BANKING AWARENESS PRACTICE QUESTIONS FOR ALL EXAMS

1. The main function of an Asset Management Company is to:
a) hold the securities of various schemes
b) manage the funds by making investments in various types of securities
c) hold its property for the benefit of the unit holders
d) act on behalf of SEBI
e) All the above

2. What is the purpose of reduction in Cash Reserve Ratio (CRR)?
a) Reduce Credit Flow
b) Enhance Credit Flow
c) Enhance availability of cash
d) Reduce Cash transactions
e) None of the above

3. In India, conventionally, bonds are issued by institutions in ____ sector while debentures by corporate
in ____ sector.
a) private, public
b) public, private
c) either a or b
d) cooperative, NBFC
e) None of the above

4. Who notifies Foreign Trade Policy?
a) RBI
b) DGFT
c) Govt. of India
d) ECGC
e) None of the above

5. Cash kept in the currency chest is owned by?
a) Currency Chest branch bank
b) State Bank of India
c) Central Government
d) Reserve Bank of India
e) None of the above

6. Expand the term LIBOR as used in financial banking sectors?
a) Local Indian Bank Offered Rate
b) London-India Bureau of Regulations
c) Liberal International Bank Official Ratio
d) London Inter Bank Offered Rate
e) None of the above

7. Which one of the following rates is NOT decided by the RBI?
a) Bank Rate
b) Repo Rate
c) Reverse Repo Rate
d) Income Tax Rates
e) Only a & b

8. When more than one bank is allowing credit facilities to one party in coordination with each other under a formal arrangement, the arrangement is generally known as:
a) Participation
b) Consortium
c) Syndication
d) Multiple Banking
e) All the above

9. The headquarters of International Monetary Fund is ___
a) Geneva
b) Paris
c) London
d) Manila
e) Washington

10. The first insurance company was started in India in 1818 at:
a) Kolkata
b) Chennai
c) Mumbai
d) New Delhi
e) Allahabad

11. Which one of the following is not a "Money Market Instrument"?
a) Treasury Bills
b) Commercial Paper
c) Equity Shares
d) Certificate of Deposit
e) All the above

12. The Banking Codes and Standards Board of India was registered on 18 February, 2006 under
which of the following RBI Act?
a) Banking Regulation Act
b) The Societies Registration Act, 1860
c) Cooperative Societies Act
d) None of the above
e) All the above

13. Who is the chairman of Governing Council of BCSBI (Banking Codes and Standards Board of
India)?
a) K.C. Chakrabarty
b) A.C. Mahajan
c) HS Khurana
d) M.V. Nair
e) Salman Khurshid

14. Payment of cheques is governed by sections under_____:
a) Banking Regulation Act 1949
b) RBI Act 1934
c) Negotiable Instruments Act 1881
d) Prevention of Money Laundering Act 2002
e) None of the above

15. The Headquarters of Bank of International settlement is located at:
a) New York
b) London
c) Washington
d) Paris
e) Basel (Switzerland)

16. The Act governing forex activities in India is:
a) RBI act
b) FERA
c) FEMA
d) SEBI
e) Finance Ministry

17. Sri Arun Shrivastava has taken over charge on 15.05.2015 as new CMD of ____ bank.
a) Union Bank of India
b) United Bank of India
c) Syndicate Bank
d) Andhra Bank
e) Allahabad Bank

18. RBI advised Banks that all new cards issued - debit and credit, domestic and International shall be EMV (Europay MasterCard Visa) chip and pin based cards with effect from:
a) 1st September 2015
b) 1st October 2015
c) 1st November 2015
d) 1st August 2015
e) 15th August 2015

19. Benefits in core banking system are:
a) Reliable centralized data recovery
b) Data warehousing and data mining technologies
c) Integrated customer centric services
d) Core infrastructure can be used for future expansion
e) All the above

20. NRI Deposits are classified under:
a) Capital a/c
b) Current a/c
c) Special Foreign Deposit Account
d) Either b or c
e) None of the Above

21. Which of the following can be called as intermediary in the Financial System?
a) Insurance companies
b) Banking companies
c) Mutual funds
d) All the above
e) None of the above

22. Which type of machine is used by Business Correspondents?
a) Micro ATMs
b) POS
c) Biometric Card Reader
d) Solar empowered
e) Water resistant

23. The ceiling for repatriation of funds from NRE/FCNR accounts is:
a) Rs.2 lakhs
b) Rs.5 lakhs
c) Rs.10 lakhs
d) No ceiling
e) None of the above

24. Some banks are financing big projects like construction of roads, bridges etc. Financing
such projects means banks are helping exactly in:
a) Infrastructural Development
b) Project Management
c) Developing core sector Industry
d) Financial Inclusion
e) All of the above

25. Debentures are governed by____
a) Law of Contract
b) BR Act
c) Company Law
d) Banking Regulation Act
e) None of the above

26. The maturity period of CDs (Certificate of Deposit) issued by banks should not be less than ____ and not more than _____, from the date of issue.
a) 7 days, 6 months
b) 7 days, 1 year
c) 15 days, 6 months
d) 15 days, 1 year
e) 90 days, 180 days

27. The Main activity of the Financial Intelligence Unit India (FIU-IND) is to control:
a) Tax Evasion
b) Money Laundering
c) Terrorism
d) Avoiding NPAs
e) Avoiding frauds in ATMs

28. Infusion of liquidity, by RBI, is done through _____ from / to banks under a _____ transaction.
a) borrowing, repo
b) borrowing, reverse repo
c) lending, repo
d) lending, reverse repo
e) None of the above

29. Crossing a cheque is a direction to the:
a) Drawer
b) Payee
c) Paying Banker
d) Clearing House
e) Collecting banker

30. The minimum amount for which a CD (Certificate of Deposit) can be issued is:
a) Rs. 1 lakh
b) Rs. 2 lakh
c) Rs. 5 lakh
d) Rs. 10 lakh
e) Rs. 20 lakh

31. A rate of exchange established between any two currencies on the basis of the respective quotation
of each currency in terms of a third currency is known as:
a) Cross rate
b) Merchant rate
c) Wash rate
d) Composite rate
e) None of the above

32. CIBIL as a credit bureau caters to:
a) Consumer segments
b) Commercial segments
c) Both commercial and consumer segments
d) Nationalized Banks only
e) Private Banks only

33. Kishore Biyani-led Future Group agreed to merge its retail business stock deal worth Rs. 750
crore to create one of the biggest supermarket chains with Rs. 15,000 crore turnover with which of the following organizations?
a) V-Mart Retail
b) Shoppers Stop
c) Bharti Retail
d) Koutons Retail India
e) None of the above

ANSWERS
1) b 2) b 3) b 4) b 5) d 6) d 7) d 8) b 9) e 10) a
11) c 12) b 13) b 14) c 15) e 16) c 17) c 18) a 19) e 20) a
21) d 22) c 23) d 24) a 25) c 26) b 27) b 28) c 29) c 30) a
31) a 32) c 33) c

Primary and Secondary Functions of Commercial Banks

A commercial bank is a type of bank that provides services such as accepting deposits, making business loans, and offering basic investment products. On day to day functioning it discharge many functions broadly classified as Primary and Secondary Functions mentioned below.
I. Primary Functions
1) Accepting Deposits
2) Advancing Loans
II. Secondary Functions
1) Overdraft Facility
2) Discounting Bills of Exchange
3) Agency Functions
4) General Utility Functions

Primary Functions
1. Accepting Deposits:
It is one of the most important function of commercial banks. The commercial banks accept the deposits at lower rates and provide the loans. They accept deposits in several forms according to requirements of different sections of the society.
 The main kinds of deposits are:
i) Current Account Deposits or Demand Deposits: 
These deposits refer to those deposits which are repayable by the banks on demand.
★ Such deposits are generally maintained by businessmen with the intention of making transactions with such deposits. The business men usually deposit from their excess cash balances and withdraw when they need.
★ They can be drawn upon by a cheque without any restriction.
★ Banks do not pay any interest on these accounts. Rather, banks impose service charges for running these accounts.
ii) Fixed Deposits or Time Deposits: 
Fixed deposits refer to those deposits, in which the amount is deposited with the bank for a fixed period of time.
★ Such deposits do not enjoy cheque-able facility.
★ These deposits carry a high rate of interest.
iii) Saving Deposits: 
These deposits combine features of both current account deposits and fixed deposits.
★ The depositors are given cheque facility to withdraw money from their account. But, some restrictions are imposed on number and amount of withdrawals, in order to discourage frequent use of saving deposits.
★ They carry a rate of interest which is less than interest rate on fixed deposits. It must be noted that Current Account deposits and saving deposits are chequable deposits, whereas, fixed deposit is a non-chequable deposit.
2. Advancing of Loans:
 The deposits received by banks are not allowed to remain idle. So, after keeping certain cash reserves, the balance is given to needy borrowers and interest is charged from them, which is the main source of income for these banks.
 Different types of loans and advances made by Commercial banks are:
i) Cash Credit: The Cash credit refers to a loan given to the borrower against his current assets like shares, stocks, bonds, etc. A credit limit is sanctioned and the amount is credited in his account. The borrower may withdraw any amount within his credit limit and interest is charged on the amount actually withdrawn.
ii) Demand Loans: Demand loans refer to those loans which can be recalled on demand by the bank at any time. The entire sum of demand loan is credited to the account and interest is payable on the entire sum.
iii) Short-term Loans: They are given as personal loans against some collateral security. The money is credited to the account of borrower and the borrower can withdraw money from his account and interest is payable on the entire sum of loan granted.

Secondary Functions
1. Overdraft Facility: 
It refers to a facility in which a customer is allowed to overdraw his current account up to an agreed limit. This facility is generally given to respectable and reliable customers for a short period. Customers have to pay interest to the bank on the amount overdrawn by them.
2. Discounting Bills of Exchange: 
It refers to a facility in which holder of a bill of exchange can get the bill discounted with bank before
the maturity. After deducting the commission, bank pays the balance to the holder. On maturity, bank gets its payment from the party which had accepted the bill.
3. Agency Functions: 
Commercial banks also perform certain agency functions for their customers. For these services, banks charge some commission from their clients.
 Some of the agency functions are:
i) Transfer of Funds: 
Banks provide the facility of economical and easy remittance of funds from place-to-place with the help of instruments like demand drafts, mail transfers, etc.
ii) Collection and Payment of Various Bill Payments: 
Commercial banks collect cheques, bills, interest, dividends, subscriptions, rents and other periodical receipts on behalf of their customers and also make payments of taxes, insurance premium, etc. on standing instructions of their clients.
iii) Purchase and Sale of Foreign Exchange:
Some commercial banks are authorized by the central bank to deal in foreign exchange. They buy and sell foreign exchange on behalf of their customers and help in promoting international trade.
iv) Purchase and Sale of Securities:
Commercial banks buy and sell stocks and shares of private companies as well as government securities on behalf of their customers.
v) Income Tax Consultancy:
They also give advice to their customers on matters relating to income tax and even prepare their income
tax returns.
vi) Trustee and Executor: 
Commercial banks preserve the wills of their customers as trustees and execute them after their death as executors.
4. General Utility Functions: 
Commercial banks render some general utility services like:
i) Locker Facility: 
Commercial banks provide facility of safety vaults or lockers to keep valuable articles of customers in safe custody.
ii) Traveller's Cheques: 
Commercial banks issue traveler's cheques to their customers to avoid risk of taking cash during their journey.
iii) Letter of Credit: 
Commercial banks issue letters of credit to their customers to certify their creditworthiness.
iv) Underwriting Securities: 
Commercial banks also undertake the task of underwriting securities. As public has full faith in the creditworthiness of banks, public do not hesitate in buying the securities underwritten by banks.
v) Collection of Statistics: 
Banks collect and publish statistics relating to trade, commerce and industry. Hence, they advice customers on financial matters. Commercial banks receive deposits from the public and use these deposits to give loans. However, loans offered are many times more than the deposits received by banks. This function of banks is known as 'Money Creation'.

Banking Terms

Banking Book

The banking book comprises assets and liabilities, which are contracted basically on account of relationship or for steady income and statutory obligations and are generally held till maturity.

These securities are accounted for in a different way than those in the trading book, which are traded on the market and valued by the performance of the market.

In other words, an accounting book that includes all securities that are not actively traded by the institution, that are meant to be held until they mature.

Bank Rate

The Bank Rate (BR) has been defined in See 49 of RBI Act 1934 as the 'standard rate at which RBI is prepared to buy or rediscount bills of exchange or other commercial papers eligible for purchase under this act'. The RBI uses its lending power to banks (a) to influence their credit allocation and (b) to develop a genuine bill market in India.

Also, it is called an official interest rate at which the central bank rediscounts the approved bills held by a commercial bank. If the central bank wishes to control credit and inflation, it will increase the bank rate.

CBS

• CBS stands for Core Banking Solutions.
• Core or centralized banking solution is a heart of banking system
• This is a process by which a bank has interconnect their maximum branches through wide area network and only this system provide a facility of any branch or any time banking.

ICOR

ICOR stands for Incremental Capital Output Ratio.

ICOR is the Ratio of investment to growth which equals to one, divided by the marginal product of Capital. The higher the ICOR indicates lower the productivity of capital and lower the ICOR reflects high productivity of Capital. ICOR is the topic or instrument by which the Economic growth rate of company decided.

ICOR is calculated as:

ICOR = ­Annual Investment/Annual Increase in GDP

Global Depository Receipt (GDR)

Global Depository Receipt is a bank certificate issued in more than one country for shares in a foreign company. These shares are held by a foreign branch of an International bank. These shares are trades as domestic shares but are offered for sale globally through the various bank branches. A GDR is a very similar to an American Depository Receipt.

Automatic Stabilizer

Automatic Stabilizer is program that enhances and diminishes automatically for equalizing current economic trends without assistance of government. The best example for automatic stabilizer is unemployment insurance as it automatically replaces the lost income for people who have lost their jobs.

Also, Automatic Stabilizers are features of the tax and transfer systems that tend by their design to offset fluctuations in economic activity without direct intervention by policymakers.

Selective Credit Control

Selective Credit Control (SCC) refers to the directives issued by RBI u/s 21 of Banking Regulation Act 1949 to regulate flow of bank credit against security of sensitive/selected commodities. With a view to prevent speculative holding of essential commodities with the help of bank credit, RBI issues from time to time, directive covering the margin requirements and the level and quantum of accommodation that could be granted against the SCC items.

Selective controls are designed to check the conduct of lenders only, they also influence the attitude of the borrowers, by prescribing the terms on which certain kinds of loans may be made.

BANKING AWARENESS PRACTICE QUESTIONS

1. A draft issued by the bank has been lost by the payee. He sends a letter to the issuing bank to stop payment. Bank will:
a) Note caution and will advice the payee to contact purchaser of the draft
b) Not act on the request
c) Stop payment
d) Performs no action
e) None of the above

2. Mutual funds are required to be registered with:
a) AMFI
b) SEBI
c) IBA
d) RBI
e) NABARD

3. What is Yield Curve Risk?
a) It is a line of graph plotting the yield of all maturities of a particular instrument
b) Yield curve changes its slope and shape from time to time
c) Yield curve can be twisted to the desired direction through the intervention of RBI
d) All of the above
e) None of the above

4. The biggest international financial centre in the world:
a) Frankfurt
b) Geneva
c) London
d) New York
e) Paris

5. The expansion of BIFR, in the context of the Indian Industry is:
a) Board for Industrial and Financial Reconstruction
b) Bureau for Industrial and Financial Reconstruction
c) Board for Investment and Financial Reconstruction
d) Bureau for Investment and Financial Reconstruction
e) None of these

6. The largest financial conglomerate of India is:
a) HDFC Bank
b) ICICI Bank
c) IFCI
d) SBI
e) None of these

7. Under which of the following methods of depreciation, amount of depreciation varies every
year?
a) Written Down Value Method
b) Straight Line Method
c) Amount of depreciation does not vary on year to year basis
d) Either a or b
e) None of these

8. Usually, the validity period of an Income Tax Refund Order is:
a) 1 month
b) 2 months
c) 3 months
d) 6 months
e) 4 months

9. Which of the following is true about "White Card"?
a) It is related to companies producing milk products
b) It does not carry on its face, the brand of the issuer
c) It is meant to covert blank money into the economy
d) It is a card that provides white money
e) None of these

10. First bank in India to launch its interactive banking service through Dish TV:
a) HSBC
b) ICICI Bank
c) HDFC Bank
d) Axis Bank
e) None of these

11. First Indian Governor of the RBI:
a) C.D. Deshmukh
b) Sachindra Ray
c) S. Mukherjee
d) D.I.G. Patel
e) None of the above

12. CGTMSE (Credit Guarantee Fund Trust for Micro and Small Enterprises) has been set up on
the recommendations of:
a) Narashimham Committee
b) Ghosh Committee
c) Chore Committee
d) Kapoor Committee
e) Krishna Committee

13. The primary relationship between the banker and the customer is that of:
a) Trustee and beneficiary
b) Debtor and Creditor
c) Principal and agent
d) Lesser and lessee
e) None of these

14. A debt becomes time-barred after:
a) One year
b) Two and a half year
c) Three years
d) Five years
e) Six years

15. In the matter of handling bills of exchange for collection, the relationship between customer and
the bank is:
a) Trustee and the beneficiary
b) Principal and agent
c) Bailor and bailee
d) All of the above
e) None of the above

16. Hypothecation is:
a) A transaction of conditional sale
b) A legal transaction whereby goods may be made available as security for a debt
c) Transfer of ownership by the borrower to the lender
d) Either a or b
e) None of the above

17. Payment of a cheque may be countermanded by the ___
a) Payee
b) Drawer
c) True owner
d) Drawee
e) None of these

18. J.S. Verma Committee Report relates to:
a) Strengthening of weak banks
b) Corporate Governance
c) Bank Mechanization
d) All of the above
e) None of the above

19. AUsance Bill when presented for acceptance has to be accepted/ dishonoured within:
a) 24 hours
b) 36 hours
c) 48 hours
d) 60 hours
e) 26 hours

20. Invoice is a:
a) Accounting document
b) Legal document
c) Commercial document
d) All of the above
e) None of the above

21. When does a person become insolvent?
a) When he left with no property of his own
b) When he declares an insolvent by the Court
c) When he terminates from a job he was holding
d) When he declares himself to be an insolvent
e) None of the above

22. When two parties make an arrangement to exchange future cash flows, it is called:
a) Options
 b) Arbitrage
c) Swap
d) Futures
e) None of the above

23. Which of the following banks enjoys the reputation of being at the top in market capitalization among all the private banks?
a) ICICI Bank
b) HDFC Bank
c) Axis Bank
d) Yes Bank
e) IDBI Bank

24. "Claused Bill of Landing" is one which indicates:
a) Remaining constant in project cost
b) Escalation in Project Cost
c) Decrease in Project Cost
d) All of the above
e) None of the above

Answers:
1) a 2) b 3) d 4) c 5) a 6) d 7) a 8) c 9) b 10) c
11) a 12) d 13) b 14) c 15) b 16) b 17) b 18) a 19) c 20) c
21) b 22) c 23) b 24) b

Banking related developments during the year 2014

Kerala became first state with bank accounts for all families.

Federal Bank bagged CNBC TV18 Financial Inclusion Award.

ICICI Bank customer can recharge Delhi Metro cards with SMS.

Yes bank has recently launched 'Saaf suthra Bharat' campaign in Sri Nagar. The bank successfully launched this campaign contributing to the Swachch bharat abhiyan.

Axis Bank launches ''smart selfservice terminal'' that enables the customers to deposit as well as withdraw cash from the same machine.

Private sector Indus Ind Bank has launched video-branch, claiming to be a first-of-its-kind service; enabling customers interact with the staff of the bank through video conference facility.

ICICI bank has launched a new mobile named iMobile app for its windows phone customers.

The Reserve Bank of India has cancelled the certificate of registration of NBFCs (Siber Financial Services Private Limited, Sri Vishnu Finance & Investment Private Limited, Margdarsi Investment
and Leasing Company Private Limited.) for carrying on the business of non-banking financial institution.

CSR was made 2% compulsory through Companies Act 2013. RBI further simplifies KYC Norms regarding bank accounts as "One Documentary Proof of
Address is enough to open bank account".

Domestic banks will need US $200 billion additional capital over the next five years to meet Basel
- III norms for capital adequacy and the demand for funds as growth picks up, Fitch Ratings.

State bank of India has tied up with Bangalore-based mobile payments service provider Ezetap Mobile Solutions Pvt. Ltd. in association with Ezetap the bank has planned to roll out "ATM cum POS terminals".

Kotak Mahindra bank has introduced ''Kaypay payment system''. This allows the face book users to send money to each other.

Insurance Regulatory and Development Authority (IRDA) aligned it's corporate governance
and disclosure norms in accordance with the new Companies Act, 2013, through a 12-member
committee.

Non-Scheduled UCBs are permitted to "Internet Banking (View Only) Facility" for Customers.

Bank of India got approval to open branch in Vietnam.

As per the new guidelines of the Reserve Bank of India (RBI), banks in six metros - New Delhi,
Mumbai, Chennai, Kolkata, Hyderabad and Bangalore - are free to charge other bank customers
beyond 3 ATM transactions per month. Banks have also been allowed to restrict free
transactions to 5 for customers at it's own ATM network.

HDFC became first listed Indian company to have 75% shareholding by FIIs.

S&P (Standard and Poor) downgraded credit rating of Indian Overseas Bank to speculative grade.

FDI limits allowed - Public Sector Banks: 20%. Private Sector Banks: 74%.

Kotak Mahindra bank to acquire ING Vysya Bank.

RBI allows FIIs to buy equity in Yes Bank.

Exim Bank to set up Rs. 1,500 crore funds to assist ship-building industry. To give a boost to ship building in the country, the Export-Import Bank of India (Exim Bank) is planning to set PMJDY scheme, was announced in Modi's first Independence Day speech on 15 August 2014.