banking, security market & insurance section 2 MCQ Questions & Answers Detailed Explanation
MOST IMPORTANT indian economy mcq - 5 EXERCISES
The following question based on Banking, Security Market & Insurance topic of indian economy mcq
- Buy the government securities from the banks.
- Enter into reverse repo operations
- Raise cash Reserve Ratio
- Reduce SLR.
(a) 1, 2 and 4 only
(b) 1 and 4 only
(c) 1 only
(d) 1, 2, 3 and 4
The correct answers to the above question in:
Answer: (b)
By buying the government securities from the banks and reducing SLR may inject money into the system.
However, Raising the cash Reserve Ratio may take away liquidity from the market as the banks will have to deposit more money with the RBI and similarly entering the reverse repo operations may also take away liquidity from the market.
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Question : 1
Paper currency first started in India in
a) 1601
b) 1542
c) 1861
d) 1880
Answer »Answer: (c)
Question : 2
Which of the following statements is/are correct regarding the Monetary Policy Committee (MPC)?
- It decides the RBI’s benchmark interest rates.
- It is a 12-member body including the Governor of RBI and is reconstituted every year.
- It functions under the chairmanship of the Union Finance Minister.
a) 3 only
b) 1 and 2 only
c) 1 only
d) 2 and 3 only
Answer »Answer: (c)
MPC has 6 members, not 12; and it’s headed by the RBI governor and not Finance Minister.
So statements 2 and 3 are wrong, hence by elimination, we reach answer (a) only 1 correct.
Question : 3
The one rupee note bears the signature of the
a) Finance Minister
b) Governor, RBI
c) Secretary, Ministry of Finance
d) None of these
Answer »Answer: (c)
The one rupee note is issued by the Ministry of Finance and it bears the signature of the Finance Secretary, while other notes bear the signature of Governor RBI.
However, only RBI is the only source of legal tender money because the distribution of one rupee notes and coins and small coins all over the country is undertaken by the Reserve Bank as an agent of the Government.
Question : 4
Which of the following does not grant any tax rebate?
a) National Saving Scheme
b) Indira Vikas Patra
c) National Saving Certificate
d) Public Provident Fund
Answer »Answer: (b)
Indira Vikas Patra was a small scale deposit scheme operated by the post offices all over the country to encourage the idea of investment in the minds of the lower-middle class people. NSC, National Saving Scheme and PPF all grant tax rebate.
Question : 5
Which of the following is not true when the interest rate in the economy goes up?
a) Cost of production increases
b) Lending decreases
c) Saving increases
d) Return on capital increases
Answer »Answer: (d)
The rise in interest rates results in an increased cost of borrowing so lending decreases because businesses do not borrow at a high cost.
Moreover, it results in an increase in the cost of production as the cost for all suppliers of raw material increases due to an increase in their borrowing cost. For individuals, the savings increase as they start saving in lieu of higher return as interest.
Higher rates of interest result in a decrease in return on capital as the cost of investment in capital increases.
Question : 6
Bank rate means
a) Rate of Profit of banking institution
b) Interest rate charged by Scheduled Banks
c) Interest rate charged by money lenders
d) Official rate of interest charged by Central Bank
Answer »Answer: (d)
Bank rate is the rate charged by the central bank for lending funds to commercial banks.
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