Test: Principles and Practices of Banking - 2 - Bank Exams MCQ

RBI has defined market risk as the possibility of loss to a bank, caused by changes in market variables, which are:
(a) Interest rate risk
(b) Commodity price risk
(c) Liquidity risk
(d) Foreign exchange rate risk
(e) Equity price risk
Hence, option (d) is the correct choice.

The credit monitoring in a bank is to ensure that the funds are utilised for the sanctioned purposes and at the same time complying with all sanction terms and conditions. The purpose of the exercise is also to avoid the time lag and cost overruns, to detect early warning signals and symptoms of incipient sickness in the units financed by banks and to initiate timely action for recovery or rehabilitation. Under Credit Monitoring Arrangement, banks ensure the following:
(a) Borrower should maintain reasonable estimates of current assets, current liabilities and working capital.
(b) Should maintain classification of current assets and current liabilities as per bank's guidelines.
(c) Should maintain a minimum current ratio of $1.33$ except for export industry and for new units.
(d) Should submit annual audited accounts in time for annual review by banks.
(e) Ad hoc limits are sanctioned for periods not exceeding three months.
(f) As far as possible, post-sale limits are sanctioned in the form of Bill Finance.

Central Vigilance Commission (CVC) is an apex Indian governmental body created in 1964 to address governmental corruption. In 2003, the Parliament enacted a law conferring statutory status on the CVC. It has the status of an autonomous body, free of control from any executive authority, charged with monitoring all vigilance activity under the Central Government of India, advising various authorities in central Government organizations in planning, executing, reviewing and reforming their vigilance work.
Hence, the correct answer is Option (a).

Overcharging or deceptive charging, Unfair or restrictive trade practices, Sale of defective goods and services, sale of hazardous goods and services which are dangerous to life all these will be entertained by consumer disputes redressal commission.
Hence option d is correct.

Partnership firm Account
The following information must be included in a partnership deed:
A. General Details:

• Name and address of the firm and all the partners
• Nature of business
• Date of starting of business Capital to be contributed by each partner
• Capital to be contributed by each partner
• Profit/loss sharing ratio among the partners

B. Specific Details:
Apart from these, certain specific clauses may also be mentioned to avoid any conflict at a later stage:

• Interest on capital invested, drawings by partners or any loans provided by partners to firm
• Salaries, commissions or any other amount to be payable to partners
• Rights of each partner, including additional rights to be enjoyed by the active partners
• Duties and obligations of all partners
• Adjustments or processes to be followed on account of retirement or death of a partner or dissolution of firm.
• Other clauses as partners may decide by mutual discussion

Hence, option (d) is the correct choice.

Hence option a is correct

Based on the utilitarian account we can extract some important features for a standpoint, as follows:
An ethical principle should be practical as well as it should take the human nature, conditions, and consequences in the account of morality
An ethical principle should work for the general maximization of good
An ethical principle should give importance to the quality of good as well as it should take rules and preferences in the account of morality.
Hence, option (b) is the correct choice.

• The scheme of the Pradhan Mantri rozgar yojana (PMRY) was launched by the central government to offer sustainable self-employment prospects. It is given to 10 lakh educated and unemployed youth and women in India.
• For the funds availed under the Pradhan Mantri Rozgar Yojana in India, required to make repayments in EMIs. The repayment schedule of the PMRY ranges 3 years to 7 years.
• Hence, the correct answer is Option(a).

• The Prime Minister's Rozgar Yojana (PMRY) has been designed to provide employment to the educated employed youth by setting up micro enterprises by the educated unemployed poor. It relates to the setting up of the self-employment ventures for industries, services and business.
• Under the prime minister rozgar yojana, preference is given to weaker sections including women. The scheme envisages 22.5 percent reservation for SC/ST and 27 percent for the other backward classes.
• Hence, the correct answer is Option (b) .

Self-help groups (SHG) could be considered for financing under the PMRY provided:

• The loan may be provided as per individual eligibility taking into account the requirement of the project
• No Upper ceiling on loan
• Required margin money contribution (i.e., subsidy and margin to be equal to 20 percent of the project cost) should be brought in by the SHG collectively
• The exemption limit for obtaining collateral security will be Rs 5 lakh per borrower account for the project under the industry sector

Thus, Statements I, III & V are correct.
Hence, the correct answer is Option(b) .

The programme should be implemented at each site in three stages, each lasting a minimum of two hours, with a visit to guarantee that cards are delivered on time. Two weeks after the first session, there will be a second session. Branch representatives should visit the village after 15 days of the second session to make sure that the residents received their cards.
Hence, option (b) is correct choice.

The concept of Bank Computerisation practically started after 1980-81 and more precisely gained pace in the year 1983-84, after setting up a committee in the year 1983 under the chairmanship of the then Deputy Governor of RBI, Dr. C. Rangarajan.

The following are the correct matched:

• Standalone computer system - one person at a time
• Multi user system - several people at the same time
• Multi user computer networking - centralised processing concept.

Hence, option (c) is correct choice.

The advantages of using a centralised data processing system are namely,
(a) availability of corporate level information at one location is possible
(b) cost of acquiring hardware, software and other infrastructure is more profitable than acquiring the same for individual departments
(c) due to the high volume of data processing the computing resources can be fully utilised
(d) technical manpower can also be efficiently managed at a central level
(e) costly resources like leased telephone lines, satellite links, etc., can be shared among the various departments
Hence, option (d) is correct choice.

For communication between the computers, the data has to travel through some medium during its transmission. There are the prevalent technologies for data communication media, such as:

• Terrestrial- three of the most wiring techniques in this are twisted pairs, coaxial cables and fibre optics.
• Microwave systems- these use very high-frequency radio signals used in telephone systems and television transmission
• Satellites- communication satellites are now becoming very popular for data communication between computers. The speed of the satellites in orbit equals the speed of rotation of the earth, thus the satellites are stationary relative to the earth. The satellite is filled with transmitters and receiving antennas called transponders.

Multiplexers are communication processors.
Thus, Statements I, II & III are correct and IV is incorrect.
Hence, the correct answer is Option(d) .

• The committees on communication networks for banks, set up in 1987 under the chairmanship of Shri T.N. Anantharam Iyer, executive director, Reserve Bank of India, had strongly recommended the establishment of a cooperative communication network, especially for the banking industry.
• Based on the recommendations of this Committee, a communication network, 'Banknet' was set up in the year 1991 by the RBI to facilitate the inter-bank transfer of messages within India. It is primarily meant for the exclusive use of the banking industry and other financial institutions and links seven cities, viz., Mumbai, New Delhi, Kolkata, Chennai, Bangalore, Hyderabad and Nagpur through leased lines
• Hence, the correct answer is Option(d).

Ontologism based on the concept of good as opposed to evil helps us define the banking business from the point of view of ethics. The idea of awareness or conscience of the need for banking products or services inevitably comes to mind. This simplified parallel leads us to the conclusion that full awareness of and the related ethics about the importance of banking products and services is imminent to all economies, regardless of their economic development.
Hence, the correct answer is Option (b).

Local Area Network (LAN) : The computer network that links computers and peripherals within a localised area say, within a building is known as LAN.

• Generally, LAN will not extend beyond 150 metres. However, it can be up to a maximum spread of 1 km and the number of devices supported may also vary from 2 to as many as 1000.
• In LANs, each independent system is known as a node and when such nodes are interconnected, it is known as a LAN.
• Usually, there will be one central node (Server) providing and controlling all the services of the network.
• The client nodes route their requests to the server and obtain the necessary services.

Hence, option (b) is the correct choice.

• Normative ethics: It is concerned with principles of morality, usually assuming an affirmative answer to the existence question and therefore deals with the reasoned construction of moral principles, and at its highest level, determines what the fundamental principle of morality is.
• Applies ethics: It also usually assumes an affirmative answer to the existence question and addresses the moral permissibility of specific actions and practices.
• Meta-ethics: It deals with the existence of morality and explores the status, foundations, and scope of moral values, properties, and words. Therefore, Option (c) is correct.
• Business ethics: It is a study of the moral issues that arise when human beings exchange goods and services, where such exchanges are fundamental to our daily existence.
• Hence, Option (c) is the correct answer.

Other Indirect Agriculture Loans
i. Loans up to Rs 5crs. per borrower to dealers/ sellers of fertilizers, pesticides, seeds, cattle feed poultry feed, agricultural implements and other inputs.
ii. Loans up to Rs 5crs to cooperative societies of farmers for disposing of the produce of members.
Hence, option (c) is correct.

Ethics of Banking / Financial Management

• Accounting Ethics is primarily a field of applied ethics, the study of moral values and judgements as these apply to accountancy. First introduced by Luca Pacioli, the 15th century Mathematician and later expanded by governments, Professional organizations and independent companies.
• Creative accounting, earning management, misleading financial analysis
• Insider trading, securities fraud, ghost companies. forex scams, manipulation of financial markets
• Executive compensation, specially to Chief Executives

Hence, the correct answer is Option (a) .

As Public Sector Banks and Reserve Bank of India (since it is an entity established under Central Statute) have already been brought under the purview of Government of India scheme, with a view to avoid duplication, this Scheme would cover all private sector and foreign banks operating in India.

The complaints under the Scheme would cover the areas such as corruption, misuse of office, criminal offences, suspected / actual fraud, failure to comply with existing rules and regulations such as Reserve Bank of India Act, 1934, Banking Regulation Act 1949, etc. and acts resulting in financial loss / operational risk, loss of reputation, etc. detrimental to depositors' interest / public interest.

• Under the Scheme, employees of the bank concerned (private sector and foreign banks operating in India) , customers, stake holders, NGOs and members of public can lodge complaints.
• Anonymous / pseudonymous complaints will not be covered under the Scheme and such complaints will not be entertained.
• Reserve Bank of India (RBI) will be the Nodal Agency to receive complaints under the Scheme. RBI would keep the identity of the complainant secret, except in cases where complaint turns out to be vexatious or frivolous and action has to be initiated against the complainant as mentioned in the below point.
• The institution against which complaint has been made can take action against complainants in cases where motivated / vexatious complaints are made under the Scheme, after being advised by RBI. An opportunity of hearing will, however, be given by the concerned bank to the complainant before taking such action.
• Final action taken by RBI on the complaint will be intimated to the complainant.

Hence option b is correct

Automatic right of set-off (i.e. set-off without notice) arises in the following cases:
(i) Death or insanity/insolvency of the customer
(ii) Insolvency of a partner or on the winding up of a company
(iii) Receipt of garnishee order
(iv) Receipt of notice of assignment of customer's credit balances (v) Receipt of a notice of secured mortgage over the security charged to the bank. The account of a sole proprietor (of a trading firm) and his individual account can be combined. A customer does not have a right of set-off against various accounts of various branches
Hence, option (d) is correct choice.

For meeting marriage/educational and medical expenses, to celebrate family functions and for other household expenses.
Eligible Amount:

• The eligible amount of a loan is calculated based on so many times of the gross/net salary. While arriving at the quantum of loan, the minimum takes home pay say, forty per cent of the gross salary, will be stipulated after the proposed EMI.

Hence, option (a) is correct.

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.

• The Reserve Bank of India has played an important role in implementation of information technology in the banking sector. Dr. Rangarajan Committee had drawn up in 1983-84 the first blueprint for computerisation and mechanisation in banking industry and looked into modalities of drawing up a phased plan for mechanisation for the banking industry covering the period 1985-89. The Committee in its report in 1984, recommended introduction of computerisation and mechanisation at Branch, Regional Office/Zonal Office and Head Office levels of banks.
• In 1988 another committee was constituted under the Chairmanship of Dr. Rangarajan for making plans for computerisation for the next five years from 1990 to 1994 for the banking industry. It identified the purpose of computerisation as improvement in customer service, decision making, housekeeping and profitability. The Committee observed that 'Banking is a service industry and improved efficiency will lead to a faster rate of growth in output and help to expand employment all around. The workforce in the banking industry must, therefore, look upon computerisation as a means to improve customer service and must welcome it in that spirit'.

Advantages of Update-Driven Methodology
These are the benefits of this strategy:

• This strategy offers great performance.
• In a semantic data store, the data is copied, processed, integrated, annotated, compiled, and reorganised beforehand.
• Processing data from local sources does not require an interface.

Hence, option (d) 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.

A smart card is a physical card that has an embedded integrated chip that acts as a security token. Smart cards are typically the same size as a driver's license or credit card and can be made out of metal or plastic. They connect to a reader either by direct physical contact also known as chip and dip-or through a short-range wireless connectivity standard such as radio-frequency identification (RFID) or Near-field communication.

B2CSBI Also undertakes campaigns and initiatives to spread awareness of the Codes amongst customers and Banks such as:-

• Provides faculty support to training establishment of Banks
• Participates in On- location workshops held by member banks to increase coverage
• Associate with customer awareness Programmes conducted by Banking Ombudsman
• Provide Credit counselling services in Mumbai
• Publishes quarterly newsletter entitled "Customer Matter" containing matters of interest to customers

Hence, option (c) is the correct choice.

Features of time deposits:

• Repaid after the expiry of the Deposit Period.
• High-interest rates, which vary according to period.
• Time deposits from 7 days to 120 months period with or without reinvestment plans.
• Interest is paid on quarterly rests and is cumulative every quarter

Hence option d is correct.