1st PUC Business Studies Question Bank Chapter 4 Business Services

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Karnataka 1st PUC Business Studies Question Bank Chapter 4 Business Services

1st PUC Business Studies Business Services Text Book Questions and Answers

Multiple Choice Questions

Question 1.
DTH services are provided by.
(a) Transport companies.
(b) Banks
(c) Cellular companies
(d) None of the above
Answer:
(c) Cellular companies

Question 2.
The benefits of public warehousing includes.
(a) Control
(b) Flexibility
(c) Dealer relationship.
(d) None of the above
Answer:
(b) Flexibility

Question 3.
Which of the following is not a function of insurance?
(a) Risk sharing
(b) Assist in capital formation
(c) Lending of funds
(d) None of the” above
Answer:
(c) Lending of funds

Question 4.
Which of the following is not applicable in life insurance contract?
(a) Conditional contract
(b) Unilateral contract
(c) Indemnity contract
(d) None of the above
Answer:
(c) Indemnity contract

Question 5.
CWC stands for _______.
(a) Central Water Commission
(b) Central Warehousing Commission
(c) Central Warehousing Corporation
(d) Central Water Corporation
Answer:
(c) Central Warehousing Corporation

Short Answer Questions

Question 1.
Define services and goods.
Answer:
Services are essentially intangible activities which are separately identifiable provide the satisfaction of wants. We cannot keep it in stock. Their purchase does not rest in the ownership of anything physical. Services involve an interaction to be realized between the service provider and the consumer.

A good is a physical product capable of being delivered to a purchaser and involves the transfer of ownership from the seller to the customer. Goods also refer to commodities or items of all types, except services, involved in trade dr commerce.

Question 2.
What is e-banking? What are the advantages of e-banking?
Answer:
The growth of the Internet and e-commerce is dramatically changing everyday life, with the world wide web and e-commerce transforming the world into a digital global village. The latest wave in information technology is internet banking. It is a part of virtual banking and another delivery channel for customers.

In simple terms, internet banking means any user with a PC and a browser can get connected to the bank’s website to perform any of the virtual banking functions and avail of any of the bank’s services. There is no human operator to respond to. the needs of the customer.

The bank has a centralised database that is web-enabled. All the services that the bank has permitted on the internet are displayed on a menu. Any service can be selected and further interaction is dictated by the nature of service. In this new digital marketplace, banks and financial institutions have started providing services over the internet.

These type of services provided by the banks on the internet, called e-banking, lowers the transaction cost, adds value to the banking relationship, and empowers customers, e-banking is electronic banking or banking using electronic media.

Thus, e-banking is a service provided by many banks, that allows, a customer to conduct banking transactions, such as managing savings, checking accounts, applying for loans or paying bills over the internet using a personal computer, mobile telephone or handheld computer (personal digital assistant) The range of services offered by e-banking are: Electronic Funds Transfer (EFT), Automated Teller Machines (ATM) and Point of Sales (PoS), Electronic Data Interchange (EDI) and Credit Cards Electronic or Digital cash.
The main advantages of E-banking are:

1. The operating cost per unit services is lower for the banks.
2. It offers convenience to customers as they are not required to go to the bank’s premises.
3. There is a very low occurrence of errors.
4. The customer can obtain funds at any time from ATM machines.
5. Credit cards and debit cards enable Customers to obtain discounts from retail outlets.
6. The customer can easily transfer the funds from one place to another place electronically.

Question 3.
Write a note on various telecom services available for enhancing business.
Answer:

Telecom Services
(Telecommunications (Telecom)
Telecommunications is the backbone of every business activity. In absence of world class telecom service business across continents is not possible. New Telecom Policy Framework 1999 and broadband Policy 2004 were developed by the Government of India. Through this frame work the government intends to provide both universal services to all uncovered areas and high-level services for meeting the needs of the country’s economy.

Telecommunications involve the use of electronic devices. The use of a telephone line to connect a remote terminal to a central computer has led to several developments in communication. Today, telephone lines can be used to transmit data across countries and continents while space satellites are used to transmit data across ocean.

Following various telecom services are available for enhancing business.

(1) Fixed Line Services – It includes voice and non-voice messages and data transfer through fibre optic cables laid across the length and breadth of the country. It also provide inter connectivity with other types of telecom services. Fixed line services includes telephone services. Fax services, Internet services etc. In India, now a days fixed line telephone services are provided by both, government as well as private sector. For example BSNL, MTNL, VSNL are the government departments in this field and private companies are Reliance, Tata, Airtel etc.

(2) Celluler Mobile Services – This wireless service makes revolution in the field of business. In this, businessman is always in touch with his business i.e. 24 hours. Today, mobile services provide various services apart from normal conversation, like SMS, MMS, News, stock exchange news and even the internet. In simple words, due cellular mobile services, we are always in touch with our world. Mobile service provider provides direct inter connectivity with any other type of telecom service provider.

(3) Radio Paging Services- It is an affordable means of transmitting information to persons even when they are mobile. It is a one way information broadcasting solution, and has spread its reach far and wide. Radio paging services are available including tone only, numeric only and alpha/numeric paging.

(4) Video Conferencing – It is a system under which people sitting at different places can discuss certain issue of common interest. They can both hear and see one another while talking. Video conferencing offers considerable saving, both in terms of money and time.

(5) Cable Services-Jt provides the media service within the licensed area of operation. It is one way entertainment related service. Offering services through the cable network would be similar to providing fixed services. Cable on demand allow person to see programme of his choice.

(6) VSAT Services – Very small Aperture Terminal (VSAT) is a satellite-based communication service. It provide highly flexible and reliable communication solution. It provides tele-medicine, newspapers- on-line, market rates, tele-education etc.

(7) DTH Services – Direct to Home (DTH) is also a satellite based media services provided by celluler companies. The service provider of DTH services provides a bouquet of multiple channels. It can be viewed on our TV without being dependent on the services provided by the cable network services provider.

(8) Internet – Internet means everything we can access from our computer. Millions of computers around the world can communicate with each other through the internet. It has ability to distribute power of information technology throughout the relam of human activity. It provides global communication. It provide general information about the products and services offered by the organisation. It can be used effectively for business negotiation and for answering queries from buyers and other business associates.

(9) E-mail – E-mail is that system of electronic letter exchanging in which through the medium of the internet the messages are exchanged on the computer. The message can be long as well as short. When the sender types the message on his computer it is automatically displayed on the receiver’s computer and a printout is easily taken Big corporations can use e-mail to communicate between widely dispersed offices in different parts of the world.

Question 4.
Explain briefly the principles of insurance with suitable examples.
Answer:
Insurance is a contract (policy) in which an individual or entity receives financial protection or reimbursement against lo sses from an insurance company. The company pools clients risks to make payments more affordable for the insured.
1. Principle of Utmost Good Faith:
The Principle of Utmost Good Faith, is a very basic and first primary principle of insurance. According to this principle, the insurance contract must be signed by both parties (i.e insurer and insured) in an absolute good faith or belief or trust. The person getting insured must willingly disclose and surrender to the insurer his complete true information regarding the subject matter of insurance.

The insurer’s liability gets void (i.e legally revoked or cancelled) if any facts, about the subject matter of insurance are either omitted, hidden, falsified or presented in a wrong manner by the insured.

2. Principle of Insurable Interest:
The principle of insurable interest states that the person getting insured must have insurable interest in the object of insurance. Aperson has an insurable interest when the physical existence of the insured object gives him some gain but its nonexistence will give him a loss. In simple words, the insured person must suffer some financial loss by the damage of the insured object.

3. Principle of Indemnity:
Indemnity means security, protection, and compensation given against damage, loss or injury. According to the principle of indemnity, an insurance contract is signed only for getting protection against unpredicted financial losses arising due to future uncertainties. The insurance contract is not made for making a profit else its sole purpose is to give compensation in case of any damage or loss. However, in case of life insurance, the principle of indemnity does not apply because the value of human life cannot be measured in terms of money.

4. Principle of Contribution:
Principle of Contribution is a corollary of the principle of indemnity. It applies to all contracts of indemnity if the insured has taken out more than one policy on the same subject matter. According to this principle, the insured can claim the compensation only to the extent of actual loss either from all insurers or from any one insurer. If one insurer pays full compensation then that insurer can claim a proportionate claim from the other insurers.

5. Principle of Subrogation:
Subrogation means substituting one creditor for another. The principle of Subrogation is an extension and another corollary of the principle of indemnity. It also applies to all contracts of indemnity. According to the principle of subrogation, when the insured is compensated for the losses due to damage to his insured property, then the ownership right of such property shifts to the insurer.

6. Principle of Loss Minimization:
According to the Principle of Loss Minimization, the insured must always try his level best to minimize the loss of his insured property, in case of uncertain events like a fire outbreak or blast, etc. The insured must take all possible measures and necessary steps to control and reduce the losses in such a scenario.

The insured must not neglect and behave irresponsibly during such events just because the property is insured. Hence it is the responsibility of the insured to protect his insured property and avoid further losses.

7. Principle of Causa Proximo (Nearest Cause):
Principle of Causa Proxima (a Latin phrase), or in simple English words, the Principle of Proximate (i.e Nearest) Cause, means when a loss is caused by more than one causes, the proximate or the nearest or the closest cause should be taken into consideration to decide the liability of the insurer.

The principle states that to find out whether the insurer is liable for the loss or not, the proximate (closest) and not the remote (farthest) must be looked into.

Question 5.
Explain warehousing and its functions.
Answer:
Warehousing was initially viewed as a provision of static unit for keeping and storing goods in a scientific and systematic manner so as to maintain their original quality, value and usefulness but now it is viewed as a logistical service provider of the right quantity, at the right place, in the right time, in the right physical form at the right cost.

The functions of warehousing are discussed as follows:
(a) Consolidation:
In this function, the warehouse receives and consolidates, materials/goods from different production plants and dispatches the same to a particular customer on a single transportation shipment.

(b) Break the bulk:
The warehouse performs the function of dividing the bulk quantity of goods received from the production plants into smaller quantities. These smaller quantities are then transported according to the requirements of clients to their places of business.

(c) Stockpiling:
The next function of warehousing is the seasonal storage of goods to select businesses. Goods or raw materials which are not required immediately for sale or manufacturing are stored in warehouses. They are made available to businesses depending on customers’ demands. Agricultural products which are harvested at specific times with subsequent consumption throughout the year also need to be stored and released in lots.

(d) Value-added services:
Certain value-added services are also provided by the warehouses, such as in transit mixing, packaging and labelling. Goods sometimes need to be opened and repackaged and labelled again at the time of inspection by prospective buyers. Grading according to the quantity and dividing goods into smaller lots is another function.

(e) Price stabilisation:
By adjusting the supply of goods with the demand situation, warehousing performs the function of stabilising prices. Thus, prices are controlled when supply is increasing and demand is slack and vice versa.

(f) Financing:
Warehouse owners advance money to the owners on the security of goods and further supply goods on credit terms to customers.

Long Answer Questions

Question 1.
What are services? Explain their distinct characteristics?
Answer:
Meaning of Service Sector – Production and distribution of goods is facilitated by certain services such as communication, transport, banking, insurance, warehousing, etc. These services are also known as aids to trade or auxiliaries to business.

These services are performed by commercial firms which collectively represent the service sector of the economy. In simple words, service sector includes commercial firms engaged in communication, transport, banking, insurance, warehousing, etc.
Classification of Service facilities-The service facilities which facilitate both industry and trade may be classified under the following heads:

• Banking and finance
• Insurance
• Communication
• Warehousing
• Miscellaneous-transport, packaging, advertising, and sales promotion.

Features or characteristics of Services – There are five basic features or characteristics of services. There are as follows:

(i) Intangibility-Services are intangible i.e. they cannot be touched. They are experiential in nature. One cannot touch entertainment or task the services of professor, one can only experience if. It is, therefore, important for the service providers that they consciously work on creating the desired service so that the customer undergoes a favourable experience.

(ii) Inconsistency – The second important characteristic of service is inconsistency. Since there is no standard tangible product, services have to be performed exclusively each time. Different customers have different demands and expectations. Service providers need to have an opportunity to alter their offer to closely meet the requirements of the customers.

(iii) Inseparability-Service is the simultaneous activity of production and consumption that seem to be inseparable. Service providers may design a substitute for the person by using appropriate technology but the interaction with the customer remains a key feature of services.

(iv) Inventory- Services have little or no tangible components and, therefore, cannot be stored for future use. That is, services are perishable and providers can, at best, store some associated goods but not the service itself. The demand and supply need to be managed as the service has to be performed as and when the customer asks for it.

(v) Involvement – One of the most important characteristics of services is the participation of the customers in the service delivery process. A customer has the opportunity to get the services modified according to specific requirements.

Services can be classified into three broad categories viz., business services, social services, and personal services. Business services are those services which are used by business enterprises for the conduct of their activities. Forex-banking, insurance, transportation, warehousing, and communication services.

Question 2.
Explain the functions of commercial banks with an example of each.
Answer:
Banks perform a variety of functions. Some of them are the basic or primary functions of a bank while others are agency or general utility services in nature.
The important functions are briefly discussed below:
(i) Acceptance of deposits:
Deposits are the basis of the loan operations since banks are both borrowers and lenders of money. As borrowers they pay interest and as lenders they grant loans and get interest. These deposits are generally taken through current account, savings account and fixed deposits.

Current account deposits can be withdrawn to the extent of the balance at any time without any prior notice. Savings accounts are for encouraging savings by individuals. Banks pay rate of interest as decided by RBI on these deposits. Withdrawal from these accounts has some restrictions in relation to the amount as well as number of times in a given period.

Fixed accounts are time deposits with higher rate of interest as compared to the savings accounts. A premature withdrawal is permissible with a percentage of interest being forfeited.

(ii) Lending of funds:
Second major activity of commercial banks is to provide loans and advances out of the money received through deposits. These advances can be made in the form of overdrafts, cash credits, discounting trade bills, term loans, consumer credits and other miscellaneous advances. The funds lent out by banks contribute a great deal to trade, industry, transport and other business activities.

(iii) Cheque facility:
Banks render a very important service to their customers by collecting their cheques drawn on other banks. The cheque is the most developed credit instrument, a unique feature and function of banks for the withdrawal of deposits. It is the most convenient and an inexpensive medium of exchange.

There are two types of cheques mainly (a) bearer cheques, which are encashable immediately at bank counters and (b) crossed cheques which are to be deposited only in the p&yees account.

(iv) Remittance of funds:
Another salient function of commercial banks is of providing the facility of fund transfer from one place to another, on account of the interconnectivity of branches. The transfer of funds is administered by using bank drafts, pay orders or mail transfers, on nominal commission charges.

The bank issues a draft for the amount on its own branches at other places or other banks at those places. The payee can present the draft on the drawee bank at his place and collect the amount.

(v) Allied services:
In addition to above functions, banks also provide allied services such as bill payments, locker facilities, underwriting services. They also perform other services like buying and selling of shares and debentures on instructions and other personal services like payment of insurance premium, collection of dividend etc.

Question 3.
Write a detailed note on various facilities offered by the Indian Postal Department.
Answer:
Postal Services – Postal services in India were started in 1837. The postal department was set up in 1854. Railway Mail Service was introduced in 1907 and the Air Mail Service started in 1911. Postal services are the most popular means of communication, establishing links between business units. The process of modernizing postal services is continuing. Forefficientandcorrecthandlingofmail, Postal Index Number (PIN) system was introduced in 1972. Quick Mail Service (QMS), covering all State Capital was started in 1975. Speed Post Service was introduced in 1986. Important Postal services are as under:

(1) Correspondence – The traditional source of communication is correspondence. We can transmit messages through postcards, Inland letters, envelopes, and programs for overseas communication. Important messages can be sent through registered envelopes. Valuable messages, documents, and even cash and drafts are sent through the insured cover.

Correspondence are written form of formal communication and work as documentary evidence of transmitting and receiving messages. Business deals are arranged through correspondence and businessmen are saved from expensive personal contact.

(2) Telegraph – Telegraph service is one of the oldest government-owned public utility organisation. The government has now added teleprinter, telex, and fax services. This service is fast and reliable. It is a system of sending messages quickly over relatively long distances. A Telegraphic message should be as brief as possible because charged are based on the number of words used in Telegram.

(3) Telephone (Telecom) – Communication through the telephone is superior to the telegram is more is no restriction on a number of words used. Indian Post and telegraph department introduced telephone service in 1881. Telephone services are available within the same city known as local call, between two cities of the same country known as Trunk call and between two cities of different countries known as cable. A telephonic message reaches more quickly than a telegraphic message.

The postal department introduced Subscriber Trunk Dialing (STD) since 1960. This service is now available in more than 800 stations. Indian Tele Communication Department also provides International Subscriber Dialing (ISD) for overseas communication. Videsh Sanchar Nigam Limited (VSNL) was formed on April I, 1986.

It provides external telecommunication services. VSNL operates through satellite link and provides telephone, telex, telegraph, Mobile phones and radio-photo services. Rapid growth of telephone services has no doubt accelerated the pace of our economic development.

Courier Services – The word ‘courier’ means – the messenger carrying a special message. The traditional practice of sending messages is through post offices, spread all over the country. The post and telegraph department is a departmental organisation. It is owned, controlled and managed by the government. Its employment organisation. lt is owned, controlled and managed by the government.

Its employees are government employees, who are supposed to be irresponsible, lethargic and shirkers of work. The fear of loss of the message and delay in the communication of message prompted the emergence of private message carrying services, popularly known as courier services.

Courier services are handled by private individuals or firms. They accept envelopes, parcels and packets from the sender, charge commission and issue receipts signifying that the accepted article will be taken to the addressee. These courier services are available in the cities only.

They operate through network of couriers. They ensure the quick and sure delivery of articles. This is why courier services are preferred in comparison to postal services. These services are very popular and generally availed by big companies, institutions, multinational companies and banks, professionals and higher middle-class people.
No doubt, courier services are rendering significant services in the field of communication but these services are costly and not available in every comer of the country.

(4) Financial facilities – Financial facilities are provided by the Indian post and telegraph department through the post office’s savings schemes like Public Provident Fund, Kisan Vikas Patra and National Saving Certificate and also provide normal retail banking functions of monthly income schemes, recurring deposits, saving account, time deposits and money order facility. It also provide International money transfer through collaboration with Western Union Financial Service. USA, which enables remittance of money from 185 countries to India.

(5) Allied facilities – Postal department also offers allied facilities of the following types:

• Greeting post
• Media Post
• Direct Post for direct advertising
• Passport facilities
• Speed Post
• E-Bill.

Question 4.
Describe various types of insurance and examine the nature of risks protected by each type of insurance.
Answer:
Insurance may be classified as follows:
1. Life Insurance:
A life insurance policy protects against the uncertainty of life though its scope has now widened to suit the various insurance needs of an individual like disability insurance, health / medical insurance, annuity insurance and life insurance proper insurance may be defined as a contract in which the insurer in consideration of a certain premium, agrees to pay to the assured, or to the person for whose benefit the policy is taken, the assured sum of money, on the happening of a, specified event contingent on the human life or at the expiry of certain period. There are various type of life insurance policies like,

• Whole Life Policy
• Endowment Life Assurance Policy
• Joint Life Policy
• Annuity Policy
• Children’s Endowment Policy

2. Fire Insurance:
Fire insurance is a contract whereby the insurer, in consideration of the premium paid, undertakes to make good any loss or damage caused by fire during a specified period upto the amount specified in the policy.

Normally, the fire insurance policy is for a period of one year after which it is to be renewed from time to time. The premium may be paid either in lump sum or installments. A claim for loss by fire must satisfy the two following conditions:

• There must be actual loss and
• Fire must be accidental and nonintentional.

The risk covered by a fire insurance contract is the loss resulting from fire or some other cause, and which is the proximate cause of the loss. If overheating without ignition causes damage, it will not be regarded as a fire loss within the meaning of fire insurance and the loss will not be recoverable from the insurer.

Question 5.
Explain in detail the warehousing services.
Answer:
Warehousing was initially viewed as a provision of static unit for keeping and storing goods in a scientific and systematic manner so as to maintain their original quality, value and usefulness but now it is viewed as a logistical service provider of the right quantity, at the right place, in the right time, in the right physical form at the right cost.

The functions of warehousing are discussed as follows:
(a) Consolidation:
In this function the warehouse receives and consolidates, materials/goods from different production plants and dispatches the same to a particular customer on a single transportation shipment.

(b) Break the bulk:
The warehouse performs the function of dividing the bulk quantity of goods received from the production plants into smaller quantities. These smaller quantities are then transported according to the requirements of clients to their places of business.

(c) Stockpiling:
The next function of warehousing is the seasonal storage of goods to select businesses. Goods or raw materials which are not required immediately for sale or manufacturing are stored in warehouses. They are made available to business depending on customers demand. Agricultural products which are harvested at specific times with subsequent consumption through out the year also need to be stored and released in lots.

(d) Value added services:
Certain value added services are also provided by the warehouses, such as in transit mixing, packaging and labelling. Goods sometimes need to be opened and repackaged and labelled again at the time of inspection by prospective buyers. Grading according to quantity and dividing goods in smaller lots is another function.

(e) Price siablisation:
By adjusting the supply of goods with the demand situation, warehousing performs the function of stabilising prices. Thus, prices are controlled when supply is increasing and demand is slack and vice versa.

(f) Financing:
Warehouse owners advance money to the owners on security of goods and further supply goods on credit terms to customers.

1st PUC Business Studies Business Services Additional Questions and Answers

One Mark Questions

Question 1.
Give the meaning of service.
Answer:
Anything which is done by a person to another person for consideration is called service.

Question 2.
State any two types of services.
Answer:

• Business Services
• Social Services

Question 3.
What do you mean by e-banking?
Answer:
Electronic banking refers to banking where the transaction or the activities of banking is carried out through internet.

Question 4.
Define Bank.
Answer:
A bank is a financial institution licensed to receive deposits and make loans.

Question 5.
Expand MICR.
Answer:
Magnetic ink character recognition

Question 6.
What is meant by EFT?
Answer:
Electronic Funds Transfer (EFT) is a system of transferring money from one bank account directly to another without any paper money changing hands.

Question 7.
State any one marine risk.
Answer:
Sinking in ship

Question 8.
Who is an Insured?
Answer:
The person who obtains or is otherwise covered by insurance on his or her health, life, or property.

Question 9.
Name the act regulating banking business in India.
Answer:
Banking regulatory Act 1949

Question 10.
Name any one type of Bank account.
Answer:
Saving Bank Account

Question 11.
Name anyone Banking service.
Answer:
Bank Overdraft

Question 12.
Who is the Insurer?
Answer:
The person who undertakes to indemnify is called the insurer.

Question 13.
What is Insurance Policy?
Answer:
The written document which contains the terms and conditions of the contract of insurance is called an insurance policy.

Question 14.
State one type of Insurance.
Answer:
Life insurance

Question 15.
Mention one type of Postal service.
Answer:
Mail Facilities.

Question 16.
Expand MOD A.
Answer:
Multiple Option Deposit Accounts

Question 17.
Expand NEFT.
Answer:
National Electronic Funds Transfer

Question 18.
Expand MIS.
Answer:
Monthly Income Scheme

Question 19.
Expand SCSS.
Answer:
Senior Citizen Savings Scheme

Question 20.
Expand ATM.
Answer:
Automated Teller Machine

Question 21.
Expand IMO.
Answer:
Instant Money Order.

Question 22.
Expand EPS.
Answer:
Electronic Payment & Service.

Question 23.
Expand EMO.
Answer:
Electronic Money Order

Question 24.
Expand VAST
Answer:
Very Small Aperture Terminal

Two Marks Questions

Question 1.
What do you mean by Subrogation?
Answer:
Subrogation is a term denoting a legal right reserved by most insurance carriers. Subrogation is the right for an insurer to legally pursue a third party that caused an insurance loss to the insured.

Question 2.
Define banking.
Answer:
Banking can be defined as the business activity of accepting and safeguarding money owned by other individuals and entities, and then lending out this money in order to earn a profit.

Question 3.
What do you mean by a Debit card?
Answer:
A payment card that deducts money directly from a consumer’s checking account to pay for a purchase. Debit cards eliminate the need to carry cash or physical checks to make purchases.

Question 4.
Give the meaning of Overdraft.
Answer:
An overdraft is a financial accommodation under which a current account holder is permitted to overdraw his account up to an agreed limit.

Question 5.
State any two contents of the Fire insurance policy.
Answer:

1. The Name of the insured
2. The Name of the insurer

Question 6.
What do you mean by ‘Hull insurance’?
Answer:
If the subject matter of insurance is the ship, the marine insurance is called the Hull Insurance

Question 7.
What is SB Account?
Answer:
Savings bank accounts are introduced by banks to mobilise small savings of low and middle-income groups of people.

Question 8.
What is a Current Account?
Answer:
A current account is meant for traders, business units, government, etc., who can make the payments conveniently through cheques.

Question 9.
What is an FD account?
Answer:
A fixed deposit (FD) is a financial instrument provided by banks which provides investors with a higher rate of interest than a regular savings account, until the given maturity date. It may or may not require the creation of a separate account.

Question 10.
What is a Bankers cheque?
Answer:
The Cheque issued by the banker on payment of commission charges, payable within the town is called Bankers cheque.

Question 11.
What is a Bank draft?
Answer:
It is a bill of exchange payable on demand and drawn by one bank on another. A bank draft is regarded as being equivalent to cash, the draft cannot be returned as unpaid.

Question 12.
What is EFT?
Answer:
Electronic Funds Transfer (EFT) is a system of transferring money from one bank account directly to another without any paper money changing hands.

Question 13.
What is RTGS?
Answer:
ThetermRT.GS stands for RealTime gross settlement which can be defined as the continuous settlement of funds transfers individually on an order by order basis.

Question 14.
What is Cash Credit?
Answer:
Cash credit is financial management under which a borrower is allowed an advance under a separate account called a cash credit account up to a specified limit.

Question 15.
What is Mobile Banking?
Answer:
Mobile banking is a facility provided by the banks to its customers to avail banking and financial services with the help of mobile telecommunication devices.

Question 16.
What is Tele-Banking?
Answer:
Telebanking is a banking activity which is carried from anywhere to anytime, one can access the accounts 24 hours a day and 365 days a year.

Question 17.
What is Core banking?
Answer:
A banking facility that allows the customers to operate their account from any of the branches of the bank at any place and at any time 24×7 is called core banking.

Question 18.
What is Credit Card?
Answer:
A credit card is a plastic card which allows the cardholder to buy goods and services without making an immediate payment.

Question 19.
What is double insurance?
Answer:
Double insurance arises where the same party is insured with two or more insurers in respect of the same interest on the same subject matter against the same risk and for the same period of time.

Question 20.
Give the meaning of mitigation of loss.
Answer:
Mitigation of loss refers to the duty of the insured to take reasonable steps to minimize the loss or damage to the insured property.

Question 21.
What is meant by the surrender of policy?
Answer:
If the assured finds it difficult to continue to pay the premium and keep the policy in force, he may surrender his policy to the insurer and give up his rights on the policy.

Question 22.
What is meant by the Paid-up policy?
Answer:
If the insured finds it difficult to continue to pay the premium in his policy, he can convert his policy into a paid-up policy instead of surrendering it.

Question 23.
What is health insurance?
Answer:
A health insurance policy is a contract between an insurer and an individual or group, in which the insurer agrees to provide specified health insurance at an agreed-upon price. Health insurance is a safeguard against rising medical costs.

Question 24.
What is Fire insurance?
Answer:
Fire insurance is a contract whereby the insurer, in consideration of the premium, undertakes to make good any loss or damage caused by fire during a specified period up to the amount specified in this policy.

Question 25.
What is Marine Insurance?
Answer:
It is a contract between two parties under which one party agrees to compensate the other party against the loss arising from certain marine risks in consideration of a certain payment.

Question 26.
State any two contents of the Fire insurance policy.
Answer:

• Name of the insurer
• Name of the insured

Question 27.
State any two types of Postal services.
Answer:

• Financial Facilities
• Mail Facilities

Question 28.
State any two Financial Services of Postal Department.
Answer:

• Public Provident Fund
• National saving certificate

Question 29.
State any two allied services of the Postal Department.
Answer:

• Greeting Post
• Media Post

Five Marks Questions

Question 1.
Write a short note about the core banking system.
Answer:
Core banking is a banking service provided by a group of networked bank branches where customers may access their bank account and perform basic transactions from any of the member branch offices. Core banking is often associated with retail banking and many banks treat the retail customers as their core banking customers.

Businesses are usually managed via the Corporate banking division of the institution. Core banking covers basic depositing and lending of money. The advancement in technology, especially the Internet and information technology has led to new ways of doing business in banking.

These technologies have reduced manual work in banks and increasing efficiency. The platform where communication technology and information technology are merged to suit the core needs of banking is known as core banking solutions. Here, computer software is developed to perform core operations of banking like a recording of transactions, passbook maintenance, interest calculations on loans and deposits, customer records, the balance of payments, and withdrawal.

This software is installed at different branches of the bank and then interconnected by means of computer networks based on telephones, satellite, and the internet. It allows the bank’s customers to operate accounts from any branch if it has installed core banking solutions.

Question 2.
What are the features of the Current Account?
Answer:

1. Big businessmen, companies and institutions such as schools, colleges, and hospitals have to make payments through their bank accounts.
2. Since there are restrictions on number of withdrawals from savings bank account, that type of account is not suitable for them. They need to have an account from which withdrawal can be made any number of times.
3. Banks open a current accounts for them. Like a savings bank account, this account also requires a certain minimum amount of deposit while opening the account.
4. On this deposit, the bank does not pay any interest on the balances. Rather the account holder pays a certain amount each year as an operational charge. For the convenience of the accountholders banks also allow withdrawal of amounts in excess of the balance of the deposit.
5. This facility is known as an overdraft facility. It is allowed to some specific customers and up to a certain limit subject to previous agreement with the bank concerned.

Question 3.
What are the features of a Savings Account?
Answer:

1. If a person has limited income and wants to save money for future needs, the Saving Bank Account is most suited for his purpose.
2. This type of account can be opened with a minimum initial deposit that varies from bank to bank. Money can be deposited at any time in this account.
3. Withdrawals can be made either by signing a withdrawal form or by issuing a cheque or by using an ATM card.
4. Normally banks put some restrictions on the number of withdrawals from this account.
5. Interest is allowed on the balance of the deposit in the account. The rate of interest on a savings bank account varies from bank to bank and also changes from time to time.
6. A minimum balance has to be maintained in the account as prescribed by the bank.

Question 4.
What are the features of the FD Account?
Answer:

1. Many a time people want to save money for long period.
2. If money is deposited in a savings bank account, banks allow a lower rate of interest.
3. Therefore, money is deposited in a fixed deposit account to earn interest at a higher rate.
4. This type of deposit account allows deposits to be made of an amount for a specified period. This period of deposit may range from 15 days to three years or more during which no withdrawal is allowed.
5. However, on request, the depositors can en-cash the amount before its maturity.
6. In that case, banks give lower interest than what was agreed upon.
7. The interest on a fixed deposit account can be withdrawn at certain intervals of time.
8. At the end of the period, the deposit may be withdrawn or renewed for a further period.

Question 5.
What are the features of a Recurring Deposit Account?
Answer:

1. This type of account is suitable for those who can save regularly and expect to earn a fair return on the deposits over a period of time.
2. While opening the account a person has to agree to deposit a fixed amount once a month for a certain period.
3. The total deposit along with the interest therein is payable on maturity. However, the depositor can also be allowed to close the account before its maturity and get back the money along with the interest till that period.
4. The account can be opened by a person individually or jointly with another, or by the guardian in the name of a minor.
5. The rate of interest allowed on the deposits is higher than that on a savings bank deposit but lower than the rate alb wed on a fixed deposit for the same period.

Question 6.
Briefly explain the importance of Health Insurance
Answer:
With the increasing cost of health services and medical bills which a common man cannot afford, this class of insurance has a growing market. It is estimated that a family spends an average of 10% of its monthly income on health care. In India where there is no Social Insurance for the public the individual has to take care of himself and his family.

A prolonged illness or disability can spell havoc for the family budget and upset all the planning. While the importance of Health Insurance cannot be denied, it is unfortunate that so far in India the Health Insurance policy is being purchased by families and individuals who can afford to pay the medical bills.

But the Govt, of India, is putting all its efforts to encourage people to buy health insurance, and specialized insurance companies are promoted which are exclusively dealing in health insurance. The life insurance companies are also permitted to issue the health insurance policy

Question 7.
What is Banking? explain in brief its Services.
Answer:
The term ‘Banking’ is defined as “accepting, for the purpose of lending or investment, of deposits of money from the public, repayable on demand or otherwise, and withdrawals by cheque, draft, and order of otherwise”
1. Issuing Bank Draft:
A bank draft or banker’s draft is a check that it guaranteed by the bank that issues it. In most cases, it lists the bank’s main office or branch as the issuer, and the person or company that is receiving the money as the payee; the name of the person who requested the draft is often not included.

2. Banker’s Cheques:
These are negotiable instruments payable to order and attract all provisions applicable to an order cheque and are valid for six months from the date of issue. There is virtually no chance that a legitimate bank draft will not be honored and paid in full.

3. RTGS and NEFT:
Here the words ‘Real Time ’ refers to the process of instructions that are executed at the time they are received, rather than at some later time. On the other hand “Gross Settlement” means the settlement of funds transfer instructions occurs individually. The full form of NEFT is “National Electronic Funds Transfer (NEFT). The NEFT is a nationwide payment system facilitating one-to-one funds transfer. ‘

4. Bank Overdraft:
When a business’ bank account has a negative balance it is said to be running a bank overdraft (more precisely an actual bank overdraft). It is a form of financing in which the bank honours presented checks even when there is no balance in the business account which results in a negative balance in the bank account.

5. Cash Credits:
Banks offer cash credit accounts to businesses to finance their “working capital” requirements (requirements to buy raw materials or “current assets”, as opposed to machinery or buildings, which would be called “fixed assets”)

Question 8.
What are the Terms used in the Insurance Contract?
Answer:
Insurance is a contract between the insurer and insured whereby the insurer undertakes to pay the insured a fixed amount, in exchange for a fixed sum known as the premium, on the happening of a certain event (like at a certain age or on death, or compensate the actual loss when it takes place, due to the causes mentioned in the contract.

Some important terms in insurance are:

• Insurer: Person who undertakes to indemnify or compensate is called the insurer, assured, or underwriter.
• Insured: Person who is indemnified as per the contract is called insured. The insurance policyholder becomes insured.
• Risks: The contingency, happening or event against which the insurance is effected is called risk.
• Premium: The consideration which the insured pays to the insurer for undertaking the risk is called premium
• Insurance Policy: It is a written document which contains the terms and conditions of the contract of insurance is called an insurance policy.

Question 9.
What are the Benefits of Insurance?
Answer:

1. Risk sharing: on the happening of a risk event, the loss is shared by all the persons exposed to it. The share is obtained from every insured member by way of premium
2. Providing certainty: Insurance provides certainty of payment for the risk of loss.
3. Overseas trade development: Marine insurance facilitates the development of overseas trade of a nation. It makes foreign trade risk free with the help of different types of marine insurance policies.
4. Feeling of Security: Insurance provides protection against future risk, accidents and uncertainty. By giving protection against economic loss, insurance provides a feeling of security among the businessmen.
5. Means of saving and investment: There is an opportunity to save for an individual to save out of current income for the evening of his life.
6. Capital formation: The accumulated funds of the insurer collected by way of premium payments made by the insured are invested in various income-generating schemes.

Question 10.
Write a short note on Fire Insurance
Answer:
A contract of fire insurance is a contract whereby the insurer, on payment of premium by the insured, undertakes to compensate the insured for the loss or damage suffered by reason of certain defined suoject matter being damaged or destroyed by fire. It is a contract of indemnity, that is, the insured cannot claim anything more than the value of property lost or damaged by fire or the amount of policy, whichever is lower.

The claim for loss by fire is payable subject to two conditions, viz; (a) there must have been actual fire; and (b) fire must have been accidental, not intentional; the cause of fire being immaterial.
Its contents are:

• Name of the insured
• Name of the insurer
• Description of the property insured
• Sum insured
• Period of insurance
• Amount of premium
• Risks insured against.

Question 11.
Write a short note Marine Insurance.
Answer:
Marine insurance is an agreement (contract) by which the insurance company (also known as underwriter) agrees to indemnify the owner of a ship or cargo against risks, which are incidental to marine adventures. It also includes insurance of the risk of loss of freight due on the cargo.

Marine insurance that covers the risk of loss of cargo by storm is known as cargo insurance. The owner of the ship may insure it against loss on account of perils of the sea.

The followings are the different types of marine insurance policies:

• Time Policy: This policy insures the subject matter for a specified period of time, usually for one year. It is generally used for hull insurance or for cargo when small quantities are insured.
• Voyage Policy: This is intended for a particular voyage, without any consideration for time. It is used mostly for cargo insurance.
• Mixed Policy: Under this policy, the subject matter (hull, for example) is insured on a particular voyage for a specified period of time. Thus, a ship may be insured for a voyage between Mumbai and Colombo for a period of 6 months under a mixed policy:

Question 12.
What do you mean by Perils of Sea? Explain in brief.
Answer:
Perils of the sea. Fortuitous accidents or casualties, peculiar to transportation on navigable water, such as stranding, sinking, collision of the vessel, striking a submerged object, or encountering heavy weather or other unusual forces of nature.
They include:

1. The sinking of the ship
2. Burning of the ship
3. Attack fro pirates
4. Jettison – throwing away cargo to prevent the ship from sinking.
5. The collision of the ships
6. Tsunami, storms, cyclone, and unfavorable climate conditions
7. Terrorist attack, attack from enemy countries.

Question 13.
What are the different Financial Services Offered by Postal Department?
Answer:
1. Public Provident Fund (PPF):
Public Provident Fund (PPF) is a savings-cum-tax-saving instrument in India. It also serves as a retirement-planning tool for many of those who do not have any structured pension plan covering them. The account can be opened in designated post offices, State Bank of India branches and branches of some nationalized banks. ICICI Bank was the first private sector bank which was authorized to open PPF accounts.

2. Kisan Vikas Patra (KVP):
Kisan Vikas Patra is a saving scheme that was announced by the Government of India that doubles the money invested in eight years and seven months. The Directorate of Small Savings Government of India sells these saving bonds through all Post Offices in the country so that the scheme can be accessed by citizens from all over the country. A KVP can be encashed after two and a half years from the date of issue at the value it has been bought and the interest accrued for the period.

3. National Savings Certificate (NSC):
National Savings Certificates popularly known as NSC is a saving bond, primarily used for small saving and income tax saving investment in India, part of the Postal savings system of Indian Postal Service (India Post). These can be purchased from a post office by an adult in his own name or in the name of a minor, a minor, a trust, two adults jointly.

An HUF [Hindu Undivided Family] cannot purchase NSCs, earlier it was allowed. These are issued for six year maturity and can be pledged to banks for availing loans. The holder gets the tax benefit under section 80C of Income Tax Act, 1961.

4. Senior Citizen Savings Scheme (SCSS):
The account may be opened by an individual, who has attained age of 60 years or above on the date of opening of the account. Who has attained the age 55 years or more but less than 60 years and has retired under a Voluntary Retirement Scheme or a Special Voluntary Retirement Scheme on the date of opening of the account within three months from the date of retirement.

Other Services:

• Greeting Post Indian post offers a beautiful and varied range of greeting cards for every occasion.
• Media Post Indian corporate can use media post which is an innovative and effective vehicle to advertise their brand through postcards, envelopes, aerograms, telegrams, and also through letterboxes.
• Direct Post It is for direct advertising which can be both addressed as well as unaddressed.
• International Money Transfer Indian post has a collaboration with western Union financial services, USA, which enables the remittance of money from 185 countries to India.
• Passport Facilities Indian post has a unique partnership with the ministry of external affairs for facilitating the process of passport application.
• Speed Post Indian post has over 1000 destinations covered under the speed post facility in India and links with 97 major countries across the globe.

Ten Marks Questions

Question 1.
What are the different types Postal Services?
Answer:
Indian postal serv ices are mainly concerned with collection, sorting, and distribution of letters, parcels, packets, etc. Besides, a number of other services are also provided to the general public as well as business enterprises.
1. Speed Post:
Sometimes because of some urgency or to avoid delay we want that our mail should reach the addressee at the earliest. Here post office provides time-bound as well as guaranteed mail delivery through its Speed Post Service.

Under this service, letters, documents and parcels are delivered faster i.e., within a fixed time frame. This facility is available at specific post offices. The post office charges relatively more postage for speed post than that of ordinary mail and it varies according to distance.

2. Registered Post:
Sometimes we want to ensure that our mail is definitely delivered to the addressee otherwise it should come back to us. In such situations, the post office offers registered post facility through which we can send our letters and parcels.

These mai Is are handed over to the post office after affixing additional postage as registration charge. On receiving the mail the post office immediately issues a receipt to the sender, which also serves as a proof that the mail has been posted.

3. Value Payable Post (VPP):
The value payable system is designed to meet the requirements of persons who wish to pay for articles sent to them at the time of receipt of the articles or of the bills or railway receipts relating to them, and also to meet the requirementsfif traders and others who wish to recover, through the agency of the Post Office the value of article supplied by them.

4. Electronic Money Order (EMO):
EMO is the Money Order issued by the computerized Post Office for the payment of a sum of money to the “Payee” by the “Remitter” electronically. 18 digit PNR number is generated while booking an EMO. Data is transmitted electronically to the destination Post Office. Money is paid at the doorstep of the Payee by Cash.

5. Instant Money Order (IMO):
IMO is an instant web-based money transfer service through Post Offices (IMO Centre) in India between two resident individuals in Indian Territory. You can transfer money from INR 1,000/- to INR 50,000/- from designated IMO Post Offices. It is simple to send and receive money.

Question 2.
What are the different types of Bank Accounts?
Answer:
The term ‘Banking’ is defined as “accepting, for the purpose of lending or investment, of deposits of money from the public, repayable on demand or otherwise, and withdrawals by cheque, draft, and order of otherwise”
1. Savings Bank Account:

• If a person has limited income and wants to save money for future needs, the Saving Bank Account is most suited for his purpose.
• This type of account can be opened with a minimum initial deposit that varies from bank to bank. Money can be deposited any time in this account. Withdrawals can be made either by signing a withdrawal form or by issuing a cheque or by using ATM card.
• Normally banks put some restriction on the number of withdrawal from this account.
• Interest is allowed on the balance of deposit in the account. The rate of interest on savings bank account varies from bank to bank and also changes from time to time.
• A minimum balance has to be maintained in the account as prescribed by the bank.

2. Current Deposit Account:

• Big businessmen, companies and institutions such as schools, colleges, and hospitals have to make payment through their bank accounts.
• Since there are restrictions on number of withdrawals from savings bank account, that type of account is not suitable for them. They need to have an account from which withdrawal can be made any number of times.
• Banks open current account for them Like savings bank account, this account also requires certain minimum amount of deposit while opening the account.
• On this deposit bank does not pay any interest on the balances. Rather the accountholder pays certain amount each year as operational charge. For the convenience of the accountholders banks also allow withdrawal of amounts in excess of the balance of deposit.
• This facility is known as overdraft facility. It is allowed to some specific customers and up . to a certain limit subject to previous agreement with the bank concerned.

3. Fixed Deposit Account (also known as Term Deposit Account):

• Many a time people want to save money for long period.
• If money is deposited in savings bank account, banks allow a lower rate of interest.
• Therefore, money is deposited in a fixed deposit account to earn a interest at a higher rate.
• This type of deposit account allows deposit to be made of an amount for a specified period. This period of deposit may range from 15 days to three years or more during which no withdrawal is allowed.
• However, on request, the depositors can en-cash the amount before its maturity. In that case banks give lower interest than what was agreed upon.
• The interest on fixed deposit account can be withdrawn at certain intervals of time.
• At the end of the period, the deposit may be withdrawn or renewed for a fix the r period Banks also grant loan on the security of fixed deposit receipt.

4. Recurring Deposit Account:

• This type of account is suitable for those who can save regularly and expect to earn a fair return on the deposits over a period of time.
• While opening the account a person has to agree to deposit a fixed amount once in a month for a certain period.
• The total deposit along with the interest therein is payable on maturity. However, the depositor can also be allowed to close the account before its maturity and get back the money along with the interest till that period.
• The account can be opened by a person individually or jointly with another, or by the guardian in the name of a minor.
• The rate of interest allowed on the deposits is higher than that on a savings bank deposit but lower than the rate allowed on a fixed deposit for the same period.

5. Multi Option Deposit Scheme:

• Is a term deposit which is not fixed at all and comes with a unique break-up facility which provides frill liquidity as well as benefit of higher rate of interest, through the savings bank account.
• One can also keep that deposit intact by availing an overdraft facility, to meet occasional temporary funds requirements.
• Individual banks have their own deposit schemes to suit the current as well as future needs of the people.
• You may visit nearby branches of the banks and collect information about different types of deposit accounts to ascertain the comparative advantages and limitations of the different types of deposit schemes.

Question 3.
What are the different types Services offered by banks
Answer:
1. Bank Draft:
A bank draft or banker’s draft is a check that it guaranteed by the bank that issues it. In most cases, it lists the bank’s main office or branch as the issuer, and the person or company that is receiving the money as the payee; the name of the person who requested the draft is often not included.

Unlike a personal check, which could bounce if the account holder doesn’t have enough Issued by the Bank to customers for making local payments like payment of telephone / electricity bills, payments to other accounts in other banks etc.

2. Cheques:
These are negotiable instruments payable to order and attract all provisions applicable to an order cheque and are valid for six months from the date of issue. There is virtually no chance that a legitimate bank draft will not be honored and paid in full.

3. RTGS and NEFT:
Here the words ‘Real Time’ refers to the process of instructions that are executed at the time they are received, rather than at some later time. On the other hand “Gross Settlement” means the settlement of funds transfer instructions occurs individually (on an instruction by instruction basis).

The settlement of funds actually takes place in the books of RBI and thus the payments are considered as final and irrevocable. The full form ofNEFT is “National Electronic Funds Transfer (NEFT). The NEFT is a nationwide payment system facilitating one-to-one funds transfer.

Under this system, individuals, firms and companies can electronically transfer funds from any bank branch to any individual, firm or corporate having an account with any other bank branch in the country participating in the system.

4. Bank Overdraft:
When a business ’ bank account has a negative balance it is said to be running a bank overdraft (more precisely an actual bank overdraft). It is a form of financing in which the bank honours presented checks even when there is no balance in the business account which results in negative balance in the bank account.

5. Cash Credits:
Banks offer cash credit accqunts to businesses to finance their “working capital” requirements (requirements to buy raw materials or “current assets”, as opposed to machinery qr buildings, which would be called “fixed assets”).

The cash credit account is similar to current accounts as it is a running account (i.e., payable on demand) with cheque book facility. But unlike ordinary current accounts, which are supposed to be overdrawn only occasionally, the cash credit account is supposed to be overdrawn almost continuously

6. SMS Alerts:
SMS banking is a type of mobile banking, a technology-enabled service offering from banks to its customers, permitting them to operate selected banking services over their mobile phones using SMS messaging.

7. MICR and If SC:
IFSC code means Indian Financial System Code. IFSC code is being used as the address code in one user to another user. RTGS and NEFT payment system of Reserve Bank of India (RBI) use these codes. IFSC code consists of 11 Characters. MlCR code means Magnetic Ink Character Recognition code which contains 9 digits, like 380002006 appearing at the bottom of the cheque, following the cheque number. Each bank branch has a unique MICR code.