money supply, banking & financial institutions section 2 MCQ Questions & Answers Detailed Explanation

Answer: (d)

RBI comes to the rescue of a bank that is solvent (has not gone bankrupt) but faces temporary liquidity (funds) problems by supplying it with much-needed liquidity when no one else is willing to extend credit to that bank.

RBI extends this facility to protect the interest of the depositors of the bank and to prevent possible failure of a bank, which in turn may also affect other banks and institutions and can have an adverse impact on financial stability and thus on the economy.

Answer: (a)

Recession is slow down in effective demand for goods and services, slow down in the economy implies a short-run decline in the growth rate.

Answer: (d)

Regulated markets aim at the development of marketing structures to ensure remunerative prices to the producers and to narrow down the price spread between the producer and the consumer.

It also aims at reducing the non-functional margins of the commission agents.

Answer: (c)

The Banking Ombudsman Scheme enables an expeditious and inexpensive forum to bank customers for the resolution of complaints relating to certain services rendered by banks.

The Banking Ombudsman Scheme was introduced under Section 35 A of the Banking Regulation Act, 1949 by RBI with effect from 1995.

Answer: (b)

Hot money or currency is a term that is most commonly used in financial markets to refer to the flow of funds (or capital) from one country to another in order to earn a short-term profit on interest rate differences and/or anticipated exchange rate shifts.

These speculative capital flows are called “hot money” because they can move very quickly in and out of markets, potentially leading to market instability.

Answer: (d)

A Government Security (G-Sec) is a tradeable instrument issued by the Central Government or the State Governments. (G-Secs are issued through auctions conducted by RBI.

Auctions are conducted on the electronic platform called the E-Kuber, the Core Banking Solution (CBS) platform of RBI). G-Secs carry practically no risk of default and, hence, are called risk-free gilt-edged instruments. (Govt. issues only debt securities). There are four kinds of government securities.

Government Securities (G-Sec)

1. Treasury Bills
2. Cash Management Bills
3. Dated Securities
4. State Dev. Loans

SDLs are allowed to be kept under SLR by banks. SDLs have a maturity of more than one year. In terms of Sec. 21A (1) (b) of the Reserve Bank of India Act, 1934, the RBI may, by agreement with any State Government undertake the management of the public debt of that State.

Accordingly, the RBI has entered into agreements with 29 State Governments and one Union Territory (UT of Puducherry) for management of their public debt.