Are you looking to sharpen your knowledge of banking operations? If so, this article is a must-read. Here, we provide you with 75 multiple choice questions on banking operations, along with the correct answers.
Each question has been carefully crafted to test your understanding of the topic and to help you improve your skills in banking operations.
This comprehensive set of questions and answers will be an invaluable resource for students, bankers, entrepreneurs, and financial professionals alike.
75 Banking Operations Multiple Choice Questions with Answer
1. A country cannot make commercial and industrial progress without a well organised banking system.
Ans. True
2. Loans may be granted only for long period by bank.
Ans. False
3. Primary activity of commercial banks includes accepting deposits and lending money.
Ans. True
4. Difference of interest allowed to public on deposits and charged on loan is the main source of income of banks.
Ans. True
5. In case of dishonour of a bill, which was discounted by a bank, the amount cannot be recovered from the customer.
Ans. False
6. A loan cannot be repaid in lumpsum by the borrower.
Ans. False
7. Primary functions of banks refer to basic activities of banks.
Ans. True
8. Overdraft is not a credit facility granted by bank.
Ans. False
9. Loans are generally granted against the security of certain assets.
Ans. True
10. Bank loans can be divided into two categories viz ___ and ___.
Ans. Short-term, Long-term
11. When the loan is repayable on demand or at a very short notice, the loan is known as ___.
Ans. Short-term
12. If the loan granted by a bank is on long-term or medium-term, the loan is called ___.
Ans. Term loan
13. ___ is a flexible system of lending under which the borrower has the option to withdraw the funds as and when required.
Ans. Cash credit
14. ___ is an agreement with the bank by which a current account holder is allowed to withdraw over and above the amount in his account.
Ans. Overdraft
15. In discounting the bills the banks ___bills of exchange before they become due for payment.
Ans. Discount
16. Due date of bill is also known as date of ___.
Ans. Maturity
17. Banking functions can be divided in two types which are primary and secondary functions.
Ans. True
18. Duty benefit arising out of unutilized advance licenses should be treated as an item of current assets.
Ans. False
19. Some banks treat margin money as the part of current assets.
Ans. True
20. Preference shares redeemable within one year are to be treated as current liabilities.
Ans. True
21. The amount of money you borrow makes a difference in your interest rate.
Ans. True
22. Borrowers can often receive a lower rate by paying extra points.
Ans. True
23. The interest rate is affected by money supply.
Ans. True
24. Higher interest rates decrease the quantity of loans demanded.
Ans. True
25. Banks with positive ratios are expected to perform well in a rising rate environment.
Ans. True
26. Banks are free to fix Benchmark Prime Lending Rate (BPLR) for credit limits over Rs.3 lakh.
Ans. False
27. Banks are free to fix the interest rate without reference to their BPLR for consumer durables loans.
Ans. True
28. The interest at the specified rates shall be charged at ___ rests.
Ans. Monthly
29. The banks need not charge a ___ of interest even under a consortium arrangement.
Ans. Uniform rate
30. A gap ___ indicates relative rate insensitivity.
Ans. near zero
31. The ratio measures the level of ___asymmetry between a bank’s assets and liabilities.
Ans. Re-pricing
32. Off-balance sheet financing is often employed as a means of asset-liability management.
Ans. True
33. SPVs can be used in tax avoidance.
Ans. True
34. Banks use off-balance sheet financing to achieve reductions in their regulatory capital requirements.
Ans. True
35. Guarantee is a contract to perform the promise, or discharge the liability of a third person in case of his default.
Ans. True
36. Performance guarantees are those which secure performance and financial obligations of contract.
Ans. False
37. The special charges are levied on duplicate guarantee.
Ans. False
38. An SPV doesn’t utilize the sponsoring firm’s ___or other financing channels.
Ans. Credit lines
39. Banks use off-balance sheet financing to achieve ___ in their regulatory capital requirements.
Ans. Reductions
40. Guarantee should be for ___ and for genuine trade or business transactions.
Ans. Specific amount
41. The ___ is not an inherent part of the Letter of Credit.
Ans. Sales contract
42. The ___ is used for regular shipments of the same commodity to the same importer.
Ans. Revolving credit
43. Securitization enables banks to remove loans from balance sheets and transfer the associated credit risk.
Ans. True
44. Sound liquidity management involves prudently managing assets and liabilities.
Ans. True
45. Operating liquidity is the level of liquidity required to meet an institution’s day-to-day cash outflow commitments.
Ans. True
46. The ratio of the net interest income (spread) to the total assets gives the net interest margin of the bank.
Ans. True
47. Product innovation using the right technology is one approach, which can be followed by the banks to mobilize ___.
Ans. Cheaper funds
48. The ___ of the banks can be examined by considering the NPAs.
Ans. Asset quality
49. Provisions reduce the ___ arising due to the NPAs to a reasonable extent.
Ans. Risk exposure
50. The ___ exposes the bank to a variety of risks.
Ans. Intermediation activity
51. The Off-site Monitoring and ___ was introduced in 1995.
Ans. Surveillance System
52. The intermediation costs of a bank refer to the operating cost of the bank.
Ans. True
53. Demand and supply of money does not affect the liquidity with the banks.
Ans. False
54. The liquidity management function of a central bank involves a larger economy-wide perspective.
Ans. True
55. The maximum limit of CRR is 30%.
Ans. False
56. The maximum limit of SLR is 40%.
Ans. True
57. Maintaining SLR is not necessary for banks.
Ans. False
58. Current deposits are demand liabilities.
Ans. True
59. The minimum percentage of CRR is 3%.
Ans. True
60. Scheduled Commercial Banks are required to maintain CRR with RBI on an average ___.
Ans. Cash balance
61. The entire investment portfolio of the banks will be classified under three categories viz.’ Held to Maturity’, ‘Available for sale’ and ___.
Ans. Held for Trading
62. RBI used CRR, SLR and bank rate to control the ___ in the market.
Ans. Money flow
63. ___ of the government are the part of SLR securities.
Ans. Treasury bills
64. Commercial banks differ widely in how they manage ___
Ans. Liquidity
65. PLR and spreads varied widely across bank-groups.
Ans. True
66. An optimization modeling process should analyze the multidimensional reality of ___ with strong algorithmic approaches.
Ans. Depositor behavior
67. Banks were encouraged to switch to the all cost concept of pricing loans by explicitly declaring ___ and service charges.
Ans. Processing charges
68. All ___ can be determined with reference to the benchmark PLR.
Ans. Lending rates
69. In many cases the London Inter Bank Offering Rate is becoming the index of choice, because it appears to be ___ than Prime.
Ans. Less volatile
70. The most prevalent technique in community banks today still appears to be of checking the ___and pricing accordingly.
Ans. Competition’s rates
71. Balance sheet management is aimed to stabilize short-term profits, long-term earnings and long-term substance of the bank.
Ans. True
72. Measuring and managing liquidity needs are vital activities of commercial banks.
Ans. True
73. Bank management should measure not only the liquidity positions of banks but also examine how liquidity requirements are likely to evolve under crisis scenarios.
Ans. True
74. The simplest way to avoid currency risk is to ensure that mismatches are reduced to zero or near zero.
Ans. True
75. Changes in interest rates affect both the current earnings (earnings perspective) as also the net worth of the bank.
Ans. True
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Conclusion
The Banking Operations Multiple Choice Questions with Answer provide a useful tool for individuals who are looking to further their understanding of banking practices.
The answers that accompany each question also equip users with a better understanding of the fundamentals of banking operations. Overall, this resource proves invaluable for those wanting to gain a better grasp on the topic.
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