2nd Year Banking Important Questions With Answer ~ XII Banking Past Papers

2nd Year Banking Important Questions With Answer ~ XII Banking Past Papers
2nd Year Banking Important Questions With Answer ~ XII Banking Past Papers

Banking (2018)

Section ‘’B’’ (Short Answer Question)
XII Banking Solved Paper 2018

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1. Define letter of credit explains irrevocable letter of credit.

Letter of Credit:

The commercial banks issue letter of credit to the tourists.

The tourists their letter with him in which the bank instructs to pay a certain amount to the holder of the letter.when his letter is shown within or outside the bank, it pays the amount and makes the bank debtor.

Kinds of letter of credit :

  • Letter of credit can be divided into two categories.
  • Letter of commercial credit.

Letter of travelers facility.

1. Letter of commercial credit:

These credits are used for business purpose.
They are of the following types;
  • Confirmed or irrevocable credit
  • Unconfirmed or revocable credit
  • Documentary credit
  • Clean or non documentary credit
  • Fixed credit
  • Revolving credit
  • Omnibus credit
  • Transferable credit
  • Divisible credit
  • Acceptance credit
1.Confirmed or irrevocable credit:

By issuing this type of credit the bank gives an undertaking to accept and pay bill of exchange.

2. Enlist the kinds of bank on the basis of functions. describe central bank and saving bank.

Kinds of bank:

Following are the kinds of bank:
  • Commercial bank
  • Industrial bank
  • Agricultural bank
  • Foreign bank
  • Mortgage bank
  • Co-operative bank
  • Central bank
  • Saving bank

Saving bank:

They mobilize the savings of men of small mean. they collect their saving and pay interest on the deposits.

Central bank:

A central bank is the most important institution of a country which is responsible for sale guarding its financial stability and thus it is guided not by profit motive but by the principle of maximum welfare of the society.
3. Define secured and unsecured loans?

Secured loans:

The loans which are advanced by commercial against pledge, mortgage or colleteral securities are called as secured loans. A commercial bank adopts following precaution before advancing these loans.

  • Life insurance policy
  • Stock exchange securities
  • Immovable properties
  • Valuable articles
Unsecured loans:

The loans are granted by the commercial bank against loans are called unsecured loans. these loans are advanced to those people who have a good reputation. These loans are granted on the goodwill or personal guarantee of the borrower.there are following kinds of unsecured loans.

  • Overdraft
  • Demand loans
  • Discounting bill of exchange
  • Fixed loans

4. Differentiate b/w bill of exchange and promissory.
Bill of exchange 
1.A bill involves three parties:
Drawer , drawee payee
There are only two parties to it:
1.Maker drawer (Debtor) or promissor.
2.promisee , creditor or drawee 
2.It is an unconditional order.
It is an unconditional promise.
3.It must be accepted or else it will noy be valid.
It must requires no acceptance.
4.The drawer maker is the debtor .
The drawer maker is the creditor.
5.The responsibility of the drawer is secondary and depends on dishonor.
6.No notice must be served in case of dishonor.
The responsibility of the drawer is primary and final.
No notice is require in dishonor.

5.Give the difference b/w commercial bank and central bank.
      Central  bank
        Commercial  bank 
1. A central bank is formed under an act of the ordinance of the government.
A commercail bank is formed under the companies ordinance 1984.
2. A central bank controls the amount of foriegn exchange.
A commercial bank does not control the amount of foriegn exchange.
3. A central bank is responsible for the promotion of banking sector.
A commercial bank is noy responsible for the promotion.
4. It does not make public dealing directly to operate their account
It makes public dealings directly to operate their accounts.
5. It help in the preparation of governments trade and fiscal policies.
It helps the government for the impentation of trade and fiscal policies.

6. Define rate of exchange . name factors which affect rate of exchange.

Rate of exchange:
A rate of exchange is the ratio at which one country’s currency can be exchange for another.
If one American dollar can buy Pakistan's fifty rupees the rate of exchange and a rupee would be
1 US $ = Pak Rs 70
1 Pak Rs = 0.014 (less than 1.5 cents)

Factors of Rate of Exchange:

The causes of fluctuation of the rate of exchange and the factors on which the rate of exchange are as follows:

  • Business condition
  • Influence of stock exchange
  • Currency position
  • Banking influence
  • Business of import and export
  • Speculation
  • Foreign loans
  • Movements of capitals

7. Write about E-banking and any three of its advantages.


When banking transactions are struck electronically rather than face to face , it is referred to as E-banking . it just like E-commerce or E-marketing. In which business transaction including buying and selling are performed electronically.

The term electronic banking wide in scope including pc banking, virtual banking, phone banking, mobile phone banking and ATM banking.

Advantages of E-banking:

E-banking afford many advantages which the client will not otherwise enjoy.

  • To draw money from the bank, you don’t have to line up in long quoese that cost time and labour .
  • Transactions are processed at a fast speed.
  • For consumer and businessman better and efficient financial management is facilitated.

8. Define cheque. Write the essential of cheque.


Cheques are bills of exchange drawn on a banker payable on demand . they are instruments used to withdraw money from the bank.

Essential of cheque:

  • In writing
  • Unconditional
  • Upon on a bank
  • Certain on a bank
  • Payee must be certain
  • Payable on demand
  • Signature of the drawer
  • Only me


A cheque cannot be drawn so as to be payable condition.  The drawer order to the drawee bank must be unconditional.

A certain sum of money:

A cheque should contain an order on a certain sum of money. Only if a cheque is drawn to do something in addition to other than pay money.it cannot be a cheque.

9. Define general crossing. Describe special crossing.

General crossing:
When two parallel transverse lines are drawn across the cheque it becomes a cross cheque with general crossing.

general crossing may be blank or may carry words b/w it as

  • Not negotiable
  • Account payee only
  • & CO
Not negotiable:

A cheque crossed not negotiable losse its negotiability and ceases to be a negotiable instrument. If this cheque is stolen, the true owner will be entitled to recover the loss from the banker who paid out on it.

Special crossing:

If two parallel transverse lines are drawn across the cheque with the name of a bank, the lines are called special crossing. The naming of the bank b/w the parallel lines offers additional security in the transfer of monies, and the bank designated therein now the use of special crossing is no longer in vogue.

  • This cross cheque can only be deposited in the branch of Habib bank
  • This cheque canbe deposited in the branch of UBL.

10. Explain 5cs of credit management.

5cs of credit instruments:

This aim causes reason and objective of credit control are as follows

  • Stability in product and employment
  • Stability in prices
  • Stability in exchange rate
  • Distribution of credit
  • Safety of gold reserve
Stability in products and employment:
Production and employment are interwoven . the greater the production the higher the employment. The higher employment rate brings prosperity to the employment.

Stability in price:
The monitary policies of credit control produces stability in the purchasing power of currency . this process is helpful to avoid the purchasing power of inflation and deflation.

Stability in exchange rate:
The monitary policy of credit control is maintaining the relative stability in the exchange rate .the balance of payment is maintained by the implementation of the credit control of the monitary policy.