Money and Banking Important Questions

EXPLAIN THE LIMITATIONS OF CREDIT CREATION?

Limitations of credit creation are:

(A)    Cash reserves: All the deposits cannot be used as credit creation some cash may be put as cash reserve which comes in the way of the commercial bank capacity of credit creation.

(B)    Good securities: it enhances bank safety. It can be converted into cash quickly without any loss. Availability of non-availability of such securities decides the capacity of banks credit creation.

(C)    Total Supply of money: Another important limitation to credit creation is the total supply of money in circulation.Money supply is controlled by the central bank. If the total supply of money is increased, credit creation can be increased and viceversa.

(D)   Habits of the people: Liquidity preference is the desire to hold cash. So if the liquidity preference is more the banks create less credit and vice versa.

(E)    Policies of the central bank: cash reserve ratio is determined by the central bank. So if the cash reserve increased, the banks will have less cash in hand and its credit creation capacity is decreased or vice versa.

(F)    Leakages: Due to improper flowing of funds from one bank to other leakage occurs thus harming the process of credit creation.

(G)   State Economy: During depression times traders borrow less and more during boom times. thus state of economy also limits creation.

Explain the main characteristics of cheque?

1.       A cheque is an instrument in writing. it must be written in ink

2.       It must contain an unconditional order. The order is expressed by the word “pay to”.

3.       If the payee did not encash it before the time limit, he should revalidate the cheque.

4.       It is drawn on a specified bank only and not on any person.

5.       The sum of money to be paid must be certain.it is an order to pay a specified sum of money on demand.

6.       If the drawer issues a cheque bearing a date before the date of issue it is called ante- dated cheque.

7.       If the drawer issues a cheque bearing a date after the date of issue it is called post- dated cheque.

8.       The banker has to honour the cheque when

·         it is complete in all aspects and drawn properly.

·         The customer has sufficient balance in his account.

·         IF the signature on cheque tallies with specimen signature.

·         The banker has no doubt about the bonafides of the holder.

EXPLAIN THE EFFECT OF WRONG ENTERIES IN THE PASS BOOK?

Entries to the advantage of the customer:

  If the pass book shows larger credit balance then the actual balance due to wrong entries and the customer withdraws it believing to be correct and spends it the banker is not entitled to recover the amount wrongly paid to the customer. But the customer has to prove.

• That he has no knowledge of the mistakes in the pass book
• That he altered his position by spending it.
• The customers’ right here is based on the principles of “Extroppel”.

Exception: if the customer regularly maintains his accounts and the banker sends the passbook in lieu of passbook regularly, if customer unable to prove that he is ignorant of the mistakes because he maintains his account regularly.The principle of Estoppel may not be applicable.

Banker sends confirmation slip to customer showing uto dae balance if customer signs and sends the  slip to the banker , the customer bound by it.

Effect of wrong entries in favour of the banker:

If it is favour to banker the legal position is as follows: The customer is entitling the mistake as soon as he identified. The customer is not expected to examine the passbook regularly. Therefore this right to get the mistake rectified does not lapse even if he returns the pass book without raising objection or remains silent.

But the right to rectification cannot be enforced when:

The customer’s action shows that he treated the entries as a settled account.

The customers negligence is proved.

EXPLAIN DRAFT?

Draft is nothing but a cheque drawn by one of the branches of a particular bank on the other branch of the same bank. It is a facility to customers as well as public to pay money in the places outside the branch which draws this cheque.

EXPLAIN ATM?

ATM is  nothing but automatic teller machine. This machine gives cash to the customers after inserting ATM cum debit card slot of the machine.

One can use for various reasons such as Pin no, withdrawl, mini statement etc.

Almost all the leading banks install these machines and facilitate withdrawl of money.

EXPLAIN DEBIT CARD?

Debitcard is nothing but ATM cum debit card. The card, as name suggests, will provide a customer of a bank access of ATM and merchant establishments all over the country as well as world. Provided sufficient balance in ones account in a bank. By using customer can avail withdrawal facility as well as online purchasing facility.

WHAT ARE THE PRECAUTIONS TO BE TAKEN BY THE BANKER IN OPENING ACCOUNTS IN THE NAME S OF MINORS AND MARRIED WOMEN?

Minors :

·         Below 18 age according to section 3 of Indian Majority act 1975.

·         If guardian is appointed by court they are considered  as minor upto 21.

·         A minor is not competent to contract according to the indian contract act 1872.

·         All agreements entered into by him are void except for those which are necessary for life and for his benefit.

·         A minor is not rebound to repay any money borrowed by him. He is entitled to recover any securities pledged by him.

Opening of Account:

·         Savings account can be opened but not current account.

·         Account can be joint with guardian.

·         Minor should attained the age of 14 years and he should know to read and write English, hindi or any regional language.

·         Banker should Obtain Minor date of birth and recorded in account.

·         Ordinarily cheques should not be collected in the account of the minor.

Loans:

·         A minor should  not be granted loans or overdraft because legally he is not bound to repay them. even a guarantee by thid arty is invalid.

·         The minor is entitled to recover any securities pledged by him for the loan.therefore, the banker cannot enforce either a secured or unsecured loan.

·         Loans can be given for the necessary of life with proof that it is purely for life only.

·         Minor cannot be a partner in a firm as he is not liable for ay losses or liabilities.banker must be very careful while sanctioning loans.

·         IN case of death of guardian before minor attains major, the amount can be paid to another guardian appointed by the court.

·         In case of death of minor the balance in the account can be taken by the guardian.

MARRIED WOMEN:

In india married women has right to contract. She can posses property in her name.  She can draw cheques, bills etc or endorse them the banker has to take the following precautions:

·         While opening account banker should enquire about her character, economic status, occupation and economic status of the husband. He must also ascertain whether she has right to sell or mortgaged her property.

·         Opening of Joint account with husband will be more beneficial in terms of security.

·         While granting a loan or overdraft the banker should carefully examine the nature of security she can offer because she can offer her own property but not his husband.

·         She can bind her husband assets for loan with consent and authority of the husband and in case of necessaries of life if husband does not provide them.

STATE THE OBJECTIVES OF REGIONAL RURAL BANKS?

Objectives of regional rural bank are:

·         To provide alternative sources of credit to the rural poor to free them from the clutches of money lenders.

·         To meet the growing needs of the rural poor and backward sections of the society.

·         To provide employment opportunities and develop entrepreneurship.

·         To combine the business goals of the rural areas with social obligations.

STATE THE OBJECTIVES OF COOPERATIVE BANKS?

Objectives of Cooperative bank are:

·         These banks was started in the year 1940 to relieve farmers form the clutches of money lenders and provide timely and adequate agricultural credit at low interest rates..

• ·         They have three-tier system
• ·         Cooperative credit societies
• ·         Cooperative central banks
• ·         State cooperative banks.

FACULTY OF COMMERCE

B.A/B.com/B.Sc 2nd Year(3YDC) First Spell Examination, May 2009
Subject code No& Name:10 COMMERCE GROUP - C
Course Code No& Name: 02 – Money & Banking Theory &Practice
(Optionals)
Time:3Hours] [Max Marks:100
[Min Marks:35
SECTION- A
[Marks: 4x15= 60]
Instructions to the candidates:
a) Answer any FOUR of the following questions in about 30 lines each.
b) Each question carries 15 marks
1) Explain the role of money in the capitalistic economy.P14

A)IN CAPTALISTIC ECONOMICS NO AUTHORITIES EXISTS

2) What is Barter system ? Explain the inconveniences of Barter system.P2 & 3

3) "Loans Creates Deposits" . Discuss.

4) What is monetary policy ? What are its objectives?
5) Explain the functions of Primary Credit Societies.
6) Explain the liability of a Banker for Wrongful dishonor of cheques of a customer.
7) Explain the liability of the paying Banker on crossed cheque.
8) Discuss the various types of Bills of exchange.

SECTION –B
[Marks: 5x8 = 40]
Instructions to the candidates:
a) Answer any Five of the following questions in about 15 lines each.
b) Each question carries 8 marks
9) List out different kinds of Index numbers
10) Explain the difference between commercial banking and central banking.P106
11) Differentiate between Indigenous Banker and Regional Rural Bank.
12) Explain Garnishee Order.
13) Explain the legal Position of a Minor in Opening a bank account.
14) Explain the following :
a) Special Lien b) Recuring Deposit Account.
15) Describe the Cambridge equation of exchange.
16) List out the limitations of credit creation.
17) Explain the functions of State Cooperative Bank
18) Explain the following:
a) Banker's Bank P104  b) Clearing House.