Commercial Banks Very Short Answer Type Questions

Question 1.
Define commercial bank.
Answer:
Samuelson has defined the functions of the Commercial bank in the following words ’’The Primary economic function of a Commercial bank is to receive demand deposits and honour cheques drawn upon them. A second important function is to lend money to local merchants farmers and industrialists.”

Question 2.
State any two roles of commercial banks.
Answer:
It helps the banks to promote capital formation.
It helps in promotion of trade and industry.

Question 3.
What is liquidity?
Answer:
It is one of the factor affecting the investment policy of a commercial bank. The term liquidity refers to ability of a banks in meeting its withdrawals of its depositors and its capability in securing the confidence of depositing public and run the business smoothly.

Question 4.
State the investment principles of commercial banks.
Answer:

Principle of liquidity
Principle of safety
Principle of profitability

Question 5.
Give the meaning of cash reserve ratio of commercial bank.
Answer:
Cash reserve refers to cash reserves held by a commercial banks in its hand also with the certain banks and other commercial banks bear (i.e. forms) a certain proportion to its total deposits.

Question 6.
Give the meaning of letter of credit.
Answer:
Letter of credit is issued by a bank to the importers country at the request of the importer addressed to its branch or correspondent bank in exporters country directing the branch or the correspondent bank to accept or pay the bill of exchange drawn by the exporter up to the amount specified therein.

Question 7.
What is circular notes?
Answer:
Under the system of circular notes, a person who intends to visits other places in the same country or abroad deposits a certain sum of money with a banker. The banker in return will give him circular notes. The purchaser or holder of circular notes is required to carry with him a letter of identification or indication.

Question 8.
What is a bank draft?
Answer:
A bank draft is a cheque drawn by one branch of a bank upon another branch of the same bank to pay the money stated therein on demand to the person named therein or to his order.

Question 9.
What is telegraphic transfers?
Answer:
Telegraphic transfers is one of the device adopted by the commercial banks to remit money from one place to another. It is adopted only when the payee has an account with th drawee branch of a bank.

Question 10.
What do you mean by fixed deposits?
Answer:
Fixed deposits can be withdrawn only after expiry of certain period say 3 years, 5 years or 10 years. The banker allows a higher rate of interest depending upon the amount and period of time. Previously the rates of interest payable on fixed deposits were determined by Reserve Bank.

Question 11.
What do you mean by cash certificates?
Answer:
Cash certificates are issued to the public for a longer period of time. It attracts the people because its maturity value is in multiples of the sum invested. It is an attractive and high yielding investment for those who can keep the funds for a long time.

Question 12.
What do you mean by demand deposits?
Answer:
These are the deposits which may be withdrawn by the depositor at any time without previous notice. It is withdraw able by cheque/draft. It includes the following:

Question 13.
Give the meaning of saving deposits?
Answer:
The savings deposit promotes thrift among people. The savings deposits can only be held by individuals and non-profit institutions. The rate of interest paid on savings deposits is lower than that of time deposits. The savings account holder gets the advantage of liquidity (as in current a/c) and small income in the form of interests.

Question 14.
What do you mean by current accounts?
Answer:
Current accounts are maintained by the people who need to have a liquid balance. Current account offers high liquidity. No interest is paid on cur-rent deposits and there are no restrictions on withdrawals from the current account.

Question 15.
Give the meaning of overdraft?
Answer:
Overdraft facility is provided to holders of current accounts only. This is an ar-rangement with the bankers thereby the customer is allowed to draw money over and above the balance in his/her account. This facility of overdrawing his account is generally pre-arranged with the bank up to a certain limit.

Question 16.
What do you mean by cash credit?
Answer:
Cash credit is a form of working capital credit given to the business firms. Under this arrangement, the customer opens an account and the sanctioned amount is . credited with that account. The customer can operate that account within the sanctioned limit as and when required.

Question 17.
What is travellers cheque?
Answer:
A traveler’s cheque is a preprinted, fixed-amount cheque designed to allow the person signing it to make an unconditional payment to someone else as a result of having paid the issuer for that privilege.

Question 18.
Distinguish between overdraft and cash credit.
Answer:
An overdraft facility is used by the businessmen occasionally and for short duration whereas cash credit is used for long term businessmen in doing regular business.

Question 19.
Mention any two subsidiaries of RBI.
Answer:
The two subsidiaries of RBI are SBI & NABARD.