introduction to indian economy section 4 MCQ Questions & Answers Detailed Explanation

Answer: (c)

NTPC Limited is the largest Indian state-owned electric utilities company based in New Delhi, India.

NTPC’s core business is engineering, construction and operation of power generating plants and providing consultancy to power utilities in India and abroad.

The name of the Company “National Thermal Power Corporation Limited” was changed to “NTPC Limited” with effect from 28 October 2005. The primary reason for this was the company’s foray into hydro and nuclear-based power generation along with backward integration by coal mining.

The Power Grid Corporation of India is an Indian state-owned electric utility company headquartered in Gurgaon, India. Power Grid wheels about 50% of the total power generated in India on its transmission network.

Power Grid has also diversified into the Telecom business and established a telecom network of more than 25,000 km across the country.

Answer: (d)

Interest rates are the main determinant of investment on a macroeconomic scale. The current thought is that if interest rates increase across the board, then investment decreases, causing a fall in national income.

However, the Austrian School of Economics sees higher rates as leading to greater investment in order to earn the interest to pay the depositors.

Higher rates encourage more saving and thus more investment and thus more jobs to increase production to increase profits. Higher rates also discourage economically unproductive lending such as consumer credit and mortgage lending.

Answer: (d)

ICICI (Industrial Credit and Investment Corporation of India) Bank is an Indian multinational banking and financial services company headquartered in Mumbai, Maharashtra.

It is the largest private sector bank and overall the second largest bank in India after State Bank of India.

Answer: (b)

The interest paid on bonds is known as ‘coupon’ or ‘coupon rate’. Bonds and debentures both are the instruments of raising long-term capital but while the former is supported by collateral in the former is supported by collateral in the form of immovable property, the latter are not.

Answer: (a)

NABARD stands for National Bank for Agriculture and Rural Development. It is an apex development bank in India having headquarters based in Mumbai (Maharashtra).

It was established on 12 July 1982 and accredited with matters credit for agriculture and other economic activities in rural areas in India.

Answer: (b)

Basis points: It is the increase in interest rates in percentage terms. For instance, if the interest rate increases by 50 basis points (bps), then it means that the interest rate has been increasing by 50%. One percentage point is broken down into 100 basis points. Therefore, an increase from 2% to 3% is an increase of one percentage point or 100 basis points.

Repo rate: Repo rate is the policy rate and is part of RBI’s Liquidity Adjustment Facility (LAF). It is the rate at which commercial banks borrow from the RBI by selling their securities or financial assets to the RBI for a short period of time. It comes with an agreement that the sold securities will be repurchased by the commercial banks from the RBI at a future date at a predetermined price. The repo rate is used by the central bank to increase liquidity in the system.

Reverse repo rate: Reverse Repo Rate is also a part of LAF. It is the rate of interest at which the central bank borrows funds from other banks for a short duration. The banks deposit their short term excess funds with the central bank and earn interest on it. This rate is used by the central bank to absorb liquidity from the economy. Generally, it is one per cent less than the Repo rate. Bank rate: The only way the bank rate is different from the repo rate is that the bank rate is the rate at which banks borrow money from the central bank without any sale of securities. It is generally for a longer period of time. 

Cash reserve ratio: CRR is the minimum percentage of cash deposits that banks must keep with the central bank. The current rate is 4%, which means for a cash deposit of `100, the bank has to park 4 rupees, with the central bank.