Common Bank Interview Questions

Here is the list of common questions asked to our readers in their banking interviews. Most of the questions asked in banking interviews are related to banking terms and current trends in Indian Economy.

What is Balance of Trade?

The value of a country’s exports minus the value of its imports. Unless specified as the balance of merchandise trade, it normally incorporates trade in services, including earnings (interest, dividends, etc.) on financial assets.

What is Balanced Trade?

When A balance of trade equal to zero. (exports-imports=0)

What is Balance of merchandise trade?

The value of a country’s merchandise exports minus the value of its merchandise imports.

What is a favorable balance of trade?

It is the difference between exports and imports. Debit items include imports, foreign aid, domestic spending abroad and domestic investments abroad. Credit items include exports, foreign spending in the domestic economy and foreign investments in the domestic economy. A country has a trade deficit if it imports more than it exports; the opposite scenario is a trade surplus.

What is Balance of Payments?

A list, or accounting, of all of a country’s international transactions for a given time period, usually one year. Payments into the country (receipts) are entered as positive numbers, called credits; payments out of the country (payments) are entered as negative numbers called debits. A single number summarizing all of a country’s international transactions: the balance of payments surplus.

What is Balance of payments adjustment mechanism?

Any process, especially any automatic one, by which a country with a payments imbalance moves toward balance of payments equilibrium

What is Monopolistic Competition?

A market structure in which there are many sellers each producing a differentiated product. Each can set its own price and quantity, but is too small for that to matter for prices and quantities of other producers in the industry.

What is MFN?

MFN stands for Most Favoured Nation. The principle, fundamental to the GATT, of treating imports from a country on the same basis as that given to the most favored other nation. That is, and with some exceptions, every country gets the lowest tariff that any country gets, and reductions in tariffs to one country are provided also to others.

What is Gold Standard?

A monetary system in which both the value of a unit of the currency and the quantity of it in circulation are specified in terms of gold. If two currencies are both on the gold standard, then the exchange rate between them is approximately determined by their two prices in terms of gold.

What is Balance on capital account?

A country’s receipts minus payments for capital account transactions.

What is Balance on current account ?

A country’s receipts minus payments for current account transactions. Equals the balance of trade plus net inflows of transfer payments.

What is a Balanced budget ?

A government budget surplus that is zero, thus with net tax revenue equaling expenditure. A balanced budget change in policy or behavior is one in which a component of the government budget, usually taxes, is adjusted as necessary to maintain a balanced budget.

What is balanced growth of an Economy?

Growth of an economy in which all aspects of it, especially factors of production, grow at the same rate.

What is a Bank rate?

The interest rate charged by a central bank to commercial banks for very short term loans.

What is a Repo?

Repo is “Repurchase Agreement. An agreement to sell a security for a specified price and to buy it back later at another specified price. A repo is essentially a secured loan.

What is Repo Rate?

Whenever the banks have any shortage of funds they can borrow it from RBI. Repo rate is the rate at which our banks borrow rupees from RBI. A reduction in the repo rate will help banks to get money at a cheaper rate. When the repo rate increases borrowing from RBI becomes more expensive. On March 4, 2009 it was 5% in India (please check the latest figure by RBI)

What is CRR Rate in India?

Cash reserve Ratio (CRR) is the amount of funds that the banks have to keep with RBI. If RBI decides to increase the percent of this, the available amount with the banks comes down. RBI is using this method (increase of CRR rate), to drain out the excessive money from the banks.

What is a Reverse Repo Rate?

Reverse Repo rate is the rate at which Reserve Bank of India (RBI) borrows money from banks. Banks are always happy to lend money to RBI since their money are in safe hands with a good interest. An increase in Reverse repo rate can cause the banks to transfer more funds to RBI due to this attractive interest rates. It can cause the money to be drawn out of the banking system. Due to this fine tuning of RBI using its tools of CRR, Bank Rate, Repo Rate and Reverse Repo rate our banks adjust their lending or investment rates for common man.

What is SLR Rate?

SLR (Statutory Liquidity Ratio) is the amount a commercial bank needs to maintain in the form of cash, or gold or govt. approved securities (Bonds) before providing credit to its customers. SLR rate is determined and maintained by the RBI (Reserve Bank of India) in order to control the expansion of bank credit.

How is SLR determined?

SLR is determined as the percentage of total demand and percentage of time liabilities. Time Liabilities are the liabilities a commercial bank liable to pay to the customers on their anytime demand.

What is the Need of SLR?

With the SLR (Statutory Liquidity Ratio), the RBI can ensure the solvency a commercial bank. It is also helpful to control the expansion of Bank Credits. By changing the SLR rates, RBI can increase or decrease bank credit expansion. Also through SLR, RBI compels the commercial banks to invest in government securities like government bonds..

What is the main use of SLR?

SLR is used to control inflation and propel growth. Through SLR rate tuning the money supply in the system can be controlled efficiently.

What is Inflation in India?

Increase in the overall price level of an economy, usually as measured by the CPI /WPI or by the implicit price deflator. Inflation is as an increase in the price of bunch of Goods and services that projects the Indian economy. An increase in inflation figures occurs when there is an increase in the average level of prices in Goods and services. Inflation happens when there are less Goods and more buyers, this will result in increase in the price of Goods, since there is more demand and less supply of the goods..

What is Deflation?

A fall in the general level of prices. Unlikely unless the rate of inflation is already low, it may then be due either to a surge in productivity or, less favorably, to a recession. Deflation is the continuous decrease in prices of goods and services. Deflation occurs when the inflation rate becomes negative (below zero) and stays there for a longer period.

What is a Barter economy?

An economic model of international trade in which goods are exchanged for goods without the existence of money. Most theoretical trade models take this form in order to abstract from macroeconomic and monetary considerations.

What is Basel I?

Also known at Basel Capital Accord, this was an agreement in 1988 by the Basel Committee of central bankers to measure the credit risk of commercial banks and set minimum standards for bank capital in order to reduce the likelihood of international repercussions due to bank failures.

What is Basel II?

The Basel II Framework describes a more comprehensive measure and minimum standard for capital adequacy that national supervisory authorities are now working to implement through domestic rule-making and adoption procedures. It seeks to improve on the existing rules by aligning regulatory capital requirements more closely to the underlying risks that banks face. In addition, the Basel II Framework is intended to promote a more forward-looking approach to capital supervision, one that encourages banks to identify the risks they may face, today and in the future, and to develop or improve their ability to manage those risks. As a result, it is intended to be more flexible and better able to evolve with advances in markets and risk management practices.

The efforts of the Basel Committee on Banking Supervision to revise the standards governing the capital adequacy of internationally active banks achieved a critical milestone in the publication of an agreed text in June 2004.

What is a Beggar thy neighbor policy?

For a country to use a policy for its own benefit that harms other countries. Examples are optimal tariffs and, in a recession, tariffs and/or devaluation to create employment.

What is a Bill of Lading?

This term is normally used in shipping industry. The receipt given by a transportation company to an exporter when the former accepts goods for transport. It includes the contract specifying what transport service will be provided and the limits of liability.

What is the use of color boxes in WTO category of subsidies?

Used with a color, a category of subsidies based on status in WTO: red=forbidden, amber or orange=go slow, green=permitted, blue=subsidies tied to production limits. Terminology seems only to be used in agriculture, where in fact there is no red box.