CHAPTER 8: BANKS AND THE MAGIC OF FINANCE
1. What is financial infrastructure?
A. A network of banks, payment systems, stock markets and other financial institutions
B. A network of roads and bridges only
C. A system of schools and hospitals
D. A network of factories only
Answer: A. A network of banks, payment systems, stock markets and other financial institutions
2. What is the main purpose of financial infrastructure?
A. To prevent people from saving money
B. To facilitate financial transactions and help manage money
C. To replace all physical infrastructure
D. To stop businesses from borrowing money
Answer: B. To facilitate financial transactions and help manage money
3. What is a bank?
A. An institution that collects deposits and lends money as loans
B. An institution that only manufactures goods
C. An organisation that builds roads
D. A marketplace for agricultural products only
Answer: A. An institution that collects deposits and lends money as loans
4. Why does Navdeep decide to deposit his savings in a bank?
A. To make his money less secure
B. To keep his savings safer than storing cash at home
C. To avoid receiving any financial services
D. To spend all his savings immediately
Answer: B. To keep his savings safer than storing cash at home
5. What does Rima do in the example given in the chapter?
A. She runs a business making bamboo products
B. She manages a railway station
C. She operates a stock exchange
D. She works as a currency printer
Answer: A. She runs a business making bamboo products
6. What does Rima do when she needs additional money for her business?
A. She closes her business permanently
B. She takes a loan from a bank
C. She deposits all her money in a stock market
D. She stops producing bamboo products
Answer: B. She takes a loan from a bank
7. What is a deposit?
A. Money placed in a bank account that can be withdrawn according to the bank’s terms
B. Money spent on buying goods
C. A tax paid to the government
D. A share in a company
Answer: A. Money placed in a bank account that can be withdrawn according to the bank’s terms
8. Which bank account is generally suitable for individuals who save regularly and earn interest on their savings?
A. Current account
B. Savings account
C. Trading account
D. Loan account
Answer: B. Savings account
9. Which account is generally used by businesses and traders who frequently make and receive payments?
A. Fixed deposit account
B. Savings account only
C. Current account
D. Scholarship account
Answer: C. Current account
10. Which account involves depositing money for a fixed period and usually earns a higher interest rate than a savings account?
A. Current account
B. Fixed deposit account
C. Cheque account
D. Withdrawal account
Answer: B. Fixed deposit account
11. According to the chapter, which account generally does not earn interest but allows frequent deposits and withdrawals?
A. Current account
B. Savings account
C. Fixed deposit account
D. Recurring loan account
Answer: A. Current account
12. What is interest?
A. A compulsory tax on all bank deposits
B. The amount charged for borrowing money or gained by lending money
C. The original amount deposited in a bank
D. The fee paid only for using an ATM
Answer: B. The amount charged for borrowing money or gained by lending money
13. If ₹1,000 earns 6% interest for one year, how much interest is earned?
A. ₹6
B. ₹60
C. ₹100
D. ₹600
Answer: B. ₹60
14. What is the total amount after ₹1,000 earns 6% interest for one year?
A. ₹1,006
B. ₹1,060
C. ₹1,600
D. ₹1,100
Answer: B. ₹1,060
15. What is compounding?
A. Earning interest on previously earned interest
B. Withdrawing all money from a bank
C. Paying taxes on purchases
D. Depositing money without earning interest
Answer: A. Earning interest on previously earned interest
16. In the chapter’s example, how much money does ₹1,060 become after earning 6% interest for the second year?
A. ₹1,066
B. ₹1,100
C. ₹1,123.60
D. ₹1,160
Answer: C. ₹1,123.60
17. In the story of the king and the sage, how many squares does a chessboard have?
A. 32
B. 48
C. 64
D. 100
Answer: C. 64
18. In the king and sage story, how many grains of rice are placed on the first square?
A. One grain
B. Two grains
C. Four grains
D. Eight grains
Answer: A. One grain
19. In the king and sage story, how does the number of rice grains change from one square to the next?
A. It increases by one each time
B. It doubles each time
C. It decreases by half each time
D. It remains the same
Answer: B. It doubles each time
20. What is the purpose of a bank passbook?
A. To record deposits, withdrawals and other account transactions
B. To record school attendance
C. To issue driving licences
D. To register ownership of land
Answer: A. To record deposits, withdrawals and other account transactions
21. What does debit mean in a bank account?
A. Receiving money into the account
B. Taking money out of the account
C. Earning interest only
D. Opening a new account
Answer: B. Taking money out of the account
22. What does credit mean in a bank account?
A. Receiving money into the account
B. Taking money out of the account
C. Closing the account
D. Paying a penalty
Answer: A. Receiving money into the account
23. Why do banks charge interest on loans?
A. Borrowers must repay the borrowed amount along with the applicable interest
B. Banks provide loans without expecting repayment
C. Banks want borrowers to avoid repaying money
D. Loans are the same as gifts
Answer: A. Borrowers must repay the borrowed amount along with the applicable interest
24. How do banks earn income from the difference between deposit and loan interest rates?
A. They pay higher interest on deposits than they charge on loans
B. They generally pay lower interest on deposits and charge higher interest on loans
C. They never pay interest to depositors
D. They charge no interest on loans
Answer: B. They generally pay lower interest on deposits and charge higher interest on loans
25. In the chapter’s example, what interest rate does the bank offer Anand on his ₹200 savings deposit?
A. 1%
B. 2%
C. 5%
D. 10%
Answer: B. 2%
26. In the chapter’s example, what interest rate does the bank charge Shreya on her ₹200 loan?
A. 2%
B. 3%
C. 5%
D. 8%
Answer: C. 5%
27. In the example involving Anand and Shreya, how much does the bank earn from the difference between the interest received and paid?
A. ₹2
B. ₹4
C. ₹6
D. ₹10
Answer: C. ₹6
28. When was the Pradhan Mantri Jan Dhan Yojana launched?
A. 2005
B. 2010
C. 2014
D. 2020
Answer: C. 2014
29. What was a major aim of the Pradhan Mantri Jan Dhan Yojana?
A. To provide access to bank accounts, especially for low-income earners
B. To stop people from opening bank accounts
C. To replace all banks with post offices
D. To prevent direct transfers of money
Answer: A. To provide access to bank accounts, especially for low-income earners
30. According to the chapter, what was an important benefit of direct transfers into bank accounts?
A. They increased the need for middlemen
B. They reduced middlemen and helped ensure timely disbursement of funds
C. They prevented students from receiving scholarships
D. They stopped workers from receiving wages
Answer: B. They reduced middlemen and helped ensure timely disbursement of funds
31. Which institution offers savings schemes such as National Savings Certificates and Kisan Vikas Patra?
A. Indian post offices
B. Stock exchanges only
C. Railway stations
D. Municipal parks
Answer: A. Indian post offices
32. What is the role of NABARD mentioned in the chapter?
A. Supporting rural development by funding banks that provide loans for farming and rural infrastructure
B. Printing all Indian currency
C. Managing every stock exchange in the world
D. Providing only urban entertainment facilities
Answer: A. Supporting rural development by funding banks that provide loans for farming and rural infrastructure
33. Which institution supervises the Indian banking system and is India’s central bank?
A. NABARD
B. Reserve Bank of India
C. Bombay Stock Exchange
D. National Payments Corporation of India
Answer: B. Reserve Bank of India
34. In which year was the Reserve Bank of India established?
A. 1853
B. 1875
C. 1935
D. 1949
Answer: C. 1935
35. Since which year has the RBI been functioning as the banker of banks and the central bank under the Government of India, according to the chapter?
A. 1935
B. 1947
C. 1949
D. 2014
Answer: C. 1949
36. Which of the following is a responsibility of the RBI mentioned in the chapter?
A. Fixing benchmark interest rates
B. Supervising the banking system
C. Printing and distributing Indian currency
D. All of the above
Answer: D. All of the above
37. What is a payment system?
A. A mechanism that facilitates the transfer and settlement of financial transactions
B. A method of constructing roads
C. A system for measuring rainfall
D. A process used only to manufacture banknotes
Answer: A. A mechanism that facilitates the transfer and settlement of financial transactions
38. What is a PIN used for?
A. Identifying a bank building
B. Authentication and security in financial transactions
C. Calculating compound interest automatically
D. Printing a cheque book
Answer: B. Authentication and security in financial transactions
39. What is an ATM?
A. A self-service machine that allows customers to perform banking activities such as withdrawing cash
B. A stock market trading floor
C. A machine used only to print currency
D. A device used to manufacture debit cards
Answer: A. A self-service machine that allows customers to perform banking activities such as withdrawing cash
40. What is a cheque?
A. A paper instrument that allows payment directly from a bank account
B. A document used only for paying taxes in cash
C. A type of fixed deposit
D. A certificate showing ownership of a company
Answer: A. A paper instrument that allows payment directly from a bank account
41. What is the main purpose of a Point of Sale (POS) machine?
A. To help customers make electronic payments at retail stores
B. To withdraw cash from every bank account without authorisation
C. To print passports
D. To issue company shares
Answer: A. To help customers make electronic payments at retail stores
42. What does internet banking allow account holders to do?
A. Check balances and transaction history and transfer money online
B. Visit a bank only to withdraw cash
C. Purchase shares without any financial account
D. Avoid recording financial transactions
Answer: A. Check balances and transaction history and transfer money online
43. Which payment system enables digital money transfers using a QR code or the recipient’s phone number?
A. UPI
B. Fixed Deposit
C. Passbook
D. MICR
Answer: A. UPI
44. Which organisation launched UPI in 2016, according to the chapter?
A. Reserve Bank of India alone
B. National Payments Corporation of India
C. NABARD
D. Bombay Stock Exchange
Answer: B. National Payments Corporation of India
45. Which country was the first to adopt India’s UPI as a payment platform in 2022, according to the chapter?
A. France
B. Nepal
C. Australia
D. Japan
Answer: B. Nepal
46. What is a share in a company?
A. A unit of ownership representing a portion of the company’s capital stock
B. A loan that never needs repayment
C. A tax paid to the government
D. A bank deposit that cannot earn interest
Answer: A. A unit of ownership representing a portion of the company’s capital stock
47. In which year was the Bombay Stock Exchange established?
A. 1757
B. 1853
C. 1875
D. 1935
Answer: C. 1875
48. What is a stock market crash?
A. A simultaneous fall in the share prices of many companies
B. A rise in the share prices of many companies
C. An increase in the interest paid on savings accounts
D. A reduction in the number of bank accounts
Answer: A. A simultaneous fall in the share prices of many companies
49. Which of the following is a recommended way to prevent digital banking fraud?
A. Sharing OTPs with unknown callers
B. Clicking every link received through messages
C. Sharing account passwords on social media
D. Avoiding unknown links and never sharing OTPs or sensitive banking details
Answer: D. Avoiding unknown links and never sharing OTPs or sensitive banking details
50. According to the chapter, which number can be used to report financial cyber fraud in India?
A. 100
B. 101
C. 1930
D. 1098
Answer: C. 1930
