Q.1 Which of the following acts primarily regulates banking institutions in most countries?
Companies Act
Banking Regulation Act
Consumer Protection Act
Securities Act
Explanation - The Banking Regulation Act is designed to regulate banking operations, capital requirements, and compliance for banks.
Correct answer is: Banking Regulation Act
Q.2 What is the main function of a central bank?
Provide loans to individuals
Regulate monetary policy
Set corporate tax rates
Manage stock exchanges
Explanation - Central banks control money supply, interest rates, and ensure financial stability in the economy.
Correct answer is: Regulate monetary policy
Q.3 Which law primarily governs negotiable instruments like cheques and promissory notes?
Contract Act
Negotiable Instruments Act
Companies Act
Banking Regulation Act
Explanation - The Negotiable Instruments Act provides legal recognition and rules for instruments such as cheques, bills of exchange, and promissory notes.
Correct answer is: Negotiable Instruments Act
Q.4 In banking, what does 'KYC' stand for?
Know Your Customer
Keep Your Capital
Know Your Credit
Key Yield Calculation
Explanation - KYC procedures are mandatory to verify the identity of customers to prevent money laundering and fraud.
Correct answer is: Know Your Customer
Q.5 Which body typically insures deposits in banks?
Central Bank
Deposit Insurance Corporation
Securities Exchange Commission
Finance Ministry
Explanation - Deposit insurance schemes protect depositors in case a bank fails, ensuring financial security.
Correct answer is: Deposit Insurance Corporation
Q.6 Which law regulates the functioning of stock exchanges and securities in India?
Companies Act
Securities and Exchange Board of India Act
Banking Regulation Act
Income Tax Act
Explanation - The SEBI Act establishes SEBI as the regulatory authority for securities and stock market transactions.
Correct answer is: Securities and Exchange Board of India Act
Q.7 Which of the following is considered a 'systemically important bank'?
A local cooperative bank
A small regional bank
A bank whose failure can disrupt the entire financial system
A microfinance institution
Explanation - Systemically important banks are large or interconnected institutions whose failure poses risk to the financial system.
Correct answer is: A bank whose failure can disrupt the entire financial system
Q.8 What is the primary purpose of anti-money laundering (AML) laws?
To increase bank profits
To prevent illegal money flow
To regulate loan interest rates
To standardize financial reporting
Explanation - AML laws are designed to detect and prevent money laundering and terrorist financing activities.
Correct answer is: To prevent illegal money flow
Q.9 What is a 'non-performing asset' (NPA) in banking terms?
An asset that increases in value
A loan on which interest or principal is overdue
Cash reserves in the bank
Government bonds held by the bank
Explanation - NPAs indicate loans where borrowers have stopped paying interest or principal, affecting bank financial health.
Correct answer is: A loan on which interest or principal is overdue
Q.10 Which of the following is NOT a function of commercial banks?
Accepting deposits
Providing loans
Printing currency
Investing in government securities
Explanation - Only the central bank has the authority to print currency; commercial banks provide financial services like loans and deposits.
Correct answer is: Printing currency
Q.11 What is the role of 'Basel Accords' in banking?
Regulate retail banking fees
Set international banking standards for risk management
Monitor stock market trends
Determine tax rates on banks
Explanation - The Basel Accords provide frameworks for capital adequacy, risk management, and financial stability in banks worldwide.
Correct answer is: Set international banking standards for risk management
Q.12 Which type of banking allows operations entirely through digital platforms without physical branches?
Retail banking
Digital banking
Central banking
Cooperative banking
Explanation - Digital banks operate online-only, offering services such as payments, loans, and account management electronically.
Correct answer is: Digital banking
Q.13 Which of the following is a key objective of the Financial Stability and Development Council (FSDC) in India?
Regulate interest rates
Coordinate financial regulators
Print currency
Issue government bonds
Explanation - FSDC monitors and strengthens financial stability by coordinating policies across various financial regulators in India.
Correct answer is: Coordinate financial regulators
Q.14 Which of these instruments is considered a derivative in financial markets?
Shares of a company
Government bond
Futures contract
Bank savings account
Explanation - Derivatives derive their value from underlying assets like stocks, bonds, or commodities. Futures are common derivative instruments.
Correct answer is: Futures contract
Q.15 The 'Prudential Norms' in banking refer to guidelines for:
Marketing bank products
Maintaining adequate capital and controlling NPAs
Opening new bank branches
Setting customer interest rates
Explanation - Prudential norms ensure banks operate safely by maintaining capital adequacy, provisioning for NPAs, and controlling financial risks.
Correct answer is: Maintaining adequate capital and controlling NPAs
Q.16 Which law protects consumers against unfair banking practices?
Consumer Protection Act
Banking Regulation Act
Companies Act
Negotiable Instruments Act
Explanation - The Consumer Protection Act safeguards customers from unfair practices, including in banking and financial services.
Correct answer is: Consumer Protection Act
Q.17 What is the primary purpose of 'priority sector lending' by banks?
Fund luxury projects
Support agriculture, small enterprises, and underserved sectors
Maximize bank profits
Regulate foreign exchange
Explanation - Priority sector lending mandates banks to provide credit to sectors that are critical for inclusive economic growth.
Correct answer is: Support agriculture, small enterprises, and underserved sectors
Q.18 Which of the following is considered a 'shadow banking' activity?
Commercial bank deposits
Investment by non-bank financial institutions without traditional banking regulations
Government bond issuance
Central bank monetary policy
Explanation - Shadow banking involves credit intermediation by entities outside regular banking regulations, posing systemic risks.
Correct answer is: Investment by non-bank financial institutions without traditional banking regulations
Q.19 In financial law, 'securitization' refers to:
Banks providing cash to customers
Converting loans into marketable securities
Government issuing coins
Buying physical assets directly
Explanation - Securitization transforms illiquid assets like loans into tradable securities to improve liquidity and risk management.
Correct answer is: Converting loans into marketable securities
Q.20 What is the purpose of the Financial Intelligence Unit (FIU) in India?
Regulate stock exchanges
Collect and analyze financial transactions to prevent money laundering
Control interest rates
Issue currency notes
Explanation - FIU India monitors suspicious financial transactions to detect and prevent money laundering and terrorist financing.
Correct answer is: Collect and analyze financial transactions to prevent money laundering
Q.21 Which type of bank primarily deals with international trade financing?
Retail bank
Investment bank
Exim bank
Cooperative bank
Explanation - Export-Import (Exim) banks specialize in financing and promoting foreign trade and exports.
Correct answer is: Exim bank
Q.22 Which regulation requires banks to maintain a certain percentage of their deposits as reserves with the central bank?
Liquidity Coverage Ratio
Cash Reserve Ratio
Priority Sector Lending
Basel III Norms
Explanation - The Cash Reserve Ratio mandates banks to deposit a fixed portion of their net demand and time liabilities with the central bank to ensure liquidity.
Correct answer is: Cash Reserve Ratio
Q.23 Which of the following is a core principle of banking compliance?
Maximizing short-term profits
Following laws and regulations to prevent fraud
Minimizing customer engagement
Avoiding technology adoption
Explanation - Banking compliance ensures all operations adhere to laws, regulations, and ethical standards to maintain trust and prevent financial crimes.
Correct answer is: Following laws and regulations to prevent fraud
Q.24 In banking law, what is 'letter of credit' (LC) primarily used for?
Bank savings accounts
Guaranteeing payments in international trade
Depositing cash in a bank
Issuing government bonds
Explanation - A letter of credit ensures that a bank will pay the seller on behalf of the buyer once the required documents are submitted, facilitating secure trade.
Correct answer is: Guaranteeing payments in international trade
Q.25 Which of the following is considered an emerging field in banking law?
Digital currencies and crypto regulation
Cheque clearing laws
Cash withdrawal regulations
Deposit insurance norms
Explanation - Emerging areas like crypto, blockchain, and fintech are reshaping banking regulations globally, requiring specialized legal frameworks.
Correct answer is: Digital currencies and crypto regulation