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Intermediate Part II

Bank Important Short Questions

Q:      What is meant by the bank?

Ans:     Bank is a financial institution that collects people’s deposits. It gives loans to needy people out of these deposits. In doing so it not only creates money but also earns a profit.

Q:      Write down kinds of banks.

Ans:     1) Central Bank 2) Commercial Bank 3) Agricultural Bank 4) Industrial Bank 5) Cooperative Bank 7) Savings bank 8) mortgage Bank 9) Exchange Bank.

Q:        What is meant by Central Bank?

Ans:     The Central Bank is the head of the banking and monetary system of the country. It performs many functions for the economic interest and development of the country. Instead of making a profit, it works for the welfare of the people and economic development.

Q:        Define commercial bank.

Ans:     The most important function of a commercial bank is to make a profit. These banks collect people’s surplus money as a deposit and lend it to the needy by setting interest rates for them to make a profit.

Q:        Define Agricultural Bank.

Ans:     Agricultural bank advances loans to farmers for the development of agriculture sector. These loans are for the purchase of agricultural machinery, seeds, fertilizers, and for installing tube wells.

Q:        Define Industrial Bank.

Ans:     Industrial bank advances loans to industrialists for the development of industrial sector. These loans are advances for short term, medium term and long term.

Q:        Define Cooperative banks.

Ans:     These banks operate under self-help. It means most of their capital is collected under self-help. They are setup for the betterment of small cultivators and land owners.

Q:        Define Saving banks.

Ans:     These are the banks which receive saving of the people as deposits and pay higher interest rate than current interest rate.

Q:        Define Exchange bank.

Ans:     These banks perform the function of exchange of currencies of different countries. These banks provide financial resources to exporters and importers by discounting foreign bills of exchange.

Q:        Define Mortgage bank.

Ans:     These banks mortgage people’s property e.g., land, house and other precious goods and advance loans. Bank goes on receiving the income of property until the borrower returns the amount of loan.

Q:        What is Foreign Exchange Bank?

Ans:     The banks perform the function of exchange of currency of different countries.

Q:        Write kinds of commercial banks.

Ans:     1) Scheduled bank 2) Nonscheduled bank

Q:        What are scheduled banks?

Ans.     These are banks which start their business after getting permission from the central bank. These are registered with the central bank and are bound to deposit a certain proportion of their deposit in Central Bank.

Q:        What are non-scheduled banks?

Ans:     These are the banks which have started their business without the permission of the Central Bank. They are not bound to deposit any proportion of their deposits in Central bank.

Q:        Write down Functions of Commercial Bank.

Ans:     1) Accepting deposits of the people 2) Advancing loans 3) Discounting bill of exchange 4) Transfer of money 5) Performing agency services

Q:        What are demand deposits?

Ans:     These are the deposits which can be demanded back by the customer from the bank at any time. Bank cannot use these deposits for advancing loans. So, Bank does not pay interest on these deposits.

Q:        What is meant by time deposit?

Ans:     These are deposits which are deposited with the bank for a fixed period of time. Bank invest its deposits in some business so it pays interest on time deposits.

Q:        What are saving deposits?

Ans:     Some people deposit their small savings with the bank which are called saving deposits.

Q:        What are Profit and Loss sharing Deposits?

Ans:     In Islam interest is prohibited. So, in Islamic countries where interest free banking is in operation banks accept profit and loss sharing deposits instead of saving deposits.

Q:        What is over draft facility?

Ans:     The amount of money which bank allows its customer to draw over and above his own deposit (which is up to the extent of his authorized loan) is called overdraft.

Q:        What is discounting Bill of Exchange?

Ans:     The written agreement between the debtor and the borrower is called Bill of Exchange. This means that the lender cannot demand money from the borrower before the due date. Therefore, the process of lending by a bank in exchange for a Bill of Exchange is called discounting Bill of Exchange and the bank deducts interest or commission on the Bill of Exchange when it is purchased.

Q:        What is credit creation?

Ans:     Advancing loans by the banks more than the deposits of the people is called credit creation.

Q:        Write down the formula of credit creation.

Ans:     Formula of credit creation = Primary deposit X 1/Cash reserve ratio

Q:        Write down four limitations of credit creation.

Ans.     1) Need of cash           2) Lack of borrowers 3) Shortage of guarantees 4) Policy of Central Bank

Q:        What is meant by Monetary Policy?

Ans:     The steps taken by the central bank to control the money supply in the country are called monetary policy.

Q:        Write down instruments of monetary policy.

Ans.     1) Bank rate policy 2) Open market operation 3) Change in reserve ratio 4) Change in cash ratio

Q:        Write four main functions of Central Bank.

Ans.     1) Issuing of notes 2) It’s a banker to the government 3) Banker’s Bank 4) Custodian of metallic reserve

Q:        Write down methods of issuing of notes.

Ans.     There are two methods of issue notes.

1) Fixed fiduciary system       2) Proportional reserve system

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