[AHSEC Class 11 Solved Question Papers, Banking Solved Question Papers, Finance Solved Question Papers, 2018]
Class 11 Finance (Banking) Question Papers
AHSEC Class 11 Question Papers' 2018
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) Who is authorized to issue notes in India?
Ans: RBI
b) Write the full form of ATM.
Ans: Automated Teller Machine
c) Write the name of the central bank of our country.
Ans: Reserve Bank of India
d) State a characteristic of inflation.
Ans: Monetary phenomenon: It is generally caused due to excessive money supply – overflow of money and credit.
e) RRBs were started in the year 1967/1975/1976. (Choose the correct answer)
Ans: 1975
f) In which year was the Cooperative Credit System introduced?
Ans: 1904
g) The Banking Regulation Act was passed in the year_______. (Fill in the blank)
Ans: 1949
h) What do you mean by barter system?
Ans: Ans: The system in which goods are exchanged for goods is known as Barter System.
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.
Ans: State Bank of India, PNB, UCO Bank
4. Give the meaning of prosperity. 2
Ans: 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.
5. Who is a bank customer? 2
Ans: A person or an institution which opens an account in a Bank and undertakes banking services with the Banker is known as a Customer or Bank’s Customer. Account to D. L. Hart, ‘a customer is one who has an account with a banker or for whom a banker habitually undertakes to act as such’. Thus, a person who deals with the banker is a customer of bank.
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. The three parties of a credit card are :
a) The issuer: The organization which issues such cards like bank.
b) The cardholders: The individuals, corporate bodies other organizations that holds the cards.
c) The member establishments: The organizations or firms who accepts such cards.
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.
d) Personal department: It is concerned with selection, training, appointment, salary and pension of staff.
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.
11. Give the meaning of Banking Ombudsman. 3
Ans: Banking Ombudsman: Ombudsman in a bank is a person appointed to receive, investigate and report on complaints by customers against banking officials. It is a quasi-judicial authority which is formed to resolve the complaints of the customer of the bank.
12. Narrate five differences between cooperative bank and commercial bank. 5
Ans: Difference between co-operative bank and commercial bank
| 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 the RBI.
Ans: 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:
a) Proportional reserve system.
b) Simple Deposit system.
c) Fixed fiduciary system.
d) Minimum reserve system.
e) Maximum reserve system.
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 a 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. 5
Ans: Meaning of Capital is different for different types of banks. For:
a) Nationalised Banks: In this case, the capital owned by the central government as on the date of the balance sheet as well as those raised from public issues are shown.
b) Foreign banks: In this case the amount brought in by banks by way of start up capital as prescribed by the Reserve bank as well as the amount of deposits kept with the Reserve banks are shown.
c) Other Banks: Here, authorised, issued, subscribed, called-up capital are shown separately. Call-in-arrears are deducted and paid-up value of forfeited shares are added from/to the paid-up capital.
18. Explain the function of Central Bank as bank of note issue. 5
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Also Read: Finance (Banking) AHSEC Class 11
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Ans: 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:
f) Proportional reserve system.
g) Simple Deposit system.
h) Fixed fiduciary system.
i) Minimum reserve system.
j) Maximum reserve system.
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.
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.
Some of them are explained below:
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 occur 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. 8
Ans: The word Bank has been originated from many words. There is no single word or answer to this origin of the word ‘Bank’. According to some economists, the word ‘Bank’ has been originated from the German word ‘Banck’ which means heap or mound or joint stock fund. From this, the Italian word ‘Ban co’ has been derived. It means heap of money. But according to this group, the word bank is derived from the Greek word ‘Banque’ which mean a ‘bench’. It refers to a place where money-lenders and money changers used to sit and display their coins and transact business. Thus the origin of the word ‘Bank’ can be traced as follows.
Bank → Banco → Banque → Bank
Banking industry in India has a long history. It has travelled a long path to assume its present form. The banking industry in Indian started with small money lenders and has now large joint stock world class banks in its fold. The growth of banks in India is discussed below over two eras: A) Pre-Independence Period and B) Post-Independence Period
A) Pre-Independence Period: Banking in its crude from is as old as authentic history. All throughout the period of India history, indigenous bankers and money lenders are recorded to have existed and carried on the business of banking and money lending on a large scale. From the early Vedic period right through the Moghul period as well as that of the East India Company’s rule until the middle of the 19th Century, indigenous bankers were the hub of the Indian Financial System providing credit not only to the trade but also to the Government.
Agency House: The indigenous bankers lost their importance to a certain extent with the advent of the English traders in India. The starting of modern banking in India can be traced to the beginning of the East India Company’s trade relation with our country. The bank of Hindustan was the earliest bank started under European direction in India. The banking business of Agency House could not continue for long. Most of these Houses failed because of their complete disregard towards the principle of banking business. The Bank of Hindustan could not withstand the failure of its parent from and was closed down in 1832.
Presidency Banks (2012, 2017): The banking business of Agency House which survived and continued to carry on trade and banking together was progressively taken over by the Presidency Banks. The three Presidency Banks viz.:
a) The Bank of Bengal (1809);
b) The Bank of Mumbai (1840); and
c) The Bank of Chennai (1843)
were established under the Charter of the East India Company. These Banks acted as banker to the East India Company at Kolkata, Mumbai and Chennai and performed Central Banking functions for their respective areas.
Principle of Limited Liability: A land-mark development took place in the year 1860. It was in this year the principle of “limited liability” was first applied to the joint stock banks. The introduction of the principle of limited liability promoted the growth of banks in India. By 1895, there were 15 joint stock banks with limited liability in India.
The Swadeshi Movement: Swadeshi movement prompted Indians to start many new institutions. The number of joint stock banks increased remarkably during 1906-1913. The peoples Bank of India Limited, the Bank of India Limited, the Central Bank of India Limited, Indian Bank Limited and the Bank of Baroda Limited were setup during that period.
Imperial Bank of India: The three Presidency Banks were amalgamated into the Imperial Bank of India which was brought into existence on 27th January, 1921, by the Imperial Bank of India Act, 1920. The liability of shareholders of the Imperial Bank was limited like that of shareholders of other banks registered under the Company Act.
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.
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. 8
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 |
External organisation of a business concern means legal and constitutional form of a business organisation. It is based on ownership division. Example of external organisation is sole trade, partnership, company, state enterprises etc. In India, a commercial bank is set up as joint stock companies under the Companies Act and sole trade and partnership basis is not allowed.
Management of banking company: According to sec.10 the Banking Regulation Act 1949, no banking can employ or be managed:
a) By a managing agent or
b) By a declared insolvent or
c) By a person convicted of criminal offense or
d) By a person of unsound mind or
e) By a person who is engaged in any other business or
f) By a person whose remuneration is excessive in the opinion of the RBI.
These provisions are framed to check unhealthy manipulation.
22. Write short notes on the following: 4+4=8
a) E-banking
b) Scheduled and non-scheduled banks
Ans: (a) E-banking: 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: 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.
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