Short Answer Type Questions
Q. 1. A husband took a life insurance policy in his wife’s name. After 1 year, the couple got divorced and later on after 2 years, the wife died. Will the husband get compensation from the insurance company? (KVS - 2018)
Ans. The husband will get compensation from the insurance company, because in the case of a life insurance policy, the insurable interest must be present at the time of taking policy. If the husband is making regular payment of premium even after divorce, then he will get the compensation for the death of his wife even after divorce.
Q. 2. What do you mean by ‘Inconsistency’ of services?
Ans. Inconsistency of services means that homogeneous and standardised services can’t be provided each time by the service provider.Services have to be performed exclusively each time according to the different demands and different expectations of various customers.
Q. 3. Services are those separately identifiable,essentially intangible activities that provide satisfaction to the consumers. In context to business, how can you define services?
Ans. In context to business, services may be defined as all those economic activities that are intangible and imply an interaction between the service provider and the consumer. Business services include banking, insurance,transportation, warehousing, communication,etc.
Q. 4. State any three agency functions of a Commercial Bank.
Ans. Agency functions of a Commercial Banks are as follows:
(i) Collection and payment of cheques.
(ii) Purchase and sale of securities.
(iii) Advise customers on financial matters.
Q. 5. Why are banks called debtors as well as creditors?
Ans. Debtor is a person who owes some amount of money to a person and creditor is a person who has to collect money from a person or to whom a person owes money.bank owes money to its depositors that is why it is called debtor. On the other hand, a bank grants loan also and all those who have taken loan owe money to banks. That is why a bank is also called creditor. A bank is a debtor for its depositors and creditor for its loan holders.
Q. 6. Write a short note on:
(i) ATM,
(ii) Debit Card.
Ans. (i) ATM: Automated Teller Machine is 24 hours operated automatic machine, which helps in depositing and withdrawing money. It is done by inserting a plastic card (ATM Card) and entering Personal Identification Number (PIN)
(ii) Debit Card: It is the plastic card issued to a customer in lieu of his money deposited in bank. By using it, a customer can make immediate payment of purchased goods and services.
Q. 7. Give the important features of Recurring Deposit Account.
Ans. (i) In such account, money is deposited in regular instalment for a specified time period.
(ii) The rate of interest on it is higher than that on saving account.
(iii) In financial urgency the account can be terminated.
Q. 8. Expand these terms:
(i) UPI,
(ii) USSD,
(iii) AEPS.
Ans. (i) Unified Payment Interface
(ii) Unstructured Supplementary Service Data
(iii) Aadhaar Enabled Payment System
Q. 9. Naresh took a fire insurance policy from NICL of ` 50 Lakh for his factory at the annual premium of ` 75,000. In order to avoid premium more than his amount he did not disclose that highly explosive chemicals are being manufactured in his factory. Due to fire his factory gets damaged. The insurance company NICL refused to make the payment for claim as it became aware about the highly explosive chemicals. Is Naresh entitled to claim? Explain the principle of insurance violated by Naresh.
Ans. No, Naresh is not entitled to receive the claim because he has violated Principle of ‘Utmost Good Faith’. Good faith or disclosure of all material facts: An insurance contract is a contract of good faith. Both parties to the contract are bound to likely affect the acceptance of the proposal by the insurance company. It is known as a contract uberrimae fidei, i.e. contract requiring absolute good faith and the disclosure of all material facts. In ordinary contracts, when consent to an agreement is caused by mis-representation, the agreement is voidable. But in an insurance contract, there should not only be no mis-representation but also no concealment of any material fact, otherwise, the policy becomes void. According to Lord Mansfield, “Good faith forbids either party by concealing what he privately knows, to draw the other into a bargain from his ignorance of the fact and his believing the contrary.” The proposer is liable to disclose all material facts before the insurance company which are known to him. Every fact which is likely to influence the mind of prudent insurers in deciding whether to accept the proposal or not or in fixing the rate of premium is material fact.
Q. 10. Explain the following principle of insurance: Utmost good faith, Indemnity.
Ans. (i) Utmost good faith: It is the duty of the insured to disclose all the material facts relating to risk to be covered. A material fact refers to the fact which would influence the mind of the prudent underwriter in deciding whether to accept a risk for insurance and on what terms.
(ii) Indemnity: The purpose of indemnity is to restore the insured person to approximately the same financial position that existed prior to the loss. The important word here is ‘approximately’ the same and the reason for this is to prevent the insured from profiting from insurance to reduce moral hazards. Indemnity can be defined as the compensation of loss or injury sustained.
Q. 11. Why is life insurance considered as a contract of assurance?
Ans. Assurance means the security for compensation. Under the contract of insurance, the compensation is paid by the insurer on the happening of an event. For example, in case of fire insurance, the compensation is given only when the insured suffers a loss due to fire. But in case of life insurance, the compensation is paid irrespective of happening of an event. In life insurance the compensation is paid either on the death or on expiry of a specific time period whichever comes earlier. Since payment of compensation is assured by the insurance company, that is why, life insurance is considered as a contract of assurance.
Q. 12. Classify and explain each type of services.
Ans. The services can be categorised as.
(i) Personal services
(ii) Social services
(iii) Business services
Q. 13. Explain any four functions performed by Insurance.
Ans. Following functions are performed by insurance:
(i) Providing certainty: Insurance provides certainty of payment for the risk of loss due to happening of uncertain events. There are uncertainties of happenings of time and amount of loss. Insurance provides certainty to the assured for payment compensation against such losses.
(ii) Protection: Though Insurance can’t stop the happening of risk or event but provides protection against losses arising out of it.
(iii) Risk sharing: The other important function of insurance is risk sharing. On the happening of a risk/event the loss is shared by all persons exposed to it. The share is obtained from every insured member by way of premium.
(iv) Assist in capital formation: The accumulated funds received by way of premium paid by the insured are invested by the insurer in various income generating schemes. Thus, assisting in capital formation.
Q. 14. Write a short note on Health Insurance.
Ans. Under this insurance policy medical expenses of illness and disability are covered by the Insurance. Depending upon the policy, the premium may be payable either in lump-sum or in instalments. Health insurance usually provides either direct payment or reimbursement for expenses associated with illness and injuries. It is a contract of indemnity as the insured can claim on the basis of medical expenses.
Q. 15. Explain the following:
(i) Bank Overdraft
(ii) Speed Post
Ans. (i) Bank Overdraft: Is a temporary arrangement under which a depositor is allowed to draw by cheque more than the amount to his credit up to a specified limit.
(ii) Speed Post: This service provides fast time bound and guaranteed delivery of mail by the post offices on payment of extra charge than normal postal charges.
Q. 16. Ram wants to make long-term investment of his monthly savings along with tax benefits in post office investment schemes. Explain any two such schemes to Ram.
Ans. Ram can invest his monthly saving in:
(i) Public Provident Fund (PPF): Under it an account holder is required to deposit every year an amount ranging between ` 500 to ` 1.5 lakhs in his account for a period up to 15 years Interest is credited every year at the prescribed rate. Amount deposited every year in this account is subject to tax exemption.
(ii) National Saving Certificate: Ram can buy NSC for any amount (` 100 × more). The principal amount along with accumulated interest is paid on maturity (after 5 or ten years). Funds invested in NSC subject to an overall limit of ` 1.5 lakhs are eligible for tax benefits.
Q. 17. Discuss briefly the different types of mail services offered by the post and telegraph department?
Ans. Following mail services are provided by the post and telegraph department:
(i) UPS (Under Postal Service): Under it the post office provides a certificate of posting on the payment of prescribed fee.
(ii) Registered Post: This facility ensures the sender of the mail that in case the mail is not delivered to the addressee, it comes back to the sender.
(iii) Parcel Post: Under this facility, the parcels of specified size and weight can be sent across the country as well as outside the country on the payment of parcel charges.
(iv) Speed Post: Under it, the post & telegraph department guarantees that all the speed mail received up to 5 p.m. at the specified post offices will be delivered within 24 hours and if it fails to do so, the extra fee changed will be refunded.
Long Answer Type Questions
Q. 1. What are services? Explain their distinct characteristics. (DDE)
Ans. Service are identifiable and intangible economy activity that provide satisfaction of human wants.
Characteristics:
(i) Intangibility: Services are intangible, i.e., they cannot be touched. They are experiential in nature. One cannot taste a doctor’s treatment or touch entertainment. One can only experience it.
(ii) Inconsistency: The second important characteristic of services is inconsistency. Since there is no standard tangible product, services have to be performed exclusively each time. Different customers have different demands and expectations.
(iii) Inseparability: Another important characteristic of services is the simultaneous activity of production and consumption being performed. This makes the production and consumption of services seem to be inseparable.
(iv) Inventory less: Services have little or no tangible components and therefore, cannot be stored for a future use. That is, services are perishable and providers can at best store some associated goods but not the service itself.
(v) Involvement: One of the most important characteristics of services is the participation of the customer in the service delivery process.
Q. 2. Explain the main services of commercial banks. (KVS Agra 2017) (KVS 2015)
OR
Explain the functions of commercial banks. (KVS 2013) (NCT 2010)
Ans. The main functions of commercial banks are described below:
(i) Collection of deposits: One of the basic and primary functions of commercial banks is that they accept deposits from their clients. The depositors can withdraw money from their accounts in the form of cash or through cheques and drafts.
(ii) Granting loans: Banks grant loans to industry, trade and commerce. The banks lend the money which they get in the form of deposits. The funds lent out by banks help in the development of trade and industry.
(iii) Collection of cheques and bills: Banks collect the cheques for their customers drawn on other banks. To collect cheques, banks have clearing houses. In case of local houses, the banks take no extra charges. For collecting outstation cheques, banks charge a commission. Banks also accept bills of exchange and encash those by charging a commission called discount before the maturity date.
(iv) Agency functions: Banks pay insurance premium on behalf of their clients. They also collect dividend, premium, interest, pension, etc. on behalf of customers and credit the same in their accounts.
(v) Custodial services: Commercial banks act as custodians by providing protection to the valuable articles of their clients.
(vi) Issue of letter of credit: Letter of credit is a very important document in external trade. It gives assurance of payment on behalf of the importer. The letter of credit is issued by the importer’s bank to the exporter’s bank to give assurance of payment on delivery of goods in the importer’s country.
Q. 3. Define e-banking. Explain the various types of bank accounts. (KVS Agra 2016)
OR
The relationship between a bank and a customer begins when the customer opens an account with the bank. In context to this statement, discuss some of the accounts that can be opened by a customer in banks.
Ans. e-banking means any user with a PC and a browser can get connected to the banks website to perform any of the virtual banking functions and avail of any of the banks services. There is no human operator to respond to the needs of the customer.
Types of Bank Accounts are:
(i) Saving Deposit Account: A person can open a savings deposit account by depositing a small sum of money. He can deposit money and withdraw money from his account whenever required.
(ii) Current Deposit Account: The account holder can deposit and withdraw money whenever desired. This account is generally opened by the businessman.
(iii) Fixed Deposit Account: A fixed deposit is repayable after the expiry of the specified period of time. The period may vary from 6 months to 5 years.
(iv) Recurring deposit Account: In this account money is deposited in regular instalments of a specified time period.
(v) Multiple deposit: It offers benefits of current account option and savings account to the depositor.
Q. 4. Describe the various services offered by e-banking. (NCT 2011)
Ans. The services offered by e-banking are as follows:
(i) ATM (Automated Teller Machine): It is a selfservice terminal which can be operated at any time i.e. 24 hours a day. To use an ATM, a client has to insert a plastic card in the machine and enter his identification code. If the code is appropriate, the machine would respond by providing cash, accepting deposits, etc.
(ii) Debit card: Debit card facility is offered to the account holders to make payment up to the amount of credit balance available in their account. It is generally located in sale terminals (shop/store) which are tied up electronically to the bank computer. When the customer presents the debit card, the amount is automatically transferred from the customer’s bank account to the seller’s account.
(iii) Credit card: It refers to a card which permits overdraft facility to the clients depending upon their credit worthiness. Through this the customer can purchase products by presenting the credit card. It is an important type of support service provided by the banks.
(iv) On-line payment: It also offers the facility of making online payment of bills, taxes, etc.
Q. 5. Discuss the various principles of insurance. (KVS Agra)
OR
Discuss the following principles of Contract of Insurance:
(i) Principle of Indemnity
(ii) Principle of Subrogation
(iii) Principle of Contribution (KVS Agra 2016)
OR
Explain any four principles of Insurance. (KVS 2015) (KVS 2013)
Ans. (i) Utmost good faith: It is the duty of the applicant to disclose all the material facts relating to risk to be covered. A material fact refers to the fact which would influence the mind of a prudent underwriter in deciding whether to accept a risk for insurance and on what terms.
(ii) Indemnity: The purpose of insurance is to restore the insured person to approximately the same financial position that existed prior to the loss. The losses paid here would be approximately the same and the reason for this is to prevent the insured from profiting from insurance to reduce moral hazards. Indemnity can be defined as the compensation of loss or injury sustained.
(iii) Mitigation: It is the duty of the insured to take reasonable steps to minimise the loss or damage to the insured property. If reasonable care is not taken like any prudent person then the claim from the insurance company may be lost.
(iv) Subrogation: Subrogation refers to transfer of rights and remedies for the insured to the insurer who has indemnified the insured in respect of the loss.
(v) Insurable interest: The person getting an insurance policy must have an insurable interest in the property or life insured. A person is said to have an insurable interest in the property if he is benefited by its existence and prejudiced by its destruction.Without insurable interest, the insurance contract is void.
(vi) Contribution: The principle of contribution allows the insurer the right to call on other insurers liable for the cost to share the claim payment.
(vii) Proximate cause: An insurer will only be liable to pay a claim under an insurance contract if the loss which gives rise to the claim was proximately caused by an insured peril. This means that the loss must be directly attributed to an insured peril without any break in the chain of causation.
