Banking Facilities Quiz

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Questions and Answers

What is the determining factor for the amount of the Domestic Bills Purchase Line (BP Line)?

Collateral value

Interest rate

Line expiry date

Average Daily Balance for the past 6 months (correct)

What serves as collateral for the Check Discounting Line?

Check itself (correct)

Industrial properties with building improvements

Cash deposits

Prime residential properties

What happens if a check is dishonored in the Check Discounting Line?

No penalty is charged

Prevailing lending rate is deducted from the principal

Interest rate is doubled for the next check

Prevailing lending rate + 36% p.a. penalty is charged (correct)

What type of collateral is required for Trust Receipt agreements?

The goods received until payment Signup and view all the answers

What is the term for the Line Expiry in a Domestic Bills Purchase Line?

One year from approval date; subject to renewal Signup and view all the answers

Which type of loan/credit facility requires a comprehensive check before clearing checks?

Check Discounting Line Signup and view all the answers

What is a common characteristic of a balloon loan?

Higher interest rates Signup and view all the answers

Which of the following is NOT a common example of revolving credit?

Mortgages Signup and view all the answers

What is one key difference between a revolving line of credit and a consumer credit card?

Revolving line of credit allows money transfer without purchase Signup and view all the answers

What does a bank typically do with a revolving credit line as long as the account remains in good standing?

Raise the credit limit Signup and view all the answers

What do lenders consider before setting a credit limit for a borrower in a revolving credit line?

The borrower's ability to pay Signup and view all the answers

What is the purpose of bank reserves?

To ensure banks can meet their liabilities in case of sudden withdrawals Signup and view all the answers

What is the main function of a gold reserve held by a national central bank?

As a store of value Signup and view all the answers

Which type of loan involves borrowing a lump sum of money that is paid back periodically with interest?

Short term loan Signup and view all the answers

What is the primary characteristic of a trust receipt agreement?

It allows businesses to take possession of goods while their bank retains ownership Signup and view all the answers

Which of the following is NOT a type of term loan?

Revolving credit line Signup and view all the answers

How does a central bank use bank reserve levels as a tool in monetary policy?

By lowering reserve requirements to slow economic growth Signup and view all the answers

Study Notes

Domestic Bills Purchase Line

The amount of the Domestic Bills Purchase Line (BP Line) is primarily determined by the creditworthiness of the borrower and the quality of the bills presented.

Check Discounting Line

Collateral for the Check Discounting Line is typically the check itself being discounted.
If a check is dishonored in the Check Discounting Line, the borrower must repay the discounted amount to the bank, and penalties may apply.

Trust Receipt Agreements

Trust Receipt agreements require specific collateral, often the goods or merchandise acquired through the financing.

Line Expiry

The term for the Line Expiry in a Domestic Bills Purchase Line is usually tied to the maturity of the bills purchased.

Credit Facility Checks

A comprehensive check before clearing checks is required for certain loan or credit facilities, particularly those involving higher risk.

Balloon Loans

A common characteristic of a balloon loan is that it requires a large final payment after a series of smaller, regular payments.

Revolving Credit

A typical example of revolving credit includes credit cards, while a common characteristic of term loans is fixed repayment schedules.

Revolving Line of Credit vs. Consumer Credit Card

A key difference between a revolving line of credit and a consumer credit card is the repayment structure; revolving lines may offer lower interest rates and require different terms.

Good Standing of Revolving Credit

As long as the account remains in good standing, banks may increase the credit limit on a revolving credit line.

Setting Credit Limit

Lenders evaluate a borrower’s credit history, income, and current debt levels before setting a credit limit for a revolving credit line.

Bank Reserves

The purpose of bank reserves is to ensure that financial institutions have sufficient funds available to meet withdrawal demands and regulatory requirements.

Gold Reserves

The main function of gold reserves held by a national central bank is to stabilize the currency and serve as a store of value.

Loan Types

A type of loan involving a lump sum of money paid back periodically with interest is categorized as an installment loan.

Trust Receipt Agreement Characteristic

The primary characteristic of a trust receipt agreement is that the borrower holds the goods in trust but is obligated to repay the financing.

Term Loans

Options that do not qualify as common types of term loans include certain forms of revolving credit or open-ended loans.

Central Bank and Monetary Policy

Central banks utilize bank reserve levels as a monetary policy tool to influence money supply and control inflation rates.

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Description

Test your knowledge on different banking facilities such as Domestic Bills Purchase Line and Check Discounting Line. Learn about the requirements, line amounts, expiry dates, and collateral needed for these financial services.