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Banking Basics MCQs

Practice 50 Banking Basics MCQs

Question 1: A crossed cheque is payable:

  • A In cash at the counter
  • B Only through a bank account
  • C To anybody who holds it
  • D Only after six months

Explanation: Crossing a cheque means it can be paid only into a bank account, not in cash. Useful for: SBP, NBP, PPSC, FPSC.

Question 2: KIBOR stands for:

  • A Karachi Interbank Offered Rate
  • B Karachi International Bank Offered Rate
  • C Karachi Interest Bank Operating Rate
  • D Key Interbank Bond Rate

Explanation: KIBOR is the Karachi Interbank Offered Rate, a benchmark for lending rates in Pakistan. Useful for: SBP, NBP, PPSC, FPSC.

Question 3: A bank overdraft means:

  • A Depositing extra money
  • B Closing the account
  • C Withdrawing more than the account balance
  • D Receiving a gift

Explanation: The bank allows temporary overdrawing. Useful for: SBP, NBP, PPSC, FPSC.

Question 4: ATM stands for:

  • A Account Transaction Method
  • B Automatic Transfer Money
  • C Advanced Telling Machine
  • D Automated Teller Machine

Explanation: ATMs allow cash withdrawals and balance checks. Useful for: SBP, NBP, PPSC, FPSC.

Question 5: Which institution issues currency notes in Pakistan?

  • A National Bank of Pakistan
  • B State Bank of Pakistan
  • C Habib Bank Limited
  • D Ministry of Finance

Explanation: SBP has the sole right to issue banknotes. Useful for: SBP, NBP, PPSC, FPSC.

Question 6: Commercial banks mainly:

  • A Accept deposits and give loans
  • B Print currency
  • C Make laws
  • D Collect taxes

Explanation: Accepting deposits and lending are their core functions. Useful for: SBP, NBP, PPSC, FPSC.

Question 7: The basic accounting equation is:

  • A Assets = Liabilities − Equity
  • B Equity = Assets + Liabilities
  • C Assets = Liabilities + Equity
  • D Liabilities = Assets + Equity

Explanation: Assets = Liabilities + Owner's Equity. Useful for: SBP, NBP, PPSC, FPSC.

Question 8: Which type of account increases with a debit entry?

  • A Liabilities
  • B Assets
  • C Capital
  • D Revenue

Explanation: Assets and expenses increase with debits; liabilities, capital and revenue increase with credits. Useful for: SBP, NBP, PPSC, FPSC.

Question 9: Which of the following is a current asset?

  • A Machinery
  • B Land
  • C Building
  • D Cash

Explanation: Current assets are easily converted to cash. Useful for: SBP, NBP, PPSC, FPSC.

Question 10: Which of the following is a liability?

  • A Stock
  • B Creditors
  • C Debtors
  • D Cash

Explanation: Creditors are amounts the business owes. Useful for: SBP, NBP, PPSC, FPSC.

Question 11: A trial balance is prepared to check:

  • A The cash balance only
  • B The profit of the business
  • C The arithmetical accuracy of ledger accounts
  • D The tax payable

Explanation: It tests whether total debits equal total credits. Useful for: SBP, NBP, PPSC, FPSC.

Question 12: The double-entry system means:

  • A Each entry is made twice a day
  • B Every transaction affects two accounts
  • C Two accountants are required
  • D Two books are kept

Explanation: Each transaction has an equal debit and credit. Useful for: SBP, NBP, PPSC, FPSC.

Question 13: The journal is also known as the:

  • A Book of original entry
  • B Book of final entry
  • C Trial balance
  • D Cash book only

Explanation: Transactions are first recorded in the journal. Useful for: SBP, NBP, PPSC, FPSC.

Question 14: The ledger is known as the:

  • A Book of original entry
  • B Principal book of accounts
  • C Petty cash book
  • D Sales journal

Explanation: Journal entries are posted to the ledger. Useful for: SBP, NBP, PPSC, FPSC.

Question 15: Which of the following is a fixed asset?

  • A Machinery
  • B Stock
  • C Cash
  • D Debtors

Explanation: Fixed assets are used long term in the business. Useful for: SBP, NBP, PPSC, FPSC.

Question 16: Capital expenditure is spending that:

  • A Is consumed within a year
  • B Provides benefit over several years
  • C Pays interest only
  • D Pays salaries

Explanation: It creates or improves long-term assets. Useful for: SBP, NBP, PPSC, FPSC.

Question 17: Gross profit is equal to:

  • A Sales − Cost of goods sold
  • B Sales − All expenses
  • C Assets − Liabilities
  • D Revenue + Expenses

Explanation: Gross profit is before operating expenses. Useful for: SBP, NBP, PPSC, FPSC.

Question 18: Net profit is equal to:

  • A Assets − Liabilities
  • B Capital + Drawings
  • C Gross profit − Expenses
  • D Sales − Cost of goods sold

Explanation: Net profit is what remains after all expenses. Useful for: SBP, NBP, PPSC, FPSC.

Question 19: A balance sheet shows:

  • A Sales only
  • B Cash flow only
  • C The financial position at a particular date
  • D Profit over a period

Explanation: It lists assets, liabilities and equity at a date. Useful for: SBP, NBP, PPSC, FPSC.

Question 20: An income statement shows:

  • A Financial position at a date
  • B Profit or loss over a period
  • C Only liabilities
  • D Only assets

Explanation: It summarises revenues and expenses for a period. Useful for: SBP, NBP, PPSC, FPSC.

Question 21: Islamic banking prohibits:

  • A Leasing
  • B Trade
  • C Partnership
  • D Riba (interest)

Explanation: Riba is forbidden in Islamic finance. Useful for: SBP, NBP, PPSC, FPSC.

Question 22: Murabaha is:

  • A A profit-and-loss sharing partnership
  • B An insurance contract
  • C A leasing contract
  • D A cost-plus sale with agreed profit margin

Explanation: The bank buys an asset and sells it at cost plus profit. Useful for: SBP, NBP, PPSC, FPSC.

Question 23: Musharakah is:

  • A A cost-plus sale
  • B A loan with interest
  • C A leasing contract
  • D A partnership with profit and loss sharing

Explanation: Partners share profit and loss in agreed ratios. Useful for: SBP, NBP, PPSC, FPSC.

Question 24: Ijarah means:

  • A Loan with interest
  • B Partnership
  • C Leasing
  • D Sale on credit

Explanation: Ijarah is a lease contract in Islamic finance. Useful for: SBP, NBP, PPSC, FPSC.

Question 25: The headquarters of the IMF is located in:

  • A Washington, D.C.
  • B Geneva
  • C New York
  • D London

Explanation: The IMF is based in Washington, D.C. Useful for: CSS, PMS, SBP, NBP.

Question 26: The Asian Development Bank is headquartered in:

  • A Manila
  • B Tokyo
  • C Singapore
  • D Beijing

Explanation: ADB's headquarters are in Manila, Philippines. Useful for: CSS, PMS, SBP, NBP.

Question 27: Balance of trade is the difference between:

  • A Savings and investment
  • B Income and expenses
  • C Loans and deposits
  • D Exports and imports

Explanation: It compares the value of exports and imports. Useful for: CSS, PMS, SBP, NBP.

Question 28: Devaluation means:

  • A A rise in currency value
  • B A fall in interest rates
  • C A deliberate fall in the official value of a currency
  • D A rise in prices

Explanation: It lowers the currency's official exchange rate. Useful for: CSS, PMS, SBP, NBP.

Question 29: Who is known as the father of economics?

  • A Karl Marx
  • B J.M. Keynes
  • C Adam Smith
  • D David Ricardo

Explanation: Adam Smith wrote 'The Wealth of Nations'. Useful for: CSS, PMS, SBP, NBP.

Question 30: 'The Wealth of Nations' was published in:

  • A 1776
  • B 1936
  • C 1848
  • D 1859

Explanation: Adam Smith published it in 1776. Useful for: CSS, PMS, SBP, NBP.

Question 31: A sustained rise in the general price level is called:

  • A Deflation
  • B Inflation
  • C Stagflation
  • D Recession

Explanation: Inflation is a persistent increase in the general level of prices. Useful for: CSS, PMS, SBP, NBP.

Question 32: Macroeconomics deals with:

  • A Individual consumers only
  • B One market only
  • C A single firm only
  • D The economy as a whole

Explanation: Macroeconomics studies aggregates like GDP and inflation. Useful for: CSS, PMS, SBP, NBP.

Question 33: GDP stands for:

  • A Gross Domestic Product
  • B Government Development Plan
  • C General Domestic Price
  • D Gross Debt Percentage

Explanation: GDP measures the value of goods and services produced. Useful for: CSS, PMS, SBP, NBP.

Question 34: Which index measures changes in the prices of consumer goods?

  • A Gini Index
  • B Stock Index
  • C Human Development Index
  • D Consumer Price Index (CPI)

Explanation: CPI tracks the cost of a basket of consumer goods. Useful for: CSS, PMS, SBP, NBP.

Question 35: Stagflation is a situation of:

  • A Falling prices
  • B High growth and low unemployment
  • C High inflation with stagnant growth and high unemployment
  • D Low inflation and high growth

Explanation: It combines inflation and economic stagnation. Useful for: CSS, PMS, SBP, NBP.

Question 36: Per capita income is calculated as:

  • A Population ÷ national income
  • B National income ÷ population
  • C National income × population
  • D Exports − imports

Explanation: It shows average income per person. Useful for: CSS, PMS, SBP, NBP.

Question 37: Agriculture belongs to which sector?

  • A Tertiary sector
  • B Primary sector
  • C Quaternary sector
  • D Secondary sector

Explanation: Primary sector covers farming and extraction. Useful for: CSS, PMS, SBP, NBP.

Question 38: Economic growth is usually measured by the change in:

  • A Exports only
  • B Population
  • C Real GDP
  • D Money supply

Explanation: Real GDP growth adjusts for inflation. Useful for: CSS, PMS, SBP, NBP.

Question 39: GNP stands for:

  • A Gross Net Profit
  • B General National Price
  • C Gross National Product
  • D Government National Plan

Explanation: GNP counts income earned by a nation's residents, including from abroad. Useful for: CSS, PMS, SBP, NBP.

Question 40: A feature of perfect competition is:

  • A A single seller
  • B Few large sellers
  • C Government pricing
  • D Many buyers and sellers

Explanation: Perfect competition has many small participants. Useful for: CSS, PMS, SBP, NBP.

Question 41: A market with only one seller is called:

  • A Perfect competition
  • B Oligopoly
  • C Monopsony
  • D Monopoly

Explanation: Monopoly means a single seller. Useful for: CSS, PMS, SBP, NBP.

Question 42: A market with a few large sellers is called:

  • A Perfect competition
  • B Monopsony
  • C Oligopoly
  • D Monopoly

Explanation: Oligopoly is dominated by a few firms. Useful for: CSS, PMS, SBP, NBP.

Question 43: According to the law of demand, when price rises (other things equal), quantity demanded:

  • A Rises
  • B Falls
  • C Remains the same
  • D Doubles

Explanation: Price and quantity demanded move in opposite directions, ceteris paribus. Useful for: CSS, PMS, SBP, NBP.

Question 44: Opportunity cost is:

  • A Money actually spent
  • B Value of the next best alternative forgone
  • C Total cost of production
  • D Fixed cost only

Explanation: Opportunity cost is the value of the best alternative given up when making a choice. Useful for: CSS, PMS, SBP, NBP.

Question 45: If demand rises while supply stays constant, price will:

  • A Fall
  • B Become zero
  • C Stay the same
  • D Rise

Explanation: Higher demand pushes up price. Useful for: CSS, PMS, SBP, NBP.

Question 46: Fiscal policy involves:

  • A Money printing only
  • B Government taxation and spending
  • C Interest rate decisions by the central bank
  • D Foreign aid only

Explanation: Fiscal policy is set by the government. Useful for: CSS, PMS, SBP, NBP.

Question 47: Monetary policy is controlled by:

  • A The central bank
  • B The Finance Ministry
  • C The courts
  • D The Parliament

Explanation: In Pakistan, the State Bank sets monetary policy. Useful for: CSS, PMS, SBP, NBP.

Question 48: Which is a direct tax?

  • A Sales tax
  • B Income tax
  • C Customs duty
  • D Excise duty

Explanation: A direct tax is paid directly by the person taxed. Useful for: CSS, PMS, SBP, NBP.

Question 49: Which is an indirect tax?

  • A Sales tax
  • B Property tax
  • C Income tax
  • D Wealth tax

Explanation: Sales tax is collected via sellers from consumers. Useful for: CSS, PMS, SBP, NBP.

Question 50: A budget deficit occurs when:

  • A Taxes are zero
  • B Revenue exceeds expenditure
  • C Expenditure exceeds revenue
  • D Exports exceed imports

Explanation: Deficit = expenditure − revenue. Useful for: CSS, PMS, SBP, NBP.

Frequently Asked Questions

How many Banking Basics MCQs are available on TestMasterMCQs?

There are currently 50 Banking Basics MCQs on this page, each with four options, the correct answer and a short explanation to help you understand the concept — not just memorise the answer.

Are these Banking Basics MCQs useful for PPSC, FPSC, NTS, CSS and MDCAT?

Yes — our Banking Basics questions follow the syllabus of common Pakistani competitive exams including CSS, PMS, PPSC, FPSC, NTS, and university entry tests like MDCAT and ECAT.

How should I practice Banking Basics MCQs for better retention?

Attempt 15–20 questions at a time, read the explanation after every question (even the ones you get right), and revisit wrong answers after 24 hours to reinforce memory.