IMPORTANT BANKING INTERVIEW - QUESTION & ANSWERS

For MCQs- Central Bank (BD)

6 . What is Private Banking?

Banking services offered to high net-worth individuals. Private banking institution

assists the high net-worth individual in investing his/her money in exchange for
commissions and fees. The term "private" refers to the customer service being
rendered on a more personal basis.

7. What is BPS (Basis Points)?

BPS (Basis point) : - BPS is an acronym for basic points is used to indicate changes in
rate of interest and other financial instrument.

8. BASIC POINT IS EQUAL TO 0.01%

So when we say that repo rate has been increased by 25 bps, it means that the rate
has been increased by 0.25%

9. What is Sub-prime crisis?

The current Subprime crisis is due to sub-prime lending. These are the loans given to
the people having low credit rating.

10. What is Base Rate?

It is the minimum rate of interest that a bank is allowed to charge from its customers.
Unless mandated by the government, RBI rule stipulates that no bank can offer loans
at a rate lower than BR to any of its customers.

It is effective from, July 1, 2010. However, all existing loans, including home loans and
car loans, will continue to be at the current rate. Only the new loans taken on or after
July 1 and old loans being renewed after this date will be linked to BR.

11. What is SWIFT?

SWIFT :- Society for worldwide Interbank financial tele- communication.

India was 74th Nation to join SWIFT Network.

SWIFT Code is a standard format of bank Identifier code. This code is used
particularly in International transfer of money between banks.
A majority of FOREX related message are sent to correspondent banks abroad through
SWIFT.

SWIFT Code consist 8 or 11 character when code is 8 digit, It is referred to primary

office

4 – bank code

2 – country code

2 – location code

3 – branch code (optional).

16. What is foreign exchange reservers?

Foreign exchange reserves (also called Forex reserves) in a strict sense are only the
foreign currency deposits and bonds held by central banks and monetary authorities.
However, the term in popular usage commonly includes foreign exchange and
gold,SDRs and IMF reserve positions.

18. What is Money Laundering ?

Money laundering is the processes of concealing the source of obtain money. Money or
funds obtained through illegal activities are presented as legitimate.

19. What is the difference between Nationalized bank and Private Bank ?

A Nationalized bank is one that is owned by the government of the country. Since the
people decide who the government is, they are also referred to as public sector banks.
The government is responsible for the money deposited into the accounts of these
banks. Where as a private sector bank is one that is owned by an independent
individual or a company that is controlled by a few individuals. In short, the bank is
owned by someone else and they run the bank. The person owning/running the bank
is responsible for the money deposited into the accounts of these banks.

20. What are non-perfoming assets?

A classification used by financial institutions that refer to loans that are in jeopardy of
default. Once the borrower has failed to make interest or principal payments for 90
days the loan is considered to be a non-performing asset.

Also known as "non-performing loan".

21. What is monetary policy?

A Monetary policy is the process by which the government, central bank, of a country
controls
(i) the supply of money,

(ii) availability of money, and

(iii) cost of money or rate of interest, in order to attain a set of objectives oriented
towards the growth and stability of the economy. 

24. What is TREASURY BILLS (TB)?

Treasury bills (T-Bills) are the short term liabilities of the central government
.theoretically government of India issued three types of T-bills through auctions,
namely 91 days, 182days,and 364 days. There are no treasury bills issued by state
government. Minimum amount of T –Bills is Rs. 2500and in multiple of RS. 2500.T-
bills are issued at a discount and are redeemed at par from 1st April 1997 treasury
bills have been replaced by WAYS AND MEANS ADVANCES .

25. What is COMMERCIAL PAPER (CP)?

commercial paper was introduced by RBI in 1991. It is a short term money market
instrument issued in the form of promissory note .Corporate; primary dealers and the
all India financial institution are eligible to issue CP. The maturity period of each
commercial paper is 7days to 1year from the date of issue .CP can be issued
denominations of Rs. 5lakh or multiples thereof. Only a schedule bank can act as an
issuing and paying agent (IPA) for issuance of CP 

26. What is CRM?

Customer Relationship Management (CRM) refers to the ability to understand,

anticipate and manage the needs of the customer, interaction and relationship
resulting in increased profitability through revenue and margin growth and
operational efficiencies.

27. What is Right to information Act?

The Right to Information act is a law enacted by the Parliament of India giving citizens
of India access to records of the Central Government and State governments.The Act
applies to all States and Union Territories of India, except the State of Jammu and
Kashmir - which is covered under a State-level law. This law was passed by Parliament
on 15 June 2005 and came fully into force on 13 October 2005.

28. What is Recession?

A true economic recession can only be confirmed if GDP (Gross Domestic

Product)growth is negative for a period of two or more consecutive quarters.

31. What is LAF ?

Liquidity Adjustment Facility (LAF) was introduced by RBI during June, 2000 in
phases, to ensure smooth transition and keeping pace with technological upgradation.
 

32. What is a Repo Rate?

Repo rate is the rate at which our banks borrow rupees from RBI. Whenever the banks
have any shortage of funds they can borrow it from RBI. A reduction in the repo rate
will help banks to get money at a cheaper rate. When the repo rate increases,
borrowing from RBI becomes more expensive

33. What is Reverse Repo Rate?

This is exact opposite of Repo rate. Reverse Repo rate is the rate at which Reserve
Bank of India (RBI) borrows money from banks. RBI uses this tool when it feels there
is too much money floating in the banking system. Banks are always happy to lend
money to RBI since their money is in safe hands with a good interest. An increase in
Reverse repo rate can cause the banks to transfer more funds to RBI due to this
attractive interest rates.

34. What is CRR Rate?

Cash reserve Ratio (CRR) is the amount of funds that the banks have to keep with
RBI. If RBI decides to increase the percent of this, the available amount with the
banks comes down. RBI is using this method (increase of CRR rate), to drain out the
excessive money from the banks.

35. What is Bank Rate?

Bank rate, also referred to as the discount rate, is the rate of interest which a central
bank charges on the loans and advances that it extends to commercial banks and
other financial intermediaries. Changes in the bank rate are often used by central
banks to control the money supply.

36. What is PLR?

The Prime Interest Rate is the interest rate charged by banks to their most
creditworthy customers (usually the most prominent and stable business customers).
The rate is almost always the same amongst major banks. Adjustments to the prime
rate are made by banks at the same time; although, the prime rate does not adjust on
any regular basis. The Prime Rate is usually adjusted at the same time and in
correlation to the adjustments of the Fed Funds Rate. The rates reported below are
based upon the prime rates on the first day of each respective month. Some banks use
the name "Reference Rate" or "Base Lending Rate" to refer to their Prime Lending Rate.

38. What is SLR Rate?

SLR (Statutory Liquidity Ratio) is the amount a commercial bank needs to maintain in
the form of cash, or gold or govt. approved securities (Bonds) before providing credit to
its customers. SLR rate is determined and maintained by the RBI (Reserve Bank of
India) in order to control the expansion of bank credit. SLR is determined as the
percentage of total demand and percentage of time liabilities. Time Liabilities are the
liabilities a commercial bank liable to pay to the customers on their anytime demand.
SLR is used to control inflation and propel growth.

Through SLR rate tuning the money supply in the system can be controlled efficiently.

39. What is Deposit Rate?

Interest Rates paid by a depository institution on the cash on deposit.

40. What is Fiscal Policy?

Fiscal policy is the use of government spending and revenue collection to influence the
economy. These policies affect tax rates, interest rates and government spending, in
an effort to control the economy. Fiscal policy is an additional method to determine
public revenue and public expenditure.

46. What is FDI?

FDI (Foreign Direct Investment) occurs with the purchase of the “physical assets or a
significant amount of ownership (stock) of a company in another country in order to
gain a measure of management control” (Or) A foreign company having a stake in a
Indian Company.

47. What is IPO?

IPO is Initial Public Offering. This is the first offering of shares to the general public
from a company wishes to list on the stock exchanges.

48. What is GDP?

The Gross Domestic Product or GDP is a measure of all of the services and goods
produced in a country over a specific period; classically a year.

49. What is GNP?

Gross National Product is measured as GDP plus income of residents from

investments made abroad minus income earned by foreigners in domestic market.

50. What is Revenue deficit?

It defines that, where the net amount received (by taxes & other forms) fails to meet
the predicted net amount to be received by the government.

51. What is Disinvestment?

The Selling of the government stake in public sector undertakings.

52. What is Fiscal Deficit?

It is the difference between the government’s total receipts (excluding borrowings) and
total expenditure.

53. What is National Income?

National Income is the money value of all goods and services produced in a Country
during the year.

54. What is bank and its features and types?

A bank is a financial organization where people deposit their money to keep it

safe.Banks play an important role in the financial system and the economy. As a key
component of the financial system, banks allocate funds from savers to borrowers in
an efficient manner.

55. What are Mutual funds?

Mutual funds are investment companies that pool money from investors at large and
offer to sell and buy back its shares on a continuous basis and use the capital thus
raised to invest in securities of different companies. The mutual fund will have a fund
manager that trades the pooled money on a regular basis. The net proceeds or losses
are then typically distributed to the investors annually. A company that invests its
clients' pooled fund into securities that match its declared financial objectives. Asset
management companies provide investors with more diversification and investing
options than they would have by themselves. Mutual funds, hedge funds and pension
plans are all run by asset management companies. These companies earn income by
charging service fees to their clients.

57. What is demand Draft?

A demand draft is an instrument used for effecting transfer of money. It is a Negotiable

Instrument. Cheque and Demand-Draft both are used for Transfer of money. You can
100% trust a DD. It is a banker's check. A check may be dishonored for lack of funds
a DD can not. Cheque is written by an individual and Demand draft is issued by a
bank. People believe banks more than individuals.