Critical Thinking Questions: Commercial Banking

Table of Contents
1. Type I
2. Type II
3. Type III
4. Type IV
5. Type V
6. Type VI
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Type I

Q1: A commercial bank is best described as an institution that:
(a) Only issues currency
(b) Accepts deposits and provides short-term loans
(c) Controls money supply in the economy
(d) Lends money only to the government

Q2: Commercial banks are also known as joint stock banks because:
(a) They are owned by the government
(b) They deal only in shares
(c) They are organised like joint stock companies
(d) They issue joint accounts only

Q3: The main objective of a commercial bank is to:
(a) Promote social welfare
(b) Control inflation
(c) Earn profits by dealing in money
(d) Regulate other banks

Type II

Q4: Which of the following are primary functions of commercial banks?
A. Accepting deposits
B. Advancing loans
C. Credit creation
D. Issuing currency
(a) A and B
(b) A, B and C
(c) B and D
(d) A and D

Q5: Identify the correct statements about demand deposits:
A. They earn high interest
B. They are withdrawable anytime
C. They are chequable
D. They are meant for long-term saving
(a) B and C
(b) A and D
(c) A and B
(d) C and D

Q6: Which of the following are agency functions of commercial banks?
A. Collecting dividends
B. Accepting deposits
C. Making insurance payments
D. Advancing loans
(a) A and C
(b) B and D
(c) A and D
(d) C and D

Type III 

Analogy Based

Q7: Fixed Deposit : Higher Interest : : Demand Deposit :
(a) No withdrawal
(b) No interest
(c) Lower interest
(d) Long-term loan

Q8: Cash Credit : Working Capital : : Overdraft :
(a) Fixed asset loan
(b) Excess withdrawal facility
(c) Long-term deposit
(d) Credit creation

Q9: Primary Deposit : Cash Received : : Secondary Deposit :
(a) Currency issue
(b) Credit creation
(c) Saving habit
(d) Capital formation

Type IV 

Assertion-Reason

Q10: (A) Commercial banks create credit.
(B) Banks lend out a portion of deposits while keeping only a small reserve.
(a) (B) contradicts (A)
(b) (B) is the reason for (A)
(c) (A) is true but (B) is false
(d) (A) and (B) are independent

Q11: (A) Credit creation by banks is unlimited.
(B) The Central Bank regulates the cash reserve ratio.
(a) (B) contradicts (A)
(b) (B) is the reason for (A)
(c) (A) is true but (B) is false
(d) (A) and (B) are independent

Q12: (A) Nationalisation of banks increased priority sector lending.
(B) Nationalised banks focused more on development than profit.
(a) (B) contradicts (A)
(b) (B) is the reason for (A)
(c) (A) is true but (B) is false
(d) (A) and (B) are independent

Type V 

Application-Based

Q13: A trader withdraws more money than his account balance allows. This facility is called:
(a) Cash credit
(b) Fixed deposit
(c) Overdraft
(d) Discounting of bills

Q14: A bank collects dividends and pays insurance premiums on behalf of customers. This function is:
(a) Primary function
(b) Credit creation
(c) Agency function
(d) Utility function

Q15: Lending at concessional rates to agriculture and small-scale industries reflects banks' role in:
(a) Profit maximisation
(b) Capital accumulation
(c) Priority sector development
(d) Credit contraction

Type VI 

Odd One Out / Incorrect Statement

Q16: Identify the odd one out related to types of deposits:
(a) Demand deposit
(b) Fixed deposit
(c) Savings deposit
(d) Cash credit

Q17: Which of the following is not a limitation of credit creation?
(a) Central Bank control
(b) Availability of primary deposits
(c) Collateral securities
(d) Branch expansion

Q18: Identify the incorrect statement about nationalisation of banks:
(a) It encouraged branch expansion
(b) It increased priority sector lending
(c) It eliminated political interference
(d) It promoted deposit mobilisation

Q19: Which is a major argument against privatisation of banks?
(a) Increased competition
(b) Innovative deposit schemes
(c) Employment insecurity
(d) Managerial efficiency

Q20: Banks included in the Second Schedule of the RBI Act, 1934 are called:
(a) Private banks
(b) Non-scheduled banks
(c) Cooperative banks
(d) Scheduled banks