AHSEC| CLASS 11| FINANCE| SOLVED PAPER - 2022| H.S. 1ST YEAR
2022
FINANCE
Full Marks: 100
Time: 3 hours
The figures in the margin indicate
full marks for the questions.
1. (a) Fill in the blanks:
(i) Credit
card is also called as plastic money.
(ii) EXIM Bank
was established in January 1982.
(b) Choose
the correct answer: 1x2=2
(i) Which of
the following is an objective of IBRD?
1. To promote
international monetary cooperation
2. To promote
international consultation
3. To
stabilize foreign exchange rate
4. To help
countries damaged by war
Ans: 4. To help countries damaged by war.
(ii) Which of
the following is not a qualitatives credit control measure of Central Bank?
1. Control
through directives
2. Rationing
of credit
3. Open market
operation
4. Marginal
requirements
Ans: 1. Control through directives.
(c) Write
True or False: 1x2=2
(i) Under
barter system, future payments are written in terms of specific goods.
Ans: True.
(ii) General
Provision Fund is a fund of Deposit Insurance Corporation of India.
Ans: False.
(d) Write the
full forms: 1×2=2
(i)
NABARD
Ans: National Bank for Agriculture and Rural Development.
(ii) CRR
Ans: Cash Reserve Ratio.
2. How does interest rate effect inflation? 2
Ans: Low interest rates mean that it is less
profitable to keep one's money in a bank or some other savings instrument. As a
result, more and more money enters the market, thus fueling growth and
inflation.
3. Give the meaning of reverse repo rate. 2
Ans: Reverse repo rate is the rate at which a
country's central bank (in India's case the Reserve Bank of India) borrows
money from commercial banks within the country. It is a monetary policy
instrument that can be used to control the money supply in the country.
4. What is bank passbook? 2
Ans: A pass book is a small handy book issued by a
banker to his customers to record all transactions between them. In fact, it is
a certified copy of the customer's account in the banker's ledger. It also
includes the rules and regulations governing the savings account. The customer
deposits the passbook with the bank from time to time for the purpose of making
entries. As it passes from the hands of the customer to the banker and vice
versa, it is called Pass Book.
5. What is meant by Recurring Deposit Account? 2
Ans: This is another form of fixed deposit. A fixed
amount (not less than Rs.5.00) is deposited every month in this account for a
period of 12 to 60 months or more. It is also known as Cumulative Deposit
Account. The rate of interest is almost at par with the fixed deposit rates.
6. What is meant by overdraft facility? 2
Ans: Overdraft is an arrangement by which a customer
is allowed to overdraw from his account. It is given against certain collateral
securities. Overdraw facility is allowed through current account only. Interest
is charged on the exact overdrawn amount subject to payment of minimum amount
as interest.
7. Write a note on trade cycle. 3
Ans: In economics, the term 'business cycle' refers
to fluctuations in overall economic activity, particularly in employment,
output and income. Business cycles are the ups and downs in economic activity.
According to
Haberler, "The business cycle may be defined in a general sense as the
alternation of periods of prosperity and depression, of good and bad business.
8. Write three objectives of Regional Rural Bank. 3
Ans: The main objective of setting up RRBs was to
fill the gap of institutional credit. Banks have to assist in the development
of rural economy by providing credit and other facilities to small and marginal
farmers, agriculture, small entrepreneurs, artisans, cottage industries,
weavers etc. The objective of RRB is to play an important role in the development
of agriculture. Trade, industry and other productive activities in rural areas.
9. Write three limitations of barter system. 3
Ans:- Limitations of barter system :-
(i) Absence
of double coincidence of wants: The barter system can work only when both
the buyer and the seller are ready to exchange each other's goods.
(ii) Absence
of common measure of value: In barter system, all goods are not of equal
value and there is no common measure (unit) of value of goods and services in
which exchange ratio can be expressed.
(iii) Lack of
standard of deferred payment: The borrower may not be able to arrange goods
of the same quality at the time of repayment.
10. Write a note on foreign exchange. 3
Ans: In a broad sense, the term foreign exchange
refers to the mechanism according to which foreign obligations are cleared. According
to Mr. Hartley Withers, “Foreign exchange is a mechanism by which international
indebtedness is settled between one country and another.”
11. Write a note on 'ombudsman.' 3
Ans: Generally skilled persons with respect to law,
banking, financial services, administration etc. are appointed as Banking
Ombudsman. In India, the Reserve Bank appoints Banking Ombudsman under the
Banking Ombudsman Scheme, 1995. The Ombudsman accepts written complaints that
may arise between the customers and the bank. Ombudsman can resolve any
complaints of bankers and customers; Of course, customers must try to resolve
the issue with the bank before registering any complaint against the bank.
Lokpal does not have any judicial power.
The Reserve Bank
appoints the Ombudsman under Section 13(a) of the Banking Regulation Act, 1949
for a term of three years and can also reappoint.
12. Discuss the precautions to be taken by a bank for
opening an account of partnership firm. 5
Ans: The Indian Partnership Act, 1932, defines partnership
as "a relation between persons who have agreed to share the profits of a
business which is carried on by all or any of them." The persons who have
entered into partnership with each other are individually called 'Partners' and
the name under which this business is carried on is called the name of the
firm. A partnership firm is not a separate entity distinct from its partners
except for the purposes of assessment of income tax.
A banker
should take the following precautions while conducting business transactions
with a firm:
(i) Banks
should verify the partnership deed: The bank should ask for a stamped copy
of the partnership deed and fully acquaint itself with its clauses. It should
also ensure that the number of partners in a banking business firm does not
exceed 10 and for any other business does not exceed 20. One should also check
whether the firm is registered or not, as an unregistered firm cannot bring any
suit. Enforce a right arising out of a contract against an outsider.
(ii) Opening
of Partnership Accounts: A banker should always open a firm account in the
name of the firm and not in the name of the individual partner/partners. It does
so when it receives applications preferably from all the participants or one or
more of the authorized participants.
The bank
should also obtain a letter signed by all the partners stating the nature of
the business of the firm, names and addresses of all the partners, their
specimen signatures for record purpose and the names of the persons authorized
to operate the account. The authorization given by the partners while opening
the account should include powers to draw, endorse and accept bills and to mortgage
and sell property belonging to the firm. When these precautions are taken, a
passive partner cannot deny his liability on the debts taken by the firm.
(iii)
Operation of Accounts: It is proper for a bank to make checks drawn in the
name of the firm signed by a partner, unless he has received special
instructions to the contrary, or knows that the partner who has drawn the
cheque, He is not authorized to do so. that's why. It should also be remembered
that any partner has an implied right not to stop the payment of a check drawn
on partnership account by another partner.
Further, a
banker should not accept a check payable to the firm for collection on the
personal account of the partner without due inquiry or consent of all the
partners. Otherwise, he may lose the statutory protection. A banker may, with
the consent of the partner concerned, transfer funds from his own account to
the accounts of the partnership, but the reverse is not permitted in any case.
(iv) Loans or
Advances: In the case of any loan or advance, it is in the interest of the
banks to get a declaration signed by all the partners to the effect that they
will be jointly and severally liable for the loan etc. Such declaration enables
the bank to settle the deposits of the partners in their individual capacity
against the debts of the partnership.
(v) Retirement
of a partner: When a partner retires after intimation to the bank, his
liability to the bank ceases in so far as post-retirement transactions are
concerned. After the retirement of one or more partners, the firm is dissolved,
unless otherwise provided in the partnership deed. If the firm continues, it is
advisable for the bank to open a fresh account of the reconstituted partnership
to determine the liabilities of these partners who continue after the change.
(vi) Death of
a partner: On the death of a partner, the partnership firm usually
dissolves itself, unless otherwise provided. To fix the liability of the
deceased partner, the banker breaks up the account and after proper valuation
and review, transfers the liability of the old one to the new firm.
(vii)
Insolvency of a partner: In the absence of any express provision in the
partnership agreement, the insolvency of any of the partners would result in
the dissolution of the firm by operation of law. The right of an insolvent
partner to act on behalf of the firm ceases and after declaration of insolvency
the check signed by such partner should not be honored without endorsement by
the other partners who continue to operate the account for the purpose of
winding up Huh.
13. Give the meaning and importance of cheque book. 5
Ans: Cheque book contains a bank check form with
counter foil which the customer can use to withdraw money from his account. The
check books and counterfoils are serially numbered and these numbers are also
entered in the bank's check book register and bank ledger.
Importance of
Check Book:
(i) It is more
secure and convenient as compared to cash
(ii) It is a
negotiable instrument which can be endorsed in favor of a third party.
(iii) It can be
easily traced if lost
(iv) All check
payments will be entered in the books of the bank. There is no need to maintain
a separate record of all the payments made.
(v) Check can be
transferred from one person to another. This will help in making payments to
sellers of goods and services.
14. Write a note on international cash reserve. 5
Ans: International reserves are any type of reserve
funds that central banks can pass between themselves internationally.
International reserves between these banks are an acceptable form of payment.
The reserve itself can be either gold or a specific currency, such as the
dollar or euro. Many countries also use international reserves to back
liabilities including local currency as well as bank deposits. Reserves are an
accepted form of payment between banks and streamline the process of
transferring money between many different central banks. Foreign exchange
reserves are also assets that a bank may hold in foreign currencies, and
include bank notes, bank deposits, bonds, treasury bills, and other government
securities.
15. Briefly write the functions of Central Bank. 5
Ans: The functions of the Central Bank are as follows:
(a) Issue of
notes: The Central Bank of a country is given the monopoly power to issue
notes. This means that it is authorized by law to print currency notes.
The central
bank is given the exclusive right to issue notes for the following reasons:
(i) A central
bank which has been given the monopoly of note issue is better equipped to
control undesirable credit expansion by commercial banks.
(ii) It gives
a special status to currency notes.
(iii) When the
central bank issues notes, they have the property of being identical.
(iv) It is
possible and easy for the states to control and supervise the irregularities in
note issue.
(v) Since the
central bank of a country looks after the monetary affairs of the state, it is
better equipped to handle the problem related to note issue. De Kock mentions
four reasons for the concentration of note-issuance in the central bank.
These:
(i) Uniformity
in note circulation to achieve effective state supervision.
(ii) Control
over undue credit expansion by commercial banks.
(iii) To give
a specific prestige to the note issue.
(iv) To
provide for the State's share in the profits of the Central Bank.
(b) Banker to
the Government: The central bank acts as the banker to the government. It
also acts as fiscal agents and advises government departments, banking accounts
of state governments on fiscal matters. As banker to the government, the
central bank maintains government enterprises. The Central Bank deals with the
purchase and sale of foreign currency for the government. It gives short-term
loans to the government and extraordinary advances in times of crisis. In its
capacity as financial agent and advisor to the government, it manages the
national debt and guides the government on matters relating to economic policy.
The government
has the ultimate responsibility for setting monetary policy and maintaining the
monetary standard. In the formulation of monetary policy, the central bank is
not only consulted by the government, but is given a free hand and assisted by
the government whenever possible in carrying out such monetary policy.
(c) Banker's
Bank (2016): As a banker's bank, the central bank acts as the custodian of
the cash reserves of the member banks. It is customary for commercial banks to
keep a portion of their demand and fixed deposits with the Central Bank. In
return, the central bank rediscounts the bills of commercial banks, and facilitates
remittances to them, thereby providing them credit against these reserves.
The
advantages of centralization of cash reserves are as follows:
(i)
Centralization of cash reserves with the central bank strengthens the
confidence of the general public in the strength of the country's banking
system.
(ii) The
concentration of cash reserves in the central bank is a source of great
strength to the banking system in the country.
(iii) When the
cash reserves are accumulated with the central bank, it can utilize them in the
interest of national welfare.
(iv)
Centralization of cash reserves also enables the central bank to control the
creation of credit by commercial banks.
(v) The
central bank may provide additional funds to commercial banks on a temporary
basis and on a short-term basis to overcome their financial difficulties.
(vi) Reserves
enable the central bank to rediscount the bills of exchange of the commercial
bank.
(d) Lender of
Last Resort (2017): This is one of the most important functions of the central
bank. By providing accommodation in the form of rediscounting and
collateralized advances to commercial banks, bill brokers and dealers or other
financial institutions, the central bank acts as: Astha Resort. Central bank to
help such institutions in times of crisis so as to save the country's financial
structure from collapse. It acts as a lender of last resort through discount
houses on a "front door" basis for Treasury bills, government
securities and bonds. The second method is to grant temporary housing directly
through the "backdoor" to commercial banks. The difference between
the two methods is that front door lending is at the bank rate in the second
case and at the market rate in the second case. The central bank as a lender of
last resort is a major source of cash and also affects the prices and market
rates.
(e) Custodian
of Foreign Exchange Reserves: The Central Bank maintains and manages the
foreign exchange reserves of the country. It is an official reserve of gold and
foreign currencies. It sells gold at fixed prices to the monetary authorities
of other countries. It also buys and sells foreign currencies at international
prices. It fixes the exchange rates of the domestic currency with respect to
foreign currencies. It keeps these rates in a narrow range keeping in view its
obligations as a member of the International Monetary Fund and tries to bring
stability in foreign exchange rates. It manages exchange control operations by
supplying foreign currencies to importers and persons going abroad on business,
studies etc. keeping in view the rules laid down by the government.
(f) Acting as
a clearing house (2017): The central bank acts as a clearing house for
commercial banks. Since it holds the cash reserves of commercial banks, it
becomes easier and more convenient for it to act as the country's clearing
house. All commercial banks have their accounts with the Central Bank. As a
result, the central bank can settle claims and counterclaims of commercial
banks with minimal use of cash. Thus the clearing house function of the central
bank as a clearing house is that it helps the bank to reduce the use of cash by
the banks. Commercial banks have another advantage to create credit on a large
scale as the demand for cash automatically reduces as a result of the
functioning of the clearing system in the country.
(g) Credit
Controller (2016): Of all the functions provided by the Central Bank, the
control of credit is the most important. It is the function which covers the
most important questions of central banking policy and through which
practically all other functions are united and made to serve a common purpose.
With the increasing popularity of bank loans, this function has assumed
importance. Commercial banks have the power to change the total amount of money
in circulation through the mechanism of credit creation.
16. Write notes on:
2 ½ + 2 ½ =5
(a)
Development Bank
Ans: Development
banks are those banks which perform dual functions – (i) providing medium and
long term finance to private entrepreneurs and (ii) playing various promotional
roles conducive to economic development. These banks are growth oriented banks.
For example IDBI, IFCI, SFC, ICICI, UTI etc.
These banks
are different from normal commercial banks in the following ways:
(i) They do
not accept deposits from the public like a normal bank.
(ii) They
specialize in providing medium and long term finance whereas commercial banks
specialize in provision of short term finance.
(iii) They are
not mere purveyors of long term finance like any ordinary term lending
institution.
(b)
Commercial Bank
Ans: Commercial
banks are the oldest institutions having a wide network of branches all over
the country. A commercial bank is a monetary institution that serves the
interests of its depositors by using their funds in profitable ventures and
providing a variety of services to its customers. Commercial banks can be
either owned by the government or run in the private sector. Apart from
collecting deposits, commercial banks provide not only short term loans but
also medium and long term loans to trade and industry.
17. What are the advantages of Internet banking? 5
Ans: Advantages of Internet Banking are:
(a) Online
account is easy to open and easy to operate.
(b) It is quite
convenient as you can easily pay your bills, transfer funds between accounts,
etc.
(c) It is
available all the time, i.e. 24x7. You can do your tasks from anywhere and at
any time, even at night when the bank is closed or on holidays.
(d) It is fast
and efficient, money gets transferred from one account to another very quickly.
(e) Through
Internet Banking, you can keep track of your transactions and account balance
at all times. This feature also keeps your account secure.
Or
Write a note
on 'insurance of bank deposit'.
Ans: Protection
is provided to depositors against the risk of loss arising from the failure of
a bank or other depository institution, usually by a government agency. Deposit
insurance is mandatory and pays claims from a pool of funds to which each
depository institution contributes regularly. However, it covers only a certain
maximum amount per account holder.
18. Discuss the regulatory guidelines of the RBI for
branch expansion of a bank in India. 5
Ans: Under the provision of sec. As per 23 of the
Banking Regulation Act 1919, the Reserve Bank has been empowered to regulate
the new opening and transfer of existing places of business of banking
companies as follows-
(i) without
obtaining the prior permission of the Reserve Bank:
(a) No banking
company shall open a new place of business in India or change the location of
an existing place of business situated in India other than in the same city,
town or village.
(b) no banking
company incorporated in India shall open outside India a new place of business
or change the location of an existing place of business situated within the
same city, town or village in that country or territory, provided that any city,
Permission is not required for opening a temporary place of business within a
town or village for a period exceeding one month.
(ii) before
granting any permission under this section, the Reserve Bank may require to be
satisfied by an inspection under section. 35 About the company's financial
position and history, management, adequacy of capital structure, relocation,
place of business, etc.
(iii) the Reserve
Bank may grant permission under sub-section (1) subject to such conditions as
it may think fit to impose either generally or with reference to any particular
case.
(iv) where a
banking company has failed to comply with any condition imposed on it, the
Reserve Bank may take action and cancel any permission granted under this
section.
(v) any Regional
Rural Bank requiring the permission of the Reserve Bank under this section.
Forward your application to the Reserve Bank through the National Bank which
will give its comments on the merits of the application and forward it to the
Reserve Bank of India.
Or
Discuss retail
banking.
Ans: Retail
banking refers to small business activities carried out by a bank. It is the
nature of business operations that has undergone a sea change but not the banks
themselves. Thus, retail banking in itself is not a separate and district type
bank. These are commercial banks which take special interest in mobilizing
small savings and lending small amount of finance.
Under
constrained circumstances, banks have resorted to retail trading. Directed
opening of large number of rural branches has exposed the banks to vast
resources in the form of small savings. Also, it has opened avenues for debt
deployment. The introduction of financial reforms has given rise to intense
competition between banks and non-banking financial institutions to raise
deposits.
Bankers have
found that retail lending is more profitable than corporate lending. The
lending rate is 3% to 4% above the prime lending rate in case of retail loans,
while the corporate lending rate is 1% to 2% above the prime lending rate.
Hence, the margin of profit is higher in case of smaller loans.
19. What is meant by open market operation? Write the
essential conditions for successful open market operation. 8
Ans: Delibe*rate and direct buying and selling of
securities and bills in the money market by the central bank, on its own
initiative, is called open market operations. It implies the purchase and sale
of government and other securities. In countries where the market for government
securities is limited or the supply of government securities is inadequate,
open market operations include purchase and sale of securities guaranteed by
the government and municipal securities also.
Open market
operations is a tool that the RBI uses to smoothen liquidity conditions through
the year and regulate money supply in the economy.
(a) The central
bank should have a large volume and variety of securities so that it can buy a
sell them to the extent needed. A wide maturity range also helps the central
bank in reaching larger number of potential buyers and sellers.
(b) Success of
OMO also depends upon the level of development of the financial market and
their sensitivity of responsiveness to changes in demand and supply of
individual instruments.
(c) Depending
upon the manner in which they are used OMO are expected to be effective in both
expansion and contraction of the economy.
(d) There can be
situations in which the banks may be able to partially counteract the variation
in their cash balances by adjusting the composition of their remaining assets.
(e) There is no
fixed or stable quantitative relationship between OMO and their effect on the
volume of money and credit and rate of interest. The cash deposit ratio
maintained by banks varies with and other circumstances.
Or
Write the
advantages and disadvantages of an indigenous banker.
Ans: An
individual or a firm that accepts deposits, deals in indigenous bills and
advances money is known as an indigenous banker. Indigenous banks are
unorganized, unregulated, unsupervised and fragmented banking institutions that
have no linkages with the organized sector. They have been working in India
since the Vedic age. They are confined to certain castes like Jain, Bania, Seth
etc.
The
characteristics of indigenous bank or bankers are:
(a) They are
an unorganized part of the financial market. They have no connection with the organized
and monetary authority of the country.
(b) They are
unit banks and operate at only one place.
(c) They
provide credit for both productive and unproductive purposes. They conduct
banking operations on their own money.
(d) They are
confined to certain castes like Jain, Bania, Seth etc.
Indigenous
bankers suffer from the following defects:
(a) The
financial resources of these bankers are insufficient to meet the demand of the
borrowers.
(b) These
bankers are charging very high rate of interest from their borrowers as
compared to the commercial banks.
(c) These
bankers indulged in all kinds of malpractices and exploited their customers in
many ways.
(d) He
sometimes issued loans for unproductive purposes.
Demerits of
indigenous bankers:
(a) They
hinder the development of an organized money market in India. The Reserve Bank
of India has no control over them.
(b) They
follow old methods of business which are based on secrecy of accounts and
activities. Accounts are mostly maintained in the local language. They are
neither audited nor published.
(c) They also
provide loans for unproductive purposes.
(d) They
combine banking with other activities which bring them more profit such as
speculation, business brokerage, etc.
(e) They
charge very high rate of interest.
20. Discuss the causes of inflation. 8
Ans: Inflation means a substantial and rapid increase
in the general price level that causes a decline in the purchasing power of
money.
According to
Crowther, inflation is a "state in which the value of money is falling,
that is, prices are rising."
Reason -
Inflation is the result of imbalance between demand and supply forces and it is
due to -
(a) Increase in
demand for goods and services in the country and
(b) Decrease in
the supply of goods in the economy.
Factors of
Growth in Demand:
(i) Increase in
money supply
(ii) Increase in
government expenditure
(iii) Increase in
exports.
(iv) Increase in
population
(v) To repay the
loan.
Factors
causing reduction in supply:
(i) Shortage of
factors of production
(ii) Natural
calamities
(iii) Hoarding by
traders
(iv) Industrial
Dispute
(v) Hoarding by
consumers.
Or
Discuss the
different systems of note issue by the Central Bank.
Ans: There
are two schools of thought regarding the principle of note issuance. One school
represents the monetary theory and the other the banking theory. Various
systems of note-taking have been developed to regulate note-issuance, combining
the merits of both banking and currency theories.
They are as
follows:
(i) Partial
or Fixed Fiduciary System: This system was first introduced in England in
1844 and was later adopted by many countries. Under this system, a certain
amount fixed by law must be covered by government securities, while all notes
issued in excess of this amount must be completely covered by gold. The fixed
amount fixed by law is called the fiduciary system. The purpose of setting fiduciary
limits is to preserve that quantity of gold without affecting the
convertibility of the notes. Notes are issued by this system in India between
1861-1920.
(ii)
Maximum fiduciary system: This system fixes the maximum limit up to which
the central bank can issue notes without any gold backing. The maximum limit
can be changed depending on the circumstances. This system was prevalent in
France before 1928 and was introduced in England in 1939. The main features of
this system are to leave the discretion to the central bank to set limits in
the light of the monetary needs of the country. It is claimed that this system
provides a high degree of elasticity in the note circulation.
(iii)
Proportional Reserve System: Under this system the central bank has to
maintain some percentage of the total notes issued in gold. This percentage
varies from 25 to 40. The remaining note issuance is to be covered by sound
collateral securities. This system was adopted in India in 1927–56 and in
France in 1938.
(iv) Minimum
Reserve System: Under this system the Central Bank has to maintain minimum
reserves of either gold or foreign securities or both. There is no maximum
limit on the amount of note issue. The central bank is free to adjust the total
amount of currency in circulation according to the needs of business. Minimum
reservation has also been prescribed only to create a sense of confidence in
the minds of the people.
The Reserve Bank
of India Act was amended in 1956 to introduce the minimum reserve system to
enable the Reserve Bank to expand the money supply to meet expenditure in
connection with the implementation of five-year plans. Under the existing
provision, the Reserve Bank must maintain a minimum reserve of Rs. 200 crores
of gold and foreign securities of which the value of the gold shall not be less
than Rs. 115 crores and the balance may consist of foreign securities.
21. Discuss the procedure of opening of Recurring and
Fixed Deposit Account in a bank. 8
Ans: Recurring Deposit Account can be opened by any
person, jointly by more than one person, by a guardian in the name of a minor
and even by a minor. At the time of opening the account, the depositor is given
a passbook which has to be presented to the bank at the time of monthly deposit
and repayment of the amount. Money in these accounts is deposited in monthly
installments for a fixed period and is repaid to the depositors along with
interest on maturity. If a depositor is forced to close the account before its
maturity, the bank does not pay any interest if the deposit is held for less
than 3 months.
To open a fixed
deposit account a depositor has to fill an application form in which he
mentions the amount of deposit and the period for which the deposit is to be
made. He also gives his specimen signature. Thereafter a fixed deposit receipt
is issued to the depositor, acknowledging the receipt of a specified amount,
which is to be repaid at the end of the period specified therein along with
interest at the specified rate. Although interest is payable at the prescribed
rate on maturity of Fixed Deposit Receipts, banks usually pay interest
quarterly or even half-yearly at the request of the depositor. interest earned
during
The said
quarterly/half yearly payment is made to the depositor in cash or deposited in
the savings account. This system of payment is based on 'quarterly sabbatical'
or 'half yearly sabbatical' etc. The depositor is required to produce the
receipt for the purpose of necessary entry in respect of payment of interest
thereon. Withdrawal of interest or principal through check is not permitted. At
the request of the customer, the banker can credit the interest amount or the
principal amount to his savings or current account, from which he can withdraw
the same through cheque.
Or
Discuss the
possible measures to control money supply and inflation.
Ans: These
four alternative measures of money supply are labeled M1, M2, M3 and M4. RBI
will collect the data and calculate and publish the figures for all the four
measures. Let's see how they are calculated.
M1 (Narrow
Money): M1 includes all the currency notes held by the public on any given
day. It also includes all demand deposits, both savings and current account
deposits, of all banks in the country. It also includes all other deposits of
banks kept with RBI. So M1 = CC + DD + Other deposits
M2: M2,
also narrow money, includes all inclusions of M1 plus savings deposits of post
office banks. So M2 = M1 + Post Office Savings Deposit
M3 (Broad
Money): M3 includes all currency notes held by the public, all demand
deposits with banks, all bank deposits with RBI and net time deposits of all
banks in the country. So M3 = M1 + fixed deposits of banks.
M4: M4
is the largest measure of money supply which is used by RBI. It covers all
aspects of M3 and also covers savings of post office banks in the country. It
is the least liquid measurement of them all. M4=M3 + Post Office Savings.
The various
measures used to control inflation are explained below:
(i)
Monetary Measures: The government of a country takes various measures and
formulates policies to control the economic activities. Monetary policy is one
of the most commonly used measures taken by the government to control inflation.
In monetary policy, the central bank raises the interest rate on lending for
commercial banks. As a result, commercial banks raise their interest rates on
loans to the public. In such a situation, people prefer to save money instead
of investing in new ventures.
(ii) Fiscal
Measures: Apart from monetary policy, the government also uses fiscal
measures to control inflation. The two main components of fiscal policy are
government revenue and government expenditure. In fiscal policy, the government
controls inflation either by reducing private spending or by reducing
government spending, or by using both.
(iii) Price
Control: Another way to contain inflation is to prevent further rise in the
prices of goods and services. In this method, inflation is suppressed by price
control, but it cannot be controlled for long. In such a situation, the basic
inflationary pressure in the economy does not get reflected in the form of rise
in prices for a short period of time. Such inflation is called suppressed
inflation.
22. Discuss the evaluation of bank in India. 8
Ans: There seems to be no unanimity among economists
about the origin of the word "bank". According to some economists,
the word "bank" is derived from the German work 'BANC' which means a
joint stock firm, while others say that it is derived from the Italian word
'BANCO' which means heap. At the time of the establishment of the Bank of
Venice in 1157, the Germans were dominant and hence, perhaps, the term 'BANC'
or 'BANCO' was used by the Italians to denote the accumulation of securities or
money with a joint stock firm, which was later I was known Edge.
Another group of
people who believe that the word 'bank' is derived from the Greek work 'banka'
which means bench. In the old days, the Jews used to sit on the benches in the
market and transact money. When the bankers were not in a position to meet their
obligations, the benches on which they were trading money were torn to pieces
and declared bankrupt.
It is possible to
trace the history of commercial banking back to ancient times. The business of
banking is as old as civilization itself. In 2000 BCE, the Babylonians
developed a system of banks. They used their temples to lend at high interest
rates against gold and silver that was left with them for safe custody. Greek
temples were used as repositories of people's surplus wealth and were centers
of moneylender transactions. The priests of the temples acted as financial
agents till they lost the confidence of the public due to the distrust of the
people in the religion.
Alfred Marshall
wrote in his book "Money, Credit and Commerce" that, "In Greece,
the temples of Delphi and other safe places served as storehouses for precious
metals in later times before the days of coinage, He lent money for it. At
interest for public and private purposes, though he himself paid none." In
ancient times, private money changers accepted deposits at low rates of
interest and loaned them at high rates of interest, even allowing drafts to be
drawn on them. Banking was also known in ancient Rome and with the revival of
trade and commerce in the Middle Ages, it became more prominent.
In India, ancient
Hindu scriptures refer to money lending activities in the Vedic period. During
the era of Ramayana and Mahabharata, banking became a full-fledged activity.
Moneylending business is also mentioned in Manu Smriti.
In the Middle
Ages, the first bank in Italy called the 'Bank of Venice' was established in
1157.
In England,
bankers from Lombardy took the initiative to start modern banking alongside
their trading activities in London. But commercial banking began there only
after 1640, when goldsmiths began receiving deposits from the public for safe
custody and issuing receipts for acknowledgment which were later to be used as
bearer demand notes.
Crowther lists
three progenitors of the modern commercial bank. Merchants, moneylenders and
goldsmiths, merchants or traders issued documents such as hundis to remit
money. Modern banks introduced checks or demand drafts for remittance purposes.
Moneylenders gave loans. Bankers also give loans, goldsmiths receive deposits
and create credit. The bank also accepted deposits and adopted credit creation
by issuing checks and lending. All this shows that banking originated in the
distant past.
Or
Discuss the
procedure of opening a Bank Account in the name of a minor and married woman.
Ans: A
person who has not attained or completed the age of 18 years is known as a
minor. A minor is not capable of making a valid contract and a contract made by
a minor is void. The bank can open a savings, fixed or recurring deposit
account in the name of a minor.
Following
are the main steps to open a bank account:
(a) Age for
opening an account: A banker should allow a minor to open a savings bank
account in his own name only if he is between 10-14 years of age and can read
and write in English, Hindi or any other language. second language. If the
minor has such a quality, the banker must open his account in the joint name of
the minor and his guardian.
(b)
Selection of Account Type: The first step is to select the type of account
to be opened. An account can be of many types like Current, Savings Fixed
Account. The account can be opened jointly or singly. A banker can open a
savings bank account in the name of a minor. The banker should not open a
current account in the name of a minor.
(c) Bank
and Branch Selection: The prospective account holder should now select the
bank.
(d)
Obtaining Account Opening Form: The account opening form is obtained from
the bank. It should be read carefully and filled with utmost care.
(e)
Obtaining references: One or two references are obtained by the prospective
account holder. People who give references sign the form and give their account
number. and name and address.
(f) Form
Submission: Now the form should be submitted along with the required
documents. These documents differ from account to account.
(g) Giving
Specimen Signature: Now, the account holder signs on the card which is called
Specimen Signature Card. These signatures are matched with the check of the
account holder.
(h) Making
Initial Deposit: The applicant is allotted an account and is asked to make
an initial deposit in his account through a deposit slip.
(i) Account
is opened: The account is opened as soon as the initial deposit is made.
(j) Receipt
of Check Book / Fixed Deposit Certificate: Finally, a check book is issued
which contains the account number of the applicant. Money can be withdrawn with
the help of these cheques.
A married woman
can open a current and savings account in a bank. She can contract in her own
name. A married woman enjoys the same power and potential as a man or a single
woman. According to the Indian Contract Act, "a married woman may enter
into contract, acquire and sell property and lend or borrow money." A
married woman has the power to draw checks and to give adequate discharge. But
in the case of an overdraft granted to a married woman the banker will have no
remedy against her if she has no separate property. The husband will not be
responsible for any transaction or debit account of his wife.
(a) she acts as
the agent of the husband and
(b) The loan has
been taken by the wife to buy some articles of her needs.
***
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