Financial Institutions Very Short Answer Type Questions

Question 1.
What is a bank?
Answer:
A bank is a financial institution and a financial intermediary that accepts deposits and channels those deposits into lending activities, either directly by loaning or indirectly through capital markets. A bank is a connection between customers that have capital deficits and customers with capital surpluses.

Question 2.
Define bank.
Answer:
According to Walter Leaf “A bank is a person or corporation which holds itself out to receive from the public, deposits payable on demand by cheque.” Horace White has defined a bank, “as a manufacture of credit and a machine for facilitating exchange.”

Question 3.
What is commercial bank?
Answer:
A commercial bank is a prot-seeking business, dealing in money and credit. It is a fanancial institution dealing in money in the sense that it accepts deposits of money from the public to keep them in its custody for safety.

Question 4.
What is industrial bank?
Answer:
Bank owned by a non-banking company under section 2(c)(2)(H) of the Bank Holding Company Act. In this arrangement while the bank is state-chartered and is constantly under the full watch of government regulators, its parent company (such as American Express, General Electric, General Motors) is not. Industrial banks raise their capital by selling investment certificates.

Question 5.
What is savings bank?
Answer:
A savings bank is a financial institution whose primary purpose is accepting savings deposits. It may also perform some other functions. Their original objective was to provide easily accessible savings products to all strata of the population. In some countries, savings banks were created on public initiative, while in others, socially committed individuals created foundations to put in place the necessary infrastructure.

Question 6.
What is mutual fund?
Answer:
A Mutual Fund is an ideal investment vehicle where a number of investors come together to pool their money with common investment goal. Each Mutual Fund with different type of schemes is managed by respective Asset Management Company (AMC).

Question 7.
What is central bank?
Answer:
A central bank, reserve bank, or monetary authoritys a public institution that manages a state’s currency, money supply, and interest rates. Central banks also usually oversee the commercial banking system of their respective countries. In contrast to a commercial bank, a central bank possesses a monopoly on increasing the nation’s monetary base, and usually also prints the national currency, which usually serves as the nation’ slegal tender.

Question 8.
What is a non banking financial institution?
Answer:
A non-bank financial institution (NBFI) is a financial institution that does not have a full banking license or is not supervised by a national or international banking regulatory agency.

Question 9.
Give the meaning of EXIM bank.
Answer:
The Export-Import (EXIM) Bank of India is the principal financial institution in India for coordinating the working of institutions engaged in financing export and import trade. It is a statutory corporation wholly owned by the Government of India. It was established on January 1, 1982 for the purpose of financing, facilitating and promoting foreign trade of India.

Question 10.
Give the meaning of agricultural bank.
Answer:
An agricultural bank is a credit bank specifically established to assist agricultural development particularly by granting loan for longer periods than is usual with commercial bank.

Question 11.
What is equipment leasing company?
Answer:
Equipment leasing company means any company whose principal business being leasing of equipment or the financing of such activity.

Question 12.
What is hire purchase company?
Answer:
Hire Purchase companies means any company whose principal business is hire- purchase or financing such transactions. Hire-purchase Company finances the price of the goods to be sold on a future date. The goods are in fact let on hire by the hire purchase company with a condition to pay the installments by the hirer and after all the installments are paid by the hirer will have an option to purchase it later.

Question 13.
What is housing finance company?
Answer:
Housing Finance company is a company which provides finance for acquisition and/or construction of houses, acquisition of land and development of plot/land.

Question 14.
What is mutual benefit financial companies?
Answer:
Mutual Benefit Financial companies are the companies usually the ‘nidhi’ which are notified by the Central Government under section 620A of the Companies Act 1956 (1 of 1956). These companies provide finance to the members of the companies and accept deposits form them.

Question 15.
What is investment bank?
Answer:
An investment bank is a financial intermediary that performs a variety of services. It includes underwriting, acting as an intermediary between an issuer of securities and the investing public, facilitating mergers and other corporate reorganizations, and also acting as a broker of institutional clients.

Question 16.
What is a public sector bank?
Answer:
Public sector banks are those banks which are owned by the government and are runned by the government. In India 20 banks (14+6) were nationalized in 1969 and 1980 respectively. All these banks now belong to the public sector category.

Question 17.
What is a private sector bank?
Answer:
Private sector banks are those banks which are owned and run by the private sector. Various bank in the country such as Vijaya Bank belong to this category. An individual control these banks in proportion to the shares of the bank held by them.

Question 18.
What is a co-operative bank?
Answer:
Co-operative banks are those banks which are jointly run by a group of individuals. Each individual has an equal share in these banks. The affairs of these banks are managed by its shareholders. Profits are equally distributed among the shareholders.

Question 19.
What is a scheduled bank?
Answer:
Scheduled banks are the banks having paid up capital of at least Rs. 5 lakhs. . These are just like a joint stock company or a cooperative organization. These banks find their mention in the second schedule of the Reserve bank.

Question 20.
What is a non-scheduled banks?
Answer:
These banks are not mentioned in the second schedule of reserve bank. Paid up capital of these banks is less than Rs. 5 lakhs. The number of such banks falling gradually in India. There are only ‘3’ such banks at present.

Question 21.
What is a foreign bank?
Answer:
Foreign banks are those banks which are incorporated in a foreign country. They have set up their branches in India. Their principal function is to make credit arrangement for the exports and imports of the country and these banks deal in foreign exchange.

Question 22.
Who is a banker?
Answer:
A banker has been defined as “a dealer in capital, or, more properly, a dealer in money. He is an intermediate party between the borrower and the lender.” This definition applies to a banker who deals with the money of others; but he often lends his own money, and when thus acting he is one of the two original parties.

Question 23.
What do you mean by exchange banks?
Answer:
Exchange banks are banks which finance mainly the foreign exchange business (i.e. the export and import trade) Of a country. They finance mainly the foreign exchange business of country and hence they are popularly termed as exchange banks.

Question 24.
What is Foreign Bank?
Answer:
Foreign Bank is like an Multinational Bank which has branches in other countries and head office in Home country. They operates globally and they finance for international trade. Supported by world bank for IMF.

Question 25.
Who is an indigenous banker?
Answer:
Indigenous banker is a person who grant loans against securities such as gold, jewellery, land, promissory notes, etc., to the local peoples. Generally, the interest rate charged by them is higher that the interest charged by other banking institutions.

Question 26.
State any four financial resourses of SFC.
Answer:
Financial resourses of the SFCs are:

  • Their own share capital
  • Income from investment and repayment of loans
  • Sale of bonds
  • Loans from the IDBI
  • Borrowings from the RBI
  • Deposits from the public
  • Loans from state governments

Question 27.
State any 2 objectives of EXIM Bank.
Answer:
The main objectives of EXIM Banks are:

  • Collecting Compiling and disseminating.market and credit information in respect of foreign trade.
  • Providing all kinds of assistance wheater financial, technical or administrative in the field of import and export.
  • Financial export oriented units and helping them in the planning, promotion and development.
  • Carrying out research, surveys and studies in convection with the promotion and development of foreign trade.

Question 28.
State any four public utility functions of Banks.
Answer:
The any four public utility functions of banks are:

  • Safe custody of valuables
  • Issue of letters of credit
  • Factoring Service
  • Underwriting of securities.

Question 29.
State two objectives of ICICI.
Answer:
The two objectives of ICICI are:

  • to stimulate the promotion of new industries.
  • to provide technical and managerial help to increase production and employment opportunities.

Question 30.
State any four factors which determine liquidity of banks.
Answer:
The four factors determining liquidity of banks are:

  • CRR
  • Use of cheques
  • SLR
  • Nature of business conditions.

Question 31.
What are R.R.B’s?
Answer:
Regional Rural Banks. These banks are setup to provide credit and other facilities to small and marginal formers agricultural labourers and artisans.

Question 32.
What is the statutory definition of the term “Banking”?
Answer:
Authorized financial institutions which encompasses the receipt of money for deposit, to be payable awarding to the terms of the account, collection of cheques presented for payment. issuance of loans to individuals discount of commercial paper and other money related functions.

Question 33.
What are SIDCs? Mention any two roles played by them.
Answer:
The state Industrial development corporations act as a catalyst for the promotion & development of medium & large enterprises in the respective states.

Roles:

  • To offer a package of development services that include technical guidance, assistance in plan location etc.
  • To provide infrastructure facilities for the establishment of industrial units.

Question 34.
State any two functions of NABARD.
Answer:
The two functions of NABARD are:

  • It undertakes monitoring & evaluations of projects refinanced by it.
  • It promotes research in the field of rural banking, agriculture & rural development.

Question 35.
What do you mean by financial institutions?
Answer:
Financial institution are the participants in financial markets, they are business organisations dealing in financial resources. They collect resources by accepting deposits from individuals and institutions and lend them to trade, industry and others. They buy and sell financial instruments.

Question 36.
Mention the types of deposits of banks.
Answer:
The types of deposits of banks are:

  • Savings deposits
  • Fixed deposits
  • Recurring deposits
  • Current deposits.

Question 37.
Expand NABARD.
Answer:
NABARD : National Bank for Agriculture and Rural Development.

Question 38.
What is IDBI.
Answer:
IDBI is the industrial development Bank of India limited. It is a leading public sector Banks established to provide credit and other facilities for the Indian Industries.