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Wednesday, March 21, 2018

AHSEC Class 11: Banking Solved Question Papers' 2016

2016
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)      In which year ‘Central Bank’ in India was established?
Ans: 1935
b)      The ‘Imperial Bank of India Act’ was passed in ____. (Fill in the blank)
Ans: 1920
c)       What is inflation?
Ans: Inflation simply means a continuous increase in general price level. It can be described as a decline in the real value of money.
d)      State the meaning of 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.
e)      What is Investment Bank?
Ans: Investment Banks: Investment Banks are those banks which are specialized in provide medium and long term financial assistance to business and industry. They are also known as Industrial Banks as they are mainly concerned with industrial finance.
f)       Write the full form of NABARD.

Ans: National Bank for Agriculture and Rural Development
g)      All the ATMs are open for 12/18/24 hours. (Choose the correct answer)
Ans: 24 hours
h)      Explain who is a minor.
Ans: Ans: A person who has not attained or completed the age of 18 years is known as Minor. A Minor is not capable of entering into a valid contract and a contract entered into by a minor is void.
2. Give the definition of Bank.                                  2
Ans: In simple words, we can say that Bank is a financial institution that undertakes the banking activity i.e.it accepts deposits and then lends the same to earn certain profit.
3. State the meaning of bank rate.                           2
Ans: Bank rate or discount rate is the rate at which the Central Bank of a country makes advances to the banks against approved securities or rediscounts the eligible bills.
4. What is barter system?                                            2
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.
5. Mention any two defects of Indigenous Bank.                                              2
Ans: The indigenous bankers suffer from the following defect:
a)      The financial resources of these bankers are insufficient of meet the demand of the borrowers.
b)      These bankers are charging much higher interest rate from their borrowers than the commercial banks.
6. Classify bank accounts.                                            2
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.
7. Give the meaning of overdraft.                            3
Ans: Overdrafts: The agreement with a bank by which a current account holder is allowed to withdraw money more than his balance up to certain limit is known as Overdraft. The customer has to pay interest on the amount overdraw by him.
8. Explain about any three internal departments of a 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.
9. What do you mean by Trade Cycle?                   3
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.
10. Explain why the Central Bank is called ‘banker’s bank’.                          3
Ans: The Central Bank is a banker to all the other banks. It is the supreme bank of all the banks. As the supreme bank it performs various functions. Some of the functions are:
a)      Custodian of cash reserve of the bank: The Central Bank acts as the custodian of cash reserve of the banks. The Central Bank maintains this cash reserve as the custodian and grants money to the commercial bank in times of emergency.
b)      Lender of the last resort: The Central Bank is the Lender of the last resort of the commercial banks. When the other banks shortage of funds, then they can approach to the Central Bank for financial assistance.
c)       Clearing agent: The Central Bank acts as the clearing house of the commercial banks.
11. State the meaning of Insurance of bank deposit.                                       3
Ans: The term insurance of bank deposit means protecting the interest of depositors from the risk of loss arising from bank failures. For the purpose of insurance of bank deposit, DIC was set up India in 1962. The DIC was merged with credit guarantee corporation of India in 1978 and was renamed as Deposit Insurance and Credit Guarantee Corporation on India. In India the scheme of deposit insurance covers deposits to the extent of Rs.1 lakh for each deposits account.
12. Narrate five differences between Cooperative 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. Describe the methods of issuing notes by the Central Bank.                                                                                5
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.
Simple deposit system of issuing currency: The simple deposit system is also knows as full reserve system. Under this system, the Central Bank is required to keep 100% of metal, either gold or silver or both as reserve for every note issued. The notes so issue becomes representative paper money. The advantage of this system is that it enjoys a public confidence but it is very costly and money supply cannot be increase as and when required.
Fixed Fiduciary System of issuing currency: Under this system, the Central Bank issue currency notes up to a certain limit against reserves of Govt. securities. The notes issued beyond the limit set by the law have to be fully banked by metallic reserves.
Proportional system of issuing currency: The proportional system of issuing currency is very simple and elastic. According to this system, the notes issued by Central Bank are banked by both metallic reserves and securities. A certain percentage (25 to 40%) of the total notes issued has to be backed by gold or silver reserves and the remaining by Govt. securities.
14. Elaborately discuss about the different types of banks.                         5
Ans: In modern times banking business has attained much popularity and importance. The following are the different types of bank which are functioning in modern times:
a)      Commercial Bank: The commercial bank generally extent short terms loans to the business man and traders. They collect deposits from the public and advance loans to the businessman and producer commercial banks are normally owned by share holders. In India most of the joint stock banks are commercial banks.
b)      Co-operative Bank: Co-operatives banks are those banks which established in co-operative sectors. Co-operative banks offer short term and medium term loans to the agricultural sector. Farmers get various kinds of loan for purchasing various agriculture inputs from co-operative banks.
c)       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.
d)      Development Banks: Development banks are specialized financial institutions which provide medium and long term finance to private entrepreneurs and help in economic development of the country.
e)      Investment Banks: Investment Banks are those banks which are specialized in provide medium and long term financial assistance to business and industry. They are also known as Industrial Banks as they are mainly concerned with industrial finance.
15. Explain briefly about the main objectives of credit control.                                 5
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.


16. Write a short note on the different phases of trade cycle.                    5
Ans: 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.
17. Discuss the agency functions of a bank.                         5
Ans: 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.
Or
What are the secondary functions of bank?                        5
Ans: 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 :-
1.       Remittance of funds.
2.       Collection and payment of credit instruments.
3.       Execution of standing orders.
4.       Purchase and sale of securities.
5.       Collection of Dividend and interest
6.       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:
1.       Safe custody of valuables.
2.       Issuing letters of credit.
3.       Gift Cheques.
4.       Dealing in foreign exchange.
5.       Credit cards.
6.       Collection of statistics.
18. State any two selective credit control techniques adopted by Reserve Bank of India.                                              5
Ans: Selective Methods: These are basically the selective and general methods of credit control. These methods are used for controlling the use and direction of credit. They have nothing to do with the control of the total volume of credit in economy. These methods are :-
a)      Direction
b)      Margin Requirement
c)       Consumer Credit Regulations
d)      Publicity
e)      Credit Rationing
f)       Moral Suasion.
g)      Direct Action.
a)      Directions: Sec. 21 of the Banking Regulation Act gives wide power to the RBI for controlling granting of advances by an individual bank or by banking as a whole. The RBI can give directors to any particular bank or all banks in general in regard to the purposes for which advances may or may not be made, the maximum amount of advance to any individual, firm or company etc.
b)      Margin requirement: Margin means the difference between the market price of security and loan amount. Changing margin requirement is another credit control method followed by the RBI. This system was introduced in 1956. By requiring higher margin while accepting a commodity as a security, the RBI can decrease the flow of credit to particular sector or vice versa.
Or
What are the different types of e-banking services?                                      5
Ans: 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).
19. Mention the different types of accounts. Explain the procedure of opening savings account.                             2+6=8
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.
Following are the main steps in opening a bank account:
1. Selection of type of account: The first step is to select the type of account to be opened . An account may have several types such as current, saving fixed account. An account can be opened jointly or singly.
2. Selection of bank and branch: The prospective accountholder should now select the bank .
3. Obtaining the account opening form: An account opening form is obtained from the bank . It should be read carefully and filled in with utmost care.
4. Obtaining the reference: One or two reference are obtained by the prospective account holder. The people who give references sign the form and give their account no. and name and address.
5. Submission of the form: Now the form should be submitted along with the required documents. These documents vary from account to account.
6. Giving specimen signature: Now, the account holder signs on a card called specimen signature card. These signatures are matched with the cheques of the account holder.
7. Making initial deposit: The applicant is allotted an account and asked to make initial deposit in his account through a deposit slip.
8. Account is opened: As soon as the initial deposit is made, the account is opened.
9. Receiving of cheque book/term deposit certificate: Finally, a cheque book is issued which bears the applicant’s account no. The money can be withdrawn with the help of these cheques.
Or
What precaution should be taken by a banker while opening account in the name of a married woman?             8
Ans: India is a democratic country. Every person, either male or female, is equal in the eyes of law. The law does not make any kind of distinction among a male and a female. So a married woman can open an account in bank. According to the Indian Contract Act, 1872, a married woman can enter into contracts, acquire and sell property and land or borrow money. But a banker should be very conscious which is opening an account in the name of a married woman:
a)      While opening an account with a married woman, the bank should obtain all necessary information such as the name of her husband, address, phone number, occupation, personal property, etc.
b)      While granting a loan to the married woman, the banker must examine the personal property of a married woman. The banker must verify that the married woman should have her own separate personal property apart from husband which must be sufficient to cover the amount of the loan.
c)       In case, the wife has taken a loan on the basis of her property than the banker should make the debts liable to herself only. Her husband will not be held liable for any debt of her wife even though he have sufficient property to pay the debts.
d)      When a married woman desires to open a joint account with her husband, the banker should clarify that in the event of death of any one of them, then who will be entitled to receive the amount.
20. Explain the capital and licensing of a Commercial Bank.                         4+4=8
Ans: According to Sec. 22 of the Banking Regulation Act, 1949, no banking company can carry on banking business unless it holds a license granted by the RBI. Before granting license, the RBI may look into the following matters:
a)      The bank is or will in position to pay to the depositors in full.
b)      The affairs of the bank should not conducted in a way which is detrimental to the interest of its depositors.
c)       In case of foreign bank, the carrying of banking business will be in the public interest.
d)      Financial position of the bank is sound.
Cancellation of the license: The RBI has been empowered to cancel a license granted to a banking company if:
a)      The company ceases to carry on banking business in India or
b)      Any of the conditions imposed by the RBI is not complied with by the banking company.
A banking company whose license has been cancelled may appeal to the central government within 30 days.
21. Mention four Development Banks in India. Explain the main functions of Development Bank.                           4+4=8
Ans: Some Important Development Banks are given below:
a)      The Industrial Finance Corporation of India (IFCI) was established in 1948 under a special Act of Parliament. It was the first development bank of our country. It was set up to make medium and long term credits to industrial concerns in India.
b)      The full form of IDBI is Industrial Development Bank of India. It was established in July, 1964. However, in February 1976, the IDBI was taken over by the government and was made an autonomous institution.
c)       In order to provide finance to small and medium scale industries need for a separate financial institution was felt. Accordingly, the government of India passed the State Financial Corporation Act in 1951, enabling the state government to set up State Financial Corporation.
d)      The National Bank For Agriculture and Rural Development (NABARD), a developing bank, came into existence on July 12, 1982, under an Act of Parliament with an initial capital of Rs. 100 crores. It is an apex institution set up for providing and regulating credit and other facilities for the promotion and development of agriculture, small scale industries, cottage and village industries, handicrafts and other rural crafts and other allied economic activities in rural areas.
Functions of Development Banks
a)      They provide risk capital.
b)      They provide long-term and medium-term finance to industrial undertakings for purchase of new plants and machinery, expansion, modernization, etc.
c)       They purchase the shares and debentures of companies and thus provide them long-term capital.
d)      They help the companies in raising capital from the capital market.
e)      They underwrite the public issues of shares and debentures by the companies. 
22. Explain the differences between Investment Bank and Commercial Bank.                                   8
Ans: Investment Banks: Investment Banks are those banks which are specialized in provide medium and long term financial assistance to business and industry. They are also known as Industrial Banks as they are mainly concerned with industrial finance.
Commercial Bank: The commercial bank generally extent short terms loans to the business man and traders. They collect deposits from the public and advance loans to the businessman and producer commercial banks are normally owned by share holders. In India most of the joint stock banks are commercial banks.
On the basis of above explanation, the following differences between the investment bank and commercial bank are arises:
a) The primary functions of investment banks is to provide medium and long term financial assistance to business and industry. Whereas, the primary functions of commercial banks is to accept deposit from the public and lend them to the customers.
b) The investment bank is set up especially for the investors, big corporation and government. Whereas, Commercial banks are involved in providing banking and financial services to the general public.
c) The level of risk in the investment bank is higher. Whereas, the level of risk in commercial bank is lower.
d) Investment banks provides only customer specific services according to the need. Whereas, commercial banks provide standard services to all their customers.
e) Investment banks provides don’t provide day to day services to their clients. Whereas, commercial banks provides day to day services to their customers.
f) Investment banks don’t accept deposits from general public. Whereas, commercial banks accepts deposits from general public.
Or
Write short notes on any two of the following:                                 8
a) Regional Rural Bank: Ans:  RRBs are local level banking organisation operating in different states of our country to fulfill the needs of small and marginal farmers, agricultural labours and landless workers, small businessman, etc. by providing short-term and medium-term credit.
b) 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.
c) Foreign exchange: Foreign exchange, or Forex, is the conversion of one country's currency into that of another. In a free economy, a country's currency is valued according to factors of supply and demand. 
d) Pass book: Pass book is a small handy booklet issued by the banker to record the transactions between the banker and the customer. It contains an authenticated copy of the customer’s account in the bank’s ledger.