DBF – PRINCIPLES AND PRACTICES

OF BANKING
MCQs- Some selected Modules
Part 1
COMPILED BY R JAGANNATHAN
• Role of Money Markets, Debt Markets and Forex Markets
• ROLE AND FUNCTIONS OF CAPITAL MARKETS AND SEBI
• FACTORING, FORFAITING SERVICES AND OFF BALANCE SHEET ITEMS
 Role of Money Markets, Debt Markets and Forex
Markets
1) The Lending and borrowing of funds between banks for Overnight is
called:
a) Call Money
b) Notice Money
c) Term Money
d) Reserve Money
2) What is the maximum amount that the banks are permitted to
borrow normally, in Call Money and Notice money markets?
a) 100 percent of Capital Funds on Fortnightly average
b) 50 percent of Capital Funds on Fortnightly average
c) 75 percent of Capital Funds on Fortnightly average
d) 125 percent of Capital Funds on Fortnightly average
3) What is the maximum amount that the banks are permitted to lend
normally, in Call Money and Notice money markets?
a) 100 percent of Capital Funds on Fortnightly average
b) 50 percent of Capital Funds on Fortnightly average
c) 25 percent of Capital Funds on Fortnightly average
d) 125 percent of Capital Funds on Fortnightly average
4) What is the amount that Cooperative banks can borrow as
percentage of their aggregate deposits as at end of March of previous
year, in the call money/notice market?
a) 1.50%
b) 2.00%
c) 2.50%
d) 3.00%
5) What is the amount that Cooperative banks can lend as percentage
of their aggregate deposits as at end of March of previous year, in the
call money/notice market?
a) 1.50%
b) No Limit
c) 2.50%
d) 3.00%
6) Treasury Bills are issued by Government to Borrow money with a
maturity period of (1) less than 91 days, (2) 91 days (3) 182 days and (4)
364 days.
a) 2 to 4 only
b) 1 to 4 all
c) 1 only
d) 1 to 2 only
7) Certificate of Deposit is issued
a) At a discount to face value
b) At par value
c) Without interest
d) With a clause to pay interest on maturity
8) What is the minimum and maximum amount for which CD can be
issued?
a) Minimum Rs.1 lac and in multiples of Rs. 1 lac without any ceiling
b) Minimum Rs.1 lac and Maximum Rs.1 Crore
c) Minimum Rs.1 lac and in multiples of Rs. 10 Cr
d) Minimum Rs.100 and in multiples of Rs.1000
9) What is the maturity period range for issue of Certificate of Deposit?
a) Seven days to 10 years
b) Seven days to 1 year
c) 15 days to one year
d) 15 days to 2 years
10) Commercial Paper can be issued by Companies having (1) net
worth of Rs.4 Cr (2) Loan accounts in Standard Category (3) Credit
rating of P-2 of D & B (4) Sanctioned Working Capital Limit of Rs.4 Cr
with a Public Sector Bank.
a) 1 to 4 all
b) 1 and 3 only
c) 1 and 2 only
d) 2 and 3 only
11) What is the minimum and maximum amount for which commercial
paper can be issued?
a) Rs. 1 lac and Rs. 1 Cr
b) Rs, 1 lac and Rs. 10 lacs
c) Rs. 5 lac and Rs. 25 lacs
d) Rs. 5 lacs and multiples of Rs.5 lacs without any ceiling
12) What is the maturity period range for issue of Commercial Papers?
a) 7 days to 5 years
b) 7 days to 1 year
c) 21 days to 1 year
d) One month to three months
13) A transaction under which a security is sold by one bank to another
bank with an understanding that the seller will repurchase the same at
a future date for a predetermined price is called:
a) Marginal Standing Facility
b) Ways and Means advances
c) Repo
d) Reverse Repo
14) A transaction in which a security is purchased by one bank from
another bank on the basis of an earlier understanding that the seller
will repurchase the same at a future date for a pre determined price, is
called:
a) Repo
b) Reverse Repo
c) Ways and Means advances
d) Marginal Standing Facility
15) In a Collateralized Borrowing and Lending Obligation (CBLO) the
members of CCIL can:
a) Sell the security
b) Buy the Security
c) Lend and borrow funds against the eligible securities
d) All the above
16) Negotiated Dealing System Order Matching (NDS-OM) relates to
which of the following:
a) Electronic trading system operated by RBI
b) Electronic trading system operated by BSE
c) Electronic trading system operated by NSE
d) Electronic trading system operated by SBI
17) Interest rate swap is an arrangement between two parties who
agree to make periodic payment to each other for an agreed period,
calculated on:
a) Principal plus accrued interest
b) Notional Principal Amount
c) Actual Principal amount
d) Any of the above
18) In India, the Interest Rate Swaps are traded based on which of the
following bench marks:
a) Mibor and Mifor
b) MSF and LAF rates
c) Bank Rate and Prime Rate
d) MSF and MIBOR
19) A contract highly standardized nature, with an interest-bearing
instrument as underlying assets, which is traded on an exchange, is
called:
a) Interest Rate Futures
b) Interest Rate Swaps
c) Interest Rate Options
d) Interest Rate Forwards
20) For majority of money market deals in India, which of the following
is used:
a) LIBOR
b) PRIME RATE
c) MIBOR
d) BASE RATE
21) In India foreign currency rates are determined by:
a) FEDAI
b) FIMMDA
c) State Bank of India
d) Demand and Supply
22) Under Foreign Exchange Management Act 1999, the license to
operate as an Authorized Person is granted by:
a) RBI
b) SEBI
c) Ministry of Foreign Affairs
d) Ministry of Home Affairs
23) As per Foreign Exchange Management Act 1999, which of the
following cannot be included in Foreign Exchange:
a) Amount receivable in foreign exchange
b) Drafts in Foreign Currency payable in India
c) Amount payable in foreign exchange
d) None of the above
ROLE AND FUNCTIONS OF CAPITAL MARKETS
AND SEBI
24) The Primary market, within the capital market, comprises ________
market.
a) Public Issue
b) Secondary
c) Preference share
d) Commodities
25) The transition process of an exchange from a mutually owned
association to the share holders owned company is called:
a) Decorporatisation
b) Privatization
c) Demutualization
d) Commercialization
26) The maximum share holding of a stock exchange can be held by a
single investor is generally restricted to:
a) 2%
b) 15%
c) 5%
d) 20%
27) Which of the following is not a characteristic of an equity share?
a) It is called ordinary shares also.
b) It represents complete ownership of the company
c) It provides voting right for the holder
d) The holder undertakes a business entrepreneurial risk associated
with a business risk.
28) Which of the following is not a characteristic of a preference share?
a) Owners get a fixed dividend
b) Owners get the dividend in preference over the equity share
holders
c) Holders get voting rights similar to an equity share holder
d) In case of liquidation of the company, they get preference for return
of capital
29) Which of the following is not a characteristic of a bonus
shares/bonus share?
a) It is called capitalization of Reserves
b) These are issued to share holders without charging any price
c) These are issued out of accumulated reserves of a company
d) These cannot be issued out of share premium reserves
30) The negotiable certificate evidencing indebtedness is called:
a) Bond
b) Debentures
c) Ordinary Shares
d) Preference Shares
31) In the secondary market, the trading of coupon bonds is at ______
based on the market rate of interest.
a) Yield to Maturity
b) Expected Yield
c) Expected Maturity Value
d) The current market rate
32) The holder of the _____ bond gets the equity shares on
redemption of the bond
a) Coupon bond
b) Convertible bond
c) Zero coupon bond
d) Preference bond
33) As per the regulatory requirements specified by SEBI, the debt
securities (WHICH ONE IS CORRECT)
a) Must be listed on a stock exchange if issued by way of public issue
b) The securities must carry credit rating from any rating agency
c) Unlisted companies cannot get their debt securities listed on a
stock exchange
d) Privately placed debt securities issued by a public company cannot
be listed on a stock exchange.
34) When the brokers make payment or delivery of securities to the
exchange it is called:
a) Pay out day
b) Pay in day
c) Settlement day
d) Squaring day
35) In securities lending and borrowing scheme:
a) The investors can lend their surplus securities to the clearing
corporation and earn income.
b) The investors can borrow securities from brokers
c) The brokers can borrow and lend the securities to each other
d) All the above.
36) The private placement of shares by a company:
a) Is regulated under section 85 of Companies act
b) Is an offer of new shares to a select group of investors
c) Is type of rights or bonus issue
d) All the above
37) Which of the following is SEBI s eligibility norms for issuing of rights
issue by a listed company?
a) There are no eligibility norms
b) The company should have a paid up capital of Rs. 1 Crore
c) The company should be a listed company for a minimum period of
5 years
d) The company should not have incurred losses at all
38) A company having observation letter of SEBI on the basis of offer
document filed by the company with SEBI, has to go for public issue
within a period of:
a) A month
b) Two months
c) Three months
d) 10 weeks
39) The offer document filed by a company with SEBI includes:
a) The prospectus in case of public issue
b) Offer for sale in case of rights issue
c) Letter of offer in case of right issue
d) All the above
40) Which of the following is not disclosed in the red herring
prospectus?
a) The price and quantum of the issue
b) The lower price band
c) The higher price bank
d) All the above
41) In a book building public issue, the ratio of allocation between the
retail investors, non institutional investors and qualified institutional
buyer is:
a) 15: 35: 50
b) 50: 35: 15
c) 35: 15: 50
d) 40: 25: 35
42) The safety net offer can be made by a company to:
a) Individual investors only
b) Resident original investors only
c) Investors with maximum of 1000 shares only
d) All the above
43) In a book building issue which of the following term relating to
price, does match:
a) The price band- the range of the price within which the issue will be
made
b) Floor price-the price at which the share shall be actually issued
c) Cut off price- the minimum price below which the share will not be
issued
d) All the above
44) SEBI has the authority to inspect the books of an already listed
company or a company intending to get listed where:
a) SEBI has reasonable ground to believe that the company is
indulging in insider trading
b) SEBI has reasonable ground to believe that the company is
indulging in fraudulent practice
c) SEBI has reasonable ground to believe that the company is
indulging in unfair practice
d) All the above
45) Who has the authority to suspend trading of the securities of a
particular company at the stock exchange?
a) SEBI
b) RBI
c) Central Government
d) IRDA
46) Which of the following cannot be included in the QIBs list?
a) Scheduled Commercial Banks and Financial Institutions
b) Mutual Funds and Provident Funds
c) FIIs registered with SEBI or Venture capital fund registered with SEBI
d) None of the above
47) Which of the following need not have registration with SEBI?
a) Underwriters
b) QIBs
c) Portfolio Managers
d) Retail Investors
48) The ter appli atio s supported y Blo ked A ou t is asso iated
with:
a) Application for release of blocked money by government authorities
b) Application money kept with bank against share allotment
c) Application for allotment of permanent account number
d) Application form for opening an account
49) Under applications supported by Blocked Amount, the bank which
is recognized as a bank capable of providing ASBA services to the
customers is called:
a) Permitted Bank
b) Nominated Bank
c) Syndicate Bank (member)
d) Merchant Bank
50) When a listed company can issue Equity shares or other securities,
to a qualified institutional buyer (QIB), without going to public, such
process is called:
a) Private Placement
b) Qualified Placement
c) Institutional Placement
d) Qualified Institutional Placement
FACTORING, FORFAITING SERVICES AND OFF
BALANCE SHEET ITEMS
51) In factoring, the factor makes payment to the seller firm on the
basis of:
a) Assignment of receivables arising on account of domestic or export
sales
b) Transfer of the sales function from the seller to the factor
c) Hypothecation of Book Debts arising on account of domestic sales
d) All the above
52) Without Recourse Factoring means
a) Where all the risks associated with the factoring is that of the buyer
b) Where the factor is not responsible for the loss to the seller on
account of his actions
c) Where the factor assumes the risk of default in payment by the
buyer
d) Where the risk of default in payment by the buyer is that of the
seller
53) The with recourse factoring means:
a) Where the risk of default in payment by the buyer is that of the
seller
b) Where the factor is not responsible for the loss to the seller on
account of his actions
c) Where the factor assumes the risk of default in payment by the
buyer
d) Where all the risk associated with the factoring is that of the buyer
54) Under forfaiting, which is most commonly forfeited debt
instrument?
a) Bill of exchange
b) Promissory notes and debentures
c) Bills receivables
d) All the above
55) Under forfaiting, the exporter is able to transfer which of the
following risk?
a) Interest rate risk
b) Currency risk
c) Credit risk and political risk
d) All the above
56) If a contingent liability (Letter of Guarantee) crystalizes, it is
reflected in the balance sheet of a bank.
a) In the main part of the balance sheet as a liability
b) In the main part of their balance sheet as an asset
c) In the balance sheet notes
d) Amount in the main balance sheet and explanation in the notes of
account
57) Which of the following is an off balance sheet item:
a) Overdraft limit sanctioned to a firm
b) Bid bond
c) Credit balance in the overdraft account
d) All the above
58) If a guarantee is issued by a bank in lieu of usto er s requirement
to deposit a cash security or earnest money deposit, it is a :
a) Performance guarantee
b) Deferred payment guarantee
c) Financial guarantee
d) Any one of the above
59) In forfaiting, the forfeiter provides the service on a:
a) Without recourse basis only
b) On recourse and non recourse basis both
c) Recourse basis only
d) At the choice of the forfaiter
60) Which of the following parties in a bank guarantee are correctly
mentioned:
a) The borrower on whose behalf the guarantee is issued- beneficiary
b) the party in whose favour the guarantee has been issued –
applicant
c) The bank that has issued the bank guarantee – surety
d) None of the above
61) If a claim is not made by the beneficiary during the claim period
mentioned in the guarantee:
a) The bank is absolved of its liability
b) The claim can be made within the prescribed period of limitation
under Limitation Act 1963
c) The bank remains liable for unlimited period
d) The claim can be made maximum within two years
62) A party on whose request the opening bank issues the letter of
credit is called:
a) Applicant
b) Beneficiary
c) Seller
d) Supplier
63) The bank that issues LC undertakes to (which one is more
appropriate):
a) Make payment to the beneficiary
b) Pay to the beneficiary, whether it is able to recover from applicant
or not, against the document
c) Pay to the beneficiary, whether it is able to recover from applicant
or not, against the documents mentioned in the LC
d) Pay to the beneficiary, whether it is able to recover from applicant
or not
64) The bank that makes payment to the beneficiary on receipt of
documents as per terms of LC is called;
a) Negotiating bank
b) Confirming bank
c) Advising bank
d) Opening bank
65) Which of the following banks is called the negotiating bank:
a) The bank that verifies the apparent authenticity of LC
b) The bank that guarantees the payment to the beneficiary on receipt
of the documents as mentioned as LC
c) The bank that guarantees the payment to the beneficiary in case
the opening bank does not pay
d) The bank that purchases the documents at a discount, if these are
not drawn as per terms of LC
66) The bank that gives guarantee of the opening bank to make the
payment, if the opening bank fails to pay, is called:
a) Confirming bank
b) Advising bank
c) Opening bank
d) Negotiating bank
67) The liability of the confirming bank is:
a) Similar to the advising bank
b) Similar to the negotiating bank
c) Similar to the opening bank
d) To pay even when the documents are not as per terms of LC
68) The documents submitted by the beneficiary of an LC are not as per
terms of LC, as per UCPDC:
a) The documents cannot be accepted by negotiating bank
b) These can be accepted by the negotiating bank
c) The documents can be accepted by the negotiating bank for
confirmation of the applicant
d) The documents can be accepted by negotiating bank subject to the
consent of the opening bank
69) In a letter of credit there is a provision of repeated negotiation of
documents subject to payment of previously negotiated documents by
the applicant. It is called:
a) Revolving LC
b) Transferrable LC
c) Green Clause LC
d) Red Clause LC
70) A forward exchange contract is a contract between the bank and
_____ for ____ of specified quantity of foreign currency:
a) bank, sale only
b) Customer, sale or purchase
c) Customer, sale only
d) Bank, purchase only
RISK MANAGEMENT AND BASEL ACCORD
71) At an organizational level in each bank, the overall responsibility of
risk management is assigned to:
a) Risk Management Committee
b) Risk Management organization
c) Board of Directors of the Bank
d) Sub Committee of the Board
72) The process of credit grading in a bank does not comprise of one of
the following, which is that?
a) Assessment of credit quality
b) Identification of problem loans
c) Assignment of risk ratings
d) Evaluation of portfolio quality
73) Which of the following cannot be categorized as part of the market
risk:
a) Liquidity risk
b) Legal risk
c) Foreign exchange risk
d) Interest risk risk
74) Basel Committee on Banking Supervision recommendations relate
to:
a) Provisions against non-performing loans
b) Deposit Insurance
c) Credit Risk Management
d) Maintenance of adequate capital
75) If there is possibility of loss due to some breakdown in the internal
controls of a bank, this is called:
a) Operational Risk
b) Technology Risk
c) Market Risk
d) Systemic Risk
76) Basel II is based on the following three pillars. Which of these does
match?
a) Operational Risk
b) Supervisory Review
c) Credit Risk
d) All the above
(other two are-Minimum capital requirements and market discipline)
77) The implementation of Pillar 3 in Basel II is focused on:
a) Disclosure of relevant information in the balance sheet regarding
capital adequacy
b) Maintenance of adequate credit quality
c) Making the banks more responsive to the market conditions
d) All the above
(Minimum capital requirement, supervisory review and market discipline)
78) As per Basel II, the tier 2 capital:
a) Is Limited to 100% of Tier 1 Capital
b) Can be equal to 50% of Tier III capital
c) Can be only up to 50% of Tier I capital
d) Can be only up to 75% of Tier I capital
79) As per Basel II norms and recommendations, the amount of general
provisions and general loan loss reserves should not exceed :
a) 2% of Risk weighted assets
b) 1.25% of Risk weighted assets
c) 2% total capital
d) Can be 100% of Tier2 capital
80) Which is not part of Tier 1 capital under Basel II recommendations:
a) Paid capital and reserves of the bank
b) Innovative perpetual debt instruments
c) Perpetual non-cumulative preference shares
d) Cumulative non-convertible preference shares
81) Which of the following is part of Tier 2 capital under Basel 2
recommendations:
a) General Reserves of the Bank
b) Investment Fluctuation Reserve
c) General Provision and Loan Loss Reserve
d) Perpetual non-cumulative preference shares
82) How many key principles are there for supervisory review, as per
Basel II recommendations?
a) Two principles
b) Four principles
c) Three principles
d) Five principles
83) Which of the following statement is correct?
a) Pillar 1 is to complement the Pillar 2 and Pillar 3
b) Pillar 2 is complement the Pillar 1 and Pillar 3
c) Pillar 3 is to complement the Pillar 1 and Pillar 2
d) All the above are to complement each other
84) The Basel Committee on Banking supervision was constituted by:
a) Governors of Central Banks of Group of 10 countries
b) Governors of Central Banks of European Countries
c) Governor of Fed Reserve of the United States
d) Governor of Fed Reserve and Governor of Bank of England
85) Reserve Bank implemented the Basel III recommendations in India
with effect from:
a) 31.03.2013
b) 30.09.2013
c) 01.04.2013
d) 01.01.2013
86) Basel III recommendations shall be completely implemented in
India by :
a) 31.03.2018
b) 31.03.2019
c) 31.03.2017
d) 31.03.2016
THANK YOU