Exercise Quiz & Test – 20


1. Which of the following is NOT banking related terms?
a. SME Finance
b. Overfrafts
c. Drawing Power
d. Equinox

View Answer
d. Equinox
* 1. SME finance is the funding of small and medium-sized enterprises, and represents a major function of the general business finance market – in which capital for different types of firms are supplied, acquired, and costed or priced.
2. Overdraft – A deficit in a bank account caused by drawing more money than the account holds.
3. Drawing power of an account is the amount that can be withdrawn from it. Generally, in a savings account this will be equal to your outstanding balance (amount of cash in the account). There are accounts with overdraft facility that can withdraw some more money in addition to their cash balance.

Outstanding amount of a bank loan is the amount of loan (withdrawn) taken from the bank. If you have a loan sanctioned for $1000 and you have withdrawn $200 from this account, your outstanding balance is $200. This is the amount on which the bank charges you interest.

2. Bad loans in banking terminology are generally known as:
a. Prime loans
b. Prime assets
c. BPOs
d. NPAs

View Answer
d. NPAs
* A Non-performing asset (NPA) is defined as a credit facility in respect of which the interest and/or installment of principal has remained ‘past due’ for a specified period of time.

3. Which of the following organization is not associated with the financial banking sector in India ?
a. NABARD
b. BSE
c. ISRO
d. SEBI

View Answer
c.ISRO

4. Which of the following terms is not used in the field of banking and finance?
a. Overdraft
b. Baseline
c. RTGS
d. GBC

View Answer
d. GBC
*
BASELINE – A benchmark that is used as a foundation for measuring or comparing current and past values. For example, a company wanting to measure the success of one of its product lines can use the number of units sold during the first year as a baseline from which to evaluate subsequent sales growth. In business, baselines and benchmarks serve a similar purpose.

Real-time gross settlement systems (RTGS) are specialist funds transfer systems where transfer of money or securities takes place from one bank to another on a “real time” and on “gross” basis. Settlement in “real time” means payment transaction is not subjected to any waiting period.

5. Which of the following is the name of the bank founded by the winner of the Nobel Peace Prize 2006 Mr. Muhammad Yunus
a. Bank for the poor
b. Swadeshi bank
c. Rashtriya bank
d. Grameen bank

View Answer
d. Grameen bank
* The Grameen Bank is a Nobel Peace Prize-winning microfinance organization and community development bank founded in Bangladesh. It makes small loans to the impoverished without requiring collateral.

6. The foreign exchange reserves of India are kept in the custody of:
a. World bank
b. RBI
c. SBI
d. Prime minister

View Answer
b. RBI

7. When more than one bank is allowing credit facilities to one party in coordination with each other under a formal arrangement, the arrangement is generally known as:
a. Participation
b. Consortium
c. Syndication
d. Multiple Banking

View Answer
b. Consortium
* ‘Consortium Bank’ A subsidiary bank created by numerous banks. A consortium bank is created to fund a specific project (such as providing affordable homeownership for low- and moderate-income home buyers) or to execute a specific deal (such as selling loans in the loan syndication market).

8. Reverse Repo Rate means:
a. Injecting liquidity by the central bank of a country through purchase of government securities
b. Absorption of liquidity from the market by sale of government securities
c. Balancing liquidity with a view to enhance economic growth rate
d. Any of above

View Answer
b. Absorption of liquidity from the market by sale of government securities
* Reverse repo rate is the rate at which the central bank of a country (RBI in case of India) borrows money from commercial banks within the country.

9.The bank rate means:
a. Rate of interest charged by commercial banks from borrowers
b. Rate of interest which commercial banks discounted bills of their borrowers
c. Rate of interest allowed by commercial banks on their deposits
d. Rate at which RBI purchases or rediscounts bill of exchange of commercial banks

View Answer
d. Rate at which RBI purchases or rediscounts bill of exchange of commercial banks
* Bank Rate is the rate at which central bank of the country  (in India it is RBI)  allows finance to commercial banks. Bank Rate is a tool, which central bank  uses for short-term purposes. Any upward revision in Bank Rate by central bank is an indication that banks should also increase deposit rates as well as Base Rate / Benchmark Prime Lending Rate.  Thus any revision in the Bank rate indicates that it is likely that interest rates on your deposits are likely to either go up or go down,  and it can also indicate  an increase or decrease in your EMI.

10.Open market operations, one of the measures taken by RBI in order to control credit expansion in the economy means :
a. Sale or purchase of government securities
b. Issuance of different types of bonds
c. Auction of gold
d. All of these

View Answer
a. Sale or purchase of government securities
* An open market operation (OMO) is an activity by a central bank to buy or sell government bonds on the open market. A central bank uses them as the primary means of implementing monetary policy. The usual aim of open market operations is to manipulate the short-term interest rate and the supply of base money in an economy, and thus indirectly control the total money supply, in effect expanding money or contracting the money supply. This involves meeting the demand of base money at the target interest rate by buying and selling government securities, or other financial instruments. Monetary targets, such as inflation, interest rates, or exchange rates, are used to guide this implementation