CA Foundation Exam June 2023 » CA MCQs » Commercial Banks

Commercial Banks

MCQs on "Commercial Banks": Find the multiple choice questions on "Commercial Banks", frequently asked for all competitive examinations.

MCQs On Commercial Banks

  1. Which of the following was the first commercial bank established by Indians in 1881?
    1.  Reserve Bank Of India
    2. Imperial Bank Of India
    3.  Awadh Commercial Bank
    4.  State Bank Of India

Answer: (C)

Explanation: The Oudh Commercial Bank, sometimes known as the Awadh Commercial Bank, was an Indian bank that began operations in Faizabad in 1881 and ceased operations in 1958. It was India’s first commercial bank with limited liability and a board of directors composed solely of Indians.

2. RBI regulates which of the parameters by undertaking open market operation transactions.

    1.  Inflation
    2.  Borrowing power of the commercial banks
    3.   Money supply in the economy
    4.  Both a & c

Answer: (D)

Explanation: Open market operations are conducted by the RBI in order to control the amount of money in circulation, as well as the prices of key goods and inflation.

  1. When the Reserve Bank of India (RBI) raises the cash reserve ratio, it will 
    1. Increase the supply of money
    2.  Decrease supply of money
    3. Increase the supply of money initially but decrease the supply
    4.  No impact on money supply in the economy

Answer: (B)

Explanation: Banks will have to keep more money in cash or deposits with the RBI, leaving them with less money to lend or invest, boosting market liquidity.

4. What is a commercial bank’s principal business?

    1. Keeping track of all deposits and current accounts
    2. Issuance and payment of checks
    3.  Collect checks from customers of the bank
    4.  Each and every one of them

Answer: (B)

Explanation: A commercial bank’s main functions are to receive deposits and to lend money. Savings, current, and time deposits are all types of deposits. A commercial bank also provides money to its clients in the form of borrowings, cash credit, borrowings, and bill discounting, among other things.

  1. Which of these is the most widely utilized monetary policy tool?
    1.  Operations on the open market
    2.  The issuance of banknotes
    3. Put an end to market operations.
    4. Rate of discount

Answer: (A)

Explanation: The use of open market operations as a monetary policy tool helps maximize employment and foster price stability by affecting the supply of reserves in the banking system, which contributes to interest rate fluctuations.

  1. Credit can be earned in a variety of ways, including:
    1.  International banks
    2.  Commercial banks 
    3.  Reserve Bank Of India
    4.   Private banks

Answer: (B)

Explanation: Commercial banks can increase the number of deposits they receive by taking out loans, resulting in an increase in a country’s monetary base. This is how credit is created.

  1. What does Repo Rate imply?
    1.   When cash is needed, banks can discount bills of exchange and obtain a loan from the RBI.
    2.  Banks give a premium rate to their high-value customers.
    3.    The rate at which the RBI provides commercial banks with lending facilities secured by government assets, with the requirement that the banks repurchase the securities within a short period of time.
    4. Banks with excess cash can purchase securities from RBI on the condition that they resell the securities to RBI on a predetermined date and at a predetermined price.

Answer: (D)

Explanation: The repo rate is the rate at which commercial banks borrow money by selling their assets to our country’s central bank, the Reserve Bank of India (RBI), in order to sustain liquidity in the event of a cash shortage or owing to statutory measures.

  1. Which of the following rules are not applicable to banks?
    1.  Act of the Reserve Bank of India
    2.  The Banking Regulation Act 
    3.  The Companies Act 
    4.  All of the above

Answer: (C)

Explanation: To the degree that it is compatible with the Banking Regulation Act of 1949, the Firms Act also applies to banking companies.

  1. The RBI’s increase in the cash reserve ratio (CRR) will result in:
    1.   Reduce the amount of money in circulation in the economy
    2. Increase the economy’s money supply.
    3.  There will be no effect on the economy’s money supply.
    4.  Initially, boost the supply, but gradually reduce it.

Answer: (A)

Explanation: Attempts are undertaken to limit the flow of money in the economy when inflation is strong. As a result, the RBI raises the CRR, reducing the number of loanable funds available to banks. As a result, investment slows and the supply of money in the economy shrinks.

  1. When the RBI raises the interest rate, it does so for the following reasons:
    1. Due to commercial bank pressure
    2. Increased inflation
    3. Decreased inflation
    4.  All of the above

Answer: (C)

Explanation: The Federal Reserve raises interest rates when inflation rises too high, slowing the economy and lowering inflation. The Federal Reserve lowers interest rates to encourage the economy and increase inflation whenever inflation is too low.

  1. Which of these are not a function of the Reserve Bank of India?
    1. Currency printing
    2. Credit Controller
    3. Coin distribution
    4. Foreign currency custodian

Answer: (C)

Explanation: The RBI’s function is confined to the distribution of coins provided by the Indian government. The Indian government is in charge of designing and minting coins of various denominations.

12. What is the primary function of a bank?

    1.  Accepting Deposits
    2.  Fixed Deposits
    3. Current Deposits
    4.  Savings Deposits

Answer: (A)

Explanation: Accepting deposits, providing loans, mortgages, cash, borrowing, overdraft, and bill discounting are all primary responsibilities.

  1. What is the most often utilized tool in monetary policy?
    1.  Notes are issued.
    2.  Operation of the Open Market
    3. Closed Market Operations
    4.  Discount Rate 

Answer: (B)

Explanation: The Federal Reserve’s practice of trading US Depository Safeguards, as well as other protections, on the open market to control the inventory of cash held in US banks is referred to as open market operations. The Fed buys Treasury protections to increase the cash stockpile and sells them to reduce the cash stockpile.

  1. What is the definition of a commercial bank?
    1. An organization that is founded outside of the government in most cases.
    2.  A legal entity that represents a group of people.
    3.  Only India has a certain type of company structure.
    4.  A bank that accepts deposits also provides account-checking services.

Answer: (D)

Explanation: The great majority of people do their banking with a commercial bank. Commercial banks generate cash by issuing and collecting revenue through advances such as contracts, vehicle loans, business credits, and personal loans. Client stores provide the funds for these advances.

  1. What exactly are Open Market Operations? 
    1.  The RBI sells and buys bonds and assets from the government.
    2.  Commercial banks sell and buy bonds and securities for their customers.
    3.    The RBI sells and buys bonds and securities from commercial banks.
    4. Agriculture items are sold in government-controlled Mandis.

Answer: (D)

Explanation: Open market operations refer to the Federal Reserve’s (Fed) practice of trading US Depository Safeguards, as well as other types of protections, on the open market in order to manage the stock of cash held in the US banks. The Fed buys Treasury protections to increase the cash stockpile and sells them to reduce the cash stockpile.

  1. What is the process by which commercial banks create money?
    1.   Issue of Loans
    2.  Accepting New Deposits
    3. Through Cash Reserve Ratio
    4.  Through Investing

Answer: (A)

Explanation: A commercial bank loan is a form of debt-based financing between a firm and a financial institution, such as a bank. It is often used to fund big capital expenditures or to cover operational costs that the company may not be able to afford on its own.

  1. What is India’s most recent commercial bank?
    1. Axis Bank
    2. AU Small Finance Bank
    3.  HDFC Bank
    4.  IDFC First Bank

Answer: (D)

Explanation: IDFC First Bank is a private sector bank in India that is a subsidiary of IDFC, a coordinated foundation financing organization. After receiving a general financial authorization from the Reserve Bank of India in July 2015, the bank began the procedure on October 1, 2015. It is registered on both the BSE and the NSE.

  1. What are Private Banks and How Do They Work?
    1.  A deposit-taking financial institution.
    2. Individuals or general partners with a limited partner are the owners of banks.
    3. The Indian rupee is issued and supplied by the central bank and other regulatory bodies.
    4. International bank that is compelled to follow the laws of both its home and host countries.

Answer: (B)

Explanation: Private banks are those that are owned by an individual or a group of individuals with a limited partner. There are no merged private banks. In any event, loan officers can look at the “sum of the bank’s resources” as well as the entire sole-owner/general-accomplices’ resources.