HS -1 YEAR BANKING

                         

Q.1. Define bank?

Ans: - Bank refers to a financial institution which deals in money. This institution accepts deposits from the public and advance loans to those who are in need.

         According to Oxford Dictionary, “Bank is an Establishment for the custody of money. Which it pays out on customer order.

Q.2. Explain the Agency function of commercial bank?

Ans:- The following are the agency function of commercial bank:-

        i.            Remittance of fund:- The bank help its customers in transferring funds from one place to another. Remittance of funds by banks is simple, convenient, safe and inexpensive.

      ii.            Purchase and sale of securities:- Commercial banks undertake the purchase and sale of different securities such as shares bonds, debentures units etc. on behalf of its customers.

    iii.            Collection and dividend and interest:- the customer of a bank may collect dividend or interest on shares and debentures respectively through his banker. He may instruct the issuer of securities to pay the dividend or interest to his bank.

     iv.            Income tax consultancy:- Banks employ income tax experts and make their services available to their customers. They may prepare income tax returns and give advice to its customers on income tax matters.

       v.            Collection and payment of credit instruments:- As an agent the bank collect and pay the various negotiable instrument like cheques, bills, notes etc on behalf of its customers.

Q.3. What is internal and external bank?

Ans:-

Q.4. What is Licensing of bank?

Ans:- The Banking regulation act, 1949 under sec 22 introduced a comprehensive system of licensing all banks by the Reserve bank of India, according to this sec, no baking company can commence or carry on banking business in India unless it holds a license granted to it by the RBI for this purpose.

      In other words, the RBI grants licensing to banks for establishing their place of business in India. Licensing is also requires to open new branches.

Before granting any license, under this section, the RBI may require to be satisfied by an inspection of the books of the company that the following conditions are fulfilled.

        i.            The bank is or will be in a position to pay its present or future depositors in full as their claim accrue.

      ii.            The affairs of the bank are not likely to be conducted in manner detrimental to the interest of its present or future depositors.

Q.5. Write short-note on :-

        i.            Cash Reserve ratio

      ii.            Overdraft

Ans:- Cash Reserve Ratio :- Commercial banks have to maintain statutory cash reserve in the Reserve bank of India against their time and demand liabilities which is called cash reserve ratio. In other words every bank is compulsory required y law to maintain a minimum, cash reserve as a percentage of its time and demand liabilities with the central bank of the country. This ratio of reserves is known as cash reserve ratio.

Overdraft:- Overdraft means an agreement with a bank by which a current account holder is allowed to withdraw more than the balance standing to his credit upto certain limit. The customer has to pay interest only on the amount overdrawn by him.

Q.6. What are the department of bank?

Ans:-  The five department of the RBI are as follows:-

         i.            Issue department:-  The issue department is concerned with the proper and efficient management of the note issue.

       ii.            Banking department:- The banking department is responsible for providing the banking services to the government and to the bank.

     iii.            Agricultures credit:- This Department looks into the problems of agricultural sector.

      iv.            Legal department:- It renders legal advice on various matters referred to it by the banks.

        v.            Inspection Department:- It carries out internal inspection of the offices and department of the bank.

Q.7. What is Barter system? What are the features of barter system?

Ans:-  Barter system refers to exchanging of goods and services without the use of money is called barter system. For example, a horse may be exchange for a cow or a doctor may be paid in kind as payment for his services.

The following are the features of barter system:-

        i.            Barter involves direct exchange of gods and services.

      ii.            It is a non monitised system.

    iii.            There is absence of market mechanism in a barter economy.

Q.8. explain the difficulties of barter system?

Ans:- The following difficulties of barter system:-

        i.            Lack of double coincidence of wants:- The functioning of the barter system requires a double coincidence of wants on the part of those who want to exchange foods or services.

      ii.            Absence of common measure of value:- Another difficulty under the barter system is the absence of a common init in which the value of goods and services should be measured.

    iii.            Absence of meaningful accounting system:- under barter system since the value of each commodity can be expressed only in terms of every other commodity, one has to remember a large number of cress relations of values in exchange for different goods which is physically impossible to do when there are an infinite number of commodities.

     iv.            Lake of divisibility of certain goods:- it is difficult to fix a rate of exchange for certain goods which are indivisible. Such indivisible goods pose a real problem under barter system.

       v.            Difficulty in storing value:- Under the barter system it is difficult to store wealth or value.

Q.9. What are the function of central bank?

Ans:- Function of Central bank are:-

        i.            Issue of bank notes:-  Under sec22 of the RBI Act the RBI has the sole right to issue bank notes of all denominations except one rupee notes . At present the Bank issues notes in the following denominations Rs. 2/-, 5/-, 10/-, 20/-, 50/-, 100/-, 500/- and 2000/-

      ii.            Banker to government:-  Sec 20  of the RBI Act provides that the RBI shall act as a banker to the government. The RBI acts as a banker to central and state governments in the following capacities.

    iii.            As a banker:- As a banker to the Government, the RBI performs the same function for the government as a commercial bank performs for its customer.

·         It maintains and operates deposit accounts of the central and state governments.

·         It makes payment on behalf of the central and state governments.

     iv.            As an agent:-  As an agent to the government the RBI

·         Collects taxes and other payments on behalf of the government.

·         Raises loan from the public and manages public debts.

       v.            Bankers bank:- The reserve bank of India serves as a banker banks in India. It performs this function in three capacities.

·         Custodian of cash reserve of commercial bank.

·         As the lender of last resort

·         Clearing agent.

     vi.            Lender of last resort:- Central bank also as lender of last resort for the other banks of the country. It means that if commercial bank fails to get financial help from anywhere, it approaches the central bank as a last resort.

   vii.            Agricultural credit:- The central bank India, also provide credit facilities for the development of agricultural credit.