Commercial Banking

2nd Year Commerce

Multiple Choice Questions (MCQs)

Choose the correct answer for each from the given options.

1) A notice must be served in case of dishonor of:

a) Promissory note
b) Cross cheque
c) Bill of exchange
d) Cheque
2) When an endorser signs his or her name only on the instrument then this is known as:
a) Restricted Endorsement
b) Conditional Endorsement
c) Blank Endorsement
d) Special endorsement
3) When two parallel transverse lines are put across the cheque with or without “& Co” between
them, these parallel lines are called:
a) Special crossing
b) Not negotiable crossing
c) Plain crossing
d) All of these
4) Which of the following is not the principle of employment of bank funds:
a) Liquidity
b) Safety
c) Instability
d) Profitability
5) SBP was established on :
a) 2nd September 1948
b) 1st July 1948
c) 8th November 1947
d) 1st July 1949
6) Bank acts as the custodian of its customers’:
a) Salaries
b) Property
c) Valuables
d) Jewelry
7) Bank overdraft is allowed by bank for:
a) A fixed limit
b) Unlimited time
 c) A certain limit
d) All of the above
8) Which of the following is not a credit instrument:
a) Promissory note
b) Cheque
c) Shares
d) Bill of exchange
9) Current account holder can withdraw his money from the bank:
a) After one year
b) During any banking hours
c) After every thirty days
d) All of these
10) The person who writes the cheque is known as:
a) Creditor
b) Drawee
c) Drawer
d) None of these
11) The party to whom the bill is endorsed is known as:
a) Borrower
b) Payee
c) Endorser
d) Endorsee
12) The Letter of credit (L/C) states:
a) The purpose of the bill
b) The amount
c) Period
d) All of the above
13) The foreign Bank Draft is always payable on:
a) The bank’s counter
b) Demand
c) After one week of its issue
d) Specified date
14) The state of having assets or investments that can easily be converted into cash without
incurring substantial cost is called:
a) Profitability
b) Diversity of risk
c) Liquidity
d) Prudence
15) Exchange pegging refers to:
a) Keep up exchange rate
b) Keep up budgetary deficit
c) Keep up budgetary surplus
d) None of the above
16) Open market operation refers to
a) Marketing activities
b) Buying and selling government securities
c) Receiving deposits from markets
d) Selling treasury bills
17) High interest rates might ________ purchasing a house or car but at the same time high
interest rates might ________ saving.
a) Discourage; encourage
b) Discourage; discourage
c) Encourage; encourage
d) Encourage; discourage
18) An increase in interest rates might ________ saving because more can be earned in interest
income.
a) Encourage
b) Discourage
c) Disallow
d) Invalidate
Answer: A

19) A share of common stock is a claim on a corporation’s

a) debt.
b) liabilities.
c) expenses.
d) earnings and assets.
Answer: D

20) Channeling funds from individuals with surplus funds to those desiring funds when the saver
does not purchase the borrowerʹs security is known as
a) barter.
b) redistribution.
c) financial intermediation.
d) taxation.
Answer: C

21) A financial crisis is

a) not possible in the modern financial environment.
b) a major disruption in the financial markets.
 c) a feature of developing economies only.
d) typically followed by an economic boom.
Answer: B
22) Banks are important to the study of money and the economy because they
a) channel funds from investors to savers.
b) have been a source of rapid financial innovation.
c) are the only important financial institution in the U.S. economy.
d) create inflation.
Answer: B

23) Banks, savings and loan associations, mutual savings banks, and credit unions
a) are no longer important players in financial intermediation.
b) since deregulation now provide services only to small depositors.
c) have been adept at innovating in response to changes in the regulatory environment.
d) produce nothing of value and are therefore a drain on societyʹs resources.
Answer: C

24) Financial institutions that accept deposits and make loans are called ________.
a) exchanges
b) banks
c) over-the-counter markets
d) finance companies
Answer: B

25) Which of the following is not a financial institution?

a) a life insurance company
b) a pension fund
c) a credit union
d) a business college
Answer: D

26) The delivery of financial services electronically is called ________.

a) e-business
b) e-commerce
c) e-finance
d) e-possible
Answer: C

27) Money is defined as

 a) bills of exchange.
b) anything that is generally accepted in payment for goods and services or in the
repayment of debt.
c) a risk-free repository of spending power.
d) the unrecognized liability of governments.
Answer: B

28) The management of money and interest rates is called ________ policy and is conducted by
a nationʹs ________ bank.
a) monetary; superior
b) fiscal; superior
c) fiscal; central
d) monetary; central
Answer: D

29) The organization responsible for the conduct of monetary policy in Pakistan is the
a) Comptroller of the Currency.
b) Treasury Department.
c) State Bank of Pakistan.
d) Bureau of Monetary Affairs.
Answer: C

30) A budget ________ occurs when government expenditures exceed tax revenues for a
particular time period.
a) deficit
b) surplus
c) surge
d) surfeit
Answer: A

31) The price of one countryʹs currency in terms of another countryʹs currency is called the
a) exchange rate.
b) interest rate.
c) Dow Jones industrial average.
d) prime rate.
Answer: A

32) The market where one currency is converted into another currency is called the ________
market.
 a) stock
b) bond
c) derivatives
d) foreign exchange
Answer: D

33) Everything else held constant, a decrease in the value of the rupee relative to all foreign
currencies means that the price of foreign goods purchased by Pakistanis
a) increases
b) decreases.
c) remains unchanged.
d) either increases, decreases, or remains unchanged.
Answer: A

34) Every financial market has the following characteristic:

a) It determines the level of interest rates.
b) It allows common stock to be traded.
c) It allows loans to be made.
d) It channels funds from lenders-savers to borrowers-spenders.
Answer: D

35) If the maturity of a debt instrument is less than one year, the debt is called ________.
a) short-term
b) intermediate-term
c) long-term
d) prima-term
Answer: A

36) When I purchase ________, I own a portion of a firm and have the right to vote on issues
important to the firm and to elect its directors.
a) bonds
b) bills
c) notes
d) stock
Answer: D

37) When an investment bank ________ securities, it guarantees a price for a corporationʹs
securities and then sells them to the public.
a) underwrites
b) undertakes
 c) overwrites
d) overtakes
Answer: A

38) A liquid asset is

a) an asset that can easily and quickly be sold to raise cash.
b) a share of an ocean resort.
c) difficult to resell.
d) always sold in an over-the-counter market.
Answer: A

39) A short-term debt instrument issued by well-known corporations is called

a) commercial paper.
b) corporate bonds.
c) municipal bonds.
d) commercial mortgages.
Answer: A

40) ________ are short-term loans in which Treasury bills serve as collateral.
a) Repurchase agreements
b) Negotiable certificates of deposit
c) Federal funds
d) Government agency securities
Answer: A

41) Collateral is ________ the lender receives if the borrower does not pay back the loan.
a) a liability
b) an asset
c) a present
d) an offering
Answer: B

42) Federal funds are

a) funds raised by the federal government in the bond market.
b) loans made by the Federal Reserve System to banks.
c) loans made by banks to the Federal Reserve System.
d) loans made by banks to each other.
 Answer: D

43) Bonds issued by state and local governments are called ________ bonds.
a) corporate
b) Treasury
c) municipal
d) commercial
Answer: C

44) Equity and debt instruments with maturities greater than one year are called ________
market instruments.
a) capital
b) money
c) federal
d) benchmark
Answer: A

45) The concept of diversification is captured by the statement

a) donʹt look a gift horse in the mouth.
b) donʹt put all your eggs in one basket.
c) it never rains, but it pours.
d) make hay while the sun shines.
Answer: B

46) Financial institutions that accept deposits and make loans are called ________ institutions.
a) investment
b) contractual savings
c) depository
d) underwriting
Answer: C

47) The concept of ________ is based on the common-sense notion that a dollar paid to you in
the future is less valuable to you than a dollar today.
a) present value
b) future value
c) interest
d) deflation
Answer: A