MCQ Bank

Altering critical elements such as the date, time, or sum payable on a negotiable instrument constitutes a material alteration that affects its legal validity.

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Q33

Banks feel difficulty to assess individual assets risk due to availability of _____________________about the borrower.

A) Limited published information
B) All of the given options
C) Asymmetric information
D) Non documentation of Economy

AI Explanation

Banks struggle to assess individual asset risk due to a combination of limited published information, asymmetric information, and lack of documentation in the broader economy.

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Q34

Which one of the following cannot be considered as signature for the purpose of endorsement?

A) Signature by pencil
B) All of the given options
C) Lithograph signature
D) Rubber stamp

AI Explanation

Signatures by pencil, lithography, or rubber stamps are generally all legally acceptable forms of signature for endorsement as long as the intent to authenticate is present, meaning none of them are disqualified.

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Q35

The potential risk of loss associated with variability in a bank’s net interest income is called _______________.

A) Equity and security price risk
B) None of the given options
C) Foreign Exchange rate risk
D) Interest rate risk

AI Explanation

Interest rate risk is the potential risk of loss arising from the adverse movements of interest rates affecting a bank's net interest income and overall financial condition. Variability in net interest income is a direct consequence of mismatched asset and liability maturities and rates.

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Q36

Which one of the following risks is specific to bank’s risks?

A) Liquidity Risk
B) Operational risk
C) Market risk
D) Credit risk

AI Explanation

While liquidity, operational, and market risks apply to many types of financial and non-financial institutions, credit risk—the risk of default or failure of borrowers to meet their obligations—is fundamentally central and specific to the core intermediation and lending activities of commercial banks.

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Q37

An agent can be personally liable if he does the following acts EXCEPT:

A) If he executes an instrument without his authority
B) If he indorse an instrument with authority but in excess of his authority
C) If he does not indicate that he is an agent
D) If he does not disclose the name of his principal

AI Explanation

Wait, let's look closely at agency law and negotiable instruments. An agent is personally liable when acting without authority, not indicating agency, or not disclosing the principal. Endorsing an instrument with actual authority (even if exceeding it? No, exceeding authority usually creates liability, but let's check standard banking/law quiz options). Let's re-verify agency liability: executing without authority, acting in excess of authority (Wait, option B says 'with authority but in excess' which is a contradiction, or maybe 'without' vs 'with'). Let's re-read standard multiple choice for BNK601: Agent liability excludes acting strictly within authority.

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Q38

Banks’s depositors are the creditors of the bank. They can demand their deposited money from the bank any time. If a bank fails to pay a customer his deposited money on demand the bank is facing ___________________ risk.

A) Liquidity Risk
B) Operational risk
C) Market risk
D) Credit risk

AI Explanation

Liquidity risk is the risk that a bank will be unable to meet its financial obligations, such as depositors demanding their money back on demand, due to an inability to liquidate assets or obtain funding.

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Q39

If the endorser signs his name only it is called ____________________________.

A) Blank endorsement
B) Restrictive endorsement
C) Special endorsement
D) Partial endorsement

AI Explanation

A blank endorsement specifies no particular endorsee and typically consists of just the endorser's signature, making the instrument payable to bearer.

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Q40

If a borrower fails to repay its principal or interest amount to a bank, which type of risk the bank is facing _______________________.

A) Liquidity Risk
B) Operational risk
C) Credit risk
D) Market risk

AI Explanation

Credit risk is the risk of financial loss experienced by a bank if a borrower fails to repay the principal or interest on a loan as agreed. This represents a default on the borrower's obligations.

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Q41

Mr. Aslam presents a cheque for payment on a bank’s cash counter is holding a _________________ .

A) Order cheque
B) Blank cheque
C) Bearer cheque
D) Crossed cheque

AI Explanation

A bearer cheque is payable to the person who presents it physically at the bank's cash counter for payment without requiring endorsement. Since Mr. Aslam presents the cheque for cash counter payment, it functions as a bearer instrument.

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Q42

A cheque is crossed as payees account only can be ___________________________.

A) Can be credited to payee account
B) Paid at cash counter to payee
C) Can be credited to any account
D) None of the given options

AI Explanation

A cheque crossed with the words 'payee's account only' directs the paying banker to credit the proceeds solely to the designated payee's account. It cannot be encashed across the counter or deposited into a third-party account.

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Q43

An agent can accept and indorse a bill of exchange if he fulfills the following conditions EXCEPT:

A) The agent has been authorized by the principal
B) The principal is a competent person to assign an authority
C) The agent can act on his own name
D) The agent has been authorized in clear terms

AI Explanation

An agent must act in the name of the principal rather than their own name when executing negotiable instruments like bills of exchange. Therefore, acting in their own name is the exception among the required conditions.

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Q44

Which negotiable instrument can only be payable on demand?

A) Debenture
B) Cheque
C) Bill of exchange
D) Promissory note

AI Explanation

By definition, a cheque is a bill of exchange drawn on a specified banker and is always payable strictly on demand. In contrast, promissory notes and bills of exchange can be made payable after a specific period or time.

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Q45

Which one of the following negotiable instrument is first presented for acceptance then for payment?

A) Debenture
B) Promissory note
C) Cheque
D) Bill of exchange

AI Explanation

A bill of exchange is an unconditional order in writing addressed by one person to another, requiring the person to whom it is addressed to pay a sum certain on demand or at a fixed future time. Unlike promissory notes or cheques, a bill of exchange (especially time drafts) is typically presented to the drawee for acceptance before it is presented for payment.

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Q46

If the endorser purports to transfer to the endorsee only a part of the amount payable, it is called _______________.

A) Blank endorsement
B) Special endorsement
C) Partial endorsement
D) Restrictive endorsement

AI Explanation

A partial endorsement is an endorsement that attempts to transfer only a part of the amount payable on the instrument to the endorsee or to transfer the instrument to multiple endorsees severally. Under negotiable instrument laws, such endorsements are generally invalid for negotiation because they purport to divide the obligation.

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Q47

Following are the types of financial analysis perform on borrower’s financial statement Except:

A) Trend analysis
B) Market analysis
C) Ratio analysis
D) Cash Analysis

AI Explanation

Financial analysis performed on a borrower's financial statements specifically examines accounting data using tools like trend analysis, ratio analysis, and cash flow/cash analysis. Market analysis relates to external industry and market conditions rather than an internal evaluation of the borrower's submitted financial statements.

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Q48

Which one of the following may NOT contain in the sanction advice of the credit?

A) Terms and conditions
B) Purpose of loan
C) Bank’s credit policy
D) Repayment schedule

AI Explanation

A sanction advice is a formal communication sent to the borrower detailing the specific terms and conditions approved for their loan facility. It includes the purpose of the loan, repayment schedule, and applicable covenants, but it does not contain the bank's internal overarching credit policy.

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Q49

In an international sale transaction between importer and exporter, bank does not deal in ______________.

A) Exports
B) Goods
C) Documents
D) Imports

AI Explanation

In international trade finance involving letters of credit and documentary collections, banks deal strictly in documents, shipping papers, and financial instruments rather than the physical goods, services, or performance to which the documents relate.

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Q50

According to URR525, which of the following is the bank that pays, incurs a deferred payment undertaking, accepts draft(s), or negotiates under a Credit and presents a Reimbursement Claim to the Reimbursing Bank?

A) Advising bank
B) Confirming bank
C) Claiming bank
D) Paying bank

AI Explanation

Under URR525, the claiming bank is the bank that pays, incurs a deferred payment undertaking, accepts drafts, or negotiates under a credit and submits a reimbursement claim to the reimbursing bank. It is the institution seeking reimbursement for funds disbursed under the letter of credit.

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Q51

Which one of the following is the lender’s secondary source of repayment in case of default?

A) Customer’s personal property
B) All of the given options
C) Customer’s mortgaged property
D) Customer’s business property

AI Explanation

The primary source of repayment for a bank loan is the borrower's operating cash flow and income from business operations. The secondary source of repayment is collateral pledged or mortgaged by the customer to secure the loan in the event of default.