(a) Explain the following terms: (i) bearer cheque (ii) open cheque (iii) order cheque (iv) crossed cheque. (b) Explain any six factors which a bank manager...

Answer Details

(a) Types of cheque

1. Bearer cheque: A cheque payable to whoever presents (bears) it at the bank. It is written "pay ... or bearer" and can be cashed by anyone holding it, so it is risky if lost or stolen.
2. Open cheque: A cheque that is not crossed and can be cashed over the counter by presenting it at the bank on which it is drawn. It can be paid in cash directly to the payee.
3. Order cheque: A cheque payable to a named person or to his order, written "pay ... or order." It can be transferred to another person only by endorsement (signing at the back).
4. Crossed cheque: A cheque with two parallel lines drawn across its face. It cannot be cashed over the counter but must be paid into a bank account, which makes it safer than an open cheque.

(b) Six factors a bank manager considers before granting a loan

1. Character of the applicant: The honesty, integrity and past record of the borrower in repaying debts.
2. Capacity to repay: The applicant's income and the profitability of the venture, showing his ability to repay the loan.
3. Collateral security: The value and quality of the security or assets offered to back the loan in case of default.
4. Purpose of the loan: Whether the loan is for a genuine and viable project that is likely to succeed.
5. Amount and period of the loan: The size of the loan requested relative to the applicant's stake, and the length of time it will run.
6. Existing relationship and economic conditions: The applicant's past dealings with the bank, his existing account, and the general economic climate at the time.