National Finance Olympiad Guidebook PDF

Preface Dear Teachers, Financial literacy is not just about understanding the jargon of the stock market or reciting complex economic principles; it’s about empowering individuals to make informed decisions about their money. It’s about building a solid foundation of knowledge and skills that can...

Preface Dear Teachers, Financial literacy is not just about understanding the jargon of the stock market or reciting complex economic principles; it’s about empowering individuals to make informed decisions about their money. It’s about building a solid foundation of knowledge and skills that can withstand the uncertainties of life and pave the way towards financial security and freedom. The National Finance Olympiad (NFO) is a one-of-a-kind initiative in India driven by the mission to make India’s youth financially literate. Increased financial literacy, especially among young students is crucial. Not just so that they can make sound financial decisions from an early stage in their lives, but also because it empowers the nation as a whole. This is because nations with higher levels of financial literacy tend to have stronger economies, lower poverty rates, and a more financially stable population. The NFO guidebooks give a comprehensive overview of important financial topics ranging from money, banking, and investments, to taxes. These topics perfectly encapsulate all the important financial information suitable for school students. These guidebooks aim to create an enlightening blend of traditional financial topics combined with modern, practical financial tools that can be practiced in the real world. The language of the book is attuned to the understanding of a young adult, who is new to the world of finance. The breakdown of complex topics makes it easy for them to adapt to the book’s flow. The NFO guidebooks are not just reference books for students to excel in the Olympiad, these books work way beyond that to act like the perfect primer for youngsters who are new to the world of finance. As students embark on this journey, we insist that you encourage them to keep an open mind and a willingness to learn. Financial literacy is not a destination but a lifelong pursuit, and continuously expanding our knowledge and honing our skills is the only way to navigate this path. -Team NFO  National Finance Olympiad Exam rules Exam dos and don’ts Dos: Be prepared beforehand: Enter the exam interface 15 minutes before the exam starts. Ensure your camera and microphone are enabled. Use the correct device: The exam must be taken on a laptop or PC equipped with a functioning camera and microphone. Maintain connectivity: Ensure a stable internet connection. Have a backup plan in case any connectivity issue arises. Choose a quiet location: Select a distraction-free environment to take the exam. Use a pen and paper: You are permitted to use pen and paper for basic mathematical calculations. Calculators are prohibited. Stay in view of the camera: Remain in full view of your camera for the duration of the exam. Don’ts: No calculators: The use of calculators is strictly forbidden. No screen switching: Do not navigate away from the exam interface or switch between different windows or tabs. Avoid distractions: Maintain a quiet environment. Do not make noise or move excessively. Single attempt: You are allowed only one attempt at the exam. Make it count. No cheating: Academic integrity is paramount. Complete the exam independently without any form of cheating. No plagiarism: Do not copy from any source or use unauthorised materials. General important instructions Keep your system and browsers updated to prevent technical difficulties during the exam. Students appearing for the Olympiad shall read all the instructions regarding the exam carefully before performing the exam. Students should keep track of the time (Timer begins as soon as the student clicks on the ‘Begin Exam’ button). NO EXTENSION IN TIME will be provided. The test will get automatically submitted once the scheduled time gets over. The student is allowed to take the test ONLY ONCE. The DATE AND TIME ARE RECORDED when the student clicks and opens the exam interface for the first time. Once the student clicks on the Olympiad link, a new window opens. He/she is not allowed to quit/close the Olympiad exam window in the duration of the exam. If the exam window is closed before submitting all the questions, the answers will not be recorded. If the Olympiad exam window is closed before time, NO SECOND ATTEMPT will be provided. Once the exam tab is closed, it CANNOT BE RESUMED (re opened). Once the examination starts, the students are not allowed to press the refresh/reload/back button, as it will be considered a successful submission. Students should use a desktop/laptop with a front camera/webcam. Voice recording, video recording, eyeball recognition, multi browser detection & image capturing will be automatically started once the student enters the exam interface. Note: If any other device is being used, students will not be able to attempt the exam. Students cannot open any other tab while attempting the exam as the screen is recorded. Student Login details are for SINGLE USE only.  National Finance Olympiad While appearing for the exam, students are NOT ALLOWED TO LOOK AROUND as the camera will record while students attempt the test. The device (desktop/laptop only) used for taking the Olympiad exam must have good internet connectivity, a webcam/front camera and an updated version of browser (Recommendation: Google Chrome, Mozilla Firefox). Students should CLOSE ALL OTHER TABS in the browser before attempting the exam. Students are NOT ALLOWED to refresh the page or use the back button of the browser, as it may lead to interruption in the exam. NO OTHER PERSON except the participating student is allowed to enter the room (space) in the duration of the exam. Students are requested to sit on a clean desk/study table with no unnecessary objects except the device used for attempting the Olympiad. Parents/students need to ensure that the room is as quiet as possible. Rough paper can be used to solve logical problems and should be kept on a desk/study table while attempting the exam. Use of CALCULATORS or similar devices are NOT ALLOWED. Time remaining for the exam is displayed on the screen. Students should check the answers before submitting the exam. Students can recheck their selected answers before clicking on the finish button and submitting the exam. Please Note: Students who arrive late for the examination will not receive additional time. The examination clock will start promptly at the designated time. Any violation of the mentioned rules may result in disqualification. No rescheduling is permitted. National Finance Olympiad  National Finance Olympiad Contents Chapter 1: Money 1 1.1 The evolution of money 1 1.2 Forms of money 5 1.3 Importance of money 8 1.4 Currency 9 1.5 Money and society 10 1.6 Demand and supply of money 11 Chapter 2: Banking 14 2.1 Introduction to banking 14 2.2 Working of banks 14 2.3 Types of money transfers 16 2.4 How banks raise money 19 2.5 Different banking methods 20 2.6 Nominations 22 2.7 Ombudsman 23 2.8 Future and digitisation of banks 24 Chapter 3: Financial Planning & Insurance 27 3.1 Savings and goal setting 27 3.2 Budgeting and emergency funds 30 3.3 Insurance 32 3.4 Simple interest and compound interest 35 3.5 Inflation vs. deflation 36 Chapter 4: Investing 40 4.1 Introduction to investing 40 4.2 Types of investments 40 4.3 Commodities and their role in investing 47 4.4 SIP and SWP – Systematic approaches to investing 50 4.5 Risk and return 52 Chapter 5: Loans and Credit 55 5.1 Introduction to loans and credit 55 5.2 Basic concepts: interest rates, terms, and repayments 55 5.3 Secured vs. unsecured loans 56 5.4 Types of loans 57 5.5 Credit score and credit history 58 5.6 Understanding EMI 60 5.7 Government schemes for loans 62 Solved Problems 66 Disclaimer 1: This guidebook is intended solely for educational purposes to enhance financial literacy among young readers. Every attempt has been made to provide accurate and extensive information on financial topics, but the book should not be considered a substitute for professional investment advice. The NFO team is not responsible for any financial decisions based on the guidebook’s content. Readers are encouraged to seek professional financial advice before making any investment decisions. Disclaimer 2: Exercises have been included in the guidebooks as a part of the learning process. Some of these (MCQs and Activities) may cover topics beyond the book’s syllabus. This is to enhance the cognitive and critical thinking abilities of readers and encourage them to explore and research independently, thereby enhancing their understanding of financial concepts. This is also applicable to the NFO’s question papers.  National Finance Olympiad 1 | Money Key takeaways from the chapter: 1. By the end of this chapter, you will understand that fiat money, such as the Indian Rupee or U.S. Dollar, is not supported by physical commodities. Instead, its value comes from trust in the government, making it more flexible and easier to regulate. 2. You will explore the future of money, including the rise of digital currencies like cryptocurrencies. These operate on blockchain technology, enabling borderless transactions but also presenting challenges such as volatility and lack of regulation. 3. The concept of currency, used for transactions within a country, will be examined. You will learn how exchange rates are determined by factors like supply, demand, interest rates, and global events, influencing the value of one currency in relation to another. 4. You will gain insights into how money impacts society by shaping decisions, social hierarchies, and relationships. Money can drive motivation but also create social divisions, affect personal relationships, and lead to ethical dilemmas. 5. You will learn that the demand for money arises from three key motives: for daily transactions, for precautionary savings in case of emergencies, and for speculative purposes such as investment opportunities. 6. Additionally, this chapter will cover how central banks, like the Reserve Bank of India (RBI), regulate the supply of money. Through tools like managing interest rates, printing currency, and controlling bank reserves, they ensure inflation control and economic stability. What is money? Barter system When we talk about money, we think of papers, The barter system was the earliest form of trade coins and other such things. But the word ‘money’ where goods and services were exchanged directly. is an evolving concept that represents a medium of In this system, individuals relied on each other's exchange in societies. From ancient barter systems needs. For example, if a farmer had grain but to today's digital currencies, money has been a needed shoes, they would trade their grain with the crucial part of human evolution and economic growth. shoemaker for shoes. This system, however, was By the end of this chapter, you’ll learn how money inefficient because: has evolved over time, the different ways people use money, and how new ideas like cryptocurrencies are It required a double coincidence of wants—both changing how we think about money today. parties needed to want what the other had. There was no standard measure of value—difficult 1.1 The evolution of money to determine fair exchanges, and some goods were indivisible or perishable, restricting their use. The evolution of money reflects the changes in human society and economy. Here's a journey These challenges ultimately led to the development through how money has transformed: of money as a more efficient medium of exchange. 1  National Finance Olympiad Commodity money Disadvantages of commodity money Commodity money made trading easier by using 1. Commodity money had some drawbacks, such as valuable items like gold, silver, salt, cattle, and grain indivisibility, where certain commodities like cattle instead of the barter system, where people had to couldn't be easily divided for smaller transactions. find someone who wanted what they had. Since 2. Portability was also an issue, as transporting these items had their own value, they were widely large amounts of commodity money, like gold or accepted for trade and kept their worth over time. livestock, was cumbersome and expensive. 3. Additionally, the value of commodities could Advantages of commodity money: fluctuate based on supply and demand, which made the value of the money unstable at times. 1. Commodity money holds intrinsic value because the commodity itself, such as gold or silver, can Representative money be used for other purposes like making jewellery or in industrial applications. Representative money is a type of currency that has no intrinsic value but represents a commodity, 2. It is universally recognised, allowing it to be like gold or silver. It is like an artificial object that is easily traded across regions, which simplifies assigned some value and can be used to represent international trade. a thing of real value like gold or silver. For example, paper notes that are issued by banks or governments. 3. Additionally, commodities like precious metals are durable and can last a long time without losing This system makes transactions easier because their quality, making them reliable for storing people trust that their notes can be exchanged for wealth. real goods. This trust makes it easier to trade, as you don’t have to carry heavy gold or silver around. 4. As a store of value, commodity money retains its worth over time, often preserving or increasing in Example: Imagine you have some gold and decide value during uncertain times or inflation. to put it in a bank. The bank gives you a paper note that represents that gold. Instead of carrying the 2  National Finance Olympiad gold everywhere, you can use this note to buy things, currencies, known as Central Bank Digital Currencies making it much easier to shop! (CBDCs), which are government-backed. Fiat money Cryptocurrency, on the other hand, is a specific type of digital currency that uses cryptography for Fiat money is a type of currency that has no intrinsic security and operates on decentralised networks value and is not backed by a physical commodity, based on blockchain technology. Cryptocurrency is such as gold or silver. Its value comes from people's considered a decentralised currency because there trust and confidence in the government that issues is no central authority, like a bank or a government, it. Examples of fiat money include the U.S Dollar, the controlling the currency. Instead, it’s managed by Euro, the Japanese Yen and Indian Rupee etc. This a network of computers all over the world. Think type of money allows governments to create currency of blockchain as a digital record book that keeps without needing to hold reserves of physical assets. track of transactions in electronic form, like buying The effectiveness of fiat money relies on the stability or selling things online. Instead of one person or of the issuing government and the overall economy. company controlling the record book, data on the blockchain is distributed among many computers, Digital currencies and cryptocurrencies making it harder to cheat or change the records. The blockchain database consists of a chain of blocks, In the last few decades, technology has led where each block contains a list of transactions. to the rise of digital currencies, including When a new transaction occurs, it is linked together cryptocurrencies like Bitcoin. Unlike traditional with other transactions that have happened around money, cryptocurrencies are not controlled by any the same time to form a new block. This block is then government or central bank. They operate using added to the end of the chain to make a record. blockchain technology, a decentralised ledger system that ensures transparency and security. Unlike traditional currencies, cryptocurrencies are not issued or regulated by any central authority. Digital currencies refer to any form of currency Examples include Bitcoin, Ethereum, and Litecoin. that is stored and transacted electronically. This Cryptocurrencies enable peer-to-peer transactions includes traditional currencies in digital form, and are often used for investment and trading like bank deposits or digital wallets, as well as purposes, as well as for various applications in digital representations of money used for online finance and technology. transactions. Central banks can also issue digital 3  National Finance Olympiad In conclusion, while all cryptocurrencies are everyday transactions. Additionally, innovations in digital currencies, not all digital currencies are artificial intelligence and blockchain technology will cryptocurrencies. enhance the security and transparency in financial services. With the rise of decentralised finance (DeFi) Today, alongside fiat money, we also use digital platforms and a focus on sustainability and ethical currencies for everyday transactions, offering faster finance, digital currency will play an increasingly and more convenient payment methods. This shift significant role in how we manage transactions and began with electronic payments and online banking, economies. Overall, the future of money will likely be leading to the development of cryptocurrencies. more digital, decentralised, and technology-driven, reflecting evolving consumer preferences and financial Advantages innovations. 1. Cryptocurrencies are secure and decentralised. 2. They allow for borderless transactions without MCQs intermediaries like banks. 1. What was the main challenge with the barter Risks system? A. It made trade too simple and easy to organise. 1. They are highly volatile, meaning their value can B. It eliminated the need for exchanging goods in fluctuate dramatically. ancient societies. 2. Since they are unregulated, they can be used for C. It made transactions difficult because both illegal activities and are harder to track. parties had to want exactly what the other had, and there was no standard measure of value. Evolution of digital payments D. It only worked with specific valuable items like gold and silver. The evolution of digital payments has transformed the way we conduct financial transactions over the 2. What distinguishes commodity money from other decades. It began with the introduction of credit forms of money? and debit cards in the mid-20th century, which A. It is a modern form of money used in today’s allowed consumers to make purchases without economy. cash. The advent of the internet paved the way B. It consists of valuable goods like gold, silver, for online banking, enabling users to pay for goods or cattle that have their own value. and services electronically. The rise of mobile C. It refers to paper notes that guarantee a technology in the 2000s led to the development specific amount of gold. of mobile payment apps and digital wallets, D. It is mainly used for online transactions in making transactions even more convenient. Today, digital format. innovations such as cryptocurrencies and blockchain technology are further revolutionising the landscape, 3. What are some risks associated with providing secure and decentralised alternatives for cryptocurrencies like Bitcoin? digital transactions. As a result, digital payments have A. They lack the security needed for online become an integral part of everyday life, enhancing transactions. accessibility and efficiency in the global economy. B. Their value remains stable without much fluctuation. Future of money C. Their high volatility and lack of regulation can lead to illegal use and significant price changes. The future may involve a mix of fiat and digital D. They are fully backed and regulated by currencies, with central banks exploring central bank governments. digital currencies (CBDCs). These government-backed digital currencies aim to combine the stability of fiat Correct answers and explanations money with the speed and convenience of digital payments. As technology advances, contactless 1. C. In the barter system, both people needed to payment methods, such as mobile wallets, will simplify want what the other had, which made trading 4  National Finance Olympiad hard. There was also no easy way to measure symbolises power and wealth. the value of different things, making it tough to decide on a fair exchange. Coins are made by stamping metal blanks with designs on both sides. In India, the ministry of 2. B. Commodity money is made up of items that are Finance is responsible for issuing coins and one- valuable by themselves, like gold or cattle. This rupee notes, while other currency notes are issued is different from paper money or digital currency, by the Reserve Bank of India (RBI). Coins are which don't have value on their own. produced in government mints and come in various denominations, with the lowest being ₹1 and the 3. C. Cryptocurrencies aren't controlled by a central highest currently ₹20. authority, which can make their value change a lot. They can also be used for illegal activities Banknotes because they're harder to track than traditional money. Banknotes, also known as paper currency, are a more recent development compared to coins. The use of banknotes began in India during the 18th century 1.2 Forms of money when private banks started issuing paper money. The Reserve Bank of India (RBI) started making Indian Money plays a central role in our daily lives, enabling banknotes in 1938, three years after it was set up us to exchange goods and services. Over time, in 1935. Before that, different private banks and the money has evolved from physical forms like coins and British government made currency notes. When the banknotes to digital formats, making transactions RBI took over, it became the main organisation that faster and more convenient. Let’s explore the forms of printed and controlled the money in India. money that exist today in detail. Types of banknotes in use Physical money Today, you can find Indian banknotes in Coins denominations of₹10, ₹20, ₹50, ₹100, ₹200, and ₹500. The ₹2,000 note was added in 2016, but it got Coins are one of the oldest forms of money. They have phased out in 2023. There's also a ₹1 note, which is been used for centuries as a medium of exchange. The made by the ministry of Finance instead of the RBI. history of coins in India dates back to around the 6th century BCE when the first punch-marked coins were Design on the banknotes made from precious metals like silver and gold. These early coins were simple in design and didn’t have Indian banknotes usually show important people, any inscriptions, but over time, coins became more places, or cultural symbols. All notes have a picture of detailed with images of rulers, gods, and emblems that Mahatma Gandhi on the front. The back of the notes 5 National Finance Olympiad 6  National Finance Olympiad show historical places like the Red Fort, Hampi, or the Bank of India (RBI). The Digital Rupee works similarly parliament building. to regular money, but it exists only in digital form and is part of the central bank's efforts to move towards Digital money a cashless economy. It aims to provide a secure and digital alternative to physical cash, allowing for With advances in technology, money has also taken seamless and instant transactions. on digital forms. Digital money allows us to make payments electronically without using physical cash The use of digital wallets and digital currencies has or coins. made transactions faster, easier, and more secure. However, users need to be cautious about protecting Digital wallets in India their passwords, personal information, and payment details to ensure safe use. Digital wallets, or e-wallets, are mobile apps that store money electronically. In India, popular digital wallets include PayTM, Mobikwik, and others. These MCQs wallets allow users to link their bank accounts or credit/debit cards, enabling payments for various 1. Who is responsible for issuing ₹1 coins and notes transactions. Transactions can be done by scanning in India? a QR code, entering a phone number, or using other A. Reserve Bank of India (RBI) contactless methods. Today, digital wallets are widely B. Ministry of Finance used, especially after the government's push towards C. Indian Mint Authority a digital and cashless economy. D. State Bank of India Digital rupee (e₹) India has recently introduced a new form of digital money called the Digital Rupee (e₹), which is a Central Bank Digital Currency issued by the Reserve 7  National Finance Olympiad 2. What is the purpose of the Digital Rupee (e₹) Standard of deferred payment introduced by the Reserve Bank of India? A. To replace physical cash completely. Money makes it possible to agree on payments over B. To serve as a digital alternative to cash in India. time. When people buy on credit or make instalment C. To function as an international digital currency. payments, money provides a clear and consistent D. To compete with private cryptocurrencies. way to settle future debts. 3. Which of the following security features on Indian banknotes changes colour when viewed from MCQs different angles? 1. How does money serve as a unit of account? A. Watermark A. It helps people save money for future B. Microprinting purchases. C. Colour-Shifting Ink B. It allows people to compare the value of goods D. Security Thread and services easily. C. It forces people to pay for items in instalments. Correct answers and explanations D. It limits people’s ability to spend on multiple items. 1. B. The Ministry of Finance is responsible for issuing ₹1 coins and notes, while the RBI issues 2. Which of the following describes money as a other currency denominations. “Medium of Exchange”? A. It helps compare the value of different goods 2. B. The Digital Rupee (e₹) serves as a digital and services. alternative to physical cash, allowing for secure B. It allows people to buy and sell goods easily and seamless electronic transactions. without bartering. C. It retains its value over time for future use. 3. C. Colour-Shifting Ink is a security feature on some D. It provides a way to agree on payments in the banknotes, changing colour when viewed from future. different angles to help prevent counterfeiting. 3. What does it mean when money is considered a “store of value”? 1.3 Importance of money A. Money can be used to buy goods without bartering. Medium of exchange B. Money allows people to compare the worth of different items. Money allows people to buy and sell goods and C. Money retains its worth over time and can be services easily, avoiding the complications of saved for future use. bartering. It simplifies transactions by providing a D. Money helps determine how much something common form of payment that everyone accepts. costs in relation to other goods. Unit of account Correct answers and explanations Money acts as a standard measure to compare the 1. B. As a unit of account, money provides a value of different goods and services. It helps people standard measure, making it easier to compare easily determine how much something is worth and the prices and value of different items. make informed decisions about what they can afford. 2. B. Money as a medium of exchange allows people Store of value to avoid bartering and use a common form of payment for buying and selling. Money can be saved and used in the future without losing its value. Unlike perishable items, money retains 3. C. Money as a store of value means that it can its worth over time, making it reliable for savings. be saved and used in the future without losing its worth. 8  National Finance Olympiad 1.4 Currency British Pound Sterling (GBP): The currency of the United Kingdom. Let’s dive into what currency is, the difference Chinese Yuan (CNY): The currency of China, an between local and foreign currencies, and explore emerging economic powerhouse. some of the major currencies around the world. These currencies are not only used within their What is currency? respective countries but are also important for international trade. Currency refers to the physical or digital form of money that a country uses for transactions. For Exchange rates example, India’s currency is the Indian Rupee (INR), while the United States uses the US Dollar (USD). Each Imagine you're going on a vacation to a different currency has its own unique design, name, and value. country. Before you can buy anything there, like food or souvenirs, you need to get the money that is used Local vs foreign currencies in that country. For example, if you are going from India to the USA, you will need to exchange Indian 1. Local currency: This is the currency issued and Rupees for US Dollars, as the US Dollar is the official used within your own country. In India, the local currency accepted in the United States. currency is the Indian Rupee. You use it for daily purchases like groceries, clothes, and movie An exchange rate is the value of one currency tickets. compared to another, showing how much of one currency can be exchanged for a unit of another. For 2. Foreign currency: Any currency that is issued example, if 1 US Dollar (USD) equals 75 Indian Rupees and used outside of your country is considered a (INR), it means one Dollar can be exchanged for 75 foreign currency. For example, if you are traveling Rupees. to Japan, you would need Japanese Yen (JPY) to buy things there. To convert USD to INR, you simply multiply the amount in USD by the exchange rate. For instance, if Major currencies around the globe you have 10 USD and the exchange rate is 75 INR per USD, you would calculate: There are many currencies around the world, but a 10 USD×75 INR=750 INR few are more widely used and traded than others. Some of the major global currencies include: This means 10 USD would be exchanged for 750 INR. US Dollar (USD): The most powerful and widely Exchange rates can be either fixed or floating. In a accepted currency worldwide. fixed exchange rate system, a country pegs (fixes) Euro (EUR): The currency used by most European its currency to another major currency. In a floating countries. exchange rate system, the value of the currency is Japanese Yen (JPY): The currency of Japan, one determined by market forces based on supply and of the strongest economies in the world. demand, interest rates, and economic indicators. 9  National Finance Olympiad Most exchange rates today are floating, meaning they 2. B. A floating exchange rate allows a currency’s fluctuate based on market conditions. value to fluctuate based on market factors such as supply and demand, interest rates, and economic Exchange rates play a key role in international trade, indicators. It is not fixed to another currency. investment, and travel, as they impact the cost of goods and services across different countries. 3. B. High inflation decreases a currency’s value because prices for goods and services go up, What affects exchange rates? reducing purchasing power. Exchange rates are influenced by factors like supply and demand, interest rates, inflation, and political 1.5 Money and society stability. High demand for a country’s currency can increase its value, while high inflation or political The social and psychological aspects instability can weaken it. Global events, such as of money economic crises or natural disasters, also impact currency values by affecting investor confidence and Money shapes our daily decisions, behaviours, and economic conditions. society in many ways. It affects what we buy, from basic necessities like food and housing to things we want but don’t really need, like the latest gadgets. MCQs Here’s a look at how it influences us: 1. What is an exchange rate? Money as a measure of success and status A. The value of goods and services compared to each other. In many societies, wealth is often seen as a sign of B. The price difference between two countries’ success and status. This pushes people to aim for economies. higher financial achievements, like pursuing lucrative C. The value of one country’s currency compared careers or investments. However, constantly chasing to another country’s currency. wealth can lead to stress, anxiety, and an unhealthy D. The cost of exchanging goods within a country. focus on comparing oneself to others. 2. Which system allows a country’s currency value Money and decision-making to change based on supply and demand? A. Fixed exchange rate Money plays a key role in everyday choices. It B. Floating exchange rate influences everything from small purchases to major C. Barter system decisions like where to live or invest. Budgeting D. Commodity-based exchange rate forces people to prioritise their spending, while investment decisions often balance the risk of loss 3. How does inflation affect a country’s currency? with potential rewards. A. It increases the value of the currency. B. It reduces the value of the currency. Money and happiness C. It has no effect on the currency. D. It leads to an increase in the number of people While money can provide security and freedom, using foreign currency. beyond a certain point, having more doesn’t always lead to increased happiness. Once basic needs are met, additional money brings diminishing returns in Correct answers and explanations terms of life satisfaction. 1. C. An exchange rate shows how much one Money, society, and inequality country’s currency is worth in terms of another country’s currency. It indicates the value of one Wealth inequality creates social divisions and currency expressed in another. limits access to opportunities like education and healthcare. Money can be a tool for social mobility, 10  National Finance Olympiad but for many, it acts as a barrier, with the rich having 3. What ethical dilemma might businesses face in more access to resources and the poor struggling to relation to money? break free from financial hardship. A. `Whether to lower profits for short-term gains. B. Whether to pollute more to increase costs. Money and ethics C. Whether to balance profitability with social responsibility. Money can create ethical challenges, forcing people D. Whether to decrease employee pay to or businesses to choose between profitability and increase profits. doing what’s right. These dilemmas raise important questions about the role of financial gain in decision- Correct answers and explanations: making. 1. D. Money impacts daily choices, from small Example expenses like budgeting for groceries to larger A company might have the opportunity to pollute financial decisions involving risks, such as less but by increasing their cost. In this case, it might investments. choose not to implement environmentally friendly practices because it will lower profits. 2. B. While money can improve happiness by providing security and meeting basic needs, the In conclusion, since money greatly influences our additional benefit to happiness decreases once decisions and overall well-being, it's important to those needs are fulfilled. plan our finances carefully. By budgeting and setting financial goals, we can make smarter choices that 3. C. Businesses often face ethical dilemmas help us meet our needs, reduce stress, and secure a where they must decide between actions that better future. increase profits and those that prioritise social responsibility, such as reducing environmental impact or supporting fair labour practices. MCQs 1. How does money often influence decision- 1.6 Demand and supply of making? money A. People tend to make decisions based on personal feelings rather than financial What Is "demand for money"? concerns. B. People generally ignore the financial impact of Imagine you're in a candy store with some money in their choices. your pocket. You want to buy chocolates, but you also C. People usually make decisions without know your birthday is coming up, and there's a new considering risk or reward. game you’d like to save for. Plus, you want to keep a D. Money influences both small and large little extra just in case something unexpected happens. decisions, such as budgeting for everyday That’s basically what the demand for money is! needs or taking financial risks. A motive is the reason why someone does something. 2. Which of the following is true about the It explains what makes a person want to do relationship between money and happiness? something or what they hope to get from doing it. A. More money always leads to more happiness. B. Having enough money to meet basic needs When people talk about the demand for money, they can increase happiness, but after a certain mean how much money people want to hold onto. point, more money doesn’t necessarily lead to There are three main reasons people want to hold more satisfaction. money: C. People with less money are always happier. D. Happiness depends solely on how much 1. Transaction motive: This is when people need money you have. money for everyday things, like buying food or paying for a bus ticket. 11  National Finance Olympiad Example: You need money to buy a movie ticket. of money circulating in the economy. Conversely, That’s your transaction motive! higher interest rates discourage borrowing and spending, reducing the money supply. 2. Precautionary motive: This is when people save money just in case something unexpected 2. Open market operations (OMO): happens. The RBI can inject money into the economy Example: You save some money in case your bike through open market operations, where it buys or gets a flat tyre and you need to fix it. sells government securities (bonds). 3. Speculative motive: Sometimes, people hold onto Injecting money: When the RBI buys money because they want to invest it later when government securities from banks, it pays they think they’ll get a better deal. for these purchases by adding money to the Example: You know the price of a video game will banks' reserves. This increases the amount drop next month, so you wait to buy it at a lower of money banks can lend out, thus expanding price. the money supply. For example, if the RBI buys ₹10,000 crore worth of bonds from banks, What Is "supply of money"? those banks now have ₹10,000 crore more to lend to businesses and individuals. Now that we understand why people want money, let’s talk about the supply of money. This is all about Absorbing money: On the other hand, when how much money is available in the economy for the RBI sells government securities, banks pay people to use. for these securities, reducing their reserves and thus decreasing the amount of money they can Where does this money come from? It comes from lend out. This reduces the money supply. the central bank. In India, that’s the Reserve Bank of India (RBI). The central bank’s job is to make 3. Printing money: sure there’s just the right amount of money in the While "printing money" is a commonly used term, economy—not too much and not too little. the RBI does not literally print more currency notes whenever it needs to increase the money Why is this important? supply. Instead, it credits money to the banking system through electronic means, such as buying If there’s too much money, prices can go up, securities or providing loans to banks. Physical which is called inflation. For example, something printing of currency happens only to replace old that used to cost Rs 50 might now cost Rs 60. or damaged notes and meet the demand for cash in the economy. If there’s too little money, people won’t have enough to spend, and the economy can slow Bank Reserves (Cash Reserve Ratio - CRR and down. Statutory Liquidity Ratio - SLR) How does the central bank control The RBI mandates that banks keep a certain percentage of their deposits as reserves. money? The central bank, like the Reserve Bank of India (RBI), Cash Reserve Ratio (CRR): This is the has several ways to control the money supply and percentage of a bank's deposits that must be influence the economy. These methods include: held in cash with the RBI. If the RBI increases the CRR, banks have less money to lend out, 1. Interest rates: which reduces the money supply. Lowering By raising or lowering interest rates, the RBI the CRR has the opposite effect, allowing can make borrowing money more expensive banks to lend more. or cheaper. When interest rates are lower, businesses and individuals are more likely to Statutory Liquidity Ratio (SLR): This is the borrow and spend, which increases the amount percentage of a bank's deposits that must be 12  National Finance Olympiad invested in specified liquid assets, such as 3. Which of the following is a tool the central bank government bonds. By adjusting the SLR, the uses to control the supply of money? RBI can control how much money is available A. Controlling bank reserves to influence lending. for banks to lend to the private sector. B. Setting prices for goods and services. C. Regulating the stock market. D. Restricting the use of mobile payment apps. MCQs Correct answers and explanations: 1. Which of the following best describes the “precautionary motive” for holding money? 1. B. The precautionary motive involves keeping A. Saving money for future investments. money to cover your unexpected expenses and in B. Keeping money to cover unexpected events or emergencies. emergencies. C. Using money to buy goods and services 2. C. The central bank's main job is to regulate the immediately. money supply to maintain economic stability. Too D. Speculating on when the value of goods will much money can cause inflation, while too little change. can slow down economic growth. 2. What is the primary role of a central bank in 3. A. The central bank can change how much money managing the supply of money? banks must keep in reserve. By adjusting this A. To print unlimited amounts of money to avoid requirement, it affects how much banks can lend, inflation. which in turn influences the overall money supply B. To provide loans to the public at fixed interest in the economy. rates. C. To ensure that there is the right amount of money in the economy—neither too much nor too little. D. To issue digital currencies to all citizens. Quick look 1. Cryptocurrencies, like Bitcoin, might represent the future of money, using blockchain technology to offer decentralised and secure transactions, but they are highly volatile and unregulated. 2. Physical money, such as coins and banknotes, continues to be used, but digital formats like online banking and digital wallets are becoming more prevalent for their convenience. 3. Money serves four key functions: it acts as a medium of exchange, a unit of account, a store of value, and a standard of deferred payment, making it essential in both daily transactions and long-term planning. 4. Social and psychological aspects of money influence decisions, relationships, and perceptions of success, making money not just an economic tool but a powerful social factor. 5. The demand for money includes motives such as transactions, precautionary savings, and speculative opportunities, while the supply of money is controlled by central banks like the RBI to manage inflation and economic stability. 6. Central banks, through tools like interest rates and monetary policies, regulate the supply of money in the economy to maintain a balance between inflation and growth. 13  National Finance Olympiad 2 | Banking Key takeaways from the chapter: 1. By the end of this chapter, you will understand the role of banks in the financial system, acting as intermediaries between depositors and borrowers to keep the economy running smoothly. 2. You will explore how banks function, including the acceptance of deposits, providing loans, and facilitating various payment and transfer systems. 3. The different types of money transfers, such as traditional methods like cheques and money orders, and electronic methods like EFTs, digital wallets, and mobile apps, will be discussed in detail. 4. You will learn about how banks raise money through deposits, borrowing, and capital markets, including terms like demand deposits, term deposits, and bonds. 5. The future of banking and the impact of digitisation will be introduced, focusing on advancements like online banking, AI, blockchain, and the challenges posed by cybersecurity threats. 6. You will also gain an understanding of the role of the Ombudsman in resolving banking disputes and the importance of making nominations to ensure smooth transfer of funds. 7. Lastly, you will grasp how banks safeguard money and manage financial risks, including the regulations that ensure secure operations. 2.1 Introduction to banking For example, a person might borrow money to buy a house because they can’t pay the full amount all at Banks play a crucial role in the economy by acting once. Or, a business might borrow money to expand as financial intermediaries that facilitate the flow because they don’t have enough cash at the moment of money between savers and borrowers. Banks but can pay it back over time. are places where you can keep your money safe, borrow money if you need it, and get other financial help. They are defined as institutions that accept 2.2 Working of banks deposits, provide loans, and offer various financial services to individuals, businesses, and governments. Basic functions of banks The primary functions of banks include accepting deposits, extending loans, managing payment 1. Accepting deposits systems, and offering investment products, all of When banks accept deposits, they provide a which contribute to economic stability and growth. secure place for individuals and businesses to store their money. These deposits are not only Role of banks safely held by the bank, but they also allow depositors to earn interest on their savings, Lending happens when someone, like a bank, gives helping their money grow over time. Banks money to a person or business that needs it for a collect deposits in various forms, such as savings specific purpose. It's not just about people wanting accounts or fixed deposits, offering both safety more money—it's about situations where they don’t and the potential for returns. have enough to buy something important, start a project, or cover an expense at that time. 14  National Finance Olympiad 2. Providing loans and advances services. While online banking offers convenience, When banks provide loans and advances, they branches provide face-to-face interactions that build use the money deposited by individuals and trust and lasting relationships between customers and businesses to lend to others who need it. In banks. They are particularly important for individuals return, banks charge interest on these loans, who may not be comfortable with technology or who which is how they make a profit. They ensure require assistance with complex transactions, such as the repayment of the loans, including the original applying for loans or financial advice. amount lent, which keeps the financial system functioning smoothly. Additionally, branches play a key role in local economies by understanding community needs 3. Facilitating payments and transfers and offering tailored products. They also facilitate Banks play a key role in moving money safely immediate cash transactions, which are still crucial and efficiently. Whether you're making an online for many people. Ultimately, bank branches bridge purchase or transferring funds internationally, the gap between digital services and personal banks ensure the money reaches its destination touch, ensuring that all customers have access to securely. Services like NEFT, RTGS, and UPI make comprehensive banking solutions. Online banking it possible to transfer money quickly, whether makes things easier, bank branches still have their across the street or around the globe, ensuring benefits. They’re a place where you can walk in, talk smooth transactions for customers. to someone, and get personal advice. While apps take care of everyday tasks, branches are there for bigger Banking operations and the role of things, like loans or financial guidance. Bank branches focus on building relationships with their customers. branches Bank branches remain essential in today’s digital age, serving as vital hubs for personalised financial 15  National Finance Olympiad Central vs commercial banks 3. How do central banks differ from commercial banks? Central banks A. Central banks offer loans to the public, while commercial banks only monitor currency. Central banks are like the referees in a sports match. B. Central banks are only involved in small They don’t play the game, but they control the loans, while commercial banks manage the rules, making sure everything runs smoothly. They government budget. set interest rates, manage the currency, and keep C. Commercial banks set interest rates for the an eye on all the commercial banks to make sure economy, while central banks handle personal they’re adhering to the guidelines that have been set. accounts. In India, the Reserve Bank of India (RBI) is the top D. Central banks function as regulators, referee. Just like a good referee keeps the game fair, overseeing and enforcing the rules, while central banks keep the economy in check by ensuring commercial banks operate as service financial stability. providers, offering financial products and services to the public. Commercial banks Correct answers and explanations: Commercial banks lend money, take deposits, and offer services to customers like you and me. 1. D. Banks serve as intermediaries between those They’re actively involved in the economy, making who have extra money (depositors) and those sure businesses get loans, people can buy homes, who need it (borrowers). By accepting deposits and payments happen on time. Imagine them as the and providing loans, they help keep money players in a match of the show, while the central bank flowing in the economy. keeps an eye on the overall play. 2. B. Banks offer electronic services like NEFT and RTGS which allow safe and quick transfers of MCQs money electronically 1. What is the primary role of a bank in the financial 3. D. Central banks, such as the RBI, manage system? monetary policy and set rules for the financial A. To print money for the economy. system. In contrast, commercial banks provide B. To monitor businesses and collect taxes. services like loans and deposits directly to the C. To lend money without charging interest. public. D. To accept deposits and provide loans, helping to keep the economy running smoothly. 2.3 Types of money transfers 2. What does a bank do when you facilitate payments and transfers? Money transfers are a simple way to move money A. It delivers physical cash to the recipient's from one place to another, whether it’s nearby or house. across the world. There are two main ways to do this: B. It acts like a postal service, transferring money traditional methods and modern electronic ones. Let’s from one place to another electronically. take a look at how you can send money today. C. It manages personal accounts only for its employees. Traditional methods D. It requires a customer to visit the bank for each transaction. 1. Cheque Cheques are a way to transfer money by writing down how much you want to pay someone. But since it takes the bank a few days to process them, most people now prefer quicker ways to send money. 16  National Finance Olympiad 2. Cash be accessed through online banking, mobile The most straightforward method of transferring banking apps, or by visiting the bank. money is through physical cash. However, carrying large amounts of cash can pose 3. IMPS (Immediate Payment Service) significant risks, much like walking around with IMPS is a real-time payment method that your entire savings in a backpack. While cash allows instant money transfers at any is convenient for small, immediate transactions, time, day or night. It is especially useful for it becomes impractical and insecure for larger urgent transactions, such as paying bills amounts or for long-distance transfers. or transferring funds to friends and family. IMPS can be used through mobile banking 3. Electronic methods apps, bank websites, and even ATMs. There 1. Electronic funds transfer (EFT) are minimal charges for using IMPS, and it EFT is like sending a simple text message, but supports transactions up to ₹5 lakh per day, with your money—it moves electronically from making it a popular choice for personal and one bank to another. In India, services like small business transfers. Its 24/7 availability NEFT and IMPS let you transfer money almost and instant processing make it a go-to option instantly, anytime, day or night. It’s quick, when time is a critical factor. secure, and as simple as sending a message that gets delivered instantly. 4. RTGS (Real Time Gross Settlement) RTGS is used for transferring large amounts 2. NEFT (National Electronic Funds Transfer) of money in real-time. It is typically used NEFT is a widely used method for transferring for high-value transactions, as it requires funds between banks in India. It allows a minimum transfer of ₹2 lakh and has no individuals and businesses to send money upper limit. RTGS is not processed in batches, electronically, but it processes transactions meaning transfers are settled immediately in batches rather than instantly. This means and individually as they are made, making it transfers might take a few hours to complete, ideal for large or urgent transactions. Though especially outside of regular banking hours. RTGS might have slightly higher charges, NEFT is reliable and secure, making it ideal its reliability and speed make it a preferred for transferring moderate amounts of money, method for corporate or government-related especially for transactions that are not transactions. It can be accessed via online time-sensitive. Most banks charge very low banking or through physical bank branches. fees for NEFT transactions, and there is no minimum transfer limit, though the maximum 5. UPI (Unified Payments Interface) limit varies depending on the bank. NEFT can UPI has revolutionised the way money is 17  National Finance Olympiad transferred in India by allowing seamless, transactions, making wire transfers secure and instant transactions directly from a efficient. smartphone. It works through mobile apps such as Paytm, Google Pay, PhonePe, and 2. Money remittance operators others, enabling users to send or receive money instantly without the need for bank Money remittance operators facilitate the transfer account details—just a UPI ID or phone of funds across borders, allowing individuals to number. UPI transactions are usually free and send money in one currency and have it received have a daily limit of ₹1 lakh, making it suitable in another. Services such as Western Union handle for a wide range of everyday transactions. these foreign exchange transactions, converting It’s particularly popular for peer-to-peer currencies like Rupees to Dollars and ensuring that payments, small business transactions, and the funds reach the recipient in the correct currency. even bill payments, offering convenience, These services operate similarly to currency speed, and security in one platform. exchange desks, but on a larger scale, enabling seamless international transfers. However, users 6. Online payment systems should be mindful of associated fees and potential Ever used PayPal or Paytm? These are online variations in exchange rates. Established in 1851, payment systems that let you send money to Western Union is one of the most recognised names friends, family, or businesses with just a few in the industry, providing reliable money transfer clicks. You can connect these systems to your services long before the advent of the internet. bank or card, making it a breeze to pay for things or split the bill with friends. MCQs 7. Mobile payment apps These apps, like Google Pay and Apple Pay, 1. Which of the following is an example of an are your money’s best friends. They let you electronic method of money transfer? pay for things or send money to others directly A. Money order from your smartphone. Just think about B. Cheque it—your phone not only connects you to the C. Electronic Funds Transfer (EFT) world, but it also lets you transfer money as D. Cash easily as sending a text. No need to carry a wallet—your phone has you covered! 2. What is the purpose of the SWIFT network? A. To allow money to be transferred domestically International transfers within India. B. To enable international money transfers 1. Wire transfer between banks securely. A Wire transfer is a method of transferring money C. To convert currency from one form to another. electronically from one bank account to another, D. To manage personal bank accounts online. often between different banks and across international borders. The system that makes Correct answers and explanation international wire transfers possible is the SWIFT network. Think of SWIFT as the global postal 1. C. EFT is a digital way to move money service for banks. It securely delivers messages electronically between bank accounts, offering a between banks worldwide, ensuring that your faster and more secure alternative to traditional money reaches its destination safely. Just like methods like cheques and money orders. sending a package overseas and tracking it to make sure it arrives, the SWIFT network enables 2. B. The SWIFT network provides a secure way banks to track money transfers step by step as it for banks to communicate and transfer funds moves from one country to another. This system internationally, acting like an international postal is essential for international trade, personal system for money transfers. remittances, and other cross-border financial 18  National Finance Olympiad 2.4 How banks raise money Borrowing from central banks: If a bank needs a large amount of money quickly, it can borrow Banks need money to keep their operations running from the central bank (like the Reserve Bank of and to lend out to individuals and businesses. But India). The central bank lends money to keep how do they actually get this money? It’s not like they the banking system stable and to help banks have a money-printing machine in the back (that’s meet their financial obligations. the central bank’s job!). Banks raise money through different sources such as deposits, borrowing, and 4. Capital markets capital markets. Let’s break it down! Banks can also raise money by selling investments in the form of bonds. When banks issue bonds, Deposits they’re (banks) borrowing money from people and companies. When someone buys a bond, they are Banks raise funds primarily by accepting deposits lending money to the bank for a set time, and the from individuals and businesses. These deposits bank promises to pay them back with extra money provide the bank with capital, which can be used to called interest. People buy these bonds because issue loans or invest in other financial ventures. they know they will get their money back later with interest. a bank issues bonds, it's basically asking 1. Demand Deposits (DD) people or companies to lend them money for a set A demand deposit refers to money held in amount of time. In return, the bank promises to accounts such as savings or current accounts, pay them interest. It’s borrowing money from lots which can be accessed by the depositor at any of people at once and promising to pay them back time, without prior notice. This immediate access, with interest. or "on-demand" availability, is the reason it is termed a demand deposit. These funds can be withdrawn through various means, such as MCQs ATMs, online banking, or checks, whenever the depositor needs them. 1. What is the difference between Demand Deposits (DD) and Term Deposits (TD)? 2. Term Deposits (TD) A. Demand Deposits are locked for a fixed Term deposits, on the other hand, involve funds term, while Term Deposits can be withdrawn that are placed with the bank for a specified anytime. period, such as six months or a year. In return for B. Demand Deposits can be accessed anytime, committing to leave the funds untouched for this while Term Deposits require leaving money in term, the bank pays interest to the depositor. This the bank for a fixed period. type of deposit is more structured, offering higher C. Both Demand and Term Deposits offer the interest rates than demand deposits, as the bank same interest rates. benefits from having access to the funds for a D. Term Deposits allow unlimited withdrawals, longer period. Once the term ends, the depositor while Demand Deposits have restrictions. can withdraw the funds along with the accrued interest. 2. How do banks use borrowing to raise money? A. Banks borrow money from customers who 3. Borrowing want to invest. Banks also borrow money when they need extra B. Banks issue more loans to the public to raise funds. Just like we might take out a loan for a car money. or a house, banks borrow money to keep up with C. Banks borrow from other banks or the central the demands of their customers. bank to meet customer needs. D. Banks take loans from the stock market to Loans from other banks: Banks sometimes raise capital. borrow money from other banks to balance out their daily needs. 19  National Finance Olympiad 3. What is the purpose of banks issuing bonds? different needs. Let’s dive into some of the key A. To provide a way for customers to access their banking methods and how they work! savings. B. To raise funds, banks borrow money from 1. Savings account individuals and companies in the form of A savings account is like a piggy bank, except this deposits, and then utilise these funds to lend one earns you interest. It’s the perfect place to to other individuals or businesses. keep your money if you want it to grow, while still C. To sell shares of the bank on the stock market. having access to it whenever needed. It’s great D. To make payments to customers who want to for everyday savers who don’t want to lock their withdraw large sums of money. money away for long periods like in an FD but still want to earn a bit of interest. The flexibility Correct answers and explanation to withdraw your money anytime is what makes a savings account so appealing—it’s like having a 1. B. Demand Deposits, like savings accounts, allow wallet that grows while you’re not using it! for easy access to funds whenever needed, while Term Deposits lock the money for a specific When compared to an FD or RD, a savings account period in exchange for higher interest rates. gives you more freedom, but it usually offers lower interest rates. If an FD is like a treasure chest you 2. C. When banks need extra funds, they often can't open for a while, a savings account is like a borrow from other banks or the central bank to wallet that’s always within reach but doesn’t fill up fulfil customer requirements or manage their day- as quickly. to-day cash flow. 2. Current account 3. B. Banks borrow money from individuals and A current account is like an efficient, open highway companies through deposits, which they use for money, ideal for people and businesses that to provide loans to others. They pay depositors need to move funds quickly and frequently. It interest and earn a profit by charging borrowers allows unlimited deposits and withdrawals without higher interest rates on the loans. the usual restrictions of a savings account, making it perfect for businesses that handle daily transactions. While convenient for managing cash 2.5 Different banking methods flow, current accounts typically don’t offer interest, meaning they’re not suited for growing your When it comes to saving, investing, and managing savings. It’s like a busy road—designed for fast money, banks offer several methods tailored to movement, not for long-term stops or investments. 20  National Finance Olympiad Personal current accounts are less common but 6.50% to 7.20%. can be useful for individuals who need frequent Senior citizens can get slightly higher rates, access to their money, like freelancers. However, ranging from 7.25% to 7.75%. be aware that the convenience of unlimited transactions often comes with fees. 2. Tenure: The minimum tenure is typically 6 months to 1 3. Fixed Deposit (FD) year, depending on the bank. A Fixed Deposit (FD) is a financial investment The maximum tenure can go up to 10 years. where you deposit a lump sum of money with the bank for a fixed period, usually ranging For example: from 3 days to 10 years. During this time, the ICICI Bank offers RD rates of 7.10% for regular money earns interest at a higher rate than a customers and 7.60% for senior citizens. regular savings account because the bank HDFC Bank offers 7.10% for regular customers knows the funds will remain untouched for the and 7.75% for senior citizens. set duration. However, if you need to withdraw SBI provides RDs with rates from 6.50% to the money before the maturity date, it’s known 7.10% depending on tenure, with senior citizen as a premature withdrawal, and there may be a rates going up to 7.60%. penalty, such as a reduced interest rate. While the FD offers the benefit of stable returns, the These RDs compound interest quarterly, providing penalty for early withdrawal encourages keeping a reliable way to save over time. the funds invested for the full term, much like allowing a tree to grow fully before reaping its fruits. Usually, the FD rates for tenures over 2 MCQs years range from 6% per annum and go up to 8.5% per annum for some banks. 1. Which of the following best describes a Fixed Deposit (FD)? 4. Recurring Deposit (RD) A. A deposit you can withdraw anytime without A Recurring Deposit (RD) is more like watering a penalty. plant every day. Instead of depositing a big sum B. A type of account that allows unlimited at once, you invest a small amount of money transactions. every month. You keep doing this for a fixed C. A deposit where you contribute money period—like feeding your plant little by little. Just monthly for a set period. like an FD, an RD earns interest, but because D. A one-time deposit left with the bank for a you’re adding to it monthly, it’s perfect for people fixed period that earns higher interest. who want to build their savings over time. It also encourages discipline, helping you get into the 2. How does a Recurring Deposit (RD) differ from a habit of saving regularly. Think of it as growing Fixed Deposit (FD)? your money garden, one drop at a time. A. An RD involves monthly contributions, while an FD is a single lump sum deposit. Compared to an FD, where you invest a lump B. An RD requires one large deposit, while an FD sum, RDs are flexible because they allow allows monthly contributions. regular contributions, which is great if you don’t C. Both RD and FD offer the same flexibility for have a lot of money upfront but want to save withdrawing money anytime. consistently. Usually, the RD rates are slightly D. FD earns less interest than RD. lower than the FD rates for the same tenure. In India, the interest rates for recurring deposits (RDs) vary depending on the bank and tenure. Here are the typical ranges (as of 2024): 1. Interest rates: For regular customers, RD rates range from 21  National Finance Olympiad 3. What is one key feature of a Current Account that distributing assets, ensuring that the transition is makes it different from a Savings Account? smooth and hassle-free. A. Current accounts offer higher interest rates than savings accounts. Example B. Current accounts allow unlimited transactions, Imagine an account holder, Ravi, has a savings but usually don’t offer interest. account with ₹50,000. If he has nominated his sister, C. Current accounts are meant only for personal the bank will easily transfer the funds to her in the use. event of his passing. However, if no nomination D. Current accounts have penalties for frequent exists, his sister may need to provide legal transactions. documents and wait for approval before accessing the money. Correct answers and explanation: Process of nomination 1. D. A Fixed Deposit is a lump sum deposited with the bank for a specified term, earning higher How to nominate? interest. The funds are locked in until the end of the term, providing higher returns compared to When opening a bank account or making an regular savings. investment (such as a Fixed deposit), the bank offers the option to nominate someone. The account 2. A. A Recurring Deposit allows for monthly savings holder can fill out a form that includes the nominee’s contributions, making it suitable for regular name, relationship to the account holder, and other savers. In contrast, a Fixed Deposit requires a necessary details. one-time, upfront deposit for a fixed period. Updating or changing a nominee 3. B. Current accounts are primarily designed for business use and frequent transactions. They The nomination can be updated or changed at any don't typically earn interest, unlike savings time. The account holder can visit the bank, fill out a accounts, which offer interest but may have limits nomination update form, and submit it. It's similar to on the number of withdrawals. updating a contact list, ensuring the correct person is appointed to receive the funds. 2.6 Nominations Example Suppose an account holder, Raj, nominated his Nomination is an important process of naming a brother when he first opened his account. Later, after trusted person who will receive the benefits, assets getting married, he decides to change the nomination from the bank account or financial instrument upon to his spouse. Raj can visit the bank, update the account holder’s death. This is an important feature nomination form, and ensure that his spouse is now because it ensures that the funds are transferred listed as the nominee without any complications. smoothly and without legal complications. Importance of nominating MCQs Nominating someone for a bank account or 1. What is the primary purpose of nominating investment is like leaving clear instructions for the someone for your bank account or investment? bank, indicating who should receive the funds in A. To avoid paying taxes on the account. the account upon the account holder's passing. B. To ensure the money is transferred smoothly This ensures that the rightful person receives to a chosen person in case of an emergency. the money without confusion, legal disputes, or C. To increase the interest rate on your account. delays. If no nominee is appointed, the family may D. To make it easier to withdraw money. face a lengthy legal process to claim the funds. In essence, nominating is like providing a clear map for 22  National Finance Olympiad 2. What happens if no nominee is listed for a bank try to resolve the issue with your bank. If the bank account or investment? doesn’t respond within 30 days or you’re not satisfied A. The bank will distribute the money evenly to with their response, you can then approach the the nearest relatives. ombudsman. B. The money will stay in the account permanently. Here’s how the process works: C. The family may have to go through legal processes to claim the funds. 1. Gather information: Before you file the complaint, D. The bank will automatically assign a nominee. make sure you have all the necessary details, such as your account number, the date of the 3. How can you change or update a nominee for issue, and any communication you’ve had with your bank account? the bank. A. By closing the account and opening a new one. 2. Filing the complaint: You can submit your B. By writing a letter to the central bank. complaint online through the ombudsman’s C. By visiting the bank, filling out a nomination website or by writing a letter. Include all the update form, and submitting it. relevant details of the problem, as well as the D. By calling the bank’s customer service. resolution you’re seeking. Correct answers and explanation: 3. Wait for response: Once the ombudsman receives your complaint, they will investigate by 1. B. Nominating someone for your account ensures asking the bank for its side of the story. After that, in case of an emergency, the funds can be