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Question Bank

Financial Services – II Internal 2017


2 Marks
Module III – Banking and the Economy
 What is SLR and CRR?

Statutory liquidity ratio (SLR) is the Indian government term for reserve requirement
that the commercial banks in India require to maintain in the form of gold or government
approved securities before providing credit to the customers.

Cash Reserve Ratio (CRR) is a specified minimum percentage of the total deposits of
customers, which commercial banks have to hold as reserves either in cash or as deposits
with the central bank.

 State the objectives of SLR and CRR.


 To control the expansion of bank credit. By changing the level of SLR, the Reserve Bank
of India can increase or decrease bank credit expansion.
 To ensure the solvency of commercial banks.
 To compel the commercial banks to invest in government securities like government bonds.
 To make funds available to customers on demand as soon as possible.
 What is Repurchase Option?

REPO is the sale of securities together with an agreement for the seller to buy back the
securities at a later date. The repurchase price should be greater than the original sale
price, the difference effectively representing interest, sometimes called the repo rate.

 What is Reverse Repo?

Reverse repo rate is the rate at which the Reserve Bank of India borrows money from
commercial banks. It is a monetary policy instrument which can be used to control the
money supply in the country.

 State any 4 tools used by RBI to control supply of money in the economy.
 REPO AND REVERSE REPO RATE.
 CASH RESERVE RATIO (CRR)
 OPEN MARKET OPERATIONS.
 STATUTORY LIQUIDITY RATIO.
 BANK RATE.
 What is Bank Rate?

Bank Rate refers to the official interest rate at which RBI will provide loans to the banking system
which includes commercial / cooperative banks, development banks etc.
 State the components of Balance of Payments?
o Current Account
o Capital Account
o Balancing Account
 What are the components Current Account?
i. Export and import of goods and services
ii. Unilateral transfers
iii. Investment income (Income from bonds, shares abroad).
 What is current account Convertibility?

Capital Account Convertibility means that rupee can now be freely convertible into any
foreign currencies for the acquisition of assets like shares, properties and assets
abroad.

 What is Capital Account Convertibility?

Current account convertibility allows free inflows and outflows for all purposes other
than for capital purposes such as investments and loans.

 State any 4 fund based services offered by Banks?


o Working Capital Financing
o Short Term Financing
o Bill Discounting
o Export Credit
o Term Lending
 State any 4 non - fund based services offered by Banks?
o Letter of Credit
o Bank Guarantees
o Solvency Certificates
o Bankers Acceptances
 State the banking channels through which banks offer banking services?
o ATMs
o Branches
o Call center
o Internet Banking
o Mobile Banking
o Telephone banking
o Direct Selling Agent
 What is Non- Performing Asset?

A debt obligation where the borrower has not paid any previously agreed upon interest
and/or principal repayments to the designated lender for an extended period of time.
The non performing asset is therefore not yielding any income to the lender in the form
of principal and interest payments.

 What is Sub Standard Asset?

a sub standard asset is one which has been classified as NPA for a period not exceeding 12
months.
 What do you mean by Doubtful Assets?

Doubtful Assets: a doubtful asset is one which has remained NPA for a period exceeding
12 months.

 What is SARFAESI Act?

The Securitisation and Reconstruction of Financial Assets and Enforcement of Security


Interest Act, 2002 (SARFAESI Act India) empowers Banks and Financial Institutions to
recover their non-performing asset (NPA) loan dues without the intervention of the Court.

Module IV – Introduction to Insurance


1. What do you mean by Insurance?

Insurance is the transfer of the risk of a loss, from one entity to another in exchange for payment. It
is a form of risk management primarily used to hedge against the risk of a uncertain loss.

2. How does insurance work?

Insurance works on the basic principle of risk-sharing. A great advantage of insurance is that it spreads
the risk of a few people over a large group of people exposed to risk of similar type.

3. What is Life Insurance?

Insurance that pays out a sum of money either on the death of the insured person or after a
set period.

4. What do you mean by Non- Life Insurance?

General insurance or non-life insurance policies, including automobile and homeowners


policies, provide payments depending on the loss from a particular financial event. General
insurance is typically defined as any insurance that is not determined to be life
insurance.

5. Define Risk.

A probability or threat of damage, injury, liability, loss, or any other negative occurrence that is
caused by external or internal factors, and that may be avoided through pre-emptive action.

Risk is the possibility or chance of loss, danger or injury.

6. What do you mean by Risk Management?

Risk management refers to the practice of identifying potential risks in advance, analysing them and
taking precautionary steps to reduce/curb the risk.

7. What do you mean by Speculative Risk?

Speculative (dynamic) risk is a situation in which either profit or loss is possible.

8. What do you mean by Pure Risk?


A category of Risk where there is a chance of either loss or no loss, but no chance of gain, as
oppose to loss or profit with speculative risk. The only outcome of pure risks are adverse (in a
loss) or neutral (with no loss), never beneficial.

9. What are the types of Pure Risk?


a. Personal risks
b. Property risks
c. Liability risks
10. State any four objectives of IRDA.
d. To protect the interest of and secure fair treatment to policyholders.
e. To bring about speedy and orderly growth of the insurance industry, for the benefit of the
common man.
f. To ensure speedy settlement of genuine claims,
g. To prevent insurance frauds and other malpractices.
h. To promote fairness, transparency in the Insurance Industry.
i. To take action where such standards are inadequate or ineffectively enforced.
11. State any four functions of IRDA.
 Promoting efficiency in the conduct of insurance business.
 Levying fees and other charges for carrying out the purposes of this Act.
 Regulating investment of funds by insurance companies;
 Regulating maintenance of margin of solvency;
 To issue to the applicant a certificate of registration, renew, modify, suspend or cancel such
registration.

 Specifying requisite qualifications, code of conduct and practical training for insurance
intermediaries and agents.

 Specifying the code of conduct for surveyors and loss assessors.

12. What is Banc assurance?


 Bancassurance is an arrangement in which a bank and an insurance company form a
partnership so that the insurance company can sell its products to the bank's client base.
This partnership arrangement can be profitable for both companies.

5 Marks

Module III – Banking and the Economy


1. Write a note on any two of the below:
a. SLR
b. CRR
c. Capital account convertibility

2. Briefly explain Repo and Reverse Repo.


3. Explain any four fund based services offered by banks.
4. Explain non-fund based services offered by banks.
5. Briefly explain any four banking channels through which banks offer services.
6. Briefly explain the services offered by banks.
7. Explain the norms for non-performing assets.
8. Explain the categories (classification) of non-performing assets?
9. Briefly explain SARFAESI Act.

Module IV – Introduction to Insurance


1. Briefly explain the concept of insurance.
2. Explain the objectives of IRDA?
3. Explain the functions of IRDA?
4. Briefly explain the stages of Risk Management.
5. What do you mean by Third Party Administrators (TPAs). Briefly explain the services offered by TPAs.
6. Briefly explain the stages of Risk Management.
7. Write a note on the below:
a. Speculative or Dynamic Risk
b. Pure or Static Risk