money supply, banking & financial institutions section 2 MCQ Questions & Answers Detailed Explanation
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The following question based on Money Supply, Banking and Financial Institutions topic of indian economy mcq
(a) decreases
(b) increases or decreases proportionately.
(c) the same
(d) increases
The correct answers to the above question in:
Answer: (d)
The money supply is the total amount of monetary assets available in an economy at a specific time. The relation between money and prices is historically associated with the quantity theory of money.
There is strong empirical evidence of a direct relation between long-term price inflation and money-supply growth, at least for rapid increases in the amount of money in the economy.
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Read more money and supply banking financial institutions Based Indian Economy Questions and Answers
Question : 1
Which of the following will be the impact of rupee depreciation?
- Exports will become more competitive
- Exporters will fetch more dollars for the same amount of goods exported
- Demand for domestic goods and services will increase
a) (ii) only
b) (i) & (iii) only
c) (i) only
d) All of the above
Answer »Answer: (b)
Suppose (Nominal) exchange rate is $1 = Rs. 60
Now if an Indian exporter exported a particular commodity (1 unit) in the international market whose price is $8,
then he will get $8 and after conversion in India, he will get ultimately Rs. 480.
But if the rupee depreciated i.e. $1 = Rs. 64
then he can sell his product in the international market at a lesser price of $7.5 and can earn the same Rs. 480 after conversion. (When a country devalues its currency, then exporters are able to sell their product in the international market at a lesser price without compromising their earnings.)
So, we also say that exporters become more competitive and demand for domestic goods and services increases as the price gets reduced.
So, exporters will not earn more dollars when the rupee depreciates. He will still get the same dollars or if he reduces the price, then he will get fewer dollars per unit of goods sold.
So, (ii) the statement is false.
Question : 2
Which one of the following statements is not correct?
a) RBI is the banker of the Central and State Government
b) RBI was established in 1949
c) RBI is the custodian of the country’s Foreign Exchange Reserve
d) RBI is the Central Bank of the country
Answer »Answer: (b)
Question : 3
Which of the following statements are true regarding India’s present exchange rate system:
- The rupee-dollar rate depends on market forces of demand & supply
- RBI regulates the Rupee dollar rate
- RBI intervenes in the forex market
- RBI regulates the forex market
a) (i) & (iii) only
b) (i), (iii) & (iv) only
c) (i) only
d) (ii) & (iii)
Answer »Answer: (b)
The rate of rupee-dollar is determined in the forex market based on market forces of demand and supply. When the rupee becomes highly volatile, then RBI intervenes in the forex market, to contain the volatility.
But RBI does not regulate or fix the rupee-dollar rate. This is called ‘Managed Float’ or ‘Dirt Float’.
RBI regulates the Forex Market, Money Market and Govt. securities Market.
Question : 4
Bank deposits that can be withdrawn without notice are called
a) variable deposits
b) demand deposits
c) account payee deposits
d) fixed deposits
Answer »Answer: (b)
Demand deposits are funds held in an account from which deposited funds can be withdrawn at any time without any advance notice to the depository institution. Demand deposits can be “demanded” by an account holder at any time.
Many checking and savings accounts today are demand deposits and are accessible by the account holder through a variety of banking options, including teller, ATM and online banking.
In contrast, a term deposit is a type of account that cannot be accessed for a predetermined period (typically the loan’s term).
Question : 5
A currency whose exchange rate is influenced by the government is a/an
a) Scarce Currency
b) Surplus Currency
c) Unmanaged Currency
d) Managed Currency
Answer »Answer: (d)
Managed currency refers to a currency whose exchange rate is not determined by the free-market forces of demand and supply but instead by the government’s intervention through the country’s central bank.
The majority of major world currencies are managed at least to some degree.
Question : 6
Why is the offering of ‘teaser loans’ by commercial banks is a cause of economic concern?
- The ‘teaser loans’ are considered to be an aspect of sub-prime lending and banks may be exposed to the risk of defaulters in future.
- In India, the ‘teaser loans’ are mostly given to entrepreneurs to set-up manufacturing or export units.
a) Only 2
b) Neither 1 nor 2
c) Both 1 and 2
d) Only 1
Answer »Answer: (d)
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