Wednesday, January 01, 2020

AHSEC Class 11: Banking Solved Question Paper' 2019

Full Marks: 100
Pass Marks: 30
Time: Three hours
The figures in the margin indicate full marks for the questions.
1. Answer the following:
A.      Fill in the blanks:      1x2=2      
a) Reserve Bank of India was established on 1st April, 1935.
b)   Overdraft facility is given against the Current Accounts only.
B.      Write full form of the following abbreviations :    1x2=2
a)       IDBI: Industrial Development Bank of India
b)      ATM: Automated Teller Machine
C.       Choose the correct answer from the alternatives given below :  1x2=2

a)      Which of the following departments is not considered as department of a bank  - 
1.       Advance Department
2.       Establishment Department
3.       Cultural Department
4.       Cash & Clearing Department
b)      Which system of Note Issue was followed by the Reserve Bank of India till 1956?
1.       Minimum Reserve System
2.       Percentage Deposit System
3.       Proportional Reserve System
4.       Upto Paid - up capital
D.      Write ‘True’ or ‘False’ :             1x2=2
a)      The customer is the main beneficiary of the Internet Banking.                            True
b)   The presidency banks were established under the Charter of East India Company.     True
2. Write the meaning of Bank.    2
Ans: Bank is a financial institution that undertakes the banking activity accepts deposits and then lends the same to earn certain profit.
3. Given short note on Recurring Deposit Account.       2
Ans: Recurring Deposit Account is an account the depositor is required to deposit a fixed amount of money at regular intervals for a fixed period of time and the amount is repayable with interest at the end of the period.
4. What is Debit Card?      2
Ans: Debit Card is an instrument or a card with the help of which we can buy goods and services and pay directly the amount through the bank account. In such cards, the customer is required to have a bank account containing some amount of deposit.
5. Define Trade Cycle.     2
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.
6. What is Land Development Bank?      2
Ans: The land development banks are the financial institutions that are organized for providing long term credit to the agriculturists. These banks are also known as Long Mortgage banks as they are set up to relate the burden of indebtness.
7. Write the name of three private sector banks.               3
Ans: The three Private Sectors Bank are AXIS Bank Limited, Yes Bank Limited, ICICI Bank Limited.
8. Briefly explain the principles of Note Issue of Reserve Bank of India.         3
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.
9. Write three features of Saving Bank Account.                               3
Ans: 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.
10. State why Central Bank is known as ‘lender of last resort’.          3
Ans: 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. The Central Bank lends money to them by discounting their bills. This enables the Central Bank to establish control over the banking system of the country.

11. Given a short note on ‘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. Discuss the objectives of Credit Control of Central Bank.               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.
Discuss in the Inspection and Supervision functions of Central Bank.        5
Ans: The Supervisory and Inspectional powers of the Central Bank are:
a)      Licensing and Establishment of banks.
b)      Regulation of Branch expansion.
c)       Maintenance of minimum paid up capital and reserves as provided by law by banks.
d)      Management of the banks.
e)      Inspection and auditing of the books of accounts of the banks, etc.
13. Discuss the advantages of ‘Internet Banking from customers’ point of view.        5
Ans: Advantages of E-banking or Internet banking
1)      Convenience: Banks that offer internet banking are open for business transactions anywhere and anytime.
2)      Low cost banking service: E-banking helps in reducing the operational costs of banking services.
3)      Higher interest rate: Lower operating cost results in higher interest rates on savings and lower rates on mortgages and loans offers from the banks.
4)      Ease of transaction: The speed of transaction is faster relative to use of ATM’s or customary banking.
5)      Discounts: The credit cards and debit cards enables the Customers to obtain discounts from retail outlets.
14. Describe five characteristics of Trade Cycle.          5
Ans: The features of Trade cycle are:
a)      It is like a wave movement. It is characteristised by downward and upward movement.
b)      They are irregular in nature. The peaks and troughs do not occur at regular intervals.
c)       The phases of a trade cycle appear in all types of business in different variations.
d)      Though they are international in character, yet they did not affect all the countries equally.
e)      In trade cycle, profits fluctuate more than other incomes.
Explain in brief the various 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.
15. What types of complaints are to be looked by Banking Ombudsman relating to banking services? (mention any five)        5
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.
Types of complaints which can be filed with banking ombudsman:
a) Non-payment or unreasonable delay in payments of cheque, bills etc.
b) Non-adherence to prescribed working hours.
c) Refusal to open saving deposit account without any valid reason.
d) Refusal to accept or delay in accepting payment.
e) Refusal to close or delay in closing accounts.
16. Describe the features of Regional Rural Bank.          5
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.
The features or characteristics of Regional Rural Banks are:
a)      The RRBs have a particular operation area. They remained confined to a particular district.
b)      They are sponsored by the public sector bank.
c)       The authorized capital of RRBs is Rs. 5 crore at present and issued capital is at Rs. 1 crore.
d)      The RRBs are dependent on NABARD for financial support. The NABARD provides refinance to the RRBs at concessional interest rate.

17. Write about the operating system of credit card.     5
Ans: Credit card transactions are processed through a variety of platforms such as e-commerce sites, mobile devices etc. The entire cycle form card slide to receipt production is passed through various process which are stated below:
1. Authorization: In the authorization stage, the merchant must obtain approval for payment from the issuing bank. The acquiring bank the credit card details to the credit card network and card network clears the payment and requests payment authorization from the issuing bank. The authorization request includes the following: Credit card number, Card expiration date, Billing address — for Address Verification System (AVS) validation, Card security code — CVV, for instance and Payment amount.
2. Authentication: In the authentication stage, the issuing bank verifies the validity of the customer’s credit card using fraud protection tools such as the Address Verification Service (AVS) and card security codes such as CVV, CVV2, CVC2 and CID.
3. Clearing  & Settlement: In the clearing stage, the transaction is posted to both the cardholder’s monthly credit card billing statement and the merchant’s statement. It occurs simultaneously with the settlement stage.
Write the procedure of use of ATM Card.           5
Ans: Procedure to use ATM Card:
a) Step 1: First of all go ATM of any bank and insert you ATM Card.
b) Step 2: Select your preferred language.
c) Step 3: Enter Four digit pin number.
d) Step 4: Now choose the transaction type: Withdrawal, mini statement, Balance enquiry etc.
e) Step 5: Then select the account type – Current or savings.
f) Step 6: Collect the cash and count or see balance on the screen or collect mini statement.
g) Step 7: End the session by pressing cancel or cross button.
18. State in brief the procedure of opening a bank account in the name of a minor.             5
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. The Bank can open a saving, fixed or recurring deposit account in the name of minor.
Following are the main steps in opening a bank account:
1. 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.
2. 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. 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.
3. Selection of bank and branch: The prospective accountholder should now select the bank .
4. 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.
5. 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.
6. Submission of the form: Now the form should be submitted along with the required documents. These documents vary from account to account.
7. 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.
8. Making initial deposit: The applicant is allotted an account and asked to make initial deposit in his account through a deposit slip.
9. Account is opened: As soon as the initial deposit is made, the account is opened.
10. 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.

19. Discuss briefly the management system of Reserve Bank of India.      8
Ans: The Reserve Bank was set up as corporate body. The organizational structure of the Reserve Bank is provided by the Reserve Bank of India Act, 1934. It comprises of the: (a) Central Board and (b) Local Boards.
Central Board: The Central Board of Directors is the supreme governing body of the Bank. It consists of 20 members. The members include the following:
1)      A Governor and not more than four Deputy Governors to be appointed by the Central Government.
2)      Four Directors to be nominated by the Central Government, one each from the four local boards.
3)      Ten Directors to be nominated by the Central Government. They are experts from the fields of business, industry, finance and co-operation.
4)      One Government Official (Secretary, Ministry of Finance) to be nominated by the Central Government.
The power of the Board vests with the Governor who is the Chief Executive Officer of the Bank. The Governor has the responsibility of directing the affairs and business of the Bank. The Governor and Deputy Governors hold office for a period of 5years and are eligible for the reappointment. The Governor in his work is assisted by four Deputy Governors and four Executive Directors. The executive directors are not the members of the Central Board but attend Board meetings by invitation. They are subordinate to Deputy Governors.
Local Boards: Apart from Central Board of Directors, four Local Boards are constituted representing each area specified in the first schedule to the Act. There is a Local Board in Eastern, Western, Northern and Southern regions of the country with headquarters at Kolkata, Mumbai, New-Delhi and Chennai.
Local Board consists of five members, each appointed by the Central Government. In each Local Board, a Chairman is elected from amongst the members. The members of the Local Board hold office for a period of four years and are eligible for reappointment.
Discuss the evolution 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. Describe the principles of Central Bank.      8
Explain four important points of difference between Central Bank and Commercial Bank.       8
Ans: Central Bank: Central Bank is known as guardian bank which bank working in the country. Now a days, in every country there is one central bank and is controlled by the govt. The central Bank manages and control the whole monetary system and also prepares monetary policy and other policies of the govt.
Commercial Bank: In simple words, we can say that Bank is a financial institution that undertakes the banking activity accepts deposits and then lends the same to earn certain profit. 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.
There are some fundamental differences between them:
1)      Profit making is not the objective of central banks, although, they do earn profits. But, the principle aim of a commercial bank is to make large amounts of profits.
2)      The central bank is owned any controlled by the Government. But A commercial bank is generally owned, managed and controlled by private citizens.
3)      There is only one central bank in a country. But, There are commercial banks operating in a country on a competitive basis.
4)      The central bank is the only agency in a country entrusted with the power of issuance of notes. But, The commercial banks do not have the power of issuing notes.
5)      The central bank s the lender of the money market. But, The commercial banks are just its sub-ordinates.
21. Discuss the causes of inflation.         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 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.
Explain the difficulties of Barter System.           8
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.
The features of Barter System are:
a)      Barter involves direct exchange of goods and services.
b)      It is non-monetised system.
c)       There is absence of market mechanism in barter economy.
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.
d)      Difficulty in storing of goods: Barter system does not allow any convenient method of storage
of value.
e)      Difficulty in making deferred payments: In a barter economy, it is not easy to make payments in the future
f)       Difficulty of Transportation: The major problem of barter system is to transport goods and services from one place to another conveniently.
22. Discuss the various essential conditions for successful Open Market Operation.         8
Ans: Assumptions or Conditions for Open Market Operations
The successful operation of ‘market operations’ as technique of monetary management is also dependent upon certain assumptions. If these conditions do not exist, the sharpness of this weapon will get blunted.
1.       The market for government or eligible securities should be well-organised.
2.       The sufficient quantum of eligible securities should exist or the central bank should be empowered to issue its own securities.
3.       Commercial banks should consistently keep reserves just adequate to satisfy the legal requirements. If the banks are already maintaining a reserve ratio much higher than the legal requirement, the open market operations will fail to make the desired impact. Even after the effect of open market operations, the reserves with commercial banks may be higher than the legal requirement. This will obstruct the operation of open market operations theory.
4.       There should not be excessive volume of government debt. In such security markets there may be a sharp reaction to the open market operations at times the security market may get unduly depressed. This will happen if due to open market sale there is noticeable fall in the value of securities.
5.       The central bank should not be under the pressure of weightier considerations of monetary control and policy. For instance, in developing countries central banks are tremendously under pressure from the considerations of public debt management.

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