Banking
13 Grade 10 Business Studies questions on Banking, with worked marking schemes. 13 questions are available on this topic in full.
Question 1
1 markA hardware shop in Thika receives money from customers throughout the day and needs to withdraw cash many times a week without notice. The MOST suitable account for the shop is a:
A. savings account
B. foreign currency account
C. current account
D. fixed deposit account
(1 mark)
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1 markA tea farmer places Sh 200,000 in a bank for twelve months and agrees not to withdraw it before the period ends. In return the bank pays a higher rate of interest. This account is a:
A. current account
B. fixed deposit account
C. overdraft account
D. savings account
(1 mark)
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4 marksIdentify four services offered by commercial banks in Kenya other than accepting deposits.
(4 marks)
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1 markWhich one of the following instructs a bank to pay a fixed amount of money to the same person on the same date each month?
A. Bank statement
B. Pay-in slip
C. Credit note
D. Standing order
(1 mark)
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4 marksState two benefits and two dangers to a shopkeeper of operating a bank overdraft.
(4 marks)
Marking scheme
1 mark for each point; two benefits and two dangers required: Benefits (any TWO): 1. It provides short-term funds to buy stock or meet an urgent bill when takings are low. 2. Interest is charged only on the amount actually used, so it is cheaper than a full loan for a short need. 3. It is quick to arrange on an existing current account, so an opportunity to buy stock cheaply is not lost. Dangers (any TWO): 4. The rate of interest is usually high, and prolonged use eats into profit. 5. The bank may recall the overdraft at short notice, leaving the shopkeeper without funds. 6. Easy access may tempt the shopkeeper to overspend and sink into persistent debt.
Question 6
1 markA trader writes a cheque and draws two parallel lines across its face with the words "Account Payee Only". The effect of this is that the cheque:
A. becomes invalid and cannot be presented for payment
B. must be paid into the bank account of the named payee
C. will be paid even if the drawer has no money in the account
D. can be exchanged for cash over the counter by any holder
(1 mark)
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1 markA shopkeeper in Malindi is allowed by her bank to withdraw Sh 50,000 more than the balance standing in her current account, and she pays interest only on the amount used. This facility is called:
A. a fixed deposit
B. a credit transfer
C. a standing order
D. an overdraft
(1 mark)
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3 marksSuggest three reasons why many small traders in rural Kenya now use mobile money services alongside bank accounts.
(3 marks)
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4 marksOutline four circumstances under which a bank would dishonour a customer's cheque.
(4 marks)
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4 marksDistinguish between a current account and a fixed deposit account.
(4 marks)
Marking scheme
2 marks for each account, or 1 mark per valid contrasting point to a maximum of 4: 1. A current account allows withdrawals at any time without notice, usually by cheque or card, while a fixed deposit account ties up money for an agreed period. 2. A current account earns little or no interest and may attract ledger fees, while a fixed deposit account earns a higher rate of interest. 3. A current account suits traders with frequent daily transactions, while a fixed deposit suits a saver with idle funds not needed immediately. 4. A current account may be given an overdraft facility, which a fixed deposit account does not offer.
Question 11
3 marksState three reasons why a matatu sacco in Nairobi would prefer to pay its suppliers by cheque rather than in cash.
(3 marks)
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1 markThe MAIN role of the Central Bank of Kenya is to:
A. regulate commercial banks and control the supply of money
B. sell shares to Kenyans at the securities exchange
C. give loans to individual traders at low interest rates
D. accept savings deposits from members of the public
(1 mark)
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6 marksExplain three ways in which the Central Bank of Kenya differs from a commercial bank.
(6 marks)
Marking scheme
Any THREE explained differences, 2 marks each: 1. Ownership — the Central Bank is owned by the government, whereas commercial banks are largely owned by private shareholders. 2. Aim — the Central Bank works to keep the economy stable and does not exist to make profit, while commercial banks operate to earn profit for their owners. 3. Customers — the Central Bank deals with the government and with other banks, while commercial banks deal with the general public. 4. Issue of currency — only the Central Bank issues notes and coins; commercial banks merely handle the currency issued. 5. Supervision — the Central Bank licenses and regulates the commercial banks, which are themselves subject to that control.
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