money supply, banking & financial institutions section 1 MCQ Questions & Answers Detailed Explanation

Answer: (d)

RBI lends to banks @repo rate but only up to 0.25% of banks NDTL. RBI further lends from time to time above the repo rate up to 0.75% of the overall NDTL in the system. And in this case, the interest rate is decided by auction

i.e. if more banks want money, the interest rate will go higher, if fewer banks are competing for RBI money then the interest rate will be less but it will always be above the repo rate (actually RBI puts a condition that all the bids at or below the repo rate will be rejected).

This is called "term repo" which means RBI gives money for a fixed long term. Term Repo is also called Variable Term Repo Operations.

Answer: (b)

The full convertibility of the Indian currency means that the rupee would be made freely exchangeable into other currencies and vice versa. The rupee was made partially convertible in 1994.

Currently, it can be changed freely into foreign currency for business and trade expenses but not free for activities like acquiring overseas assets. Full conversation of the currency means the local currency can be exchanged for foreign currency without any governmental control.

Presently, the issue of capital account convertibility is in the discussion stage.

Answer: (a)

Answer: (a)

Answer: (d)

When foreign investors come to India, they bring dollars and this dollar they sell in forex market and demand rupees which results in increase in demand of rupee and rupee appreciates.

When exports increase, we earn more dollars from the foreign market and this dollar we sell in the forex market to purchase rupees which results in increase in demand of rupees and rupee appreciates.

When the interest rate in India increases, more foreign investors come to India to invest in fixed interest rate instruments, which results in rupee appreciation.

So, none of the statements are true.

Answer: (b)