Principle & Practice of Banking

1. Which of the following instrument is used by the corporate for raising fund
from the Money Market?
1. Certificate of Deposits (CDs)
2. Inter Bank Participatory Certificates
3. Equity & Preference Shares
4. Commercial Papers(CPs)
5. (3+4)

Ans: 4

2. CPs are issued by: Tick the incorrect

1. Banks
2. Financial Institutions
3 .PDs
4. Blue Chip Corporate
5. None is incorrect
Ans: 1

3. Blue Chip Corporate means unrated corporate.

1. True
2. False
Ans: 2

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4. Banks can invest in CPs issued by the Corporate

1. True
2. False
Ans: 1

5. Interest Rate for issuing-investing in CPs is determined by:

1. Market demand-supply factor
2. RBI
3. Investing Entities
4. Issuing Entities
5. Both (3) & (4) agree mutually

Ans: 5

6. Initially Highly Rated (Blue Chip) Corporate was permitted to issue CPs.
Now, in terms of new guidelines Bank Commercial Paper Directions, 2012
issued by RBI, which of the following(s) is/are also allowed for short-term
borrowing in the Money Market by issuing CPs
1. All India FIs
2. PDs
3. Banks
4. (1+2)
5. (1+2+3)

Ans: 4

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7. A bank is facing with excess liquidity due to less demand for loans &
advances. Bank can invest in Govt. approved securities but there is no such
security where return is more than banks deposit (fund) cost say 8%. A
Company needs fund and agrees to pay 9 % through issuing CP. Can bank
invest to park its excess liquidity?
1. Yes
2. No, banks are under obligation to park its excess liquidity only in govt./
govt. approved securities
3. Yes, provided RBI specifically permits
4. Bank can neither invest in CP nor can invest in Govt. Securities. Bank has
to deploy that fund only in the forms of Loans & advances to ensure higher
profitability
5. None is correct

Ans: 1

8. CPs: please find the incorrect:

1.Can be issued either in physical form or in Demat form
2. issued in the form of usance promissory note in case of physical form
3. No stamp duty is needed for physical form of CP
4. It is transferable by endorsement & delivery
5. It is issued on discounted basis, hence investors get it at discounted value
and receive face value on maturity
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Ans: 3

9. Physical form of CP, which is issued in the form of Usance Promissory

Note is------------------.
1. Secured
2. Partly Secured
3. Unsecured
4. Either (1) or (3)
5. Either (1+2+3) are relevant

Ans: 3

10. Who can invest in CPs? Tick the incorrect

1. Banks
2. PDs
3. FIs
4. Blue Chip Corporates
5. None is incorrect

Ans: 4

11. The Banks, FIs, PDs can invest only in CPs under Demat form but not in
Physical Form of CPs.
1. True
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Principle & Practice of Banking

2. False
Ans: 1

12. Which of the following(s) is / are incorrect in respect of the term of CPs?
1. Minimum Period 7 days
2. Maximum period 1 year
3. Maximum Period 1 year or upto the date of validity of the Credit Rating of
the issuing entity(s)
4. As it is issued in the form of Usance Promissory Note, grace period is
allowed in calculating maturity date as available in Usance Promissory Note
in terms of Negotiable Instrument Act.
5. (2+4)

Ans: 5

13. An eligible corporate can issue CPs provided the Tangible Net
Worth(TNW) of the corporate as per latest audited balance sheet should be
minimum--------------lakhs
1. 100
2. 200
3. 300
4. 400
5. 500
Ans: 4

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Principle & Practice of Banking

14. The Corporate willing to issue CPs should comply the followings. Tick the
incorrect.
1. Issuing company should have sanctioned working capital facility by banks
/ FIs.
2. The credit facility account of the issuing company should be Standard
Asset (SA) as per Asset Classification Norm,
3.The Company should have a satisfactory Rating Certificate from a Credit
Rating Agency approved by SEBI with minimum rating of A2 or P2 or PR2
etc. if rated by ICRA, CRISIL, CARE respectively, which indicates high safety,
4. The rating should be current, generally not more than 2 months old nor
fallen due for renewal.
5. Once the Company is rated by approved rating agency that would serve
the purpose irrespective of the age of the Credit Rating Certificate.

Ans: 5

15. Maximum Size of a CP can be decided by the Board of Directors of the

issuing Company subject to ceiling: which of the following(s) is / are correct?
1. the limit indicated in the rating certificate
2. the credit limit enjoyed by the issuing company
3. limit permitted by the banker of the company for this purpose
4. either 1 or 2 or 3
5. (2) or (3), whichever is less.
Ans: 1

16. If the maturity date of a CP falls on a holiday, it is payable on

immediate:
1. Succeeding Day
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Principle & Practice of Banking

2. Succeeding working day

3. Preceding day
4. Preceding working day
5. None
Ans: 4

17. Maximum Ceiling of CPs issued by eligible financial institutions is subject

to:
1. as decided by the board
2. Cap limit fixed by RBI
3. Umbrella Limit fixed by RBI
4. 100 % of its net-worth as per latest audited balance sheet
5. (1) or (4), whichever is less
Ans: 3

18. Who can issue Corporate Guarantee i.e. guarantee towards the payment
of the CP issued by the issuing company.
1. Banks
2. Non-bank financial entities
3. other commercial corporate
4. (2+3)
5. (1+2+3)
Ans: 4

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19. Maximum size of CP issued by the eligible FIs is the Umbrella Limit
fixed by the RBI. Umbrella Limit refers to difference between 100 % of its
Net Worth as per latest audited balance sheet and existing---------------liability of the FIs
1.Term Money Borrowing
2. Term Deposit
3. Certificate of Deposit (CDs)
4. Inter-Corporate deposit
5. Sum total of (1+2+3+4)

Ans: 5

20. Financial Institutions being NBFCs are eligible to issue CPs but FIs being
banks are not eligible.

1. True
2. False

Ans: 1

21. Underwriting & Co-acceptance of CPs is prohibited.

1. True
2. False

Ans: 1
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Principle & Practice of Banking

22. Who can be appointed as Issue Payment Agent (IPA) for issuing CP by
an eligible Corporate:
1. All Commercial Banks
2. only Public Sector Banks
3. Only Scheduled Commercial Banks (SCBs)
4. (3) + NBFcs
5. (2) + (NBFCs)

Ans: 3

23. CPs are issued under:

1. Public Issue
2. Private Placement
3. Either (1) or (2) as opted by the Issuing Entity
4. Both (1) & (2) simultaneously is permitted
5. None

Ans: 2

24. An issue of CP would remain open for a maximum period of:

1. 7 days
2. 15 days
3. 21 days
4. 30 days
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5. Till eligible investor(s) invest(s)

Ans: 2

25. Buy Bank of CP issued (Tick the most irrelevant)

1. Not permissible
2. Permissible
3. Permissible only after 7 days from issue date
4. Buy back can be made in secondary market only & at prevailing market
price
5. (3+4)

Ans: 1

26. CPS traded Over The Counter (OTC) need to be reported within------------ to the FIMMDA reporting system,
1. 10 minutes
2. 15 minutes
3. 25 minutes
4. 30 minutes
5. 60 minutes
Ans. 2

27. Guidelines pertaining to issue of CPS (Tick the incorrect)

1. RBI frames guidelines on Regulatory part
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2. FIMMDA frames guidelines on procedural & documentation part

3. SEBI frames guidelines for trading part part
4. (2+3)
5. None is incorrect.

Ans: 3

28. All scheduled banks acting as IPA for CPs should report RBI within----------- from the date of issue:
1. 3 days
2. 7 days
3. 5 days
4. Overnight
5. None
Ans: 1

29. ORFS stands for:

1. Online Reporting of Financial Schemes
2. Online Return Filing Standards
3. Online Return Filing System
4. Online Regulation & Financial Supervision
5. None

Ans: 3

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Principle & Practice of Banking

30. IPA of CPs needs to report the details of issuing CPS on ORFS within---------- days.
1. 1
2. 2
3. 3
4. 4
5. 5

Ans: 2

31, Commercial Bills are --------------------Instrument.

1. Debt Market
2. Stock Market
3. Money Market
4. Only Trade Bill
5. None
Ans: 3

32. Commercial Bill is:

1. Not Transferable
2. Transferable
3. Quasi-Negitiable
4. Negotiable
5. Either (1) or (4)

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Ans: 4

33. The party or entity who issues Commercial Bill is known as:
1. Issuing Company
2. Maker
3. Drawer
4. Either (1) or (2)
5. Either (1) or (3)

Ans: 3

34. Banks can------------------ Commercial Bills for the customer-Supplier

1. Collect
2. Purchase
3. Discount
4. (2+3)
5. (1+4)

Ans: 5

35. Under a Commercial Bill, Drawer gets fund from the bank before
collection of the proceeds from the Drawee, is known as:
1. Bill Purchase
2. Bill Discounted
3. Bill Rediscounted
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4. Bill Negotiated
5. Either (1) or (2)

Ans: 5

36. Who can rediscounts the Bills in Commercial Bill Rediscounting Markets,
discounted by the banks in favour of the Drawer & facing fund crisis, in
terms of extant guidelines in force. Tick the Incorrect.
1. RBI
2. SBI DFHI Ltd.
3. SCBs & Selected Scheduled State Co-operative / Urban Co-operative
banks
4. AIFIs & Mutual Finds
5. Mutual Funds

Ans: 1

37. Bills lodged for getting rediscounted by the Discounting Banks should
have unexpired usance period not more than-------------days.
1. 30
2. 45
3. 60
4. 90
5. 180

Ans: 4
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Principle & Practice of Banking

38. Banks can not rediscount bills discounted by other banks but can do so if
discounted by NBFCs.

1. True

2. False

Ans: 1

39.Bills covering---------- cannot be discounted by banks.

1. Payment of electricity charges
2. Payment of Custom Duty
3. Lease rentals
4. Sale of securities.
5. (1+2+3+4)

Ans: 5

40. Bills are discounted by the banks favouring clints to provide them
finance which can be termed as -----------------finance under -------------limit.
1. Term Loan / BPBD (Bill Purchased & Bill Discounted) Limit
2. Demand Loan / BPBD limit
3. Project Finance / BPBD limit

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4. Working Capital Finance /BPBD

5. Either (1) or (4)

Ans: 4

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