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Questions and Answers
What is the purpose of the returned item fee charged by banks?
What is the purpose of the overdraft fee charged by banks?
What is the definition of liquidity in the context of banking?
What is the purpose of the Cash Reserve Ratio (CRR) mandated by the Reserve Bank of India?
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What is the meaning of the term 'basis point' in the context of interest rates?
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What is the main purpose of the KYC (Know Your Customer) procedure in banking?
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What is the difference between RTGS and NEFT in fund transfer technologies?
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What is the primary difference between APR (Annual Percentage Rate) and compound interest?
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What is the purpose of a processing fee in banking?
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What is the primary advantage of a no-frills account?
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Study Notes
Banking Fees and Charges
- Returned item fee is charged when a check cannot be processed due to insufficient funds, helping banks recover costs associated with managing bounced transactions.
- Overdraft fee applies when an account holder spends more than their available balance, serving as a penalty and compensation for banks facilitating the transaction.
Key Banking Concepts
- Liquidity refers to the availability of liquid assets in a bank's balance sheet, crucial for meeting short-term obligations and customer withdrawals.
- Cash Reserve Ratio (CRR) requires banks to hold a certain percentage of their net demand and time liabilities with the Reserve Bank of India, promoting financial stability and liquidity in the banking system.
Financial Terminology
- A basis point is a unit of measure equal to 0.01%, used to describe changes in interest rates or financial percentages.
- The purpose of the KYC (Know Your Customer) procedure is to prevent identity theft, financial fraud, and money laundering by verifying the identity and background of customers.
Fund Transfer Mechanisms
- RTGS (Real Time Gross Settlement) allows for immediate transfer of large sums of money between banks in real time, while NEFT (National Electronic Funds Transfer) processes transactions in batches, typically with time delays.
Interest and Fees
- APR (Annual Percentage Rate) represents the annual cost of borrowing expressed as a percentage, while compound interest is the interest calculated on the principal plus any accumulated interest, leading to varying repayment amounts over time.
- Processing fees cover the operational costs for handling transactions, applications, or services provided by banks.
Banking Services
- No-frills accounts offer basic banking facilities with little to no charges, making them accessible for low-income individuals or those without frequent banking needs.
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Description
Test your knowledge on basic banking terms and concepts such as No-frills Account, Electronic Clearing Service, and Processing Fee. Learn about different types of accounts and financial services offered by banks.
