FINANCIAL LITERACY EXERCISE SOLUTIONS

EXERCISE SOLUTIONS

I. Very Short Answer Type Questions (1 Mark)

1. What is a bank?

Answer: A bank is a financial institution that deals with loans and collects savings from people to offer them to borrowers like farmers and students.

2. What is a debit card?

Answer: A debit card (or ATM card) is an electronic payment card that allows account holders to withdraw cash or make cashless payments directly from their bank account.

3. In which year was the Reserve Bank of India set up?

Answer: The Reserve Bank of India was set up in 1935.

4. Give an example of a UPI App.

Answer: Examples include Paytm, PhonePe, Google Pay, and BHIM.

5. What is a current deposit?

Answer: While the text focuses on "primary or passive deposits" as the savings deposited by a saver, a current deposit is generally a type of bank account used by businesses for frequent transactions.

6. Mention one type of financial instrument.

Answer: Stocks (or Bonds/Mutual Funds) are types of financial instruments.

7. What is the other name of the primary market?

Answer: The primary market is also known as the New Issues Market (NIM).

8. SEBI was established in which year?

Answer: SEBI was established on 12th April, 1992.

9. What is a Systematic Investment Plan (SIP)?

Answer: A SIP is an investment of a fixed amount of money in a mutual fund at regular intervals, like every month.

10. Mention one precaution to be taken against cyber fraud.

Answer: Create strong passwords that are hard to guess and avoid using personal details like your name or birthdate.

II. Short Answer Type Questions (2–3 Marks)

1. What are the functions of the Regional Rural Banks (RRBs)?

Answer: (i) To provide loans at low interest rates to villagers to save them from moneylenders.

(ii) To collect rural savings and invest them in productive work.

2. Amount transfer using internet banking can be done through which methods?

Answer: It can be done through three methods: NEFT (National Electronic Fund Transfer), RTGS (Real-Time Gross Settlement), and IMPS (Immediate Payment Service).

3. State the different types of banking cards.

Answer: The two main types are Debit Cards (using your own money) and Credit Cards (borrowing money from the bank to pay later).

4. How are Non-Banking Financial Institutions (NBFIs) different from banks?

Answer: (i) Bank depositors can withdraw money using cheques, but NBFI depositors cannot.

(ii) Banks have a 'Deposit Insurance Scheme' to protect savers, which NBFIs do not have.

5. What is Unified Payments Interface (UPI) and its features?

Answer: UPI is an instant payment system for mobile devices.

Features: (i) Makes payments easy and safe.

(ii) Uses a unique UPI ID or QR code.

(iii) Follows a two-factor authentication rule (mobile link and PIN).

(iv) Has a daily limit of ₹1 lakh.

6. What are the components of the financial market?

Answer: The two components are the Money Market (for short-term) and the Capital Market (for long-term). The Capital Market is further divided into the Primary Market and the Secondary Market.

7. What are bonds?

Answer: Bonds are debt instruments where an investor lends money to a company or the government for a fixed time in exchange for regular interest payments.

8. State the precautions in taking financial decisions.

Answer: (i) Never borrow money just to invest. (ii) Don't treat credit cards as free money. (iii) Always follow RBI and SEBI guidelines. (iv) Don't be greedy for "get-rich-quick" schemes.

9. What are the types of Cyber Frauds?

Answer: Types include Phishing (fake emails/websites), Identity Theft, Investment Scams, Ransomware (locking computer files), and Online Banking fraud.

10. Write a brief note on the origin of banks.

Answer: Banking started in the Middle Ages in Italy with the Bank of Venice. The word comes from the Italian banco or German banck. In India, the first bank was the Bank of Hindustan (1770), and in Assam, it was the Gauhati Bank (1926).

III. Long Answer Type Questions (4 Marks)

1. Explain any four functions of the Central Bank (RBI).

Answer: (i) Issue of Currency: It has the sole right to print money.

(ii) Banker’s Bank: It supervises and helps all other banks.

(iii) Controller of Credit: It regulates how much money is available in the economy.

(iv) Custodian of Foreign Exchange: It manages the country's foreign money reserves.

2. Explain the precautions to be taken for using Banking cards.

Answer: (i) Never share your PIN, CVV, or card details with anyone.

(ii) Be alert at the ATM so no one sees your PIN.

(iii) Report a lost or stolen card to the bank immediately to block it.

(iv) Use credit cards only for needs, not for overspending.

3. What are the functions of the commercial banks?

Answer: (i) Accepting deposits from the public.

(ii) Offering loans to farmers, students, and businesses.

(iii) Creating "credit money" from primary deposits.

(iv) Providing safe custody for valuables in lockers.

4. What is the financial market? State the role of the financial market.

Answer: It is a place where buyers and sellers trade securities like stocks and bonds.

Role: (i) It helps move savings into useful investments.

(ii) It provides "liquidity," allowing people to turn investments into cash quickly.

(iii) It helps industries grow by providing funds.

(iv) It maintains economic stability.

5. What is a mutual fund? State the reasons why investors prefer mutual funds.

Answer: A mutual fund pools money from many investors to invest in a mix of stocks and bonds, managed by a professional "fund manager".

Reasons for preference: (i) Professional Management by experts.

(ii) Diversification, which reduces risk.

(iii) It is simple and requires only a small amount of money to start.

6. Explain the following: (a) PAN card (b) Aadhaar card.

Answer:

• (a) PAN Card: A 10-digit number issued by the Income Tax Department. It is needed for all tax-related work and financial information.
• (b) Aadhaar Card: A unique ID number that acts as proof of identity and address. It is essential for "KYC" to open bank accounts or get government benefits.

6. Briefly explain any two functions of each: (a) IDBI (b) RRBs (c) NABARD (d) SIDBI.

Answer:

• (a) IDBI: Provides financial help to industries and develops industry-related institutions.
• (b) RRBs: Provide cheap loans to villagers and collect rural savings.
• (c) NABARD: The main institution for rural credit; it monitors rural schemes and coordinates government development plans.
• (d) SIDBI: Promotes technology in small industries and creates markets for their products.

7. What are the precautions an individual needs to take for using Digital Payments?

Answer: (i) Avoid using public Wi-Fi for banking. (ii) Check the recipient's details carefully before sending money. (iii) Remember that a PIN is only needed to pay, never to receive money. (iv) Never scan a QR code to receive money.

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