GSEB Class 11 Organization of Commerce and Management Important Questions Chapter 3 Business Services-2

Gujarat Board GSEB Class 11 Organization of Commerce and Management Important Questions Chapter 3 Business Services-2 Important Questions and Answers.

GSEB Class 11 Organization of Commerce and Management Important Questions Chapter 3 Business Services-2

Short Answer Type Questions

Question 1.
When and where did the first bank start?
Answer:
In Geneva, Switzerland in 1407 CE.

Question 2.
How did the word ‘bank’ emerge?
Answer:
The word ‘bank’ is derived from an Italian word; ‘Banco’. This word has emerged from – Roman Empire where in the money lenders known as ‘macella’ used to establish their temporary shops on a long and narrow bench called ‘bancu’ within a fencing.

Question 3.
State the main functions of a bank.
Answer:

1. Accept/collect deposits,
2. Lend money,
3. Invest,
4. Carry out inter-banking transactions.

Question 4.
State four optional functions of a bank.
Answer:

1. Look after the financial transactions of the customers.
2. Carry out foreign exchange (forex) transactions,
3. Issue letter of credit,
4. Issue traveller’s cheque.

Question 5.
Why maintaining trust of a customer is a bank’s biggest responsibility?
Answer:
A person deposits his money in a bank with a trust that his money is safe and that he can get it back from bank when needed. Hence ………..

Question 6.
Name the main types of bank – accounts.
Answer:

1. Savings,
2. Current,
3. Recurring and
4. Fixed.

Question 7.
How does bank earns? Or how does a bank makes profit?
Answer:
A bank accepts deposits and pays lower interest to the customers whereas it gives loans at higher interests. Banks earn from this difference of interest. Moreover, it also invests its deposit and earns.

Question 8.
What is hypothecation?
Answer:
When a borrower of a loan pledges to provide an asset as a security to the bank while still having the ownership of the asset and enjoying its benefits is called hypothecation. A bank may ask a person to hypothecate some asset as a security while providing him loan.

Question 9.
State few types of loans that a bank gives.
Answer:
Home loan, vehicle loan, education loan, machinery loan, gold loan, etc.

Question 10.
State two important conditions for over draft?
Answer:

1. A person can overdraw only that much amount which the bank has sanctioned him.
2. He needs to pay interest on overdrawn money.

Question 11.
How does cash-credit differs from overdraft?
Answer:
Unlike overdraft for taking cash-credit one needs to provide some security like raw material, finished goods, etc. as hypothecation.

Question 12.
Why does a bank majorly invests in government securities and capital goods?
Answer:
So that it can easily withdraw it in case of emergencies or an unforeseen event.

Question 13.
What is call money?
Answer:
The money that a bank borrows from another branch or bank when it faces its shortage is called call money.

Question 14.
What is call money rate? How is it decided?
Answer:
The interest charged on the money that a bank borrows from another bank or branch is called call money. Its rate of interest is decided on the basis of demand and supply and shortage of money in market.

Question 15.
Into how many types can we classify bank customers? Name them.
Answer:
Two; Depositors and borrowers.

Question 16.
What is forex?
Answer:
The market where foreign currency is traded is called foreign exchange market or forex.

Question 17.
What is Letter of Credit (L/C)?
Answer:
A cheque for a fixed amount that can be encashed while travelling from any bank after doing a specimen signature before the bank is called a traveller’s cheque.

Question 18.
What is a demand draft?
Answer:
A demand draft is a cheque written by a bank (issuing bank) to another bank or branch asking it to pay money to the person or organization whose name is mentioned on it.

Question 19.
What is solvency certificate?
Answer:
The certificate that the bank provides regarding the financial soundness of the customer is called solvency certificate.

Question 20.
When does a bank become guarantor or under-writer?
Answer:
When a new company enters the capital market and collects funds through shares it is afraid if it will be able to collect at least a minimum subscription to start the business. In such situations it requests the bank to become a guarantor or say under-writer that in case if it cannot raise sufficient money from the market the bank will fulfill the deficit by investing in the company.

Question 21.
What is KYC?
Answer:
KYC stands for Know Your Customer. As per the guidelines of the Central Bank every bank needs to record and maintain information about its customer at the time of opening its account. The information sought is called KYC.

Question 22.
State two characteristics of current account.
Answer:

1. It can be opened for commercial transactions only,
2. Bank does not pay any interest on this account.

Question 23.
What is a recurring account?
Answer:
A bank account in which a person deposits a pre-determined amount every month for a fix period of time to earn interest at the end of the account term is called a recurring account.

Question 24.
What is a fixed deposit account?
Answer:
An account opened with an aim of earning fix but high interest for a pre-determined period with a fix amount to be deposited all at once while opening the account is called a fixed deposit account.

Question 25.
What is RTGS?
Answer:
Real-time Gross Settlement (RTGS) is a special fund transfer system where in one can transfer money from one bank to another within India, on a ‘real-time’ basis i. e. the money will be transferred immediately without waiting period and on ‘gross-settlement’ basis.

Question 26.
What is an IFSC code?
Answer:
Indian Financial System Code (IFSC) is a unique 11 digit alpha-numeric code given to each RTGS member bank for conducting RTGS transactions.

Question 27.
Who provides IFSC codes?
Answer:
The Institute for Development and Research on Banking Technology (IDRBT), Hyderabad provides IFSC codes to all the banks.

Question 28.
What is NEFT?
Answer:
NEFT stands for National Electronic Funds Transfer. It is an Indian system of electronic transfer of money from one bank or bank branch to another. The banks or their branches that support NEFT have to become a part of NEFT network.

Question 29.
State two characteristics of NEFT.
Answer:
(1) The banks/branches that support NEFT transaction need to become member of NEFT network.
(2) The money transfer occurs in hourly batches.

Question 30.
What is a loan?
Answer:
An amount of money that a hank provides to a borrower against a fixed rate of interest usually for a long term and against some security is called a loan.

Question 31.
What is mortgage?
Answer:
Mortgage is a legal agreement by which a bank lends money at interest in exchange of keeping ownership of borrower’s immovable property with the condition that it will give the ownership back when the loan is fully repaid.

Question 32.
What is e-banking?
Answer:
Banking transactions done using electronic forms via. internet rather than traditional methods is called electronic banking or e-banking.

Question 33.
State the different phases of development of banking.
Answer:
The banking industry developed in three phases.
They are:

1. Traditional banking processes,
2. Banking through computers connected in a network and
3. Use of internet in banking.

Question 34.
How was banking done traditionally?
Answer:
Traditionally the banks maintained ledgers of each and every account holders in the books of accounts. All the works were done manually. Moreover, records were maintained in books even for vouchers, specimen signatures, etc.

Question 35.
How was banking done when computers were introduced?
Answer:
When computers were introduced each branch of a bank had its own network limited to the branch. All the computers of a branch were connected with each other via. a server through which the bank employees could perform transactions for each account holder.

Question 36.
Give few examples of financial transaction that can be done through internet (e-banking).
Answer:
Transferring money from one account to another, paying bills such as telephone, electricity, municipality, etc.

Question 37.
What is core banking?
Answer:
The word CORE stands for Centralized Online Real-time Exchange. Core banking is a system wherein all the branches of a bank irrespective of their locations across the world are connected to one another through internet for performing banking transactions and other banking activities.

Question 38.
What is an e-corner or e-gallery?
Answer:
Certain banks set-up e-corners or e-galleries at selected locations. Using them one can withdraw money through ATM machines, deposit cash, know balance in their accounts, update pass book, etc.

Question 39.
What is m-banking?
Answer:
Mobile banking or m-banking is a system under which a person can conduct banking transaction from any corner of the world using his mobile phone that has internet connectivity

Question 40.
Why do banks need to provide and follow very stringent security rules for m-banking?
Answer:
Since mobiles can be very easily misplaced, stolen or robbed, the banks.

Question 41.
Can a person having ATM card of another bank use it ATM machine of any bank?
Answer:
Yes he can but he may have to pay charges as per the rules of RBI.

Question 42.
How does a bank issues a credit card?
Answer:
Based on an account holder’s application the bank studies the financial ability of a person to pay the credit card debt every month. The bank then sets h s credit limit and issues him a credit card which he can . use for shopping for the limit sanctioned by the bank.

Question 43.
How can a person use a debit card?
Answer:
Debit card can be used to make payments at shopping malls, online tickets, ATM centre for withdrawing money, etc.

Question 44.
In which type of account only the amount available in the account can be spent?
Answer:
Debit card.

Long Answer Type Questions

Question 1.
How did banking come into existence? Explain.
Answer:
Bank is an institution that provides banking services.

• World’s first bank was started in city of Geneva in Switzerland in the year 1407 AD. (or say 1407 CE).
• The word ‘bank’ is derived from an Italian word; ’Banco’. This word has emerged from the era of Roman Empire where in the money lenders known as ‘macella’ used to establish their temporary shops on a long and narrow / bench called ‘bancu’ within a fencing.
• Historians have found that banking activities also existed in ancient time.

Question 2.
State the meaning of a bank.
Answer:

• According to the Reserve Bank of India (RBI), ‘Bank means an institution which collects deposits in order to lend them and with a condition to return them at the end of a fixed term whenever it is demanded.
• An institution that provides banking services is called a bank.

Question 3.
List out the functions of a bank.
Answer:
Banking functions can be classified into two types.
They are:
(A) Main functions,
(B) Optional functions

(A) Main functions:

1. Accept/collect deposits
2. Lend money
3. Invest
4. Carry out inter-banking transactions

(B) Optional functions:

• Look after the financial transactions of the customers
• Carry out foreign exchange (forex) transactions
• Issue letter of credit
• Issue traveller’s cheque
• Provide demand draft service
• Provide information related to financial credit of its customer
• Provide service as an under-writer
• Provide other services such as ATM, Demat, Safe deposit Vault, etc.

Question 4.
Explain accepting and collecting deposits as a main function of a bank.
Answer:
To accept/collect deposits:

• A person who has some unused money and wishes to deposit it in a bank can go to bank and deposit it.
• The biggest responsibility of the bank is to maintain the trust of the customer i. e. the person who deposits the money.

Bank accepts four types of deposits:

1. Deposits in saving account
2. Deposits in current account
3. Deposits in recurring account
4. Deposits Fixed term account

Question 5.
Explain the function of lending money of a bank.
Answer:
To lend money:

• Bank accepts deposits from various people. The deposited money remains with bank on which the bank pays some interest to the depositors.
• On the other hand people go to banks to borrow money in forms of loans. The bank lends the money to the borrowers at higher rates of interest. Thus, the bank earns profit from the difference of rate of interests.

The bank lends money in following ways:
(a) Through loans:

• Bank provides short term and long term loans to borrowers. In some cases it asks for hypothecation where as in some it doesn’t.
• Bank provides loan to individuals, businessman, industrialists, etc.
• Bank offers home loans, car loan, education loan, cash credit, machinery loan, gold loan, personal loan, etc.

(b) Through overdraft and cash credit:
Overdraft:
As per rule, one cannot withdraw more than the amount present i.e. deposited in one’s account. When a current account holder is allowed to withdraw more money than present in his account for a short duration it is said that the bank has lent him money through overdraft facility.

Cash credit:

• A cash credit is a drawing account for drawing money within a specific credit limit approved by the bank against some security.
• Overdraft and cash credit are similar except that for withdrawing under cash- credit one needs to provide some security like raw-material, finished goods, etc. as hypothecation.

Question 6.
How and where does a bank invests?
Answer:
To invest:

• A bank cannot make profit if it is unable to lend the deposits and invest its capital in a substantial manner. One of the important tasks of the bank is to thoroughly calculate and invest its money at some secure options.
• As per RBI’s rule a bank need to invest some percentage of its total deposit in government guarantees (securities) on which the bank earns a low interest. The reason for investing in such government guarantees is that bank can easily withdraw its investment in case of emergencies or some unforeseen events. As a result a bank majorly invests in government securities or other capital units.

Question 7.
Explain briefly the role of a bank in taking care of financial transactions of the customers.
Answer:
Look after the financial transactions of the customers:

• A bank mainly has two customers,
  (a) A depositor and
  (b) A borrower.
• It is the bank’s duty to see that both of his customers can perform their financial transactions properly.
• When a customer writes a cheque in favor of another person, the bank pays ‘ th’at person the money on behalf of the person who wrote the cheque.
• Similarly, when a person receives a cheque and goes to bank the bank collects money from the account of person who has written the cheque and pays the money to the person who brought the cheque.
• Bank also facilitates payments of electricity bill, telephone bill, insurance premium, transfer of money from one account to another, etc.

Question 8.
Explain Forex service.
Answer:
Carry out foreign exchange (forex) transactions:

• The financial transactions related to import-export business can only be done through banks.
• Those banks that have got permission from central bank to provide Forex services can facilitate people to exchange foreign currencies in bank, send and receive documents related to foreign trade, etc.

Question 9.
What do you mean by issuing letter of credit? Explain.
Answer:
To issue Letter of Credit (L/C):

• A letter of credit is a document from a bank guaranteeing that the seller will receive full payment at specified time if all the delivery conditions are fulfilled by the seller. These letters are generally needed in international transactions where buyers and sellers are unknown to each other.
• The bank collects certain deposit or some guarantee of similar amount from the person before issuing such letter. The bank earns commission by providing this service.

Question 10.
Write a short note on traveller’s cheque.
Answer:
Issuing Traveller’s Cheque (TC):

• A traveller’s cheque is a medium of exchange that can be used instead of currency. It is very useful when a person is travelling within country or even abroad. Since the traveller carries cheques he is safe from the danger of hard cash getting robbed or stolen.
• Before leaving for a tour the person can deposit certain amount at the bank, get his signature verified and receive traveller’s cheques in the amount he asks to the bank. The person can then withdraw money using these cheques from outstation or foreign banks by doing the same sign before the bank as he did in the bank which issued him traveller’s cheques.
• These cheques are very reliable and transferable too. However, their use has decreased after ATM facility became popular worldwide.

Question 11.
What is demand draft? How is it generated?
Answer:
Issuing demand draft (DD):

• A demand draft (DD) is a cheque written by a bank (issuing bank) to another bank/branch asking it to pay money to the person/organization whose name is mentioned on it. Demand daft is a very secure medium for sending money to a person or an institute.
• The person who wishes to send money fills a form in the bank requesting it to issue the draft for the details mentioned in the form. Based on this the bank prepares a demand draft and mentions the receiver’s name on it and passes the order to its branch or associate bank to make the payment to the receiver. If the bank issues a draft that can be encashed only in the same branch then it is called pay-order.
• The sender of the DD needs to pay certain commission to the banks for this service.

Question 12.
Write a short note on savings account.
Answer:
Savings account:

• A person can open a savings account in a bank with an objective of saving a part of income and earning some interest on the money deposited in the savings account. The customer earns interest depending on the amount he maintains in his account. Generally it is compulsory to maintain a minimum balance as decided by the bank in the savings account. Moreover, generally a person can withdraw money only a limited number of times per month. The account holder can withdraw money with the help of cheque, by filling withdrawal slip or using ATM card.
• A savings account can be opened on an individual name or along with someone as a joint account. One can also register the name of the nominee for the account.
• In savings accounts the bank provides its customers the facility of deposit/withdrawal, issuing cheques, ATM cards, etc.
• Bank gets large deposits through several saving accounts it maintains.

Question 13.
Write a short note on current account.
Answer:
Current account:

• An account opened on an individual’s name or the name of the business for conducting day-to-day business financial transactions is known as a current account. This account is only for businessman.
• No Interest is paid on current accounts and in addition a bank may collect bank charges from the account holder to provide several facilities and i maintain the account. There is no limit on the number of transactions one can perform per month.
• One can also avail loans through current account.

Question 14.
What is a recurring deposit account? Explain.
Answer:
Recurring deposit account:

• A recurring deposit account is opened when one wishes to save some money, deposit it regularly in this account and earn an interest at the end of the account term.
• One needs to compulsorily deposit a predetermined amount every month in this account for a pre-determined period. The bank returns the entire amount along with interest to the account holder at the end of the account term.
• The rate of interest is higher than the savings account and lower or almost near to the interest on fixed deposit accounts.

Question 15.
Write a short note on fixed deposit account.
Answer:
Fixed deposit account:

• An account opened with an aim of earning fix but high interest for a pre-determined period with a fix amount to be deposited all at once while opening the account is called a fixed, deposit account.
• The interest rate on this account is higher than any account. However, one cannot withdraw the money before the fixed deposit term ends. If one wishes to withdraw he may have to pay some penalty and also his rate of interest will decrease.
•  The bank normally does not allow to withdraw before the term matures and hence it pays highest interest on this account.
• The bank guarantees the customer to return him his deposit along with the accumlated interest at the end of the term.

Question 16.
Describe the various services provided by a bank.
Answer:
Services provided by a bank over and above functions like account maintenance, providing loans, etc. are discussed below:
1. To issue draft (i.e. demand draft/banker’s draft):

• Demand draft is a cheque written by a bank (issuing bank) to another bank/branch asking it to pay money to the person/organization whose name is mentioned on it. Demand daft is a very secure medium for sending money to a person or an institute.
• The person who wishes to send money fills a form in the bank requesting it to issue the draft for the details mentioned in the form. Based on this the bank prepares a demand draft and mentions the receiver’s name on it and passes the order tc its breach or associate bank to make the payment to the receiver. Since ‘A/C Payee’ is mentioned on the draft, it can be deposited only in the account of the person whose name is written on it.
• Unlike cheque, a demand draft never bouncer.
• The sender of the DD needs to pay certain commission to the bank for this service.

2. Banker’s cheque (pay-order):

• A pay-order is similar to demand-draft. The cheque issued by the bank against the payment it accepts is called pay-order.
• Since the cheque is issued by the bank it is also called banker’s cheque.
• Pay-order can be enchashed only in the same city where it was issued.

3. Real-time Gross Settlement (RTGS):

• -» Real-time Gross Settlement (RTGS) is a special fund transfer system where in one can transfer money from one bank to another within India, on a ‘real-time’ basis i.e. the money will be transferred immediately without waiting period and on ‘gross-settlement’ basis.
• The bank through which RTGS is done is called an RTGS member bank. Each member bank is allotted a unique code called IFSC code for identification and transactional purposes. IFSC code is an 11 digit alpha numeric (i.e. combination of alphabets and numbers) code.
• The Institute for Development and Research on Banking Technology (IDRBT), Hyderabad provides IFSC codes to all the banks.

4. National Electronic Fund Transfer (NEFT):

• NEFT stands for National Electronic Funds Transfer. It is an Indian system of electronic transfer of money from one bank or bank branch to another.
• The banks or their branches that support NEFT have to become a part of NEFT network.
• The money is transferred from account of sender to account of receiver having an account in same bank or another bank via. internet.
• In order to transact one need to have an 11 digit alpha numeric IFSC code of the bank and branch in which the amount is to be transferred.
• The transfer of money usually takes place on the same day. However, the settlement of transactions take place in hourly batches i.e. For example, if one initiates a transaction and if the settlement time is over he needs to wait till the next settlement time to get his funds transferred. RBI has decided various slots of settlement times in a day.

5. Bank over-draft:

• Over-draft is a facility given to businessman having current account in the bank.
• The bank may allow a businessman to over-draw amount from his current account compared to the money present in his account i.e. his credit balance. This facility is called over-draft facility.
• A businessman needs to provide some self-guarantee or someone’s guarantee to assure repayment of the over-drawn amount along with bank’s interest. One needs to pay interest only on the amount withdrawn in excess to available in account. Based on the account holder’s financial credit the bank sanctions (approves) the limit the holder wui be allowed to withdraw.

6. Cash-credit:

• A cash credit is a drawing account for drawing money within a specific credit limit approved by the bank against some security.
• The businessman needs to pay interest pre-decided by the bank on the amount he takes as cash-credit.

7. Loan:

• An amount of money that a bank provides to a borrower against a fixed rate of interest usually for a long term and against some security is called a loan. The bank gives the loan amount altogether.
• Bank provides several types of loans like loans for buying a house, furniture, renovation, vehicle, expanding business, etc.
• To make sure the borrower repays the loan the bank keeps borrower’s immovable property such as house, office, etc. with it as mortgage.
• The terms and conditions of repayment are set at the time of approving the loan.

Question 17.
What is a demand draft (banker’s draft)? Explain the procedure.
Answer:

• Demand draft is a cheque written by a bank (issuing bank) to another bank/branch asking it to pay money to the person/organization whose name is mentioned on it. Demand daft is a very secure medium for sending money to a person or an institute.
• The person who wishes to send money fills a form in the bank requesting it to issue the draft for the details mentioned in the form. Based on this the bank
  prepares a demand draft and mentions the receiver’s name on it and passes the order to its branch or associate bank to make the payment to the receiver.
• On the to-left corner of the demand draft the banker makes two lines across and writes ‘A/c payee’ in between. This means that the DD can be deposited in the account of only that person whose name is written on it.
• Unlike cheque a draft cannot get bounced or returned by the bank i.e. the person whose name is written on it will surely get the payment.

Question 18.
What is e-banking? Explain the different stages of development of banking processes.
Answer:
e-Banking:
Banking transactions done using electronic forms via. internet rather than traditional methods is called electronic banking or e-banking.

The development of e-banking took place in three stages. They are:
1. Traditional banking process:
Traditionally the banks maintained ledgers of each and every account holder in the books of accounts. All the works were done manually. Moreover, records were maintained in books even for vouchers, specimen signatures, etc.

2. Banking through computers connected in a network:

• With the invention of computers that could do office work, banks started using computers. The computers replaced physical ledgers, vouchers, etc.
• The computers of a branch of a bank were connected to each other via. a server. This helped to access and share data in all the computers within the branch. This made the banking transactions quite fast and easy.

3. Use of internet in banking (Internet-banking) :

• With the arrival and advancement in internet services banks also started providing its services over internet.
• Due to internet all the branches of bank across the world got connected and started providing very fast, efficient and reliable financial services to its customers.

Question 19.
How can a person make use of internet to use e-banking?
Answer:

• Today banks provide facilities to their customers to make use of internet and perform transactions. This is beneficial for the customers as well as banks.
• Banks develop their websites and provide their customers customer-id or say unique codes. Customers can use the unique codes to login into bank’s website and perform transactions.

Customers can do two types of transactions on banking sites. They are:
(A) Financial transactions and
(B) Non-financial transactions.

(A) Financial transactions:
A person can perform several financial transactions such as transferring money from his account to another bank account, pay telephone, electricity, tax bills, etc. through a bank’s website.

(B) Non-financial transactions.
A person can also perform several non-financial transactions such as obtaining account statements, requesting for a new cheque book, a new PIN, making a stop-payment request, etc.

Question 20.
Write a short note on e-banking (electronic banking).
Answer:
e-Banking:

• Banking transactions done using electronic forms via. internet is called e-banking.
• With the arrival and advancement in internet services banks also started providing its services over internet.
• Due to internet all the branches of bank across the world got connected and started providing very fast, efficient and reliable financial services to its customers.
• The branch of a bank in which a person opens his bank account is called his ‘home branch’. E-banking has connected all the branches of its bank via. servers and internet and so the customers can perform the banking transactions from any branch.
• Banks have also set-up ‘e-corners’ at different places. These e-corners provide several facilities like withdrawing or depositing money from account using ATM machines, knowing the balance in account, etc.
• Whenever a person performs any such transactions in e-corner the bank sends him SMS on his registered mobile number.
• E-Banking saves time and expenses of both customer and bank and also aids faster banking.

Question 21.
Lending is very crucial for banks. Give reason.
Answer:

• Bank accepts deposits from various people. The deposited money remains with bank on which the bank pays some interest to the depositors.
• On the other hand people go to banks to borrow money in forms of loans. The bank lends the money to the borrower at higher rates of interest. Thus, the bank earns profit from the difference of rate of interests.
• Interest is the biggest contributor in bank’s survival and profit.
• Banks lend money through various types of loans such as home loans, vehicle loans, facilities of over-draft, cash credit, etc. on which a bank earns interest from its customers.
• Hence, lending is very crucial for banks.

Question 22.
The importance of traveller’s cheque has reduced. Give reason.
Answer:

• A traveller’s cheque is a medium of exchange that can be used instead of currency. It is very useful when a person is travelling within country or even abroad. Since the traveller carries cheques he is safe from the danger of hard cash getting robbed or stolen.
• However, today the banking has become much advanced. Banks today offer centralized banking, ATMs, e-banking and even mobile banking.
• Using these facilities one can withdraw cash, transfer money to another account from anywhere.
• In case a person is travelling and he becomes short of money he can ask his family members to deposit money in his account which he can withdraw anywhere from the world using ATM.
• On the other hand to obtain traveller’s cheque one needs to go the bank, complete the formalities and then carry and preserve the cheques.
• Owing to all these reasons people have stopped using traveller’s cheques.

Question 23.
Bank works as one of the pillars of economic development of a country. Give reason.
Answer:

• Trade and commerce are impossible without banking.
• Majority of the world finance works through banks.
• Banking has grown enormously both in their working methods and facilities to customers.
• The financial transactions that used to take place in days are now done within seconds. As a result the speed of trade and commerce has increased drastically. Faster the transactions faster will be the money rotation and which ultimately will boost the economy.
• Hence, banking works as a foundation pillar of a country’s economy.

Question 24.
A bank trades money. Give reason.
Answer:

• In a business the businessman buys raw material or finished goods and sells it to others. He earns his profit by the difference he gets through selling goods.
• Similarly, bank accepts deposit in various forms and invests it and loans it to others. The difference in interest rate then becomes a bank’s profit.
• The way a trader buys and sells goods and earns profit a bank accepts and invests or lends money to earn profit. Hence, a bank trades money.

Question 25.
Differentiate between current account and savings account.
Answer:

Current account	Savings account
1. Current account can be opened mainly for business firms, institutions and professionals.	1. Savings account can be opened for any individual.
2. The objective is to allow commercial financial transactions.	2. The objective is to inculcate savings habit.
3. Bank does not pay any interest on deposits in current account.	3. Bank pays interest on deposits in savings account.
4. There is no limit on the number of times a person can withdraw money in a month.	4. Generally, one cannot withdraw more than a given number of times.
5. One can get overdraft facility.	5. Overdraft facility is not available.

Question 26.
State two points of differences between RTGS and NEFT.
Answer:

RTGS	NEFT
1. In RTGS, the transactions are processed continuously and so one need not wait much for the settlement of transactions.	1. In NEFT the transactions are processed in hourly batches. So if one misses the batch, his money will be transferred in the next batch.
2. One needs to transfer a minimum 2 lakh rupees through RTGS.	2. There is no minimum transfer amount limit in NEFT.

Multiple Choice Questions

Question 1.
Where was the first bank started?
(A) New York
(B) Geneva
(C) London
(D) Paris
Answer:
(B) Geneva

Question 2.
In which year did banking start?
(A) 1230 CE
(B) 1605 CE
(C) 1407 CE
(D) 1521 CE
Answer:
(C) 1407 CE

Question 3.
The word ‘bank’ is derived from Italian word
(A) Banco
(B) Banc
(C) Bankin
(D) Bancun
Answer:
(A) Banco

Question 4.
The money lenders of Rome were known as
(A) Bankers
(B) Macella
(C) Bancu
(D) Bancala
Answer:
(B) Macella

Question 5.
A long and narrow bench used in Roman Empire for money lending works was called
(A) Macella
(B) Bancala
(C) Bancu
(D) Long bank
Answer:
(C) Bancu

Question 6.
The biggest .esponsibility of a bank is
(A) To maintain trust
(B) To maintain discipline
(C) To be responsible
(D) To work efficiently
Answer:
(A) To maintain trust

Question 7.
Which of the following is not a type of account?
(A) Current
(B) Fixed
(C) Recurring
(D) Overdraft
Answer:
(D) Overdraft

Question 8.
Which of the following is not a type of loan?
(A) Cash-credit
(B) Pay-order
(C) Overdraft
(D) Both A and B
Answer:
(B) Pay-order

Question 9.
When a person withdraws more money than available in his account without giving any security we say he has used the facility of
(A) Overdraft
(B) Letter of credit
(C) Cash-credit
(D) Demat
Answer:
(A) Overdraft

Question 10.
As per RBI a bank compulsory needs to invest in government guarantees in order to
(A) Earn high interest rate
(B) Withdraw it easily in emergencies
(C) Assure people about the financial capability of the bank
(D) Both (A) and (B)
Answer:
(B) Withdraw it easily in emergencies

Question 11.
Who appoints the agency for call money?
(A) Head office of the bank
(B) Central Bank
(C) Government of India
(D) Manager of branch office
Answer:
(B) Central Bank

Question 12.
Money borrowed by a bank from another bank is called
(A) Traded money
(B) Temporary money
(C) Lent money
(D) Call money
Answer:
(D) Call money

Question 13.
Which of the following works as an best substitute for traveller’s cheque?
(A) Core banking
(B) Credit card
(C) ATM
(D) All of these
Answer:
(C) ATM

Question 14.
Demand draft is a type of
(A) Document
(B) Cheque
(C) Draft
(D) Letter
Answer:
(B) Cheque

Question 15.
On which of the following does a customer need to pay commission to the bank?
(A) Demand draft
(B) Credit card
(C) ATM
(D) Letter of credit
Answer:
(A) Demand draft

Question 16.
A document provided by the bank stating the financial soundness of its customer is called
(A) Letter of credit
(B) Solvency certificate
(C) Guarantor certificate
(D) Capability record
Answer:
(B) Solvency certificate

Question 17.
Normally, there are main types of bank accounts.
(A) 2
(B) 3
(C) 4
(D) 6
Answer:
(C) 4

Question 18.
In which type of account is the interest rate very low?
(A) Recurring
(B) Current
(C) Fixed
(D) Savings
Answer:
(D) Savings

Question 19.
Which account is only for businessman or professionals?
(A) Savings
(B) Recurring
(C) Current
(D) Fixed
Answer:
(C) Current

Question 20.
In which account one can withdraw as many times as one wish?
(A) Current
(B) Recurring
(C) Savings
(D) Both (A) and (C)
Answer:
(A) Current

Question 21.
In which account one needs to deposit predetermined money every month?
(A) Fixed
(B) Current
(C) Recurring
(D) Savings
Answer:
(C) Recurring

Question 22.
In which account does a bank pay the whole amount along with interest?
(A) Recurring
(B) Savings
(C) Fixed
(D) Both (A) and (C)
Answer:
(D) Both (A) and (C)

Question 23.
In draft the issuing bank addresses
(A) The receiver
(B) The sender
(C) Another bank
(D) Itself
Answer:
(C) Another bank

Question 24.
Which of the following can bounce?
(A) Pay-order
(B) Cheque
(C) Demand draft
(D) Over-draft
Answer:
(B) Cheque

Question 25.
When do you need an IFSC code?
(A) During overdraft
(B) During pay-order
(C) During RTGS
(D) All of these
Answer:
(C) During RTGS

Question 26.
Who provides IFSC codes?
(A) Central Bank of India
(B) IDRBI
(C) 10,000
(D) No minimum limit is there
Answer:
(B) IDRBI

Question 27.
Where is IDRBI situated?
(A) Chennai
(B) Mysore
(C) Bangalore
(D) Hyderabad
Answer:
(D) Hyderabad

Question 28.
Which is the fastest means to transfer money?
(A) RTGS
(B) Cheque
(C) NEFT
(D) Both (A) and (C)
Answer:
(A) RTGS

Question 29.
To use RTGS one needs to transact for a minimum of Rupees.
(A) 200000
(B) 50,000
(C) 10,000
(D) No minimum limit is there
Answer:
(A) 200000

Question 30.
Bank charges commission on
(A) Inward RTGS
(B) Outward RTGS
(C) Bothe (A) and (B)
(D) None of these
Answer:
(B) Outward RTGS

Question 31.
Which loan will have the longest repayment period?
(A) Overdraft
(B) Vehicle loan
(C) Cash-credit
(D) Housing loan
Answer:
(D) Housing loan

Question 32.
In how many phases can we divide the transformation of banking processes?
(A) 2
(B) 3
(C) 4
(D) 5
Answer:
(B) 3

Question 33.
A branch in which a person opens his bank account is called his
(A) Personal branch
(B) Area branch
(C) Home branch
(D) Local branch
Answer:
(C) Home branch

Question 34.
In which of the following does a bank needs to maintain very strict rules in its system?
(A) m-banking
(B) core banking
(C) e-banking
(D) All of these
Answer:
(A) m-banking

Question 35.
In which facility does a customer repays at the end of the month?
(A) Debit card
(B) ATM
(C) Credit card
(D) All of these
Answer:
(C) Credit card