Banking & Finance Question-Answer

Banking terms are the confusing terms that are associated with banking and finance. These basic
terminologies are commonly asked in a bank interview. Knowing these terms will not only help you during
the selection process but can also boost up your knowledge and thus help you in making transaction or doing
some other bank related work. Though remembering all the jargon can be quite a daunting task so here we
furnish the 25 most common banking terms for interview.

Bouncing of a cheque
When an account has insufficient funds the cheque is is not payable and is returned by the bank with a reason
Exceeds arrangement or funds insufficient.

Bank Rate
It is the rate of interest charged by a central bank to commercial banks on the advances and the loans it extends.

Cheque
It is written by an individual to transfer amount between two accounts of the same bank or a different bank and the
money is withdrawn form the account.

Core Banking Solutions (CBS)

In this all the branches of the bank are connected together and the customer can access his/her funds or transactions
from any other branch.

CRR (Cash Reverse Ratio)

the amount of funds that a bank keep with the RBI. If the percentage of CRR increases then the amount with
the bank comes down.

Debit Card
It is a card issued by the bank so the customers can withdraw their money from their account electronically.

Demat Account
The way in which a bank keeps money in a deposit account in the same way the Depository company converts share
certificates into electronic form and keep them in a Demat account.

E-Banking
It is a type of banking in which we can conduct financial transactions electronically. RTGS, Credit cards, Debit cards etc
come under this category.

EFT (Electronic Fund Transfer)

In this we use Automatic teller machine, wire transfer and computers to move funds between different accounts in
different or same bank.

Fiscal Deficit
It is the amount of Funds borrowed by the government to meet the expenditures.

Initial Public Offering (IPO)

It is the time when a company makes the first offering of the shares to the pubic.

Leverage Ratio
It is a financial ratio which gives us an idea or a measure of a companys ability to meet its financial losses.

Liquidity
It is the ability of converting an investment quickly into cash with no loss in value.

Market Capitalization
The product of the share price and number of the companys outstanding ordinary shares.

Mortgage
It is a kind of security which one offers for taking an advance or loan from someone.

Mutual Fund
These are investment schemes. It pools money from various investors in order to purchase securities.

Pass Book
It is a book where all the bank transactions are recorded.They are mainly issued to Current or Savings Bank account
holders.

Repo Rate
Commercial banks borrow funds by the RBI if there is any shortage in the form of rupees. If this rate increases it
becomes expensive to borrow money from RBI and vice versa.

Savings Bank Account

It is account of nominal interest which can only be used for personal purpose and which has some restrictions on
withdrawal.

SLR (Statutory Liquidity Ratio)

It is amount that a commercial bank should have before giving credits to its customers which should be either in the
form of gold,money or bonds.

Teller
He/she is a staff member of the bank who cashes cheques, accepts deposits and perform different banking services
for the general mass.

Universal Banking
When financial institutions and banks undertake activities related to banking like investment, issue of debit and credit
card etc then it is known as universal banking.

Virtual Banking
Internet banking is sometimes known as virtual banking. It is called so because it has no bricks and boundaries. It is
controlled by the world wide web.

Wholesale Banking
It is similar to retail banking with a slight difference that it mainly focuses on the financial needs of the institutional
clients and the industry.

Zero Coupon Bond

It is a bond that is sold at good discount as it has no coupon.
The above mentioned Banking terms for interview are not only helpful for the candidates who are sitting for
an interview but also for the general public as nowadays everyone is connected to the banking sector in one
or the other way.

1) What is bank? What are the types of banks?

A bank is a financial institution licensed as a receiver of cash deposits. There are two types of banks,
commercial banks and investment banks. In most of the countries, banks are regulated by the national government or
central bank.
2) What is investment banking?
Investment banking manages portfolios of financial assets, commodity and currency, fixed income, corporate finance,
corporate advisory services for mergers and acquisitions, debt and equity writing etc.
3) What is commercial bank?
Commercial bank is owned by the group of individuals or by a member of Federal Reserve System. The
commercial bank offer services to individuals, they are primarily concerned with receiving deposits and lending to
business. Such bank earns money by imposing interest on the loan borrowed by the borrower. The money that is
deposited by the customer will be used by the bank to give business loan, auto loan, mortgages and home repair
loans.
4) What are the types of Commercial Banks?
a) Retail or consumer banking
It is a small to mid-sized branch that directly deals with consumers transaction rather than corporate or otherbanks
b) Corporate or business banking
Corporate banking deals with cash management, underwriting, financing and issuing of stocks and bonds
c) Securities and Investment banking
Investment banking manages portfolios of financial assets, commodity and currency, fixed income, corporate finance,
corporate advisory services for mergers and acquisitions, debt and equity writing etc.

d) Non-traditional options
There are many non-bank entities that offer financial services like that of the bank. The entities include credit card
companies, credit card report agencies and credit card issuers
5) What is consumer bank?
Consumer bank is a new addition in the banking sector, such bank exist only in countries like U.S.A and Germany.
This bank provides loans to their customer to buy T.V, Car, furniture etc. and give the option of easy payment through
instalment.
6) What are the types of accounts in banks?
a) Checking Account: You can access the account as the saving account but, unlike saving account, you cannot earn
interest on this account. The benefit of this account is that there is no limit for withdrawal.
b) Saving Account: You can save your money in such account and also earn interest on it. The number of withdrawal
is limited and need to maintain the minimum amount of balance in the account to remain active.
c) Money Market Account: This account gives benefits of both saving and checking accounts. You can withdraw the
amount and yet you can earn higher interest on it. This account can be opened with a minimum balance.
d) CD (Certificate of Deposits) Account: In such account you have to deposit your money for the fixed period of time
(5-7 years), and you will earn the interest on it. The rate of interest is decided by the bank, and you cannot withdraw
the funds until the fixed period expires.
7) What are the different ways you can operate your accounts?
You can operate your bank accounts in different ways like
a) Internet banking
b) Telephone or Mobile banking
c) Branch or Over the counter service
d) ATM ( Automated Teller Machine)
8) What are the things that you have to keep in concern before opening the bank accounts?
Before opening a bank account, if it is a saving account, you have to check the interest rate on the deposit and
whether the interest rate remains consistent for the period. If you have the checking account, then look for how many
cheques are free to use. Some banks may charge you for using paper cheques or ordering new cheque books. Also,
check for different debit card option that is provided on opening an account and online banking features.
9) What is Crossed Cheque ?

A crossed cheque indicates the amount should be deposited into the payees account and cannot be cashed by
the bank over the counter. Here in the image, number#2, you can see two cross-lines on the left side corner of the
cheque that indicates crossed cheque.

10) What is overdraft protection?

Overdraft protection is a service that is provided by a bank to their customer. For instance, if you are holding two
accounts, saving and credit account, in the same bank. Now if one of your accounts does not have enough cash to
process the cheques, or to cover the purchases. The bank will transfer money from one account to another account,
which does not have cash so to prevent check return or to clear your shopping or electricity bills.
11) Do bank charge for overdraft protection service?
Yes, bank will charge on overdraft protection services but the charges will be applicable only when you start using
the service.
12) What is (APR) Annual Percentage Rate?
APR stands for Annual Percentage Rate, and it is a charge or interest that the bank imposes on their customers for
using their services like loans, credit cards, mortgage loan etc. The interest rate or fees imposed is calculated
annually.
13) What is prime rate?
Basically, prime rate is the rate of interest that is decided by nations (U.S.A) largest banks for their preferred
customers, having a good credit score. Much variable interest depends on the prime rates. For example, the APR
(Annual Percentage Rate) on a credit card is 10% plus prime rate, and if the prime rate is 3%, the current APR on
that credit card would be 13%.
14) What is Fixed APR and Variable APR?
APR (Annual Percentage Rate) can be Fixed or Variable type. In Fixed APR, the interest rate remains same
throughout the term of the loan or mortgage, while in Variable APR the interest rate will change without notice, based
on the other factors like prime rate.
15) What are the different types of banking software applications are available in the
Industry?
There are many types of banking software applications and few are listed below

a) Internet banking system: Internet banking allows the customers and financial institution to conduct final transaction
using banks or financial institute website.
b) ATM banking (Automated Teller Machine): It is an electronic banking outlet, which allows customers to complete
basic transaction.
c) Core banking system: Core banking is a service provided by a networked bank branches. With this, customer can
withdraw money from any branch.
d) Loan management system: The collects all the information and keeps the track about the customers who borrows
the money.
e) Credit management system: Credit management system is a system for handling credit accounts, assessing risks
and determining how much credit to offer to the customer.
f) Investment management system: It is a process of managing money, including investments, banking, budgeting
and taxes.
g) Stock market management system: The stock market management is a system that manages financial portfolio
like securities and bonds.
h) Financial management system: Financial management system is used to govern and keep a record of its income,
expense and assets and to keep the accountability of its profit.
16) What is the cost of debt?
When any company borrows funds, from a financial institution (bank) or other resources the interest paid on that
amount is known as cost of debt.
17) What is balloon payment?
The balloon payment is the final lump sum payment that is due. When the entire loan payment is not amortized over
the life of the loan, the remaining balance is due as the final repayment to the lender. Balloon payment can occur
within an adjustable rate or fixed rate mortgage.