercial bank.
(iii) Credit is created by:
* Whole banking system
* Central bank
* Commercial banks
* Industrial banks
(iv) Stale cheque is:
* Older than six months
* older than three months
* Older than one month
* Older than one year
(v) When an endorsement contains a requirement, it is called:
* Sans recourse endorsement
* Qualified endorsement
* Special endorsement
* Restrictive endorsement
(vi) The Loan against credit card is secured by:
* The guarantee of a third party
* Cash holder’s property
* Goodwill of the cardholder
* none of these
(vii) In Online banking, a cheque of a bank can be presented at:
* any branch of same bank
* any bank
* special-branches of any bank
* special banks
(viii) I.0.U.stands for:
* I owe you
* I order you
* I offer you
* none of these
(ix) One of the sources for bank funds is:
* Discounting bills
* Issuing letters of credit
* Advances to the a/c. holder
* Federal funds purchase
(x) Before lending, the bank should check applicant co’s:
* Authorized capital
* Subscribed capital
* Called up capital
* Paid up capital
(xi) Bank rate policy is determined by:
* Provincial Government
* Central bank
* Federal Government
* Commercial bank
(xii) In Pakistan, currency notes are issued on the basis of:
* Fixed fiduciary system
* Minimum reserve system
* proportional reserve system
* none of these
(xiii) Central bank is banker’s bank because it:
* Rediscount bills
* Issues of letter of credit
* Draws bills
* none of these
(xiv) Telegraphic transfer refers to:
* Payment through post office
* Payment through commercial bank
* Payment through central bank
* Payment through mobile phone company
(xv) The State Bank of Pakistan was inaugurated by:
* Liaquat Ali Khan
* Abdul Rab Nishtar.
* Muhammad Ali Khan
(xvi) ATM can be operated by entering the:
* Account number
* CNIC number
* Personal Identification no
* National tax number
SECTION ‘B’ (SHORT-ANSWER QUESTIONS)
Note: Attempt 7 questions from this section.
2.(i) Describe various types of bank accounts.
Following are the different types of accounts, which can be opened in a commercial bank.
(i) Current Account:
Current accounts are most popular type of account. The bank allows the customers to withdraw the whole amount or a part of it whenever he likes but the account must have a balance of Rs. 5000 to maintain it.
On this type of account the bank does not give any interest, but on the other hand some bank charge for this type of services deducted by bank. Zakat of 2.5% is not deducted in this type of account.
(ii) Saving Account:
This account -is meant for the promotion of saving among the people. Usually Bank pays a fixed rate of interest. Withdrawal from saving accounts is allowed by cheques not more then twice a week and for total amount not exceeding 25,000. For withdrawals of large amounts a notice in writing must be given 7 days before withdrawals.
(iii) Fixed Deposit Account:
These accounts are opened for a specified period like three months, six months, one year, two years or more. Interest is paid at the ratio rising with the length of the period of account. It means the longest the period, the higher the rate of interest allowed. The fixed deposit can be withdrawn only after the maturity of the period for which it is made. If the deposit is withdrawn before the fixed date, the bank may not allow any interest at all.
(iv) Profit & Loss Saving Account:
To Islamize the economy, interest free banking has introduced in .Pakistan. In this system of interest free banking, profit and loss sharing (P.L.S) accounts are opened and maintained with the banks, on which they do not allow interest. Banks earn profits’ by utilizing the money deposits in these accounts, and ‘distribute a part of it among the shareholders.
(ii) Prepare a list of lending institutions and explain anyone of them.
Following are the list of landing institutions in Pakistan.
Development financial institutions
1. Pakistan Industrial Credit and Investment Corp Limited.
2. Pak Kuwait Investment Company Limited, Karachi
3. Pak Libya Holding Company Limited, Karachi
4. Pak-Oman Investment Company Limited, Karachi
5. Saudi Pak Industrial and Agricultural Investment
Company (Pvt.) Limited. (Islamabad)
6. House Building Finance Corporation, Karachi
7. Investment Corporation of Pakistan, Karachi
8. National Development Finance Corporation, Karachi
1. Industrial Development Bank
2. Punjab Provincial Cooperative Bank
3. SME Bank
4. Zarai Taraqiati Bank
Pakistan Industrial Credit and Investment
Pakistan Industrial Credit and Investment Corporation (PICIC) is a financial institution in Pakistan, one of the first Development finance institutions established with the World Bank Group assistance in 1957. In 2007, PICIC Commercial-Bank was bought by Singapore owned NIB Bank. Recently, NIB Bank has sold its thirty percent stake to Sakib Burgees & Consortium Private Limited.
(iii) Distinguish between a ‘stale chaque’ and a ‘post dated cheque’.
A Post Dated Cheque is one that has a date in future. A Stale Cheque is one in which the date is in the Past. Usually cheques have a validity of around 90 to 120 days.
So, lets say someone gave you a cheque in March 2011 and you have still not cashed it, it is a stale dated cheque.
Similarly if I give you a cheque with date as 10-May-2012 today (on 14 Jan 2012) it would be a Post dated cheque. In this case, the cheque is valid only on or after 10th May 2012. Until then, it is just a piece of paper.and is worthless.
(iv) Differentiate debit and credit cards.
Debit cards are used to pay for goods in shops and to withdraw money at cash machines. The money is automatically taken from your current account when you spend, so you must have funds in your account or an agreed overdraft to cover the transaction. Some of our debit cards are now contact less.
A credit card, such as Barclaycard, is not linked to your current account and is a credit facility to allow you to buy things immediately, up to a pre-arranged limit, but pay for them at a later date. The cost ‘of the purchase is added to your credit card account and you get a statement every month. You then have a choice of paying off the bill in full by a set date with no interest or paying at least a minimum amount and spreading the repayments over a period of time – you’ll have to pay interest on the balance if you do this, therefore, the quicker you payoff your balance, the less interest you’ll pay.
(v) List the kinds of cheques. Explain the cross cheque.
ANSWER: Please see Q.2 (x) of 2014 Private
(vi) Define letter of credit and list its kinds.
ANSWER: Please see Q.2 (vii) of 2014 Regular
(vii) Describe the Primary functions of Commercial bank.
ANSWER:. Please see Q.S of 2014 Regular
(viii) What. is meant by Endorsement? Mention its kinds.
ANSWER: Please see Q.2 (iii) of 2014 Regular
(ix) Mention the measures for correcting balance of payments and explain anyone.
The systematic record of all the economic transations between the residents of one country and the rest of the world during the period of one year is called Balance of payments. Foreign exchange is involved in the transaction of goods and services. When a country exports its products to other countries, it receives foreign exchange and when it imports goods and services, it makes payments in term of foreign exchange. For this purpose a country maintains a record of all the import payments and export receipts, this record is known as Balance of payments. The economic transactions include all the visible and invisible goods, imported and exported by a country. Visible goods are those such as wheat, rice, jute, cotton industrial goods and machinery. The invisible transactions are comprised of services of banks, shipping, forwarding companies and insurance companies.
Items of Balance of Payments:
The items of Balance of payments can be expressed as following:
(1) Current Account:
The current account is related to following transactions.
(iii) Unilateral Transfers
(2) Capital Account:
The capital account is composed of long term net foreign investment It contains following transactions.
(i) Long Terms Foreign Investment (Net).
(ii) Allocation of Special Drawing Rights.
(iii) Official Borrowing and Omissions (Net)
(3) Monetary Account:
Monetary account is related with the changes in gold and reserve assets. It contains following items.
(i) Official Reserve Assets
(ii) Official Liabilities.
(x) What are the various methods of making foreign remittances through banks? Describe the mechanism of anyone.
Remittance through bank are fast, secure and reliable way to send money to friends and family in Pakistan or anywhere else in abroad. Sending money through banking channels also contribute to the wealth of your beneficiary country, boosting national and local economies, in ways unofficial money transfer service do not. There are four quick and easy ways to make a remittance with bank.
(i) Through bank net remit… on line transfer in the banks web site using your debit card.
(ii) Through cash .over counter, bring your cash and your beneficiary will get money.
(iii) Through check or debit from your account at any branch.
(iv) Through net west bank.
SECTION C (DETAII:.ED-ANSWER QUESTION)
Note: Attempt Two questions from this section
3. Explain the functions of Central bank.
ANSWER:Please see Q.3 (OR)of 2014 Regular
OR Describe the various methods adopted by the central bank for credit control.
ANSWER: Please see Q.4 of 2014 Private
4. Define Bank funds and explain the principles of employing bank fund.
ANSWER: Please see Q.4 of 2014 Regular
5. Define Exchange Rate. How is the Exchange rate determined? Explain.
Rate of exchange is the rate at which the currency of one country is converted to the currency of another country. It is the value of one currency in terms of one another. In other words, it is the value of foreign currency to be paid in local currency. For example, when we purchase one U.S Dollar for Rs. 105 the rate of exchange between the dollar and Pak Rupees shall be $ 1 = Rs. 105 The ratio between the dollar and Pak rupees shall be 1: 105.
Determination of Rate of Exchange:
The rate of exchange between the currencies of two countries is determined by demand and .supply of foreign currency as well as home currency. The buying and selling of foreign money required through export and import of commodities and through remittance of funds from one country to another. The demand for foreign currency
increases with a fall in its value in terms of home currency. On the other hand, the supply of foreign currency increases with a fall in the value of home currency.
Rate of Exchange under different monetary system:
Historically we found three bases of determining of rate of exchange.
1. Under Gold Standard
2. Freely Fluctuating rates
3. Under Exchange Control.
(1) Under Gold standard:
Under gold standard, the currency units may either gold coins or are convertible into gold at fixed rates. Moreover, under this system free movement of gold is allowed. The rate of exchange between currencies of the countries on gold standard depends upon the relative amount of gold in currency unit. In other words when two countries are on gold standard, the actual rate of exchange will fluctuate around the ratio between the gold contents of the two currencies. For example, before 1914 both England and France where on gold standard the ratio of gold on their currencies is calculated as under.
1 English Sovereign = 7.32238 grams of pure gold.
1 French Napoleon = 5.80645 grams of pure gold.
Therefore, one sovereign = —————— = 1.2610769 Frances
(2) Freely Fluctuating Rates:
It is a system of exchange rates where the value of one currency in terms of another is free to fluctuate; in this case the rate of exchange is determined in the foreign exchange market by the demand for a currency in relation to the supply available in the market. There is a separate foreign exchange market in every important country and these markets are linked with telephone, telex, and fax etc. and money can transfer telegraphically from one centre to another. It change in the value of money in one market, therefore, immediately brings about a similar change in all markets. The rate of exchange under this system depends of the relations between a country’s imports and exports. To expand imports will cause its currency to depreciate in terms of others, to expand its exports will cause its currency to’ appreciate in terms of others.
There are some advantages in this method.
1. There is no loss of gold because paper currency is in circulation.
2. It enables a country. to preserve an independent monetary policy to suit the economic situation of the time.
There are some disadvantages in this method.
1. In case of more import the country face inflation.
2. Rate of exchange lacks in stability.
(3) Under Exchange Control:
When the Government intervene to require a special arrangements to allocate the foreign funds needed by people it is called exchange control. It also includes Government control. In short the government regulates the payments dealing in imports .and exports of currencies is called exchange control. The central bank generally performs this function in accordance with the monetary, fiscal, and foreign trade policy of the government.