MCQ Bank

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.

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Q52

Following documents are often requested in a letter of credit EXCEPT:

A) Bill of Lading
B) Insurance document
C) Loan application
D) A commercial invoice

AI Explanation

A letter of credit transaction relies on commercial and transport documents related to the shipment of goods, such as a Bill of Lading, commercial invoice, and insurance documents. A loan application is an internal bank document used during the initial credit assessment, not a shipping or trade document requested under a letter of credit.

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Q53

Which one of the following bank is not obligated to make the payment to beneficiary in a letter of credit?

A) Conforming bank
B) Advising bank
C) Issuing bank
D) Correspondent bank

AI Explanation

The advising bank acts as a conduit to transmit the letter of credit to the beneficiary and check its apparent authenticity, but it does not add its own confirmation or financial commitment. Therefore, it is not legally obligated to make payments to the beneficiary.

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Q54

According to URR525, which of the following is an advice from the Reimbursing Bank to the Claiming Bank named in the Reimbursement Authorization, stating changes to a Reimbursement Undertaking?

A) Reimbursement claim
B) Reimbursement authorizations
C) Reimbursement amendment
D) Reimbursement undertaking amendment

AI Explanation

According to URR525 terminology, an amendment to a reimbursement authorization or undertaking is communicated through a reimbursement amendment. It outlines changes made by the reimbursing bank to the original authorization.

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Q55

According to URR525, which of the following is a bank instructed and/or authorized to provide reimbursement pursuant to a Reimbursement Authorization issued by the Issuing Bank?

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

AI Explanation

Under URR 525 (Uniform Rules for Bank-to-Bank Reimbursements), a reimbursing bank is the financial institution instructed or authorized to provide reimbursement pursuant to a reimbursement authorization issued by the issuing bank.

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Q56

Which of the following can be used as an alternative to the transferable letter of credit?

A) Transferable letter of credit
B) Back-to-back letter of credit
C) Irrevocable confirmed letter of credit
D) Revolving credit

AI Explanation

A back-to-back letter of credit serves as a primary alternative to a transferable letter of credit. It allows an intermediary/exporter to use the original letter of credit from the buyer as security to issue a separate, secondary letter of credit in favor of the actual supplier.

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Q57

How many articles are there in Uniform Customs and Practice for Documentary Credits (UCP 600)?

A) 37 Articles
B) 38 Articles
C) 36 Articles
D) 39 Articles

AI Explanation

The Uniform Customs and Practice for Documentary Credits (UCP 600) consists of exactly 39 articles, structured to streamline rules, define banking roles precisely, and reduce ambiguities in trade finance.

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Q58

Letter of credit that can be changed without consent of the beneficiary is called __________________.

A) Irrevocable LC
B) Confirmed LC
C) Revocable LC
D) Sight LC

AI Explanation

A revocable letter of credit can be amended or cancelled by the issuing bank at any moment without needing prior notice or consent from the beneficiary (seller), though they are rarely used in modern trade due to high risk.

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Q59

The advising bank is generally in the country of _________________________.

A) Seller
B) Importer
C) All of the given options
D) Buyer

AI Explanation

The advising bank acts on behalf of the issuing bank to forward the letter of credit to the beneficiary and is generally located in the exporter's (seller's) home country to facilitate smooth communication.