Q1. [1] medium initial-understanding
A shoe manufacturer needs to pay his leather supplier but does not want to use cash. He writes a cheque instead. Which of the following correctly describes what happens next?
(A) The cheque amount is immediately withdrawn as cash from the shoe manufacturer's account and handed to the leather supplier.
(B) The leather supplier deposits the cheque in his own bank account, and the amount is transferred from the shoe manufacturer's account to the leather supplier's account.
(C) The cheque is first verified by the Reserve Bank of India before any transfer between the two accounts takes place.
(D) The shoe manufacturer's bank directly credits the leather supplier's account only if both hold accounts in the same bank.
- A The bank gives the leather supplier cash equal to the cheque amount immediately from its vault.
- B The leather supplier deposits the cheque in his own bank account, and the amount is transferred from the shoe manufacturer's account to the leather supplier's account.
- C The cheque is sent to the Reserve Bank of India, which then prints new currency and hands it to the leather supplier.
- D The shoe manufacturer's account is frozen until the leather supplier presents the cheque in person at the shoe manufacturer's bank.
Generated by claude-sonnet-4-6 · 2026-06-26 13:21 · grounding rag
Model Answer
Answer: (B)
The leather supplier deposits the cheque in his own bank account, and the amount is transferred from the shoe manufacturer's account to the leather supplier's account.
Explanation
Cheques are a demand deposit-based payment instrument. No cash changes hands; the bank simply debits the payer's account and credits the payee's account. RBI does not individually verify each cheque transaction, and inter-bank transfers are possible through clearing systems — the accounts need not be in the same bank. Options A, C, and D are all factually incorrect descriptions of how cheque payments work.