Get summaries, questions, answers, solutions, notes, extras, theories, practicles, PDF, and guide of Chapter 2 Banking, NBSE Class 10 Book Keeping (BK) textbook, which is part of the syllabus of students studying under Nagaland Board. These solutions, however, should only be treated as references and can be modified/changed.
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Summary
Banking is the process of accepting money from people and lending it to others for investment. It helps in removing barriers to raising finance or credit. Modern banking also stimulates economic activity by dealing with money. It collects savings and provides funds for businesses. Banking has a role in achieving social and economic goals set by the government. The focus of banking has shifted over time, moving from urban areas to rural areas, from serving a few to serving many, from old methods to new ones, and from short-term goals to long-term development.
There are different types of banks. Commercial banks help trade and industry by managing deposits and providing loans. They offer services like overdrafts and various accounts. Agricultural banks provide both short-term and long-term loans to farmers. Industrial banks meet the long-term financial needs of industries. In India, institutions like the Industrial Development Bank of India help industries. Exchange banks assist in foreign trade and handle foreign exchange. Indigenous banks were common before independence but charged high interest rates. The Reserve Bank of India acts as the central bank, controlling cash and credit in the economy.
Banks offer several types of accounts. A current account is for businesses that need frequent transactions. It does not earn interest but offers an overdraft facility. Savings accounts encourage saving among people with low income. They earn some interest and require maintaining a minimum balance. Fixed deposit accounts hold money for a fixed period and offer higher interest rates. Home safe accounts help small income groups save by collecting coins and notes in a box provided by the bank. Recurring deposit accounts allow people to deposit a fixed amount every month for a certain period. Multiple option deposit accounts combine features of savings and fixed deposit accounts.
Electronic banking uses technology to provide banking services. It allows customers to manage their accounts online. National Electronic Funds Transfer and Real Time Gross Settlement systems help transfer money between banks quickly. Automated Teller Machines let people withdraw cash without visiting a bank. Debit cards allow users to pay directly from their accounts. Credit cards let people borrow money up to a limit and repay later. Net banking lets customers perform transactions using the internet.
Opening different accounts has benefits and drawbacks. Current accounts suit businesses but do not earn interest. Savings accounts are good for individuals but have withdrawal limits. Fixed deposit accounts earn high interest but lock money for a period. Banks offer services like issuing cheques, passbooks, and pay-in-slip books to help manage accounts. E-banking benefits customers by providing continuous service and greater security. It also reduces the load on bank branches and expands their reach.
Textbook solutions
Multiple Choice Questions (MCQs)
1. Mr. Sema needs to withdraw money from his bank. Which of the following facility will allow him to withdraw more than the deposit?
a. Cheque book
b. Pay-in-slip book
c. Overdraft facility
d. None of the above
Answer : c. Overdraft facility
2. Which among the following is the central bank of India?
a. Axis Bank
b. SBI
c. HDFC Bank
d. RBI
Answer : d. RBI
3. This bank account does not carry any interest rate. Can you pick the right one?
a. Current Account
b. Savings Account
c. Fixed Deposit Account
d. Recurring Deposit Account
Answer : a. Current Account
4. Gloria has opened an account in the Bank of India. What do we call the copy of her ledger account, which is maintained by the bank?
a. Cheque Book
b. Cash Book
c. Passbook
d. Pay-in-Slip Book
Answer : c. Passbook
5. Mr. Neiphiu Phesao is a businessman. What kind of bank account would be most suitable for him?
a. Fixed Deposit Account
b. Recurring Deposit Account
c. Savings Account
d. Current Account
Answer : d. Current Account
Very Short Answer Type Questions
1. What is banking?
Answer: Banking is the process of accepting for the purpose of lending or investment of deposits of money from the public, repayable on demand or otherwise, and withdrawable by cheque, draft, order or otherwise. Banking removes the hindrance of raising finance of credit.
2. What is an ATM?
Answer: It is a free-standing self-service terminal performing 60% of a tellers’ job quickly and at lesser cost and more convenience.
3. What are the advantages of opening a Savings Account?
Answer: This account can be opened with a very small amount.
4. What is e-Banking?
Answer: E-Banking is a service which connects the user with a PC and a Browser to the website of the Bank and avails of the services provided by the Bank.
5. Define a credit card.
Answer: The card issued to selected customers to enable them to make payment of credit bills up to specified limit anytime anywhere through a computer is known as a credit card.
6. What is a multiple option deposit account?
Answer: The multiple option deposit (MOD) account is a combination of a savings bank or current account with a term or special term deposit accounts.
7. What is an overdraft facility?
Answer: An overdraft facility is the special feature of this account. The account holder may arrange with the bank to withdraw more than the deposit.
8. What is a debit card?
Answer: The card issued to bank account holders against their bank balance to facilitate and simplify bank payments, withdrawals and transfer of money anytime, anywhere through the computer is known as a Debit Card.
Short Answer Type Questions
1. Enumerate the differences between a Current Account and a Savings Account.
Answer: The differences between a Current Account and a Savings Account are:
| Feature | Current Account | Savings Bank Account |
| Account Held By | This account is held by business houses in general. | The idea behind this account is the mobilisation of savings. |
| Withdrawal Method | The amount can be withdrawn by cheques only. | The amount can be withdrawn by both cheques and withdrawal forms. |
| Overdraft Facility | Overdrafts can be made by current account holders. | Overdraft facility is not available. |
| Interest | Generally, interest is not allowed on this account. | Interest is allowed normally at around 5% per annum on minimum monthly balances. |
| Restriction on Withdrawals | There is no restriction on withdrawals. | There is restriction on withdrawals. |
2. List the benefits of e-Banking.
Answer: E-Banking is beneficial to both the customer and the Service Provider Bank. Benefits to the Customer
i. Continuous service
ii. Services available from everywhere
iii. Greater customer satisfaction
iv. Greater security to the customer
v. Financial discipline
Benefits to the Service Provider Bank
i. Building Competitive Strength
ii. Reduction of Load on Branches
iii. Unlimited Network to the Bank
3. Define:
i. Net Banking
ii. credit card
iii. Debit card
Answer: i. Net banking is used to provide convenience to customers for banking anytime, anywhere in the world.
ii. The card issued to selected customers to enable them to make payment of credit bills up to specified limit anytime anywhere through computer is known as credit card.
iii. The card issued to bank account holders against their bank balance to facilitate and simplify bank payments, withdrawals and transfer of money anytime, anywhere through the computer is known as a Debit Card.
4. What are the contents of a Fixed Deposit Receipt?
Answer: The contents of an FDR are:
(i) Name and address of the depositor.
(ii) Amount of deposit.
(iii) Date of deposit.
(iv) Date of maturity (date of repayment).
(v) Rate of interest.
(vi) Signature of bank officers.
5. Define:
i. Passbook
ii. Pay-in-Slip Book
iii. Cheque Book
Answer: i. It is the copy of the customer’s ledger account maintained by the bank.
ii. This is also known as a deposit slip. These slips are filled up while depositing cash, cheques and drafts into the bank.
iii. A cheque is an instruction to the bank by the account holder to pay a certain specified amount to herself/himself to or any other person as per the instruction of the account holder.
6. Why should one open a Current Account?
Answer: One should open a current account because of the following reasons:
(i) The facility of deposits and withdrawals. An amount can be deposited and withdrawn many times in a day.
(ii) The facility of overdraft. In case of a current account in the bank, there is a facility of withdrawing an amount more than the available deposit in the account.
(iii) Increase in goodwill. A business establishment with a current account in the bank is assumed to be reputed as compared to business units with no current accounts.
7. Enumerate the features of a Fixed Deposit Account.
Answer: Features of Fixed Deposit Account are:
(i) Can be opened in an individual’s name or joint name or even in the name of a minor.
(ii) The minimum amount for opening a fixed deposit account is Rs 500.
(iii) Fixed deposit receipt cannot be endorsed or transferred.
(iv) If the amount is withdrawn before the due date, interest is paid at a lower rate.
(v) Loans can be obtained on the security of FDR.
8. What facilities do commercial banks provide?
Answer: The facilities commercial banks provide are:i. They provide assistance by depositing funds in various accounts and releasing as per their requirement.
ii. In current account overdraft facilities are also granted.
iii. Assistance is also provided by financing trade, commerce and industry.
iv. Individual persons can also open their account in commercial banks.
v. In addition to the main functions of accepting deposits and lending money, commercial banks render various agency and other services.
Long Answer Type Questions
1. Name and define the various types of banks.
Answer: The various types of banks are:
I. Commercial Banks. These banks have been established to assist trade, commerce and industry in their efforts of their development.
II. Agricultural Banks. Agriculture needs both short-term and long-term loans. Long-term financial needs are met by land mortgage banks also known as agricultural bank.
III. Industrial Banks. Industry needs long-term funds. The banks that meet the financial requirements of industrial enterprises are known as Industrial Banks.
IV. Exchange Banks. These banks help in the payment of foreign trade. These banks also help in the financing of foreign trade.
V. Indigenous Banks. Before India’s independence, the financial needs of farmers and small business units were met by indigenous banks in rural areas. These banks were operated by traditional moneylenders like Seths, Sahukars, Mahajans, Sardars, etc.
VI. Central Bank . Reserve Bank of India. Every country has a central bank responsible for the overall control of cash and credit money in the economy. In India, the Reserve Bank of India (or the RBI) works as the central bank of the country.
2. What are the advantages and disadvantages of opening a Current Account?
Answer: The advantages of opening a Current Account are:
(i) Facility of deposits and withdrawals. An amount can be deposited and withdrawn many times in a day. This enables the business and industry to flourish.
(ii) Facility of overdraft. In case of a current account in the bank, there is a facility of withdrawing an amount more than the available deposit in the account. To avail an overdraft facility, an agreement with the bank is signed.
(iii) Increase in goodwill. A business establishment with a current account in the bank is assumed to be reputed as compared to business units with no current accounts.
The disadvantages of opening a Current Account are:
(i) No interest. Generally interest is not allowed on a current account, so enterprises have to suffer the loss of interest, which may have been received in case of other types of bank accounts.
(ii) Maintenance of minimum balance. In case of a current account, generally a minimum balance of Rs 5,000 has to be maintained.
(iii) Bank charges. The bank renders certain agency services and charges for these services, such as collection charges postal charges, commission on making bank drafts and on mail transfers, etc.
3. What are the new services being provided by banks through computerised equipment? Define each.
Answer: The new services being provided by banks through computerised equipment are:
i. National Electronic Funds Transfer System (NEFT). National electronic funds transfer is a nationwide funds transfer system to facilitate transfer of funds from any bank branch to any other bank branch.
ii. Real Time Gross Settlement System (RTGS). The RTGS system is a funds transfer mechanism where transfer of money takes place from one bank to another on ‘real time’ and on ‘gross’ basis.
iii. Automated Teller Machine (ATMs). It is a free standing self-service terminal. While using ATM a plastic card is inserted into the terminal. After that identification code is also inserted. The machine responds by delivering required cash, cashing cheques, taking deposits and simple banking transactions.
iv. Debit Card. The card issued to bank account holders against their bank balance to facilitate and simplify bank payments, withdrawals and transfer of money anytime, anywhere through the computer is known as a Debit Card.
v. Net Banking. Net banking is used to provide convenience to customers for banking anytime, anywhere in the world.
vi. Credit Card. The card issued to selected customers to enable them to make payment of credit bills up to specified limit anytime anywhere through computer is known as credit card.
4. Enumerate the special features of a Fixed Deposit Account.
Answer: The special features of a Fixed Deposit Account are:
(i) Can be opened in an individual’s name or joint name or even in the name of a minor.
(ii) Minimum amount for opening a fixed deposit account is Rs 500.
(iii) Fixed deposit receipt cannot be endorsed or transferred.
(iv) If the amount is withdrawn before the due date, interest is paid at a lower rate.
(v) Loan can be obtained on the security of FDR.
5. Name and define the various types of accounts that can be opened in a bank.
Answer: The various types of accounts that can be opened in a bank are:i. Current Account: Cash, cheques and drafts may be deposited/withdrawn many times a day in this account. As this account renders continuous services, it is known as a current account.
ii. Saving Bank Account: Commercial banks have provided saving bank facilities to encourage savings among low income group, i.e., workers, empioyees and students, etc.
iii. Fixed Deposit Account: This is an account where a fixed amount is deposited with the bank for a specified period. The bank utilises the money for the period it has without bothering much for the refund at any time.
iv. Home Safe Account: Home safe account facility is provided by the bank to very small income groups just to develop the habit of savings. A cash box is issued to an account holder in a home safe account, who drops coins and notes through a hole in the cash box daily, or whenever surplus cash is available.
v. Recurring Deposit Account: Recurring means repetition, and hence in this type of account a fixed specified amount is deposited every month for a specified period, i.e., 3, 4, 5 or 10 years.
vi. Multiple Option Deposit: The multiple option deposit (MOD) account is a combination of a savings bank or current account with a term or special term deposit accounts.
Extras
Additional questions and answers
1. What is banking?
Answer : Banking is the process of accepting for the purpose of lending or investment of deposits of money from the public, repayable on demand or otherwise, and withdrawable by cheque, draft, order or otherwise.
58. Describe the contents and importance of fixed deposit receipts (FDR).
Answer : The contents of a Fixed Deposit Receipt (FDR) include:
(i) Name and address of the depositor
(ii) Amount of deposit
(iii) Date of deposit
(iv) Date of maturity (date of repayment)
(v) Rate of interest
(vi) Signature of bank officers
The importance of FDR lies in its role as a formal document issued by the bank to acknowledge the deposit of a specified amount for a fixed period. It serves as proof of the deposit and outlines the terms and conditions, including the rate of interest and maturity date. Additionally, it enables the depositor to avail loans on the security of the FDR.
Additional MCQs
1. What is banking?
A. Deposits for lending
B. Loans only
C. Safeguarding valuables
D. Money printing
Answer: A. Deposits for lending
63. What does a centralised database in e-banking do?
A. Stores customer data
B. Issues cheques
C. Dispenses cash
D. Maintains passbooks
Answer: A. Stores customer data
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