Banking & Financial Awareness Mixed Quiz: Set 33

The correct answer is C. The Merchant Discount Rate (MDR) is the fee a bank charges a merchant for processing payments the merchant receives from customers by card.

When a customer pays with a debit or credit card, the merchant does not receive the full bill amount: a small percentage is deducted as MDR. It is usually shared among the merchant's bank (the acquirer), the card-issuing bank and the card network that routes the transaction. It is expressed as a percentage of the transaction value. The RBI regulates MDR on debit cards, and the government has at times waived or absorbed it, for example for RuPay debit cards and UPI, to push digital payments.

A is wrong: MDR is a charge paid by the merchant, not an incentive paid to the merchant.

B is wrong: money returned to customers for card use is cashback or a reward, not MDR.

D is wrong: a government incentive to merchants is a subsidy, while MDR is a bank fee.

Exam tip: MDR = paid by the merchant to the acquiring bank per card transaction, as a percentage of the bill.

The correct answer is B, Three. The PCA framework arranges breaches into three risk thresholds, each more serious than the last, and attaches mandatory corrective actions to each. Risk Threshold 1 restricts dividend distribution and requires the owners to bring in capital. Risk Threshold 2 adds curbs on branch expansion in India and abroad. Risk Threshold 3 adds limits on capital expenditure, leaving out technology upgrades within board-approved limits.

Option A, two, understates the structure. Option C, four, is a tempting choice because candidates confuse the three thresholds with the four quarterly results needed for exit from PCA. Option D, five, is the number of buckets in the D-SIB framework, not the number of PCA thresholds, so it is the standard cross-topic trap. Keep the pair in mind: five buckets under D-SIB, three thresholds under PCA.

The correct answer is B, UCP 600. The Uniform Customs and Practice for Documentary Credits is the International Chamber of Commerce code that banks worldwide incorporate into their letters of credit. Its current version is ICC Publication 600, in force from 1 July 2007, with thirty-nine articles covering issuance, examination of documents, discrepancies and the duties of each bank in the chain.

Option A, Incoterms 2020, is also an ICC publication, but it allocates cost, risk and the duty to insure between seller and buyer in a sale contract; it says nothing about how a bank must examine documents. Option C, URDG 758, is the ICC's set of uniform rules for demand guarantees, which applies to bank guarantees rather than to documentary credits. Option D, Basel III, is the Basel Committee's framework on bank capital, leverage and liquidity, a prudential standard with no role in trade documentation. Remember the pairing: credits under UCP 600, guarantees under URDG 758, delivery terms under Incoterms.

The correct answer is C, ten working days. A shadow reversal is a provisional credit of the disputed amount into the customer's account. The circular requires the bank to make it within ten working days of the customer's notification, and specifically says the bank may not wait for any insurance claim of its own to be settled first. The idea is that the customer should not be out of pocket while the investigation runs.

Option A, three working days, is the reporting window for zero liability, not a bank deadline. Option B, seven working days, is the end of the limited liability window for the customer. Option D, thirty working days, is close to the thirty day period after which an unresolved complaint can be taken to the Reserve Bank's ombudsman, but it is not the shadow reversal deadline. Keep three timelines apart: three days and seven days for the customer, ten working days for the shadow reversal and ninety days for final resolution.

The correct answer is B, Society for Worldwide Interbank Financial Telecommunication. The word Society is the key, because SWIFT is a cooperative society owned by its member financial institutions rather than a company or a public authority. It was founded in 1973 to replace the insecure and unstandardised telex traffic between banks and went live in 1977.

Options A, C and D are invented expansions built around the same letters, and each is wrong on the most important word. None of them contains Society, so a candidate who remembers only that one word can eliminate all three at once. Two further points usually accompany this question: the headquarters are at La Hulpe near Brussels in Belgium, and SWIFT is a messaging network only, so it neither holds accounts nor settles payments. The actual movement of value happens through the accounts banks hold with each other or through a central bank's settlement system.

The correct answer is D, CARE Ratings. CARE is a credit rating agency registered with SEBI, which rates debt instruments and the companies that issue them; it does not keep the credit histories of individuals. Four credit information companies operate in India under the Act of 2005, registered with the Reserve Bank: TransUnion CIBIL, Equifax Credit Information Services, Experian Credit Information Company of India and CRIF High Mark. Option A is wrong as an answer because CIBIL, incorporated in August 2000, is in fact the oldest of the four. Option B is wrong because Equifax is one of the four, the Indian arm of a global bureau. Option C is wrong because CRIF High Mark is the fourth of them and is known for its coverage of microfinance borrowers. The distinction being tested is instrument ratings against individual credit records.

The correct answer is B, the applicant or opener. The applicant is the importer or buyer, who approaches its own bank, asks it to issue a credit in favour of the overseas seller, agrees the terms and documents that will be required, and pays the issuing commission. The applicant also undertakes to reimburse the issuing bank whenever the bank pays a compliant presentation.

Option A, the beneficiary, is the opposite side of the transaction: the exporter in whose favour the credit is opened and who receives the money on presenting the documents. Option C, the advising bank, is a bank in the beneficiary's country that verifies the apparent authenticity of the credit and passes it on; it takes on no payment obligation of its own unless it also confirms the credit. Option D, the negotiating bank, examines the documents and pays or advances money to the beneficiary before the issuing bank reimburses it. A simple way to fix the pair: the applicant applies and pays, the beneficiary benefits.

The correct answer is C, which is the incorrect statement. The retail digital rupee earns no interest, and this is a deliberate design decision: an interest-bearing CBDC would pull money out of bank deposits and shrink the funds banks have to lend, so the Reserve Bank kept it non-interest bearing like cash. Option A is correct and therefore not the answer, because e₹-R is a token-based bearer instrument held in a wallet offered by a bank. Option B is correct because the retail digital rupee is issued in the same denominations in which coins and bank notes are now issued. Option D is correct because both pilots follow the intermediated model, in which the Reserve Bank issues the digital rupee and banks distribute it, open the wallets and handle customer service, just as they distribute cash.

The correct answer is B, Belgium. SWIFT is headquartered at La Hulpe, in the outskirts of Brussels, and it is therefore incorporated under Belgian law and supervised by a committee of central banks with the National Bank of Belgium as the lead overseer. This Belgian location matters in current affairs, because European Union decisions have at times required SWIFT to disconnect banks of particular countries.

Option A, Switzerland, is the most tempting wrong answer, because the first letter of SWIFT suggests it and because Switzerland hosts the Bank for International Settlements at Basel and many international bodies at Geneva. Option C is wrong, though the network has important operating centres in the United States and the Netherlands. Option D is wrong; London is a great financial centre but not SWIFT's seat. Remember the pairing: SWIFT in Belgium, the Bank for International Settlements in Switzerland.

The correct answer is C, ten lakh rupees in a month. Under the Prevention of Money-laundering Maintenance of Records Rules of 2005, a reporting entity must report all cash transactions of a value of more than ten lakh rupees, or their equivalent in foreign currency, and all series of integrally connected cash transactions that together exceed that amount within a month. The report goes to the Financial Intelligence Unit by the fifteenth day of the following month. Option A is wrong because one lakh rupees is not a reporting threshold under these rules, although banks watch such amounts internally for risk profiling. Option B is wrong because five lakh rupees is the threshold for a cross-border wire transfer report, not a cash transaction report. Option D is wrong because fifty lakh rupees is not a threshold under these rules at all; mixing up these three figures is the usual error in this question.

The correct answer is B, five banking days following the day of presentation. Article 14(b) of UCP 600 gives the issuing bank, a confirming bank and any nominated bank a maximum of five banking days following the day of presentation to determine whether the presentation is complying. The day of presentation itself is not counted, and the period is not shortened or otherwise affected by an expiry date falling inside it.

Option A, three banking days, was the position aspirants often remember from the reasonable-time standard of the earlier UCP 500 practice and is wrong under the current rules. Option C and option D fail twice over: the UCP counts banking days, not calendar days, and neither seven nor fifteen is the figure in Article 14(b). The practical importance of the rule is that a bank which sits on discrepant documents beyond the five banking days loses the right to reject them and must honour the presentation, so the number is worth memorising exactly.

The correct answer is A, the Lead District Manager. The Block Level Bankers' Committee is the lowest forum of the Lead Bank Scheme and exists so that the branches of a block, the block administration and the field level development agencies can settle practical questions of credit flow together. It is chaired by the Lead District Manager, the lead bank's officer for the district, and it is where the block credit plan is put together from the branch level plans. Option B is wrong because the Block Development Officer and other block officials attend as members but do not chair it. Option C is wrong because no branch manager chairs the forum; branch managers of all banks in the block are its members. Option D is wrong because the District Collector chairs the District Consultative Committee and the District Level Review Committee, which are at the district level and not at the block level.

The correct answer is B, it is a messaging network that carries instructions but does not itself transfer funds. SWIFT transmits standardised, secure messages such as an instruction to pay a beneficiary or to issue a letter of credit. The value moves only when the banks involved debit and credit the accounts they maintain with one another, or when a central bank settlement system is used.

Option A is the error the question is designed to catch: SWIFT holds no customer or bank accounts and performs no settlement. Option C is wrong because the International Monetary Fund lends to member countries and surveils their economies; it runs no currency exchange of this kind, and SWIFT is a private cooperative of banks. Option D is wrong because cheque clearing is domestic and is handled in India by the Cheque Truncation System. The distinction between messaging and settlement is the single most examinable idea in this chapter.

The correct answer is D, 2016. The bank opened for business in January 2016 at Beijing, after its articles of agreement had been signed and ratified by the founding members. Option A is wrong because 2013 is the year China proposed the bank, which is the proposal and not the start of operations. Option B is wrong because 2014 is the year the BRICS countries agreed to set up the New Development Bank at the Fortaleza summit, and the year the AIIB memorandum was signed, but not the year it began lending. Option C is wrong because 2015 is the year the New Development Bank began work, which is a neighbouring fact often swapped with this one. Keep 2015 for the NDB and 2016 for the AIIB.

The correct answer is B, irrevocable even without any indication to that effect. Article 3 of UCP 600 states this in so many words, and Article 10 adds that an irrevocable credit can be amended or cancelled only with the agreement of the issuing bank, the confirming bank if any, and the beneficiary. The rule protects the exporter, who has to buy and ship goods on the strength of the credit.

Option A describes the older default under UCP 500, where a credit silent on the point could be revocable, so it is the most tempting distractor and the reason examiners ask the question. Option C is wrong because confirmation is never automatic: a bank adds its confirmation only when the credit asks it to and it agrees. Option D is wrong because a credit is transferable only if the issuing bank expressly states that it is transferable, as Article 38 requires. Learn the three defaults together: irrevocable by default, confirmed only on request, transferable only if so stated.

The correct answer is C, 1993. The Recovery of Debts Due to Banks and Financial Institutions Act, 1993, passed after the Tiwari Committee recommended a special forum for bank dues, created the Debt Recovery Tribunals and the Debt Recovery Appellate Tribunals to decide applications by banks and financial institutions above a prescribed amount and to issue recovery certificates. Option A is wrong because 1949 is the year of the Banking Regulation Act. Option B is wrong because no tribunal for bank recovery was set up in 1985. Option D, 2002, is the year of the SARFAESI Act, and it is the strongest distractor because appeals against action taken under SARFAESI also go to the Debt Recovery Tribunal, but the tribunals themselves were created nine years earlier.

The correct answer is B, the Indian bank's foreign currency account with a bank abroad. Nostro means ours, and the full sense is our account with you. So a dollar account maintained by an Indian bank with a correspondent bank in New York, or a euro account with a bank in Frankfurt, is that Indian bank's nostro account, and it is from such an account that payments to foreign beneficiaries are made.

Option A describes a vostro account, which means your account with us, and it is the mirror image of the right answer; the same account is a nostro to one bank and a vostro to the other, so the label depends on whose books you are reading. Option C describes nothing in this vocabulary, although a resident's foreign exchange needs are met under the Liberalised Remittance Scheme. Option D is simply a current account of the central bank. A linked term is the mirror account, the home-currency record a bank keeps of its own nostro balance for reconciliation.

The correct answer is B, the Indian Contract Act, 1872. Section 126 of that Act defines a contract of guarantee as a contract to perform the promise or discharge the liability of a third person in case of his default, and names the three parties: the surety who gives the guarantee, the principal debtor whose default is covered, and the creditor to whom the guarantee is given. A bank guarantee is simply such a contract with a bank as surety.

Option A, the Negotiable Instruments Act, 1881, deals with promissory notes, bills of exchange and cheques, which are instruments of payment rather than contracts of guarantee. Option C, the SARFAESI Act, 2002, gives banks the power to enforce security interests and recover bad loans without going to court. Option D, FEMA 1999, governs dealings in foreign exchange and cross-border transactions, and a bank needs an authorised dealer licence under it to handle trade business, but the guarantee itself still rests on the Contract Act.

The correct answer is B, a vostro account. Vostro means yours, and from the Indian bank's point of view the account is your account with us. Such accounts are held in Indian rupees, and the foreign bank uses them to make and receive payments in India. In the foreign bank's own books exactly the same account is described as a nostro account.

Option A, nostro, would be correct only from the other side of the relationship, and it is the inversion examiners most often test. Option C, loro, means their account and is used when a bank refers to an account that belongs to some third bank and not to itself. Option D, escrow, is a quite different idea: money held by a neutral party until an agreed condition is fulfilled, common in mergers and in real estate. The related Indian term is the Special Rupee Vostro Account, opened for settling foreign trade in rupees under the arrangement of July 2022.

The correct answer is B, a non-fund based facility creating a contingent liability. On the day a guarantee is issued no money leaves the bank. The bank lends only its name, earns commission as fee income, and records the amount as a contingent liability that will become a real outflow only if the beneficiary invokes the guarantee and the bank has to pay. Letters of credit, co-acceptance of bills and deferred payment guarantees work the same way.

Option A is wrong because a fund-based advance, such as cash credit or an overdraft, puts the bank's money in the customer's hands at once. Option C is wrong for the same reason, and a guarantee is defined by the promise, not by the security taken; a bank may well hold margin money or collateral against it. Option D describes the bank's treasury operations, which are an application of its own funds. Note the exam angle: when the guarantee is invoked and the bank pays, the contingent liability turns into a funded exposure, and an unpaid claim becomes an advance in the bank's books.