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Wednesday, March 21, 2018

AHSEC Class 11: Banking Solved Question Papers' 2015

AHSEC – QUESTION PAPERS
2015
BANKING
Full Marks: 100
Time: 3 hours
The figures in the margin indicate full marks for the questions.
1.       Answer as directed:                               1x8=8
(a) The banking Regulation Act was passed in the year 1949. (Fill in the gap)
(b) What do you mean by Barter system?
Ans: The system in which goods are exchanged for goods is known as Barter System. It is a system in which goods and services are exchanged without the use of money.
(c) State a characteristic of inflation.
Ans: Increase in prices: Inflation is a process of uninterrupted increase in prices. It is always accompanied by persistent rise in price level.
(d) RRBs were started in the year 1967 / 1975 / 1976. (Choose the correct answer)
Ans: 1975
(e) In which year Co-operative Credit System was introduced?
Ans: 1990
(f) Who is authorised to issue notes in India?
Ans: RBI
(g) Write the full form of ATM.

Ans: Automatic Teller Machine
(h) Write the name of the Central Bank of our country.
Ans: Reserve Bank of India
2.       What is Savings Bank?                           2
Ans: Savings Banks: Savings banks are those banks which offer opportunities for saving to the small savers and also try to develop saving habits among the people.
3.       Name any two public sector banks in India.                2
Ans: Dena Bank, United Bank of India
4.       Give the meaning of prosperity.                      2
Ans: The phase of trade cycle in which the economy of the country prospers and economic activities increases and causes economic development of a country is called Prosperity. This is the third phrase of trade cycle. In these phases, employment, income, investment, etc are a high level.
5.       Who is a Bank Customer?    2
Ans: A person or an institution or corporate body that opens an account in a Bank and undertakes banking services with the Banker is known as Customer of a Bank or Bank’s customer.
6.       Write two functions of Regional Rural Banks.            2
Ans: The functions of RRBs are:
a)      To generate employment in the rural areas
b)      To encourage entrepreneurship in the rural areas,
7.       Explain the retail banking. 3
Ans: Retail banking is a form of commercial banking which generally deals with small consumers for meeting current requirement of consumers such as housing loan, a car loan, etc.
8.       Give the meaning of credit card.      3
Ans: A Credit Card is a small plastic card which enables the customers to purchase goods and services on credit and make payments later on. The first credit card was issued by Diner’s Club in USA in 1950. The name of the card was Diner’s Card.
9.       Mention three different departments of the commercial bank.                        3
Ans: The different department of a commercial bank are discussed below:
a)      Secretary department: It is concerned with secretarial work such as organising meeting, preparation of agenda etc.
b)      Law department: It is concerned with legal problems.
c)       Accounts department: It prepares and maintain all the books of accounts like profit and loss account, balance sheet etc.
10.   State briefly the difficulties of Barter System.                           3
Ans: The basic difficulties of Barter System are:
a)      Lack of Double coincidence of wants: In barter system, goods are exchanged between two people to satisfy their demands and wants if the wants of two people does not coincide, then barter exchange cannot takes place. This is known as lack of Double coincidence of wants.
b)      Absence of common measure of value: In this system, there is absence of common unit in which the value of goods and services should be measured.
c)       Difficulty of Divisibility: It is difficult to fix a rate of exchange for certain goods which are indivisible.
d)      Difficulty in storing of goods: Barter system does not allow any convenient method of storage
of value.
11.   Give the meaning of Banking Ombudsman.                3
Banking Ombudsman: Ombudsman in a bank is a person appointed to receive, investigate and report on complaints by customers against banking officials.
12.   Narrate five differences between co-operative bank and commercial bank.               5
Basis
Commercial Bank
Co-operative bank
Formation
These are generally set up as companies under the Companies Act.
These are set up under the Co-operative Societies Act.
Nature
These are ordinarily financial institution.
These are not profit seeking institutions.
Raising of funds
These banks accepts deposits from the public through different types of accounts.
These banks mainly accepts deposits from public of rural areas.
Advances
Commercial banks mainly provide short and medium term loans.
Co-operative banks provides both short term and long term loans.
Credit creation
Commercial banks can create credit.
Co-operative bank can create credit.
13.   Discuss the general utility functions of a bank.                          5
Ans: General Utility functions: These are certain utility functions performed by the modern commercial bank to its customer for the community. These are:
a.       Safe custody of valuables.
b.      Issuing letters of credit.
c.       Gift Cheques.
d.      Dealing in foreign exchange.
e.      Credit cards.
f.        Collection of statistics.
14.   What are the main causes of inflation?                         5
Ans: The causes of inflation are:
a)      Increase in money supply: Inflation may emerge in an economy when the supply of money increases due to increase in the purchasing power of people which may lead to inflation. The increase in supply of money may due to credit expansion of the commercial banks.
b)      Population expansion: The rapid growths of population raise the aggregate demand in the economy due to increase in consumption, investment etc. and thus lead to inflation.
c)       Weak supply of commodities: The weak supply of commodities also leads to rise in prices. When the supply of commodities decreases, the traders are unable to meet the demand of the people and thus they raises the prices of goods and services causing inflation.
d)      International factors: International factors may be the reason of inflation. Sometimes the prices of a basic raw material like diesel rise in the international market which leads to rise in the price of that commodity in all the countries of the world.
15.   Explain the principles of note issue followed by RBI.             5
Ans: Note issue: The first function or the primary function of money is to issue paper currency. The Central Bank has the sole power to issue paper currency. The notes are legal tender money. In India, the RBI issue currency notes of all types except One Rupee note which are issued by the Ministry of Finance, Govt. of India. But the notes are issued following some methods. The Central Banks follows different methods or system according to the currency or banking regulations to issue notes. These systems are:
Minimum reserve system: The minimum reserve system is a system in which the Central Bank is authorized to issue notes up to any limit by keeping a certain minimum reserve of gold and foreign securities. In India, the RBI is required to keep the minimum reserve of Rs. 200/- crore out of which Rs. 115/- crore should be kept in gold. The system is very elastic and economical for developing countries as it requires only a small and fixed amount of gold reserve. However, it lacks in public confidence due to non-convertibility of notes.
16.   What precaution should be taken by a bank while opening account in the name of minor? 5
Ans: The precautionary measures are:
a)      Nature of Account: The banker may open a savings bank account in the name of a minor. The banker should not open a current account in the name of minor.
b)      Age of opening account: The banker should allow the minor to open a savings bank account in his own name only if he/she has an age between 10 – 14 years and could be able to read and write English, Hindi or any other language. If the minor does have such quality, then the banker must open his account in the joint names of the minor and his guardian.
c)       Recording date of birth of minor: The banker must record the date of birth of the minor as disclosed by his/her guardian before opening account.


d)      Death of the minor: The banker must take special care at the time of death of the minor or his guardian. In case, if the minor dies, then the balance in the account should be paid to his guardian.
e)      Death of the guardian: In the event of death of guardian, the banker should be given to the minor on attaining majority or any other guarding appointed by court.
f)       Advance to a minor on the guarantee of a third party: The banker should not grant loan to a minor on the guarantee of a third party.
17.   Discuss the primary function and secondary function of commercial bank. 5
Ans: The primary functions of a Bank are:
a)      Acceptance of Deposits: It is the most important function of a bank. According to this function, the commercial bank accepts deposits from different individuals and organizations. The bank accepts deposits from them and provides all securities to them.
b)      Making loans and advances: The second important function of bank is advancing loan. The commercial banks earn interest by lending money.
c)       Investment of funds: Besides loan and advances, banks also invest a part of its funds in govt. and industrial securities. Banks purchases both govt. and industrial securities like govt. bills, share, debentures, etc from their market.
d)      Credit Creations: The banks create credit. When a bank advances a loan, it does not give cash to the borrower. It opens an account in the name of the borrower. The borrower is allowed to withdraw money by cheque whenever he needs. This is known as Credit Creation.
The secondary functions of a bank are:
a)      Agency functions: These functions are performed by the banker for its own customer. For these services, the bank charges certain commission from its customers. These functions are :-
a.       Remittance of funds.
b.      Collection and payment of credit instruments.
c.       Execution of standing orders.
d.      Purchase and sale of securities.
e.      Collection of Dividend and interest
f.        Income tax consultancy.
b)      General Utility functions: These are certain utility functions performed by the modern commercial bank to its customer for the community. These are:
g.       Safe custody of valuables.
h.      Issuing letters of credit.
i.         Gift Cheques.
j.        Dealing in foreign exchange.
k.       Credit cards.
l.         Collection of statistics.
Or
Write about the capital of bank.
18.   Explain the function of Central Bank as Bank of note issue.                 5
Ans: Note issue: The first function or the primary function of money is to issue paper currency. The Central Bank has the sole power to issue paper currency. The notes are legal tender money. In India, the RBI issue currency notes of all types except One Rupee note which are issued by the Ministry of Finance, Govt. of India. But the notes are issued following some methods. The Central Banks follows different methods or system according to the currency or banking regulations to issue notes. These systems are:
Minimum reserve system: The minimum reserve system is a system in which the Central Bank is authorized to issue notes up to any limit by keeping a certain minimum reserve of gold and foreign securities. In India, the RBI is required to keep the minimum reserve of Rs. 200/- crore out of which Rs. 115/- crore should be kept in gold. The system is very elastic and economical for developing countries as it requires only a small and fixed amount of gold reserve. However, it lacks in public confidence due to non-convertibility of notes.
Or
What are the different types of account? Explain any two of them.        5
Ans: A banker provides various types of account to the customer to be opened in a bank. These accounts are:
Demand Deposit Accounts: The demand deposit accounts are those accounts in which the customer can deposit money many number of times and the amount is repayable on demand by means of cheque. These accounts are of two types: (i) Savings Deposit A/c and (ii) Current Deposit A/c.
Time Deposit Accounts: The time deposits accounts are those deposit accounts where the amount of deposit is repayable only after the expiry of the period. The depositors cannot withdraw the deposits by means of cheque. These accounts are of two types: (i) Fixed deposit A/c and (ii) Recurring Deposit A/c.
Savings Deposit Account is a type of deposit account which is opened by the customer for depositing their small savings for their future benefits.
The features of Savings Deposits accounts are:
a)      Withdrawal is made through cheques.
b)      There are certain restrictions on withdrawal of money.
c)       Small amount of interest is given.
d)      This account is generally opened by small savers
e)      No overdraft facility is given in this type of account.
f)       This type of accounts can be held on long-term basis, i.e., more than a year. There is no limit.
Current Deposit Account is one which the customer is allowed to deposit or withdraw money at number of times as and when he likes.  The features of Current Deposit Account are:
a)      Withdrawal is made through cheques.
b)      There is no restriction on withdrawal.
c)       No interest is given on this type of account
d)      This account is generally opened by businessmen.
e)      Overdraft facility is given to current account holders.
19.   What do you mean by trade cycle? Describe the different phases of trade cycle.                     2+6=8
Ans: The term trade cycle is used to denote the fluctuations in economic activity which occurs in a more or less regular interval of time. Each fluctuation, the rise and fall taken together, is called trade cycle.
The phases of trade cycle are:
a)      Depression phases
b)      Recovery or revival phases
c)       Prosperity phases
d)      Boom phases
e)      Recession phases
Depression: The phase of trade cycle where the economic activity of the country is far below the normal level and economic backwardness occurs is known as Depression. The Depression phrase of trade cycle may be short or it may continue for considerable period of time. In these phases, Economic activity lowers down, unemployment level rises.
Revival or Recovery phase: The phase of trade cycle when the economic activities of the country undergoes sudden changes for depression to prosperity which leads to improvement in economic activities is known as Revival or Recovery. It is the second phases of trade cycle. In this phases, level of employment, wages prices, profits etc. rises.
Prosperity: The phase of trade cycle in which the economy of the country prospers and economic activities increases and causes economic development of a country is called Prosperity. This is the third phrase of trade cycle. In these phases, employment, income, investment, etc are a high level.
Boom: The peak point of prosperity which is marked by greatly accelerated economic activity is called Boom. It is basically the outcome of various development process of the prosperity phases. It is a period of short duration. In this phases, the economic activity are at the highest level.
Recession: The phase where there is downward trend of economic expansion of the country from the peak and the whole of economy retards to zero is known as Recession. In this phases, the factors of production become scare leading to rise in prices, the rate of interest rises due to scarcity of capital, the investment, employment income and demand decline, etc.
Or
Discuss the evolution, origin and growth of banking in India.
Ans: Pre-Independence: The General Bank of India was set up in 1786. Next came the Bank of Hindustan and Bengal Bank. The East India Company established Bank of Bengal (1809), Bank of Bombay (1840) and Bank of Madras (1843) as independent units and called them presidency Banks. These three banks were amalgamated in 1920 and the Imperial Bank of India, which started as private shareholders banks, was established with mostly European shareholders.
In 1865, the Allahabad Bank was established, and, for the first time, exclusively by Indians, Punjab National Bank Ltd. was set up in 1894 with headquarters at Lahore. Between 1906 and 1923, Banks of India, Central Bank of India, Bank of Baroda, Canara Bank, Indian Bank and Bank of Mysore were set up. The Reserve Bank of India (RBI) was established in 1935.
Post Independence: The government took major steps in the Indian Banking Sector Reforms after independence. In 1955, it nationalized the Imperial Bank of India (the State Bank of India Act) with extensive banking facilities on a large scale, especially in rural and semi-urban areas as the first phase of nationalization. It formed the State Bank of India (SBI) to as the principal agent of RBI and to handle banking transactions of the Union and the State Governments of the Country.
In 1969, seven subsidiary banks of the State Bank of India were nationalized as a major process of nationalization due to the effort of then Prime Minister Mrs. Indira Gandhi, Later in 1969, 14 Major Private Commercial Banks in the country were nationalized. Again in 1980, 6 more banks were nationalized. In 1993, New bank is merged will Punjab National Bank. So, there are 19 nationalized banks in our country at present.
PHASE III
The third phase of development of Indian banking introduced many more products and facilities in the banking sector in its reform measures. In 1991, under the chairmanship of M. Narsimham, a committee was set up under his name, which worked for the liberalization of banking practices.
20.   What is inflation? Discuss its effects on production and distribution.                             2+6=8
Ans: Inflation simply means a continuous increase in general price level. It can be described as a decline in the real value of money.
According to G. Crowther, “Inflation is a state in which the value of money is falling, i.e., the prices are rising.”
The effects of inflation are as follows:
a)      Effects on production: Inflation also affects the level of production. When inflation occurs in an economy, the prices of goods and services rises leading to higher profits. This makes the business enterprises to concentrate more on earning profits which leads to misallocation of resources, adulteration of commodities, hoarding and black marketing, etc.
b)      Effects on distribution: When inflation occurs in an economy, its leads to economic inequalities in the economy. The business man, industrialists, speculators, farmers, etc. gain during the inflation as they can sell their produce at higher price to earn profit but the salary earners, wages earners, etc. lose during inflation as they get fixed and less money as compared to their expenditure.
Or
Explain the technique of creating credit by a commercial bank.                                8
Ans: Money is said to be created when the banks, through their lending activity, make net addition to the total supply of money in the economy. Thus, the giving of loans by the banks in the form of derivates deposits leads to the creation of money. The modern banks create deposits in two ways.
Firstly, in a passive way this results in primary or passive deposits.
Secondly, in a more active way this results in active or derivative deposits.
The bank creates passive when it opens a deposits account in the name of the customer who brings cash or cheques to be credited to his account. In this case, the rate of the bank is merely passive as it accepts the cash or the cheques brought by the customers and deposited them in his account. It is the primary deposits which later on form the basis of loan transaction by the bank. These primary deposits do not make any net addition to the stock of money in the economy. After keeping a small percentage of these deposits in cash, the bank utilities the balance for making loans and advances to the customer. The percentage of the primary deposits kept by the bank in cash is known as cash Reserve Ratio. The creation of these deposits can be explained with the help of an example.
Let us suppose that the bank grants a loan of Rs. 20,000 to his customers against some collateral security. What the bank actually does it that it opens an account in the name of the borrower and credit Rs. 20,000 to it. In any case, the bank does not pay Rs. 20,000 to the borrower in cash. The borrower may either withdrawn the entire amount at once or he may withdraw small accounts of money from time to time according to his requirements. Thus, by making loans the bank has at the sometime created new deposits in its books.
Hence, the well-known maxim is that “Every loan creates a deposit”. Such actively created deposits lead to a net increase in the total supply of money in the economy. The active deposits are also created by the bank when it purchases securities or other forms of assets from the public. The actual process of multiple creation of credit may be explained thus:-
When a bank grants loans to the borrowers, the loan money is created to his deposits account. Supposing, the borrower pays to his creditor, in connection with some business transaction, a cheque drawn upon his account with the bank. Let us further suppose that the creditor deposits the cheque in another bank in his account. The other bank now receives the primary deposits in the form of a cheque drawn upon the first bank. After keeping some cash as cash ratio the second bank may create another derivative deposit by giving loans to some borrowers. The second borrowers may make the payment to another creditor who happens to have a deposit account with the third bank. The third bank will know receive the primary deposits in the form of cheque drawn on the second bank. This process may be repeated until the total volume of derivative deposits created by all the banks would be a multiple of the initial amount created by the first bank.
21.   What is credit control? Explain the objectives of credit control.                        2+6=8
Ans: The regulation of credit creation capacity of the commercial banks and other banking institutions by the Central Bank to achieve some definite objectives is known as Credit Control.
The objectives of the Central Bank for Credit Control of the other banks are:
a)      To establish stability in the internal price level by adjusting the supply of credit.
b)      To maintain stability in the foreign exchange rates by eliminating fluctuations in the exchange rates.
c)       To eliminate cyclical fluctuations in the production, employment and prices of goods.
d)      To stabilize money market of the economy.
e)      To achieve full employment of resources and accelerate economic growth with stability.
Or
What do you mean by internal organization of a bank? Mention six important departments of a bank.
Ans: Organisation of a bank is divided into two parts: Internal and External Organisation. Internal organisation of a bank refers to the organisation which establishes a structural relationship between different working groups and between different departments. Internal organisation of a bank is shown in the following sequence Top to bottom):
1.  
Shareholders
2.  
Board of directors
3.  
Chairman
4.  
Managing director
5.  
General manager
6.  
Deputy general manager
7.  
Departmental head or officer

The different departments of a commercial bank are discussed below:
d)      Secretary department: It is concerned with secretarial work such as organising meeting, preparation of agenda etc.
e)      Law department: It is concerned with legal problems.
f)       Accounts department: It prepares and maintain all the books of accounts like profit and loss account, balance sheet etc.
g)      Personal department: It is concerned with selection, training, appointment, salary and pension of staff.
h)      Investments department: This department formulates investment principles of the bank.
i)        Loans and advances department: This department formulates lending principles of the bank.
j)        Inspection department: This department looks after the working of different departments and takes necessary steps for its improvement.
k)      Regional or branch department: This department looks after the different regional or branch office of the bank. It is responsible for effective functioning of various branches.
22.   Write short notes on:                            4+4=8
(a) E-banking.
Ans: The banking services that are provided by a bank through network of computers or internet service to the customers for performing banking transactions in a better way is known as E-Banking. The features of E-Banking are:
a)      It is the fast, efficient and easy way of banking.
b)      It helps the customers to perform banking services easily.
c)       It is available to a customer all the time. There are no barriers to it.
d)      It has no geographical boundary.
The various E-Banking services of a Bank are: Electronic Clearing Services (ECS), Electronic Payments, Automated Teller Machine (ATM), Credit Card, Debit Card, Smart Card, Virtual Card, and Electronic Fund Transfer (EFT).
(b) Scheduled and non-scheduled banks.
Ans: Ans: Scheduled banks refer to those banking institutions whose names are included in the Second Schedule of the Reserve Bank of India Act, 1934. Moreover, the banking company may included in scheduled list only after must fulfill the some conditions.
Non-Scheduled banks refer to those banking institutions, whose names do not appear in the Second Schedule of the RBI Act, 1934. Non-Scheduled banks were engaged in lending money discounting and collecting bills and in providing various agency services.