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WBCHSE HS Vocational Banking, Financial Services and Insurance study materials
WBCHSE HS Vocational Banking, Financial Services and Insurance study resources

WBCHSE HS Vocational Banking, Financial Services and Insurance practice questions

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Question 1Introduction to Banking and Financial Services

In the Indian financial system, which institution is responsible for issuing currency notes (except one-rupee notes) and conducting monetary policy?

  1. Life Insurance Corporation of India
  2. Securities and Exchange Board of India
  3. Reserve Bank of India Correct answer.
  4. National Bank for Agriculture and Rural Development

Explanation

The Reserve Bank of India is the central bank, and the RBI Act empowers it to issue currency notes other than one-rupee notes and to frame monetary policy. SEBI regulates securities markets, LIC is an insurer, and NABARD supports rural credit.

Question 2Introduction to Banking and Financial Services

A customer wants a deposit account that offers cheque-book facility and high liquidity while allowing withdrawals on demand. Which type of account best suits this need?

  1. Savings bank account Correct answer.
  2. Post office time deposit
  3. Fixed deposit account
  4. Recurring deposit account

Explanation

A savings bank account allows deposits and withdrawals on demand and normally provides a cheque book or debit card, so it meets the liquidity and transaction needs described. Fixed and recurring deposits lock funds for a term and restrict withdrawal before maturity.

Question 3Introduction to Banking and Financial Services

Which of the following is the primary function of a commercial bank?

  1. Fixing the repo rate for the economy
  2. Issuing coins of small denomination
  3. Regulating the stock exchange
  4. Accepting deposits and lending funds Correct answer.

Explanation

Commercial banks primarily intermediate between savers and borrowers by accepting deposits and granting loans and advances. Setting the repo rate is a central bank function, stock exchange regulation belongs to SEBI, and coin issuance is a government function.

Question 4Introduction to Banking and Financial Services

A person deposits ₹50,000 in a bank and the bank keeps ₹5,000 as reserves while lending the remaining ₹45,000. This practice of creating credit from deposits is best described as which function of banking?

  1. Agency function
  2. Safe custody function
  3. Credit creation function Correct answer.
  4. Foreign exchange function

Explanation

Credit creation refers to the process by which banks use a fraction of deposits as reserves and lend out the rest, thereby expanding the money supply. Safe custody, foreign exchange, and agency services do not describe this multiplier effect.

Question 5Introduction to Banking and Financial Services

Which of the following instruments is a negotiable instrument under Indian law?

  1. A fixed deposit receipt marked non-transferable
  2. A life insurance policy
  3. A promissory note Correct answer.
  4. A share certificate

Explanation

A promissory note is expressly recognised as a negotiable instrument under the Negotiable Instruments Act, along with bills of exchange and cheques. Share certificates, insurance policies, and non-transferable receipts are not negotiable instruments.

Question 6Introduction to Banking and Financial Services

A customer draws a cheque in favour of a payee but the bank returns it unpaid because the drawer's account has insufficient funds. What is this dishonour commonly termed?

  1. Cheque endorsement
  2. Cheque truncation
  3. Cheque crossing
  4. Cheque bouncing Correct answer.

Explanation

When a cheque is dishonoured for insufficient funds it is commonly called cheque bouncing, which can attract legal consequences under the Negotiable Instruments Act. Truncation, endorsement, and crossing are different cheque-related processes.

Question 7Introduction to Banking and Financial Services

Under the Kisan Credit Card scheme, the primary purpose is to provide farmers with which facility?

  1. Short-term credit for crop production and allied needs Correct answer.
  2. Credit cards for purchasing consumer electronics
  3. Long-term housing loans
  4. Vehicle loans for commercial transport

Explanation

The Kisan Credit Card scheme gives farmers timely access to short-term credit for crop production, cultivation expenses, and allied activities. It is not designed for housing, transport, or consumer electronics purchases.

Question 8Introduction to Banking and Financial Services

A bank holds a customer's gold jewellery as security and gives a loan based on its value. This type of advance is known as which of the following?

  1. Hypothecation
  2. Clean overdraft
  3. Pledge Correct answer.
  4. Mortgage

Explanation

A pledge involves delivery of possession of movable goods, such as gold, to the lender as security. Hypothecation and mortgage do not transfer possession, and a clean overdraft is unsecured.

Question 9Introduction to Banking and Financial Services

Which document is a customer required to submit as proof of identity while opening a bank account under the Know Your Customer norms?

  1. Property tax receipt
  2. Aadhaar card Correct answer.
  3. Rent agreement
  4. Electricity bill

Explanation

Under KYC norms, a document such as the Aadhaar card serves as officially valid proof of identity. Utility bills, rent agreements, and tax receipts are normally used as proof of address rather than identity.

Question 10Introduction to Banking and Financial Services

A bank accepts a deposit for a fixed period of three years at a stated interest rate, and the depositor cannot withdraw before maturity without a penalty. This product is best identified as which of the following?

  1. Demand draft
  2. Current account deposit
  3. Fixed deposit Correct answer.
  4. Savings bank deposit

Explanation

A fixed deposit is placed for a specified term at a fixed rate, and premature withdrawal usually attracts a penalty. Savings and current accounts are demand deposits, while a demand draft is a payment instrument, not a deposit product.

Question 11Introduction to Banking and Financial Services

Which of the following is a key difference between a bank and a non-banking financial company (NBFC)?

  1. An NBFC must be owned by the government, whereas a bank cannot be
  2. A bank cannot issue loans, whereas an NBFC can
  3. An NBFC cannot accept demand deposits, whereas a bank can Correct answer.
  4. An NBFC cannot lend money, whereas a bank can

Explanation

A defining feature is that NBFCs cannot accept demand deposits and are not part of the payment and settlement system, while banks can accept demand deposits. Both banks and NBFCs can lend, and ownership is not the distinguishing factor.

Question 12Introduction to Banking and Financial Services

A customer purchases a life insurance policy and names a person to receive the policy money if the policyholder dies. What is this person called?

  1. Underwriter
  2. Insurer
  3. Actuary
  4. Nominee Correct answer.

Explanation

A nominee is the person named in the policy to receive the benefit on the death of the policyholder. The insurer is the company, the underwriter assesses risk, and the actuary calculates premiums and reserves.

Question 13Introduction to Banking and Financial Services

Which principle of insurance states that the insured must disclose all material facts relevant to the risk being covered?

  1. Principle of subrogation
  2. Principle of utmost good faith Correct answer.
  3. Principle of contribution
  4. Principle of indemnity

Explanation

Utmost good faith requires the proposer to disclose every material fact that could affect the insurer's decision, because the insurer relies on the proposer's information. Indemnity, subrogation, and contribution deal with compensation and recovery after a loss.

Question 14Introduction to Banking and Financial Services

Which of the following best describes the role of SEBI in the Indian financial system?

  1. Issuing currency notes for public circulation
  2. Protecting investors and regulating the securities market Correct answer.
  3. Setting the cash reserve ratio for banks
  4. Providing crop insurance to farmers

Explanation

SEBI is the statutory regulator of the securities market, tasked with protecting investors and promoting orderly market development. Setting CRR is an RBI function, crop insurance is handled under schemes such as PMFBY, and currency issuance is the RBI's role.

Question 15Introduction to Banking and Financial Services

A small trader needs working capital to buy stock but has no fixed asset to offer as security. Which facility would a bank most likely consider?

  1. Gold loan against pledged ornaments
  2. Housing loan against mortgage
  3. Term loan against land
  4. Cash credit against hypothecation of stock Correct answer.

Explanation

A cash credit against hypothecation of stock suits working capital needs because the stock itself secures the facility without transferring possession. Mortgage and term loans against land require immovable property, and a gold loan requires ornaments.

Question 16Introduction to Banking and Financial Services

Which of the following is an example of a non-fund-based credit facility extended by a bank?

  1. Cash credit
  2. Bank guarantee Correct answer.
  3. Demand loan
  4. Overdraft

Explanation

A bank guarantee is non-fund based because the bank commits to pay only on default, without immediately disbursing funds. Cash credit, overdraft, and demand loan are fund-based facilities where money is actually lent.

Question 17Introduction to Banking and Financial Services

A bank's customer dies leaving a deposit without a nomination. What is the usual first step for the bank before settling the claim to the depositor's legal heirs?

  1. Auction the deposit to the highest bidder
  2. Close the account and forfeit the balance
  3. Transfer the deposit to the government treasury
  4. Ask the legal heirs to produce a succession certificate or other legal proof Correct answer.

Explanation

Where no nomination exists, banks require legal proof of entitlement such as a succession certificate or letter of administration before releasing funds to legal heirs. The bank cannot forfeit the balance or transfer it to the government at will.

Question 18Introduction to Banking and Financial Services

Which type of cheque crossing directs the paying bank to credit the amount only to a bank account of the payee?

  1. Bearer cheque
  2. Not negotiable crossing
  3. Account payee crossing Correct answer.
  4. General crossing

Explanation

An account payee crossing restricts collection to the payee's bank account and prevents transfer by endorsement to another person. General crossing only requires payment through a bank, and not negotiable crossing limits the transferee's title without restricting collection.

Question 19Introduction to Banking and Financial Services

In insurance, which principle prevents an insured from making a profit from a loss by recovering more than the actual amount lost?

  1. Principle of proximate cause
  2. Principle of indemnity Correct answer.
  3. Principle of subrogation
  4. Principle of insurable interest

Explanation

The principle of indemnity ensures that the insured is restored to the pre-loss financial position without gaining a profit. Subrogation, proximate cause, and insurable interest serve different purposes in insurance.

Question 20Introduction to Banking and Financial Services

A customer uses an ATM card at another bank's ATM and is charged a fee. Under RBI guidelines, which statement best reflects the general position on such interbank ATM charges?

  1. Banks may charge customers an unlimited fee for each interbank transaction
  2. A limited number of free interbank transactions per month is mandated, after which a capped fee may apply Correct answer.
  3. Interbank ATM transactions are always free with no cap on the number
  4. Only foreign banks may charge for interbank ATM use

Explanation

RBI has mandated a minimum number of free ATM transactions each month depending on the account and location, with a ceiling on the charge for transactions beyond that limit. Unlimited or entirely free interbank use is not the prescribed position.

Question 21Introduction to Banking and Financial Services

Which of the following is the correct sequence in the life cycle of a loan from sanction to closure?

  1. Repayment, sanction, disbursement, closure
  2. Closure, disbursement, repayment, sanction
  3. Disbursement, sanction, closure, repayment
  4. Sanction, disbursement, repayment, closure Correct answer.

Explanation

After the bank appraises and sanctions a loan, funds are disbursed, the borrower repays in instalments, and the account is finally closed. The other sequences place repayment or closure before sanction, which is illogical.

Question 22Introduction to Banking and Financial Services

A retail investor wants to buy shares of a listed company through a stock exchange. Which regulated intermediary typically executes the order on the investor's behalf?

  1. A primary agricultural credit society
  2. A cooperative credit society
  3. A registered stock broker Correct answer.
  4. A regional rural bank

Explanation

Stock brokers are SEBI-registered intermediaries who place buy and sell orders on stock exchanges for investors. Regional rural banks, credit societies, and cooperative societies are credit institutions, not securities market intermediaries.

Question 23Introduction to Banking and Financial Services

A bank's advances include loans to large corporates, housing loans, and crop loans. Which category is treated as priority sector lending for the purpose of RBI targets?

  1. Loans to foreign multinational firms
  2. Loans to large corporates
  3. Advances to other banks
  4. Crop loans to farmers Correct answer.

Explanation

Agriculture, including crop loans to farmers, forms part of the priority sector categories for which banks must meet lending targets. Large corporate loans, foreign multinational advances, and interbank placements are not priority sector lending.

Question 24Introduction to Banking and Financial Services

Which of the following best explains why banks maintain a cash reserve ratio (CRR) with the RBI?

  1. To fund the deposit insurance scheme
  2. To earn interest from the RBI on idle funds
  3. To provide insurance cover to depositors
  4. To keep a portion of deposits as reserves and help control liquidity in the system Correct answer.

Explanation

CRR requires banks to hold a specified share of net demand and time liabilities as balances with the RBI, which helps regulate liquidity and credit in the economy. It is not a route to earn interest or a deposit insurance mechanism.

Question 25Introduction to Banking and Financial Services

A customer wants to send money to a distant supplier quickly through the banking system. Which of the following is a real-time gross settlement system operated by the RBI for high-value interbank transfers?

  1. UPI
  2. NEFT
  3. IMPS
  4. RTGS Correct answer.

Explanation

RTGS settles transactions individually in real time and is used mainly for high-value transfers. NEFT settles in batches, while UPI and IMPS are retail instant payment systems, not RBI's gross settlement system.

Question 26Introduction to Banking and Financial Services

A savings bank account holder wants to withdraw cash from a bank branch other than the one where the account is maintained, using a withdrawal form. This facility is best described as which type of banking service?

  1. Home branch banking
  2. Anywhere banking through branch inter-connectivity Correct answer.
  3. Internet banking
  4. Mobile banking

Explanation

Anywhere banking allows a customer to operate the account from any branch of the same bank because all branches are connected through a centralised core banking system. The withdrawal is verified against the central database rather than only the home branch ledger. Internet and mobile banking are remote electronic channels, not counter-based branch transactions.

Question 27Introduction to Banking and Financial Services

A person deposits money in a bank and the bank agrees to repay it on demand or after a fixed period, paying interest. Which relationship does this create between the bank and the depositor?

  1. Debtor and creditor, with the bank as debtor Correct answer.
  2. Principal and agent
  3. Trustee and beneficiary
  4. Lessor and lessee

Explanation

When a customer deposits money, the funds become the bank's property and the bank becomes the debtor obliged to repay the equivalent amount with agreed interest. The depositor is the creditor of the bank. The agency relationship arises separately, for example when the bank collects cheques on the customer's behalf.

Question 28Introduction to Banking and Financial Services

A customer wants a single account from which funds can be transferred to make payments to several parties at fixed intervals, and also wants to keep a linked savings account for surplus funds. Which facility offered by banks best matches this need?

  1. A current account with standing instructions and a linked savings account Correct answer.
  2. A recurring deposit account
  3. A fixed deposit with automatic renewal
  4. A locker facility

Explanation

A current account is meant for frequent business transactions and permits standing instructions so the bank can make periodic payments on the customer's behalf. Linking a savings account lets surplus balances be parked and swept back when needed. Recurring and fixed deposits are savings products with restricted withdrawal, and lockers only store valuables.

Question 29Introduction to Banking and Financial Services

A bank lends against the security of a life insurance policy assigned in the bank's favour. If the borrower defaults and the policy is surrendered, how is the bank's claim generally settled?

  1. The bank can recover the full sum assured irrespective of the surrender value
  2. The bank recovers the outstanding loan with interest from the surrender value, and the surplus goes to the policyholder Correct answer.
  3. The bank can recover only the amount of premiums the borrower paid
  4. The bank must return the entire surrender value to the nominee without deducting the loan

Explanation

A loan against a life policy is limited to a proportion of the surrender value, and on default the bank adjusts the outstanding dues with interest against that value. Any balance remaining after adjustment belongs to the policyholder or nominee. The bank cannot claim more than the surrender value actually available.

Question 30Introduction to Banking and Financial Services

A bank's gross non-performing assets rise sharply in a year while its total advances stay almost unchanged. Which consequence should the analyst expect for the bank's financial position?

  1. Capital adequacy automatically improves because risk-weighted assets fall
  2. Interest income on those advances continues to be recognised as before
  3. Provisioning requirements increase and profitability is reduced Correct answer.
  4. The bank's liquidity ratio is unaffected because NPAs are not assets

Explanation

Loans that turn non-performing stop earning income and require the bank to make provisions out of profits, which lowers profitability and erodes capital. Risk-weighted assets also rise because NPAs attract higher risk weights, so capital adequacy weakens rather than improves. Interest on such advances is generally not recognised as income until recovered.

Question 31Banking Operations and Types of Accounts

A customer wants an account that allows unlimited withdrawals and deposits but offers no interest. Which type of account is most suitable?

  1. Fixed deposit account
  2. Current account Correct answer.
  3. Savings bank account
  4. Recurring deposit account

Explanation

A current account is designed for businesses and traders who need frequent, unrestricted transactions; it pays no interest and often requires a minimum balance. Savings accounts restrict the number of withdrawals and earn interest, while deposit accounts lock funds for a term.

Question 32Banking Operations and Types of Accounts

In a savings bank account, interest is normally calculated on which basis?

  1. The daily product of balances, credited at prescribed intervals Correct answer.
  2. The minimum balance required to be kept in the account
  3. The highest balance maintained during the quarter
  4. The closing balance on the last working day of each month

Explanation

Banks compute savings bank interest on the daily balance maintained, using the daily product method, and credit the accumulated interest at the prescribed interval. This rewards customers for keeping funds in the account rather than for a single month-end figure.

Question 33Banking Operations and Types of Accounts

A person opens a joint account with the instruction that both holders must sign every cheque. What is this arrangement called?

  1. Joint operation by both holders Correct answer.
  2. Either or survivor operation
  3. Single-holder operation with a nominee
  4. Joint operation with former or survivor mandate

Explanation

Where the mandate requires signatures of all joint holders on every instrument, the account is operated jointly and no single holder can act alone. This protects the funds of all holders but can cause inconvenience if one holder is unavailable.

Question 34Banking Operations and Types of Accounts

Under the Know Your Customer norms, which document is acceptable as an officially valid document for proof of identity when opening a bank account?

  1. A self-declaration signed by the customer
  2. A passport issued by the Government of India Correct answer.
  3. A photograph attested by a neighbour
  4. A rent agreement signed by the landlord

Explanation

KYC norms require identity to be established through an officially valid document such as a passport, driving licence, Aadhaar or voter identity card. Self-declarations and documents without official standing do not satisfy the requirement.

Question 35Banking Operations and Types of Accounts

A recurring deposit account of a customer matures after 24 monthly instalments of Rs. 1,000 each. What is the total amount of subscriptions the customer has paid?

  1. Rs. 48,000
  2. Rs. 2,000
  3. Rs. 24,000 Correct answer.
  4. Rs. 12,000

Explanation

The total subscription is the instalment amount multiplied by the number of instalments, that is 1,000 multiplied by 24, which equals Rs. 24,000. Interest is added separately to arrive at the maturity value.

Question 36Banking Operations and Types of Accounts

A customer deposits Rs. 50,000 in a fixed deposit for one year at 7 percent simple interest per annum. What interest will the customer receive at maturity?

  1. Rs. 7,000
  2. Rs. 3,500 Correct answer.
  3. Rs. 350
  4. Rs. 5,000

Explanation

Simple interest equals principal multiplied by rate multiplied by time divided by one hundred, so 50,000 x 7 x 1 / 100 gives Rs. 3,500. The calculation assumes the quoted simple rate and a full one-year term.

Question 37Banking Operations and Types of Accounts

What does the term 'overdraft' mean in the context of a current account?

  1. A charge levied for issuing a cheque book
  2. A deposit kept with the bank for a fixed term
  3. A temporary facility to draw funds in excess of the credit balance Correct answer.
  4. A standing instruction to transfer funds monthly

Explanation

An overdraft is a sanctioned facility that lets a current account holder draw more than the available balance, up to an agreed limit, with interest charged on the amount used. It is repayable on demand and is normally secured or sanctioned against the customer's creditworthiness.

Question 38Banking Operations and Types of Accounts

A minor of 14 years opens a savings account. Who is permitted to operate the account?

  1. Only the guardian, until the minor attains 18 years
  2. The minor jointly with the school principal
  3. Nobody, since minors cannot hold bank accounts
  4. The minor alone, if capable of understanding and operating the account Correct answer.

Explanation

Banks permit a minor who is capable of understanding and operating the account to open and operate a savings account independently. Where the minor cannot operate it, the guardian operates it on the minor's behalf.

Question 39Banking Operations and Types of Accounts

A customer wants to ensure that funds in a single savings account pass to a named person after the customer's death without the delay of succession formalities. Which arrangement should the customer use?

  1. Issuing a standing instruction in favour of the person
  2. Giving the person a power of attorney
  3. Adding the person as a joint holder with either or survivor operation
  4. Registering the person as a nominee Correct answer.

Explanation

A nomination directs the bank to pay the balance to the nominee on the depositor's death, simplifying settlement of the claim. The nominee receives the money as a trustee for the legal heirs and does not become the owner of the funds.

Question 40Banking Operations and Types of Accounts

Which of the following is a distinguishing feature of a current account compared with a savings bank account?

  1. It can be opened only by salaried employees
  2. It earns a higher rate of interest on daily balances
  3. It has no restriction on the number of transactions and pays no interest Correct answer.
  4. It requires a larger number of withdrawals to be pre-approved

Explanation

A current account is meant for business use, permits unrestricted deposits and withdrawals, and normally carries no interest. Savings accounts, in contrast, pay interest but limit the number of withdrawals.

Question 41Banking Operations and Types of Accounts

A bank classifies an account as a 'dormant' or 'inoperative' account. What does this indicate?

  1. The account is held by a minor
  2. The account has been closed on the customer's request
  3. The account has exceeded its overdraft limit
  4. The account has had no customer-initiated transaction for the period specified by the bank Correct answer.

Explanation

An account becomes dormant or inoperative when the customer has not initiated any transaction for the period prescribed by the bank. Reactivation usually requires fresh KYC verification and a written request from the account holder.

Question 42Banking Operations and Types of Accounts

A firm opens a current account in its trade name. Which document is most directly relevant to establishing the authority of the person signing the account opening form?

  1. The electricity bill of the business premises
  2. The firm's shop and establishment certificate
  3. The personal income tax return of the signatory
  4. The partnership deed or board resolution authorising the signatory Correct answer.

Explanation

For a firm or company, the bank verifies the constitution document and the resolution or authority that empowers the signatory to open and operate the account. This protects the bank against claims from other partners or directors.

Question 43Banking Operations and Types of Accounts

What is the main purpose of the 'No Frills' or Basic Savings Bank Deposit Account offered by banks?

  1. To offer a minimum set of banking services without a minimum balance requirement Correct answer.
  2. To serve as a fixed deposit for senior citizens
  3. To provide high-interest deposits to wealthy customers
  4. To allow unlimited overdraft to small traders

Explanation

A Basic Savings Bank Deposit Account provides essential services such as deposits and a limited number of withdrawals without insisting on a minimum balance. It supports financial inclusion by making banking accessible to low-income customers.

Question 44Banking Operations and Types of Accounts

A customer holds a savings account with a balance of Rs. 40,000 and is offered an overdraft of Rs. 10,000 against it. If the customer withdraws Rs. 45,000, what is the position?

  1. The withdrawal is within the sanctioned overdraft limit Correct answer.
  2. The account will be converted into a current account
  3. The bank will charge a fixed deposit penalty
  4. The cheque will be returned for insufficient funds

Explanation

The available drawing power is the credit balance of Rs. 40,000 plus the overdraft limit of Rs. 10,000, which equals Rs. 50,000. A withdrawal of Rs. 45,000 is therefore within the permitted limit and will be honoured.

Question 45Banking Operations and Types of Accounts

Which of the following statements about the 'former or survivor' mandate in a joint account is correct?

  1. The nominee alone can operate the account
  2. Both holders must sign every cheque issued on the account
  3. The second-named holder can operate the account only after the first holder's death Correct answer.
  4. Either holder may operate the account during the lifetime of both

Explanation

Under a former or survivor mandate, the first-named holder operates the account during their lifetime, and the second-named holder steps in only after the first holder's death. This differs from either or survivor operation, where both can act independently.

Question 46Banking Operations and Types of Accounts

A bank receives a garnishee order from a court attaching a customer's account. How should the bank act?

  1. Close the account immediately and return the balance to the customer
  2. Transfer the entire balance to the customer's nominee
  3. Pay the attached amount to the court as directed, subject to the order's terms Correct answer.
  4. Ignore the order until the customer consents

Explanation

A garnishee order binds the bank to pay the amount specified in the order to the court or decree holder, subject to the terms of the order. The bank must comply promptly and cannot release attached funds to the customer.

Question 47Banking Operations and Types of Accounts

A customer deposits a cheque into a savings account and the bank credits the account before the cheque is cleared. What is the customer's position if the cheque is later dishonoured?

  1. The bank must file a criminal case against the drawer before reversing the credit
  2. The bank may reverse the credit and recover the amount from the customer Correct answer.
  3. The customer may retain the credited amount as the bank had already credited it
  4. The loss is borne equally by the bank and the customer

Explanation

A credit given before realisation is provisional and is reversed if the instrument is dishonoured. The bank can debit the customer's account for the amount, and the customer remains liable to the bank for any shortfall.

Question 48Banking Operations and Types of Accounts

What is the effect of the bank honouring a cheque drawn by a customer after receiving notice of the customer's death?

  1. The payment is valid because the cheque was signed earlier
  2. The bank acts without authority and may be liable to the deceased's estate Correct answer.
  3. The payment is valid if the account was a joint account
  4. The payment is valid only if the payee is a relative

Explanation

The authority of a customer to operate an account ends on the customer's death, and the bank must stop payments once it has notice. Honouring a cheque after such notice is unauthorised and can make the bank liable to the legal heirs.

Question 49Banking Operations and Types of Accounts

A bank statement shows a balance of Rs. 8,000, but the customer's cash book shows Rs. 8,500. A cheque for Rs. 500 issued by the customer has not yet been presented. What is the likely reason for the difference?

  1. The bank has charged interest not recorded by the customer
  2. The bank has wrongly debited the account
  3. An unpresented cheque causes the cash book to be higher than the bank balance Correct answer.
  4. The customer has not recorded a deposit

Explanation

A cheque issued but not yet presented has been deducted in the customer's cash book but not yet in the bank's records. This makes the cash book balance higher than the bank statement balance by the amount of the unpresented cheque.

Question 50Banking Operations and Types of Accounts

Which of the following best describes a 'flexi deposit' or 'sweep-in' facility linked to a savings account?

  1. Funds above a threshold are moved into a fixed deposit and swept back when needed Correct answer.
  2. The customer is allowed unlimited overdraft at zero interest
  3. The bank converts the savings account into a current account
  4. The customer must close the account before withdrawing funds

Explanation

A sweep-in facility automatically transfers balances above a threshold into a fixed deposit earning a higher rate, and sweeps funds back into the savings account when the customer needs them. This balances liquidity with better returns.