Indian Financial System

1. Indian Financial System

2. Net Assets Value • The NAV of an investment scheme is a number which represents the value in rupees per fund unit as on a particular date of the assets of the fund less liability and outstanding expenses. Thus, if the NAV in more than the face value, it means your money has appreciated and vice-versa. • NAV is only the value that a fund’s assets would realise, less liabilities, in case the fund was liquidated as on the particular date to which NAV relates. But there is no uniformity in accounting policies of the various funds and hence one cannot compare one fund with another.

3. Debit Cards A credit card holder buys now and pays later. In effect, the credit card issuer hands him a loan. Not so with a debit card. The debit card holder must have an account with the issuing bank. When he buys something, the value of his purchase is instantly debited from his account. The merchant establishment from which the debit card holder makes his purchase is linked electronically to the bank’s main computer which contains the account details of the card holder. The account can be accessed with a personal identification number (PIN) known only to the account holder. But through it, the merchant can check the card holder’s account and debit the value of his purchase.

4. Usufructuary Mortgage The mortgagor, under this mortgage, hands over possession of the property to the mortgage to be retained by the latter till the debt is repaid. The mortgagee is authorised to receive income / gains from the mortgaged property in full or in part and appropriate it towards the principal and interest on the debt due.

5. True/ false • ATMs are part of Virtual Banking. • Educational Loan Scheme evolved by Reserve Bank of India if only for students in Private Professional Colleges. • Over The Counter Exchange of India (OTCEI) is non-corporate body. • The Securities Trading Corporation of India (STCI) was promoted by SEBI jointly with the Public Sector Banks.

6. (a) Section 14 of Banking Regulation Act, 1949------ • (i) Prohibits a banking company from creating a charge upon any unpaid capital of the company. • (ii) Contains a system of licensing of banks by the R.B.I. • (iii) Provides that the subscribed capital of a banking company should not be less • than one-half of its authorised capital. • (iv) Non of these

7. (b) A Bank is under a statutory obligations to honour its customer’s cheques vide ------- (i) Section 10 of the Banking Regulation Act, 1949. (ii) Section 3 of the R.B.I. Act, 1934. (iii) Section 31 of the Negotiable Instruments Act, 1881. (iv) None of these

8. (i) 1961 (ii) 1997 (iii) 1994 (iv) 1991 The Reserve Bank of India was originally constituted as a share holder’s Bank with ashare capital of ------- • (i) Rs. 50 lakh • (ii) Rs. 100 lakh • (iii) Rs. 10 crores • (iv) Rs. 5 crores

9. Total scheduled banks in our country as on 31-12-1999 are • (i) between 100-200 • (ii) between 200-300 • (iii) between 300-400 • (iv) more than 400

10. (e) Infrastructure Development Finance Company was established in ------- • (i) 1961 (ii) 1997 • (iii) 1994 • (iv) 1991

11. In periods of boom, which leads to economic instability, Reserve Bank resorts to ___ (i) sale in the market of first class securities in its possession to reduce the supply of money as a measure of open market operations • (ii) buying of approved securities in the market as a measure of pen market operations • (iii) hike in the bank rate as a measure of open market operations • (iv) none of these

12. (e) Under Section 17 of the Banking Regulation Act 1949, every banking company incorporated in India is required to transfer each year to a reserve fund a sum equivalent to not less than _ • (i) 10 per cent of profit before dividends; • (ii) 20 per cent of profit after interest tax and dividend; (iii) 20 per cent of profit before dividends; • (iv) 5 per cent of gross profit • (v) none of the above

13. (f) After a customer has closed the account ___________ • (i) the banker is no more liable to observe secrecy of his account because the contractual relationship comes to an end (ii) the banker is still bound by his duty of secrecy • (iii) the banker’s duty of secrecy comes to an end in terms of the provisions of the Negotiable Instrument Act, 1881 • (iv) none of these

14. (g) In case a Banker fails to comply with the attachment order Section 226(3) of the IncomeTax Act, 1961 ___________ • (i) The Branch Manager will be held personally liable upto the amount of the attachment order • (ii) The Branch Manager will be liable to be prosecuted entailing a fine up to Rs. 5,000 or imprisonment which may extend up to one year or both (iii) The bank shall be deemed to be an assessee in default and amount can be recoveredfrom it as arrears of income tax due from the Bank • (iv) None of these

15. (h) A mandate may continue to be operative even in the case of — • (i) death of the agent • (ii) lunacy of the agent (iii) insolvency of the agent • (iv) none of these

16. Continued … … … • (a) A bank can claim protection on payment of a cheque with forged signatures if it has been stolen. ANS- (False) • (b) The definition of Bankers does not include Indian money – lenders or Mahajans or Sahukars or Shettys. ANS- (True) • (c) A Bank can also exercise the right of set off in respect of the future or contingent debts. ANS - (False) • (d) Loans cannot be sanctioned under Professional and Self Employed Scheme exceeding Rs. 10 lakh ANS- (True)

17. Under law of limitation, the liability of a guarantor is • (i) 3 years from the date of document • (ii) 3 years from the date of advance (iii) 3 years from the date of invocation • (iv) None of the above as there is no limit of time

18. Lien becomes time-barred three years after • (i) the date of loan • (ii) date of delivery o the relative goods • (iii) due date of loan (iv) lien has no limitation period ANS

19. Drawing power in an account means • (i) Limit sanctioned • (ii) Value of security • (iii) Value of security minus unpaid stock (iv) Value of stock minus unpaid stock minus margin

20. Continued … … … • Drawing power= (Paid Stock- Margin)+ (Book Debts- Margin) • Paid Stock= Stock as on date- Sundry Creditors

21. Find out Drawing Power of abc for the month of August, 2012 As on 31st July, 2012 abc, a trader is having: • Stock : 40 Lac • Debtors: 28 Lac • Sundry Creditors: 18 Lac • Margin on Stock and debtors is 25% and 50% respectively • Cash Credit Limit : 40 Lacs

22. Drawing Power : • Against Stock Stock as on 31.7.2012 40.00 Lac Less: Sundry Creditors 18.00 Lac Paid Stock 22.00 Lac Less : Margin @25% 5.50 Lac Drawing power (A) 16.50 Lac Against Book Debts Book Debts as on 31.07.2012 28.00 Lac Less: margin Money 14.00 Lac Drawing power (B) 14.00 Lac Total Drawing Power (A+B) 30.50 Lac

23. (i) A Hindu undivided family consists of ___________ • (i) all the members of the family i.e. male, female, minors and major; • (ii) only major male members of the family; (iii) all persons lineally descended from a common ancestor and included their wives • (iv) none of these

24. (f) Nationalised Banks have been permitted to offer their equity shares to the public tothe extent of 49% of their capital as per amendments made in 1994 in --------- • (i) Banking Regulation Act, 1949 (ii) Banking Companies (Acquisition & Transfer of Undertakings) Acts 1970/1980 • (iii) both in (i) and (ii) • (iv) none of the above

25. (g) EXIM Bank is owned by • (i) Govt. of India and RBI jointly • (ii) RBI and select Commercial Banks jointly (iii) Fully owned by Govt. of India • (iv) partly by financial institutions

26. (h) Contribution towards Rural Infrastructure Development Fund is made by • (i) NABARD and Commercial Banks jointly • (ii) State Govts. And Govt. of India (iii) Only those commercial banks who fail to achieve the stipulated benchmark of agricultural advances and / or priority sector advances • (iv) Infrastructure Development Finance Company Ans

27. (a) The Reserve Bank of India was nationalised in the year ___________. Ans- 1949 • (b) Bhandari Committee’s recommendations relate to _______________. Ans- Regional Rural Banks • (c) Initial guidelines in regard to Local Area Banks were issued in _____. Ans- August 1996 • (d) Loan for fish rearing is __________ advance. Ans- Agricultural • (e) The right of set off is ____________ discretion. Ans- Bank's

28. Structure of Financial Market • Money Market • Capital Market • Primary and Secondary Industrial Securieties Market • Corporate Bond Market • Government Securities Market

29. Money Market • Introduction of New Products – CBLO (Collateralized lending and Borrowing Obligations): • Widening of money market • deepening of money market • Imparting greater liquidity • Facilitating efficient price discovery

30. Policy iniciatives in Money market • Repo • CBLO • Commercial paper • Certificate of deposit • Regular auction of treasury bills • Upgradation of payment system technologies to improve assets liability management • Liquidity Adjustment Facility (LAF)