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

Answer: (a)

Answer: (c)

Open Market Operations: These are conducted by the RBI by selling and buying government securities from banks.

Answer: (d)

Seigniorage refers to the income from money creation. It is a way for governments to generate revenue without levying conventional taxes. Seigniorage is the profit that accrues to the central banks (which then may be transferred to the central government) in the following ways:

While issuing currency, the reserves/backup that the RBI keeps with itself, these reserves give RBI interest Income on the total amount of currency in circulation (minus cost of printing currency)

Interest accruing from bank balances with central banks arises from funds banks have to hold with the central banks to meet their reserve requirements, either as interest-free balances (CRR) or at below-market interest rates. the inflation tax concept which is measured as the product of the inflation rate and

the monetary base. (Because of inflation, the currency note that the public is holding losses value which reduces the liability of RBI in real terms)

Answer: (b)

RBI issues various guidelines for directors of banks and also has powers to appoint additional directors on the board of a banking company. Banks need prior approval of RBI for appointment/termination of Chairman, Directors and CEO.

RBI in consultation with Central Govt. can supersede the Board of Directors of Banks. Public Sector Banks (PSBs) are under dual regulation of Central Govt. and RBI. RBI’s powers are curtailed regarding PSBs, where RBI cannot remove directors and management, cannot supersede banks board and does not have the power to force a merger or trigger liquidation.

A license is required from RBI to commence banking operations, opening of new bank branches and closing of branches or change in the location of existing branches. RBI regulates mergers, amalgamation and winding up of banks. (For shifting, merger and closure of urban branches, now no approval is required).

Answer: (b)

Answer: (b)

NABARD stands for National Bank for Agriculture and Rural Development.