Commercial Bank Questions and Answers:

The following are the 25 important commercial bank questions and answers:

Question 01: What is Commercial Bank?

Answer: A commercial bank is a bank that collects deposits, lends, and provides various
banking services to its customers for the purpose of making a profit.

Question 02: What are the Objectives of Commercial Banks?

Answer: The followings are the most important objectives of commercial banks:

 It was founded with the primary objective of making a profit.

 Introduce cheques, bills of exchange, and other forms of payment as a medium of
exchange.
 Obtaining extra money from the general public and forming capital.
 Public health and safety
 Assisting and participating in the establishment of lending policy and regulation by the
central bank.
 Ensuring equitable wealth distribution

Question 03: What are the Features of a Commercial Bank?

Answer: The important features of a commercial bank are as follows:

 Objectives of earning profit

 Collection of savings and sanction of short term loan
 Creation of medium of exchange
 Branch banking system
 Service oriented organization

Question 04: What are the Functions of Commercial Banks?

Answer: The following are the most important functions of commercial banks:

Main Functions:

 Acceptance of deposits and advancing interest

 Granting loans and charging interests
 Creating loan deposits
 Creating a medium of exchange
  Creating capital
 Import and Export assistance
 Government treasury service

Other Functions:

 Capital investment
 Contribution to economic growth
 Money Transfer
 Security of Money
 Employment creation

Question 05: What is the Importance of a Commercial Bank?

Answer: The importance of a commercial bank is as follows:

 Collecting savings and creating capital

 Providing loans & investment
 Creating medium of exchange
 Expansion of home trade
 Helping international trade
 Role as agent
 Creating employment
 Assistance in the transfer of money

Question 06: What is the Role of a Commercial Bank in the Economic Development of a
Country?

Answer: The role of a commercial bank in the economic development of a country is as follows:

 To form the necessary capital for the country by collecting small savings.
 Provide short, medium, and long-term loans for business expansion.
 Issuing checks, bills of exchange, drafts, etc. as an easy medium of exchange.
 To play an important role in the expansion of trade and commerce of the country through
safekeeping and transfer of money, sale of shares and debentures, etc.
 To assist in international trade by issuing certificates, issuing exchange rates, paying
prices, etc.
 To maintain the stability of the economy as directed by the Central Bank to keep the price
level of the country right.
 To provide employment to a large number of people through branch expansion.
 To carry out the government’s fiscal policy
Question 07: What are the Principles of Commercial Bank?

Answer: The important principles of commercial bank are as follows:

 Liquidity Principle
 Solvency Principle
 Safety Principle
 Profitability Principle
 Collection of Savings Principle
 Loan and Investment Principle
 Efficiency Principle
 Providing Services Principle
 Secrecy Principle
 Technological Development Principle
 Goodwill Principle

Question 08: What is the Liquidity Principle of a Commercial Bank?

Answer: One of the principles of commercial banks is the liquidity principle. Liquidity is the
ability to pay customers’ deposits on demand.

The liquidity principle of a commercial bank is the strategy of conserving the desired amount of
liquid assets in order to be able to pay the checks of the customers on demand.

Question 09: Why the Liquidity Principle is so Important for Commercial Banks?

Answer: The main source of funds for commercial banks is demand deposits. This means the
bank is obliged to give back only on demand.

If a bank fails to repay such money on demand, the reputation of the bank is severely damaged.
As a result, no one deposits money in that bank. Commercial banks have to follow a liquidity
policy so that this situation never happens

Question 10: What is the Profitability Principle of a Commercial Bank?

Answer: The profitability principle of a commercial bank is the principle of making more profit
by lending or investing in safe and profitable sectors while maintaining liquidity conditions.

Question 16: What are the Funding Sources for Commercial Banks?

Answer: The following are the most common sources of funds for commercial banks:
  Paid Capital
 Reserve Fund
 Deposits
 Borrowings

Question 17: What are the Sources of Income of Commercial Bank?

Answer: Commercial banks generate income from a variety of sources, including:

 Interest on loan
 Investment
 Bill discount
 Commission Received from Bank draft, Travelers cheque etc
 Rent of Lockers
 Agency Service
 Brokerage in Purchase or Trade of Shares
 Foreign Exchange

Question 18: What are the Expenditures of Commercial Banks?

Answer: Commercial banks incur the following expenses as part of their day-to-day operations:

 Paying interest to clients on their deposits.

 Paying interest to the central bank on the borrowed funds.
 Salary and allowance payments to employees, Director, and manager
 Charges of the auditor
 Charges for litigation or other legal actions taken to collect unpaid loans
 Office and warehouse rents.

Question 19: What is Bank Guarantee Certificate?

Answer: A bank guarantee certificate is a certificate by which a bank assures a person or

organization that a customer will not pay a certain amount of money within a certain period of
time or if a liability arises.

Question 20: How Loan Creates Deposit?

Answer: If the loan is transferred to the borrower’s bank without paying in cash, the loan will
create a deposit as per the bank’s general rules.

Question 21: What is the Loan Deposit Creation of a Commercial Bank?

Answer: The fancy way in which a commercial bank does not lend directly to cash but transfers
it as a borrower’s deposit and creates a new loan from that deposit is called commercial bank
loan deposit creation or loan-to-deposit creation.

Question 22: What are the Limitations of Creating Loan Deposit?

Answer: The followings are the most common limitation of creating loan deposits:

 Insufficient cash fund

 Insufficient Primary deposits
 Increase the rate of CRR by the central bank.
 Lack of public awareness
 Principle of central bank
 Lack of appropriate bank security

Question 23: Why a Commercial bank is Called a Short-Term Loan Trader?

Answer: The main source of funds for a commercial bank is the deposit and most of which the
bank is obliged to return to its customer on demand.

This is why the bank cannot lend this money in the long run, which is why the bank has to give
short-term loans. That is why commercial banks are called short-term loan traders.

Question 24: Why Commercial Bank is called the Middle Man of Money Market?

Answer: The money market refers to the market demand for short-term loans in the country.
Commercial banks are the main institution in the country to meet this demand. That is why
commercial banks are called the middle man of the money market.

Question 25: Why Commercial Bank is called the Life Blood of Economy?

Answer: Banks in a country basically means commercial banks. Commercial banks play a major
role in economic activities by providing banking services to all types of people. So it is
considered as the life force of the economy.

Question 01: What is Bank Account?

Answer: A bank account is an account that is opened in the name of a customer and allows the
customer to conduct transactions and receive banking services.

Question 02: What is the Importance of Opening a Bank account?

Answer: The importance of opening a bank account is as follows:

 Money safety preservation

 Development of a saving attitude
 Provision of risk-free income
 Establishment of the national capital
 Economic growth
 Obtaining banking services

Question 03: What is the Procedure of Opening Current or Savings Bank Account?

Answer: The procedure of opening a current or savings bank account is as follows:

 Collection of application form

 Fill-up application form
 Introduction
 Enclosing necessary documents (Pic, NID, TIN, Passport, Trade License, etc.) with the
application form
 Submission of application form
 Fill up the specimen signature card
 Collecting deposit slips and depositing primary deposit
 Receiving checkbook and Debit card

Question 04: What is the Procedure of Fixed Account?

Answer: The procedure of opening a fixed bank account is as follows:

 Collection of application form

 Fill-up and submission of application form
 Depositing money and collecting fixed deposit

Question 05: What are the Rules of Closing a Bank Account?

Answer: If a customer wants to close his current or savings account, he has to go to the bank and
apply for closing the account by handing over the passbooks and unused check forms.

The bank authorities then refund the remaining amount to the customer by deducting the cost of
closing the account from the customer’s account. Immediately after the refund, the account
holder’s name is deducted from the bank’s ledger and the word ‘closed account’ is written next
to his name.

Question 06: What are the Types of Bank account?

Answer: The types of a bank account are as follows:

1. Current account
2. Savings account
3. Fixed account
4. Special account:

 Pension account
 Insurance savings account
 Recurring account
 Loan account
 Non-resident foreign account
 Foreign currency non-resident account

Question 07: What is a Current Account?

Answer: A current account is an account where you can deposit and withdraw money as many
times as you want in a day and the bank does not pay interest on this account.

Question 08: What is Special Current Account?

Answer: A special current account is a type of current account in which money can be deposited
and withdrawn at any time and the bank only pays a small amount of interest or profit.

Question 09: What are the Advantages of a Current Account?

Answer: The three important advantages of a current account are as follows:

 In this type of account, the customer can deposit and withdraw money as many times as
he wants in a day.
 The customer of this account gets the benefit of a bank overdraft without collateral.
 Such accountants get additional benefits in case of transfer of money, collection of
checks, and payment of various bills.

Question 10: What is Savings Account?

Answer: A savings account is one in which there is an obligation to withdraw money no matter
how many times you deposit in a day and the bank pays interest or profit to the customer.

Question 11: What are the Advantages of a Savings Account?

Answer: The main advantages of a savings account are as follows:

  This account can be opened by depositing a small amount of money so that anyone can
open such an account.
 This type of account increases the savings tendency.
 Such accounts increase the savings tendency among the people of the country which
helps in capital formation.
 By opening such an account a customer gets a banking facility as well as satisfactory
interest or profit on the accumulated deposit.
 Even an ordinary person can get a banking facility by opening such an account

Question 12: What is Pension or Special Savings Account?

Answer: A pension or special savings account is one in which the customer deposits money
every month for a set period of time, and at the end of the term, the bank usually pays a large
sum of money all at once.

Question 13: What is an Insurance savings Account?

Answer: The insurance savings account is the account in which the depositor receives the
benefits of both a savings account and an insurance benefit.

Question 14: What is a Fixed Account?

Answer: A fixed account is one in which money is deposited for a set period of time in order to
earn interest or profit and the bank does not provide a checkbook in exchange.

Question 15: What are the Advantages of Fixed Account?

Answer: The three important advantages of a fixed account are as follows:

 Customers of this account receive higher interest or profit from the bank.
 Customers of this account gets a certain amount of loan facility against his deposit.
 This types of accounts play an important role in generating capital.

Question 16: What is Recurring Account?

Answer: A recurring account is an account in which the depositor can deposit money repeatedly
within a certain period of time and withdraw money in a single term or in installments.

Question 17: What is Specimen Signature Card?

Answer: The depositor’s specimen signature card is called a specimen signature card because it
is used to determine whether the check’s signature is correct.
Question 18: What is Bank Pass Book?

Answer: A bank pass-book is a small book that a bank gives to a savings account customer to
provide information about his transaction.

Question 19: What is a Bank Statement?

Answer: A bank statement is a computer print statement or PDF file that a bank provides to its
customers to inform them of transaction information.

Question 20: What is Deposit Receipt Book?

Answer: The deposit receipt book is the receipt book printed by the bank for the customer to use
when depositing money as a bank.

Question 21: What is a Check-Book?

Answer: A checkbook is a book that the bank provides to its customers for withdrawing money
from their accounts.

Question 22: What is KYC Form?

Answer: The KYC form is a form that the account holder is required to fill out with the
applicant’s various information at the time of opening the bank account, along with the
application form, and the bank authorities must verify and sign the information provided by the
account holder.

Question 23: What are the Considerable Factors for Selecting Bank Account?

Answer: The considerable factors for selecting a bank account are as follows:

 Nature of client
 Nature and quantity of transaction
 Banking services
 Interest or profit
 Loan facilities
 Idle and surplus money
 Safe custody

Question 24: Which Type of Bank Account is Best for a Businessman and why?

Answer: It is best for a businessman to open a current account.

A current account is an account through which the bank allows its customers to deposit and
withdraw money as many times as they wish during the working day.

A businessman has to make regular financial transactions and needs various types of banking
assistance in addition to loans, cash loans, overdrafts. Which is not available as others. So
businessmen open current accounts.

Question 25: Which Account is Best for a Service-Holder and Why?

Answer: It is best for a service-holder to open a savings account.

The account that the customer opens in the bank for the purpose of savings and transactions
through a bank is called a savings account.

A service-holder receives a fixed salary at the end of the month, deposits it in the bank, and
spends it when needed. It saves money. On which the customer gets some interest and gets
various banking benefits. So a service-holder opens such an account.