SECTION “A” (MULTIPLE CHOICE QUESTIONS)
1. Choose the correct answer for each from the given options:
(i) This is sanctioned by bank temporarily:
* Agricultural loan
* Long term loan
* Industrial loan
(ii) If the drawer of a cheque is the payee himself. Then this is written after the word ‘pay'”
* & Co.
* Name of Bank
(iii) The method of controlling credit money by the sale and purchase of government securities is called:
* Direct action
* moral persuasion
* Change in reserve ratio.
* open market operation
(iv) The Bill of exchange can be cashed from the bank before maturity by:
* renewal of bill
* discounting of bill
* re discounting of bill
(v) The price of one country’s currency in terms of other country’s currency is called:
* Foreign currency
* Letter of credit
* Exchange rate
* Local currency
(vi) If the drawer of a cheque signs on its back for transferring the rights of cheque to another person, this is called: * Material change
(vii) A notice is served in case of dishonour of:
* Promissory note
* Letter of Credit
*Bill of exchange
(viii) The creation of credit is the most important function of:
* Savings bank
* Co-operative bank
* Commercial bank
* Central bank
(ix) A letter of Credit is issued by the:
* Exporter bank
* Importer bank
(x) A bank not enlisted with the Central bank is called:
* Commercial bank
* Statutory bank
* Non-schedule bank
* Specialized bank
(xi) The drawee of cheque is the:
(xii) All Commercial banks keep their minimum reserves with:
* Stock exchange
* Central bank
* National saving centre
* Mortgage bank
(xiii) The Central bank advances loan to Commercial banks:
* by Clearing House
* Against cash reserve
* by Re-discounting Bill of exchange
* by Credit control
(xiv) Crossing of a cheque which contains the name of particular bank is called:
* Regular crossing
* Irregular crossing
* General crossing
* Special crossing
(xv) The circulation of Credit money in the country is controlled by:
* Industrial bank
* Commercial bank
* Agricultural bank
* Central bank
(xvi) The objective of clearing house is to:
* control credit money
* clear the transactions of member banks
* clear market rate.
* rediscount bills of exchange
SECTION ‘B’ (SHORT-ANSWER QUESTIONS)
Note: Attempt 7 questions from this section.
2.(i) List the kinds of Banks on the bases of function and ownership.
Kinds of Banks by Functions:
(i) Commercial Banks
(ii) Agricultural Bank.
(iii) Exchange Bank.
(iv) Industrial Bank.
(v) Cooperative Banks.
(vi) Investment Bank.
(vii) Saving Bank.
(viii) Central Bank.
(ix) Mortgage Bank.
(x) Consumer Bank.
Kinds of Banks by Ownership:
(i) Nationalized Banks.
(ii) Private Banks.
(iii) Statutory Banks.
(iv) Public Banks.
(v) Private Banks.
(vi) Cooperation Banks.
(vii) Chartered Banks.
(ii) Describe non-profitable uses of Bank fund
Banks are legally bound to make non profitable use of its funds on:
(i) Purchases of fixed assets.
(ii) Maintaining Cash Reserve I till cash.
(iIi) Bank Reserve at the Central Bank.
(i) Purchases of fixed assets:
Bank has to purchase some fixed assets for banking business such as building, land, furniture and fixture type writers, care, Turks, computers. etc.
(ii) Maintaining Cash Reserve / till cash:
The bank is required to keep sufficient amount as a reserve to meet checking obligation which is kept in vaults and his idle to meet unexpected heavy withdrawals by account holders at same times.
(iii) Bank Reserve at the Central Bank:
All scheduled commercial banks have to keep certain percentage of their deposit with the central bank to mandatory bank reserve on which central bank gives no interest.
(iii) Write the essential of Bill of exchange.
Essential of Bill of exchange:
(1) Bill of exchange must be in writing.
(2) It must be an order, not a request or promise.
(3) It must be addressed to a specific person.
(4) The order must be unconditional.
(5) It must be for a specific amount in money, not in barter.
(6) It must be addressed to a specific person.
(7) The bill is payable at certain date or on demand.
(iv) Explain Clearing house as a function of the Central bank
As the custodian of the cash reserves of the commercial banks, the .central bank acts as the clearing house for these banks. Since all banks have their accounts with the central bank, the central bank can easily settle the claims of various banks against each other with least use of cash. The clearing house function of the central bank has the- following advantages:
(i) It economies the use of cash by banks while settling their claims and counter-claims.
(ii) It reduces the withdrawals of cash and these enable the commercial banks to create credit on a large scale.
(iii) It keeps the central bank fully informed about the liquidity position of the commercial banks.
(v) List the steps involved in the opening of a Bank account
1. Decide the Type of Bank Account you want to open
2. Approach any Bank of choice & meet its Bank Officer
3. Fill up Bank Account Opening Form – Proposal Form.
4. Give References for Opening your Bank Account
5. Submit Bank Account Opening Form and Documents
6. Officer will verify your Bank Account Opening Form
7. Deposit initial amount in newly opened Bank Account.
(vi) What is meant by Crossing of cheque? Explain General Crossing.
Cross cheque refers to those cheques, which bears a. crossed its faced two parallel lines. Between these two lines the cheque may also contain some phrase. A cheque may be crossed in the following two ways
(a) General crossing
(b) Special crossing.
(a) General Crossing:
In general crossing two parallel lines are drawn across face with or without the phrase like “and Company”, “not negotiable”, etc. In these cases the amount of cheque Will be paid through a bank only. The specimen of different types of general crossing and their significance are given below:
The above three-types of crossed cheque indicate the same meaning. These types of cheque can be deposited in the bank a/c of any person with any bank. If the holder of the cheque does not have any bank a/c, he can encash the same through any other bank a/c holder.
(vii) List any five factors of the amount of Cash (Till Cash) requirement of a Commercial bank.
The factors of the amount of cash requirements (till cash) of a commercial bank are following:
(i). The nature of customers
(ii) Central bank policy.
(iii). The nature of deposits.
(iv) Nature of business.
(v) Trade policy of-the government.
(viii) Describe the methods/tools used in e-Banking.
The methods or tools used in E-Banking are following:
(1) Online Banking:
Online banking is an important method of e-banking. In online banking the customer can deposit and withdraw money through internet.
(2) Credit Cards:
In e-banking the banks issue credit cards to their customers. These credit cards have a magnetic strip and a magnetic chip. The credit cards holder can make immediate payment of goods purchased without using cash. Credit cards are classified into two groups. Bank charge cards and Non bank charge cards.
Automated Teller Machine (ATM) is a useful tool of e-banking. ATM card is used to operate account through the Automated Teller Machine at any time of day and night. This machine not only pays cash to the drawer but also functioning to deal with deposits taking account statement etc.
(4) Debit Card:
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.
(5) Mobile Banking:
It is the ability to access one’s account through the use of mobile phone in order to conduct a variety of payments and transactions. Banks realize that the mobile phone is the single most influencing technological device through which financial services can be delivered to customers at a much lower cost as compared to the traditional banking wet up.
(ix) List any Ten reasons of dishonouring of a cheque.
ANSWER: Please see Q. 2 (ix) of 2014 Private
(x) Define Cheque and state its parties.
“Cheque is an instrument in writing containing an unconditional order, addressed to a banker, sign by the person who has deposited money with the banker, requiring him to pay on demand a certain sum of money only to or to the order of certain person or to the bearer of instrument.”
1. Drawer: Drawer is the party who draws the cheque upon a specified banker. He is the maker of the cheque. He is the account holder who draws the cheque for drawing money from his bank account. He is the person who issues cheque directing the bank to pay a certain sum of money to a certain person or to the bearer. Thus, the person who signs the cheque is known as drawer.
2. Drawee: Drawee is the party upon whom the cheque is drawn. Drawee is the bank. It is the party to whom the drawer gives order to pay the amount to the person named on the cheque or his order to the bearer. When the bank follows the order and pays the amount of the cheque then the cheque is said to be honored. In case of refusal of the order, the cheque is said to be dishonored.
3. Payee: Payee is the party who presents the cheque for payment. He is the person who receives money from bank. He is the party in favor of whom cheque is issued. The payee is the person whose name is mentioned on the cheque. If the cheque is made payable to self, the drawer himself becomes the payee.
SECTION C (DETAILED·ANSWER QUESTION)
Note: Attempt Two questions from this section
3. What is meant by Credit control? Describe the various methods of Credit control used by the Central bank.
ANSWER: Please see Q. 4 of 2014 Private
4. Define Rate of exchange. Describe the factors affecting the rate of exchange.
ANSWER: Please see Q. 5 of 2014 Private
OR· How do Commercial banks create Credit? Explain.
ANSWER: When banks give out loans, they do not give out money that they already have. They simply give the loan, which is a promise to pay the actual money, which they never really have to do. In the economy, 95% of the money is in the form of bank credit. There is no real currency backing it. Whenever we borrow money, the bank creates new money. This process constantly (almost) expands the money supply. This dilutes the value of. the ‘existing money. This is because total debt has to keep expanding in order for people to be able to pay back what they owe; otherwise, there simply will not be enough money to earn to pay back what we owe. When that happens, we declare bankruptcy; there are foreclosures, unemployment and so on, which causes the vicious cycle of deflation.
5. Explain the functions of Central bank.
ANSWER: Please see Q. 3 of 2014 Regular