30 Important Primary Concepts of Banking Questions and Answers [Notes with PDF]

The first chapter of our banking learning course is “Primary Concepts of Banking”. In this article, we’ll learn the 30 most important primary concepts of banking questions and their answers.

You will be able to prepare for the banking course very well if you carefully read each question and its answers.

By reading this post, you will also be able to quickly prepare for any competitive tests, such as school and college exams, vivas, and job interviews.

So let get started…

Primary Concepts of Banking Questions and Answers:

The following are the 30 important Primary Concepts of Banking Questions and Answers:

Question 01: What is Bank?

Answer: Banks are financial intermediaries that accept deposits, make loans, and offer a variety of banking services.

Banks collect money as deposits from various individuals and organizations at low interest or profit and then lend it to various individuals and organizations at a higher interest or profit.

His income is the difference in interest or profit. After subtracting expenses from this income, the profit is left.

Banks now do more than collect deposits and lend money. Proceeds from the receipt of a service charge for account management and commissions for the issuance of credentials, pay-orders, bank drafts, and other items, as well as debit and credit cards and the provision of online banking services.

Question 02: What is Banking?

Answer: In the general sense, all the work of a bank is called banking.

Banking is the act of accepting money from the public in the form of current, savings, and term deposits, accepting and repaying checks, issuing loans, discounting bills, and assisting customers with money transfers.

Accepting deposits or money from the public for lending or investing, repayable on demand or otherwise, and withdrawable by cheque, draft, order, or other means is referred to as banking.

Question 03: Who is Banker?

Answer: A banker is a person or organization engaged in banking business activities. Therefore, the person or organization engaged in the banking business or the person in charge of running the bank on behalf of the owner or organization is called a banker.

Banks around the world are being run primarily as a company organization. Therefore, all the company officers and employees, including its chairman, managing director, director, manager, and all the officers and employees engaged in the management, are called bankers.

Question 04: What is the Brief History of Evaluation of Bank?

Answer: The brief history or evolution of the bank is as follows:

  1. Currency circulation and banking (Feeling the need for financial security provisions)
  2. Introduction to credit business and banking (Emergence of moneylenders)
  3. Development of civilization and banking (Establishment of Upasalaya Bank, Shanchi Bank, and Credit Bank)
  4. Business development and banking (Introduction to Institutional Banks and Branch Banking System)
  5. Solidarity and banking in the state system (Development of Central Banking System)
  6. Modern era and banks (Development of branches and specialized banking system and use of advanced technology)

Question 05: What are the Features of the Bank?

Answer: The 10 important features of the bank are as follows:

  1. Intermediary Institution
  2. Dealer of money and credit
  3. Nature at a large scale
  4. Financially Solvent
  5. Symbol of safety
  6. Symbol of confidence
  7. Capital formation factory
  8. Prime-mover of economy
  9. Promoting a service
  10. Maintenance of secrecy

Question 06: What are the Functions of a Bank?

Answer: The 15 important functions of a bank are as follows:

  1. Collection of deposit
  2. Payment of money
  3. Formation of capital
  4. Payment of loan
  5. Investment
  6. Creation of medium of exchange
  7. Discounting bill
  8. Maintenance of fund
  9. Transfer of money
  10. Assistance in business
  11. Transaction of foreign currency
  12. Maintenance of valuable assets
  13. Assistance of government
  14. Agency services
  15. Informative services

Question 07: What is the Importance of Bank in the Economic Development of a Country?

Answer: The importance of banks in the economic development of a country is as follows:

  1. Creation of medium of exchange
  2. Collection of savings and formation of capital
  3. Supply of capital and increase of investment
  4. Assist in domestic trades
  5. Assist in international trades
  6. Industrial development
  7. Agricultural development
  8. Employment
  9. Increase of govt. revenue
  10. Handling of foreign exchange

Question 08: What is the classification of a Bank?

Answer: The classification of a bank is as follows:

Based on ownership:

  1. State-owned bank
  2. Private ownership bank
  3. Govt and Private Joint Ownership Bank
  4. Autonomous Bank

Based on function:

  1. Central Bank
  2. Commercial Bank
  3. Specialized Bank:
  • Agricultural Bank
  • Industrial Bank
  • Savings or deposit bank
  • Investment Bank
  • Mixed Bank
  • Co-operative bank
  • Exchange Bank
  • Merchant Bank
  • Import-Export Bank
  • Small and Cottage industries bank
  • Employment bank
  • Housing Bank
  • Consumer Bank
  • Transportation Bank
  • Mortgage Bank

4. Other banks

  • Indigenous bank
  • Regional bank
  • Community development bank
  • International bank

Based on organization structure:

  1. Unit Bank
  2. Branch bank
  3. Chain bank
  4. Group Bank

Based on the basis of scheduling:

  1. Scheduled bank
  2. Non-scheduled bank

Based on customer service:

  1. Wholesale bank
  2. Retail bank

Question 09: What is a Unit Bank?

Answer: A unit bank refers to a banking system where a unit bank maintains its independent entity and conducts banking business in a specific area through a single office without any branch office.

The main feature of the unit bank is there is only one central office. There is no branch office. The central office completes all the work of the bank.

All employees work in the same office. It is here that managers make decisions on various issues and issue orders.

The functions of a unit bank are limited to a specific area. Because of this, it is called “local banking.”

We can observe such single banks in all cities of the United States, large and small. These conduct banking activities independently in their respective areas.

Question 10: What are the 6 Important Features of a Unit Bank or Unit Banking?

Answer: The 6 important features of a unit bank or unit banking are as follows:

  1. Centralized Management
  2. Nonexistence of branch office
  3. Limited area
  4. Limited functions
  5. Centralization of in decision making
  6. Small scale organization

Question 11: What are the Advantages of a Unit Bank or Unit Banking?

Answer: The 7 important benefits or advantages of a unit bank or unit banking are as follows:

  1. Expert Management
  2. Prompt decision making
  3. Achieving economy
  4. Employer –employee direct relationship
  5. The warm relationship between banker and client
  6. Centralization of attention
  7. Meeting regional demand

Question 12: What are the Limitations of a Unit Bank or Unit Banking?

Answer: The 7 important disadvantages or limitations of a unit bank or unit banking are as follows:

  1. Difficulty in the transfer of money
  2. Unable to form large capital
  3. Lack of efficient manager
  4. The problem in distribution of risk
  5. Lack of dynamism in capital
  6. Liquidity problem
  7. Lack of motivation for the employees

Question 13: What is Branch Bank or Branch Banking?

Answer: Branch banking is a banking system in which multiple branches are connected to a single central office.

 In other words, a branch bank is a bank that operates multiple branches of the same name throughout the country and abroad under the control of a central office and conducts banking business.

It is also known as the British banking system because such banks originated in the United Kingdom.

Question 14: What are the Features of a Branch Bank or Branch banking?

Answer: The 5 important features of a branch bank or branch banking are as follows:

  1. Existence of branch office
  2. A good relationship with the central bank
  3. Controlled by head office
  4. Central personnel Administration
  5. Large Scale Organization

Question 15: What are the Advantages of a Branch Bank or Branch Banking?

Answer: The 8 important advantages of a branch bank or branch banking are as follows:

  1. Large scale organization
  2. Formation of huge capital
  3. Dynamism in capital
  4. Scope of risk distribution
  5. Advantages of liquidity
  6. Efficient Management
  7. Advantages of transfer of money
  8. Publicity

Question 16: What are the Limitations of a Branch Bank or Branch banking?

Answer: The top 5 disadvantages or limitations of a branch bank or branch banking are as follows:

  1. Problem in management
  2. Delay in decision making
  3. Monopolistic tendency
  4. Excess overhead expenditure
  5. Absence of direct relationship

Question 17: What is an Investment Bank?

Answer: The Investment Bank is a specialized bank whose mission is to provide long-term capital to the country’s business establishments.

Aside from lending, such banks play an important role in establishing new businesses or industries.

As a result, in addition to being responsible for the sale of shares, he can also buy many shares if necessary.

Question 18: What is an Agricultural Bank?

Answer: The Agricultural Bank is a bank established to finance farmers to develop the country’s agricultural sector.

It is a specialized financial institution that provides capital to farmers to purchase agricultural machinery, fertilizers, and seeds, among other things.

Question 19: What is a Merchant Bank?

Answer: A merchant bank is a financial institution that combines exchange and investment banking.

They issue letters of credit on behalf of customers, recognize bills raised by exporters, and pay bills in international trade.

Such banks purchase goods or equipment from abroad and supply them through rental or installment purchase systems.

These types of banks provide long-term loans, invest in joint ventures, and act as creditors.

Question 20: What is a Consumer Bank?

Answer: A consumer bank is a specialized bank set up to assist the consumer in purchasing essential goods.

Such banks issue credit cards for the convenience of the general public. Through which products can be purchased easily.

In addition, this type of bank provides various consumer goods such as refrigerators, Televisions, cars, and other items on an installment basis.

Question 21: What is a Chain Bank?

Answer: A chain bank is a system in which several banks of the same class maintain their independent entities and conduct banking activities through negotiation and cooperation.

Some similar banks are run under the same family, individuals, or like-minded individuals in this system.

Question 22: What is a Group Bank or Banking?

Answer: Group banking is a system in which a financial institution forms several small banks of the same type or takes control of them by purchasing a majority stake in multiple banks and conducts integrated banking activities.

 In this banking system, the regulatory body is called the holding company. Those under its control are called subsidiary companies.

Question 23: Why is the Bank Called the Driving Force of the Economy?

Answer: Banks are the driving force of a country’s economy. An institution is a bank that collects deposits, gives loans, and provides various banking facilities, including creating a medium of exchange. The bank is responsible for the circulation of notes and coins for the country.

It is impossible to conduct industrial, commercial, or economic activities without the assistance of a bank, just as it is impossible to conduct safe money transactions without a bank.

That is why the bank is referred to as the economy’s driving force.

Question 24: Why is the Bank Called the Holder of Borrowed Money?

Answer: A business is a bank that collects deposits from people through various accounts, gives loans, and provides various banking facilities to the customers, including creating an exchange medium.

A bank’s main function is to collect deposits or loans from depositors at a low profit and lend that money to various individuals and institutions at a high profit.

Borrowing money and lending money is the bank’s main function, so the bank is called a money and loan trader or a holder of borrowed money.

Question 25: Why is the Bank Called Financial Intermediary?

Answer: As a financial intermediary, the Bank collects deposits from customers, makes loans, and offers customers various banking services, including creating various exchange mediums.

Banks do not conduct business using their funds. It mainly earns income by using low-profit deposits from the people.

The Bank is the financial intermediary because it conducts its financial business activities between the depositor and the user.

Question 26: Why is Bank Called the Lifeblood of the Modern Economy?

Answer: A bank is a financial intermediary that accepts deposits, lends money, and engages in other banking activities.

Banks are at the heart of any country’s economic activity. The Bank is in charge of the country’s currency circulation (notes and coins).

Banks create various forms of currency for the country. Apart from that, the Bank is at the center of all daily economic activities, including depositing and lending money.

That is why banks are referred to as the lifeblood of the modern economy.

Question 27: Why is the Bank Symbol of Trust?

Answer: A bank is a financial institution that accepts deposits, lends money, and offers various banking services, including the creation of a medium of exchange.

Collecting deposits from a bank is contingent on the Bank’s safety. A customer will deposit his hard-earned assets in an account to be assured of receiving his money back.

Because the Bank operates by holding that asset or providing security, it symbolizes trust or security.

Question 28: How does the Bank Create a Medium of Exchange?

Answer: A medium of exchange is defined as government notes and currencies used to buy goods and services and pay for transactions and money created by banks.

On behalf of the government, the central bank issues banknotes all over the world. Which is widely accepted as a medium of exchange.

Customers accept pay orders, bank drafts, letters of credit, and bank assurance certificates issued by commercial banks in many cases.

Bank-issued ATM cards, such as debit and credit cards, are now the most common form of payment. Banks create a medium of exchange in this way.

Question 29: Why is Branch Banking System More Popular?

Answer: Branch banking refers to a banking system in which banking is conducted through the establishment of branches at home and abroad under the supervision of a head office.

Branch Bank is a significant financial institution. It has a strong organizational structure, with branches in various locations that are well-managed.

Having more financial capacity allows you to provide the best possible service to your customers. Such banks are capable of capital formation, liquidity, and online banking, among other things.

As a result, the branch banking system is more widely used and more popular.

Question 30: Why is Transaction in Scheduled Bank Better?

Answer: A scheduled bank follows the Central Bank’s instructions and is included on its list of financial institutions.

A bank must have a minimum financial capacity to be listed by the Central Bank. Every work of this Bank needs to follow the instructions of the Central Bank.

If this Bank has any problem, the central Bank comes and stands by. The central bank always monitors the interests of the depositors. So transactions in Scheduled banks are better.

I hope that by the end of this post, you have a good understanding of the “Primary Concepts of Banking” chapter. If you have any doubts or questions, don’t hesitate to contact us or leave a comment so that we can respond soon.

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