Free Bachelor of Commerce: Banking & Insurance Questions and Answers — Questions and Answers

Question 1: Demand deposit is also referred to as _____________ .

Recurring Deposit
Capital a/c
Fixed Deposit a/c
Current a/c (Correct answer)

Correct answer: Current a/c

Demand deposits are funds held in bank accounts that can be withdrawn by the account holder at any time without prior notice. Current accounts are a type of demand deposit, primarily used by businesses for frequent transactions, offering high liquidity and often no interest. They allow for immediate access to funds, fitting the definition of a demand deposit.

Question 2: It is known as———— for commercial banks to increase deposit by increasing their loans and advances.

Bank advances
Deposit
Trade discount
Credit creation (Correct answer)

Correct answer: Credit creation

Credit creation is the process by which commercial banks expand the money supply by granting loans and advances. When a bank gives a loan, it credits the borrower's account, which is a new deposit. This new deposit can then be used, leading to further deposits in other banks, thus multiplying the initial deposit and creating more credit in the economy.

Question 3: The central bank levies interest at a rate known as __________ for rediscounting and providing advances.

Credit
CRR
SLR
Bank rate (Correct answer)

Correct answer: Bank rate

The Bank Rate is the rate at which the central bank (like RBI in India) lends money to commercial banks without collateral, primarily for rediscounting bills of exchange or providing long-term advances. It serves as a benchmark rate and influences other interest rates in the economy, acting as a key tool for monetary policy.

Question 4: On ___________ , 14 commercial banks were nationalized.

19 Jan 1959
15 April 1980
15 Aug 1972
19 July 1969 (Correct answer)

Correct answer: 19 July 1969

On July 19, 1969, the Indian government, under Prime Minister Indira Gandhi, nationalized 14 major commercial banks. This landmark decision aimed to align the banking sector with the government's socialist objectives, ensuring that credit was directed towards priority sectors like agriculture and small industries, rather than being concentrated in the hands of a few industrialists.

Question 5: On _________ , the State Bank of India was created under the State Bank of India Act.

1952
1935
1948
1955 (Correct answer)

Correct answer: 1955

The State Bank of India (SBI) was established on July 1, 1955, under the State Bank of India Act, 1955. It was formed by nationalizing and renaming the Imperial Bank of India, with the objective of extending banking facilities to rural areas and supporting economic development, particularly in agriculture and small-scale industries.

Question 6: In 1926, the ______ commission advocated the establishment of a central bank.

Banking Enquiry Committee
Hilton Young Committee (Correct answer)
Bretton Wood Committee
Narasimham Committee

Correct answer: Hilton Young Committee

The Hilton Young Commission, also known as the Royal Commission on Indian Currency and Finance, was appointed in 1926. This commission strongly recommended the establishment of a central bank in India to separate currency issue and credit control functions from the government. Its recommendations eventually led to the formation of the Reserve Bank of India in 1935.

Question 7: An overdraft is a credit facility made available to holders by commercial banks.

Reserve Fund
Capital a/c
Cash a/c
Current a/c (Correct answer)

Correct answer: Current a/c

An overdraft facility allows an account holder to withdraw money even if their account balance is zero or goes into negative. This credit facility is primarily offered by commercial banks to current account holders, especially businesses, to meet short-term liquidity needs. It provides flexibility and immediate access to funds beyond the available balance.

Question 8: Another name for money on short notice and call is ___________ .

Financial call money
Financial system.
Capital market
Interbank call money market (Correct answer)

Correct answer: Interbank call money market

Money lent or borrowed for a very short period, typically overnight or up to 14 days, is referred to as call money or short notice money. This market primarily operates between banks to manage their short-term liquidity requirements and is known as the interbank call money market. It's a crucial segment of the money market for banks to balance their cash positions.

Question 9: The process of creating a derivative deposit using funds from a primary deposit is known as _______ .

Credit creation (Correct answer)
Cash credit
Loan and advances
Lending money

Correct answer: Credit creation

Credit creation is the fundamental banking process where commercial banks generate new deposits (derivative deposits) by lending out a portion of their primary deposits. When a bank receives a deposit, it keeps a fraction as reserves and lends the rest. This loan amount, when deposited in another bank, becomes a new primary deposit, initiating a multiplier effect and expanding the money supply.

Question 10: The first Indian joint-stock bank?

Allahabad Bank
Imperial Bank (Correct answer)
ICICI
CRR

Correct answer: Imperial Bank

The Imperial Bank of India, formed in 1921 by the amalgamation of the three Presidency Banks, was a prominent and large-scale joint-stock bank in India. Although earlier banks existed, the Imperial Bank held a significant position, acting as a quasi-central bank before the Reserve Bank of India was established. It later became the State Bank of India after nationalization in 1955.

Question 11: The company's slogan is "Buy now, pay later."

Debit card
ATM
MICR
Credit card (Correct answer)

Correct answer: Credit card

The slogan 'Buy now, pay later' perfectly describes the fundamental feature of a credit card. Credit cards allow consumers to make purchases by borrowing funds from the card issuer, with the understanding that the borrowed amount will be repaid at a later date, often with interest if not paid in full by the due date. This contrasts with debit cards, which deduct funds directly from a bank account.

Question 12: Prepaid cards are known as e-purses and go by the name _________ .

Electronic card
E-cash
Electronic credit card
Stored value card (Correct answer)

Correct answer: Stored value card

Prepaid cards are indeed known as e-purses because they store a specific monetary value electronically, much like a digital wallet. The term 'stored value card' accurately reflects this characteristic, as the card itself holds the pre-loaded funds that can be used for transactions. Unlike credit or debit cards, they are not linked to a bank account or a line of credit but rather to the value loaded onto them.

Question 13: __________is the electronic transfer of funds between bank accounts.

E-purse
NEFT
SWIFT
EFT (Correct answer)

Correct answer: EFT

EFT stands for Electronic Funds Transfer, which is the umbrella term for any transfer of money from one bank account to another electronically. This method facilitates transactions without the need for physical cash or checks, encompassing various forms like direct deposits, wire transfers, and online bill payments. It is a broad category that includes specific systems like NEFT and SWIFT.

Question 14: Global bank accounts are connected by satellite offered by ________ .

NEFT
EFT
SWIFT (Correct answer)
PSAM

Correct answer: SWIFT

SWIFT, or the Society for Worldwide Interbank Financial Telecommunication, is a global network that enables financial institutions worldwide to send and receive information about financial transactions in a secure, standardized, and reliable environment. It acts as a messaging system, connecting banks across the globe, including via satellite, to facilitate international money transfers and other financial communications.

Question 15: RTGS was introduced in India on ________ .

26 March 2002
26 March 1994
26 March 1998
26 March 2004 (Correct answer)

Correct answer: 26 March 2004

RTGS (Real-Time Gross Settlement) was introduced in India on March 26, 2004. This is a factual date related to the implementation of a key electronic funds transfer system by the Reserve Bank of India. It marked a significant advancement in facilitating large-value interbank transactions in real-time.

Question 16: Real-time money transfers from one bank account to another are made possible by the technique ________ .

RTGS (Correct answer)
ECS
EFT
NEFT

Correct answer: RTGS

RTGS, or Real-Time Gross Settlement, is a system designed for the continuous (real-time) settlement of funds transfers individually (gross settlement). This means that transactions are processed immediately upon receipt, rather than being batched, making it ideal for high-value, urgent interbank transfers. It ensures that funds are transferred from one bank account to another with minimal delay.

Free Bachelor of Commerce: Banking & Insurance Questions and Answers

Demand deposit is also referred to as _____________ .