Test: Principles and Practices of Banking - 1 - Bank Exams MCQ

Benefits of Financial literacy:

• Financial literacy promotes financial inclusion and ultimately financial stability. In India, its need is even greater, due to low levels of literacy and the large section of the population, remaining out of the formal financial set-up.
• Financial Literacy is the process by which people improve their knowledge and understanding of the use of financial products and services. It is also described as one's ability to make informed judgements and to take effective decisions regarding the use and the management of money.
• The financial literacy is promoted by the provision of financial education and is a prelude to financial inclusion in villages. Financial literacy, besides acquiring and/or acquainting with the information on financial services through the process of financial education by an individual, is a state of mind at which the individual is equipped with the skills necessary to access resources to make him capable of dealing with financial intermediaries, like banks.
• The delivery of financial education comprises of three key themes: building skills, increasing knowledge and developing understanding and within each of these an individual's confidence should also be developed, which alone will pave way for faster financial inclusion of the hitherto excluded population in the rural areas. One of the aims of financial education is to guide the rural population in management of existing debt and the exit methods.

Hence, option (a) is the correct choice.

Different categories under priority sector Priority Sector includes the following categories:
i. Agriculture
ii. Micro, Small and Medium Enterprises
iii. Export Credit
iv. Education
v. Housing
vi. Social Infrastructure
vii. Renewable Energy
viii. Others
Hence, option (c) is the correct choice.

What is Data Mining?

• In enormous data sets, data mining seeks out hidden, true, and potentially helpful patterns. Finding unexpected or previously undiscovered correlations among the data is the main goal of data mining.
• It is a multidisciplinary talent that makes use of database technologies, AI, statistics, and machine learning.
• Data mining insights may be applied to marketing, fraud detection, and scientific research, among other things.
• Knowledge discovery, knowledge extraction, data/pattern analysis, information harvesting, etc. are other names for data mining.

Hence, option (b) is the correct choice.

DISTINCTION BETWEEN ETHICS & VALUES ARE AS FOLLOWS:

• Ethics are a system of moral principles and values that are stimuli for thinking
• Ethics constraints whereas value motivate
• Therefore, Options I & II are correct.
• Values determine the level of importance whereas ethics determines the extent of the appropriateness of options
• Values vary according to individuals whereas ethics varies according to the profession.

Hence, Option (c) is the correct answer.

Banks must meet their customer's requirements for security aspects specially on many levels. Threats to IS Security are Phishing Attacks, Hacker's attacks, Vishing, and E-mail Viruses.

Computer auditing is a systematic and logical process that follows a risk-based approach to determine whether the information systems of an entity, including its detailed information technology processes, controls, and activities, will achieve its IT objectives and will thereby ultimately enable the organization to achieve its organizational goals.

The objective of Computer Auditing is:

• Assets safeguarding.
• Preserving data integrity.
• Achieving system efficiency.

The interest rate for a house loan is lower than the interest rate for other loans. The majority of banks provide an interest rate that is lower than the "Bench Mark Prime Lending Rate" (BPLR) . Additionally, banks provide borrowers the choice between a fixed rate and a fluctuating rate.

Hence, (d) is correct.

Individual Integrity and responsibility

Integrity is explained as firm adherence to a code of values. For an individual or for a Business, Integrity is the quality or state of being complete or undivided. In other words, it means being true to our values and ourselves and also keeping our commitment not only towards others but to ourselves also. In the individual value-set, Integrity is the core value, which makes an individual complete or undivided.

Why is it important to restore integrity?
This is mainly because it gives you the ability to powerfully deal with not only specific situation but also in other areas of one's life

Hence option a is correct

Obligations of Bank

• Obligation to Honour Cheques
• Obligation to Maintain Secrecy
• Obligation to follow all financial instructions of customers
• Obligation to keep records in order
• Obligation to give Notice before closing the account
• Besides the Obligation towards the bank's customers, they also have got the obligation to follow all the laws, guidelines, directives and policies of the regulator RBI

Hence option b is correct

Some of the commonly used types of adapters are Ethernet and Token-RING. In the ethernet system, the listen-before-transmit media sharing system is called the Carrier-Sense Multiple Access with Collision Detection (CSMA/CD) system is used. Ethernet cards share the common wire by transmitting only when the channel is clear.

Token-ring systems use what is termed as a deterministic media-access control system. The 'token' in 'token-ring' is actually a special frame, passed from node to node, that gives a node permission to enter a frame into the ring.

Hence, option (c) is correct choice.

Essential Features of Set-off
(a) It is a statutory right that may also result from an understanding between the parties.
(b) The claim and the cross claim must both be for specific amounts, and there must be mutual indebtedness between the parties.
(c) Both the claims and the cross-claims must be for specific dollar amounts. The customer's credit balance cannot be offset against the borrowers' obligations if the customer has served as a guarantee to another party until the guarantee amount is established. A bank's whole network of branches is taken into account when calculating set-off.
(d) The set-off can be applied only to those debts, which are due and recoverable on the date of exercising the set-off.
(e) Indebtedness should arise in the same rights. Where the bank has noticed that the amount in the customer account is held under trust, the bank cannot exercise the right against a debit balance on A deceased's credit account and a customer's debit account cannot be combined.
Hence, option (d) is correct choice.

Ethical Reasoning and Real-world Application

Ethical reasoning is the process of recognizing which decision requires ethical judgments, determining the potential reasonable course of action, finding support for the potential course of action, and then selecting the course of action best supported. General purpose: Firstly, an individual is trying to determine the ethical goals or an objective that he or she is trying to achieve.

• Raise questions: The key ethical question a person is trying to answer, that is the identification of issues he or she is facing and then formulating key ethical questions embedded in the issues, keeping in mind the relevant point of view.
• Use information: One must identify the information, and collect all the data and facts, which will enable a person to understand and consider the requirement of evidence or observations relevant to others. Individuals' own experiences also help in developing suitable reasons.
• Utilizes concepts: The key ethical concepts and principles that would assist in developing a thought process. Identification of ethical definitions, theories, models etc. that is applicable for reasoning through the issues.
• Makes assumption: The main assumptions pre- suppositions used in reasoning in the ethical issue. Assumptions should also be justified for reasoning. Assumptions must also be evaluated from the perspective of understanding the ethical issues along with available alternatives.

Hence, the correct answer is Option (d) .

Data mining is the process of sorting through large data sets to identify patterns and relationships that can help solve business problems through data analysis. Data mining techniques and tools enable enterprises to predict future trends and make more-informed business decisions.
Statement I is correct as Data mining techniques help companies to get knowledge-based information.
Statement II is correct as Data mining helps organizations to make profitable adjustments in operation and production.

Ethical Decision-Making Model
It has been incorporated the work of Forester-Miller and Rubenstein (1992) , Haas and Malouf (1989) , Kitchener (1984) , Stadler (1986) , and Van Hoose and Paradise (1979) into a practical, sequential, seven-step, ethical decision-making model.
Step 1. Identify the problem.
Step 2. Apply the ACA Code of Ethics.
Step 3. Determine the nature and dimensions of the dilemma.
Step 4. Generate potential courses of action.
Step 5. Consider the potential consequences of all options and determine a course of action.
Step 6. Evaluate the selected course of action.
Step 7. Implement the course of action.
Hence, the correct answer is Option (b).

Ethical issues and challenges faced by the Indian banking industry:

• The Indian banking industry is still lacking behind in making enough return on investment, or the return on equity, that shareholders require.
• In the Indian Banking system banker behaviour towards their customer looks unfavourable and non-cooperative, this is due to the high volume of work pressure, less knowledge, and unfavourable behaviour from the customers' end.
• Every business's success depends on customer experience and many banks are pressurised because they are not delivering the quality of service which customers are demanding, especially concerning technology.
• Increasing fraud and scams shook the banking industry.

Hence, Option (d) is the correct answer.

Section 58 of the act provides that no person in position of an instrument with a defect of title can claim the amount of instrument unless he' s a holder in due course.

The moment an instrument comes into the hands of a holder in due course, not only does he get a title which is free from all defects, but having passed through his hands the instrument is cleaned of all defects.

Hence option d is correct.

In such system computers are based on the centralised processing concept. All information is kept and processed at the main central machines and various terminals are attached to the main computer. The main computer can store a huge amount of information and possesses high-processing speeds enabling many users to be connected to the main central computer. Each user has his/her own terminal. Systems like Unix are used as operating system. These systems work on a time-sharing basis and are well suited for the development of online applications. Most of the banking systems are developed using the centralised computing concept. This is due to the widespread popularity of the Unix system. Most of the Relational Data Base Management Systems (RDBMSs) and other Data Base Management Systems (DBMSs) use the Unix platform.

Hence, option (c) is correct choice.

In 2010, Basel III guidelines were released. These guidelines were introduced in response to the financial crisis of 2008. A need was felt to further strengthen the system as banks in the developed economies were under-capitalized, over-leveraged and had a greater reliance on short-term funding. Also, the quantity and quality of capital under Basel II were deemed insufficient to contain any further risk. Basel III norms aim at making most banking activities such as their trading book activities more capital-intensive. The guidelines aim to promote a more resilient banking system by focusing on four vital banking parameters viz. capital, leverage, funding and liquidity.

GARNISHEE ORDERS

• It is a legal procedure in favour of the judgment-creditor for a debt due from the judgment-debtor (bank customer) upon a third party for attachment.
• A garnishee order is a court order obtained by a judgement creditor attaching the funds belonging to a judgement debtor in the hands of his debtors, including a bank, who is called the garnishee.
• A garnishee order imposed on a bank attaches the credit amount in the account of the customer mentioned, to the extent indicated in the order, pursuant to Indian Civil Procedure Code Order 21 Rule 46 of the Act.
• If no amount is indicated, the order attaches all monies owed and accruing to the client as of the day and time it is served and accepted by the bank, regardless of how much is owed. After the garnishee order has been served, checks should be returned with the note "Refer to Drawer."
• The preliminary court processes are the serving of the garnishee order nisi. Garnishee absolute refers to the further court actions necessary to make it absolute after this.
• The order can only be related to the client's current account balance, or the amount that is due and accruing due or payable to the customer at the moment the order is received.

Hence, option (b) is correct choice.

In most of the computerised information systems, the data is processed at one EDP department. The EDP department must process large volumes of data every day and a considerable amount of infrastructure and maintenance is required. In this approach, the terminals have limited powers and cannot process the information locally. Whatever information required and processed is through the central machine only. The load on the central machine increases with the increase in the number of users.

Hence, option (d) is correct choice.

Advantages of RTGS

• It is a safe and secure system for funds transfer.
• RTGS transactions/transfers have no amount cap.
• The system is available on all days on a 24x7x365 basis. There is the real-time transfer of funds to the beneficiary account.
• The remitter need not use a physical cheque or a demand draft.
• The beneficiary need not visit a bank branch for depositing the paper instruments.
• The beneficiary need not be apprehensive about loss/theft of physical instruments or the likelihood of fraudulent encashment thereof.
• A Remitter can initiate the remittances from his / her home/place of work using internet banking if his / her bank offers such service.
• The transaction charges have been capped by the RBI.
• The transaction has legal backing.
• RTGS is available 24x7x365 with effect from December 14, 2020.
• The RTGS system is primarily meant for large value transactions. The minimum amount to be remitted through RTGS is ₹ 2,00,000/- with no upper or maximum ceiling.
• With effect from July 01, 2019, the Reserve Bank has waived the processing charges levied by it for RTGS transactions. Banks may pass on the benefit to their customers.

Hence all the above options are correct.

Below documents are required for opening an account of Partnership firm

The benefits of having a strong work ethic in an organization are as follows:

• People with a strong work ethic take pride in their jobs and see every task they do as important which ultimately results in higher productivity.
• People with strong work ethics are true professionals as they respect their fellow employees, their higher-ups, and those that they come into contact with which creates a balanced and respectful culture to work in.
• When employees work with a strong work ethic from the beginning, you can keep your strongest assets within the company as they will continue their dedication as they advance in their careers which results in a wider pool of talents in an organisation.
• Employees with a strong work ethic present themselves as professionals in every sense of the word which will build public image and brand value for an organisation.

Hence, Option (d) is the correct answer.

• The Board received financial assistance from the Reserve Bank of India, which covered its first five years' worth of expenditures.
• The Banking Codes and Standards Board of India (BCSBI) was set up on 18th February 2006 as a collaborative effort of RBI and Banks, on the lines of a similar set up in UK to oversee the "Banking Code", a voluntary Code, evolved by the British Bankers Association (BBA) , which is adopted by all banks in UK.
• The proposal for setting up the BCSBI was based on the recommendation made by the Committee on Procedures and Performance Audit on Public Services (Tarapore Committee) .
• It provides valuable protection for customers on a day-to-day basis as also in times of financial difficulty.
• The code applies to savings deposits and current accounts, card products and services, loans and overdrafts and payment services including foreign exchange.
• Hence, option (a) is the correct choice.

Business Ethics

• Ethics refers to the guidelines for conduct, that address questions about morality
• Moral Principal system
• What is morally correct or incorrect in the given situation?
• The magnitude of the rightness or wrongness of one's options.

Business Values

• Value is defined as the principles and ideals, that help people make judgments about what is more important.
• Induces thinking
• What do we want to be or achieve?
• It explains the level of significance.

Hence, option (a) is correct choice.

The following are the correct statements:

• Priority Sector Lending is a significant responsibility given by the RBI to the banks for the purpose of allocating a specific percentage of bank lending to a few specific sectors, such as agriculture and related activities, micro and small enterprises, low-income individuals for housing, students for education, and other weaker groups. Instead of concentrating just on the financial sector, this is primarily intended for the development of the economy as a whole.
• The Government of India emphasised that commercial banks should boost their engagement in the financing of priority sectors, namely, agriculture and small-scale businesses, during a meeting of the National Credit Council held in July 1968.
• Although initially there was no specific target fixed in respect of priority sector lending, the Reserve Bank advised the banks in November 1974 to raise the share of these sectors in their aggregate advances to the level of 33 and one-third per cent by March 1979.
• At a meeting of the Union Finance Minister with the CEOs of public sector banks held in March 1980, it was agreed that banks should aim at raising the proportion of their advances to priority sectors to 40 per cent by March 1985.
• All commercial banks were urged to reach the aim of priority sector lending at 40% of the total bank loans by 1985 based on the recommendations of the working group on the methods of execution of priority sector lending and the twenty-point economic programme by the bank.
• Sub targets for lending to agriculture and the weakest segments of the priority sector were also set. The scope of priority sector lending as well as the objectives and sub-targets applicable to different bank groups have undergone several adjustments since that time.

Hence, option (a) is the correct choice.

In a banking institution, the term Cash Management refers to the day-to-day administration of managing cash inflows and outflows. Because of the multitude of cash transactions on a daily basis, they must be managed. The ultimate goal of cash management is to maximize liquidity and minimize the cost of funds.
Hence option b is correct.

A partnership is defined as a relationship between people who have agreed to split the earnings of a firm that is operated by all of them acting for all of them under Section 4 of the Indian Partnership Act, 1932.
Hence, option (c) is the correct choice.

Ways to prevent unethical behaviour in the workplace are as follows:

• When justifications for unethical behaviour are available, an employee can maintain their honest person image and see their conduct as less severe or even rightful therefore having a reasonable justification to behave unethically is the strongest factor leading people towards unethical behaviour.
• Training the workforce on ethical decision-making and ethical leadership tends to reduce the incidences of unethical behaviour at work.
• When companies ask their employees to continue learning, to keep improving professionally, and to be better than before (learning goals) , unethical behaviour is reduced drastically but when they focused on performance goals (asking people to do better than others) unethical behaviour increases. Therefore, Option (c) is incorrect.
• Monitoring systems like recording calls and video surveillance, signals that unethical behaviour will be detected and wrongdoers will be held accountable.
• Therefore, statements I, II & IV are correct.

Hence, Option (b) is the correct answer.

The correct conditions of indirect finance to SHGs through NGOs are:

• A statement of credit is required by SHGs
• Resolution to borrow from banks
• Provision of in-laws of NGOs to borrow for SHG activities
• NGO is registered under the society/company/partnership/cooperative act
• Audited balance sheet for three-year analysis

Thus, Statements I, II, III & IV are correct.
Hence, the correct answer is Option(d) .