money supply, banking & financial institutions section 3 MCQ Questions & Answers Detailed Explanation

Answer: (c)

Recently RBI included HDFC Bank under the list of DSIB, while SBI and ICICI were already in the list.

Answer: (c)

Government is planning a bank recapitalization program under which it will issue bonds of Rs. 80,000 crore in FY 2017-18.

This recapitalization programme has been integrated with an ambitious reform agenda, under the rubric of an "Enhanced Access and Service Excellence (EASE)" programme and the six pillars to achieve this include

1. Customer responsiveness,
2. Responsible banking,
3. Credit offtake,
4. PSBs as Udyami Mitra,
5. Deepening financial inclusion, and
6. Digitalisation and developing personnel.

Answer: (d)

The concept of a mutual fund is that various investors/individuals put their money in a fund and this fund is used to purchase shares or bonds of various companies thus diversifying the risk of the investors. The fund is managed by experts and individuals/investors don’t trade the share/bonds directly.

The fund managers decide which companies to invest in and from which companies to exit. If the share price or bond price of the companies increase then the value of the fund also increases and investors gain.

If some individual wants to put money into the mutual fund then it can be done only once after the market has closed for that given day.

Exchange-Traded Funds (ETFs) are almost similar to mutual funds but they differ in the sense that ETFs are traded on the stock exchange throughout the day.

So, if an investor wants to purchase an ETF, they can always purchase it from the stock exchange/market throughout the day, just like the shares of any company.

The Central government announced in the budget 2018-19 that they will be creating an ETF of various central public sector companies so that to attract investors to purchase ETFs, and through which the disinvestment can be done.

So, when an investor is purchasing the shares of the ETF, he is indirectly purchasing the shares of various companies from which the ETF has been created.

Answer: (a)

RBI has deregulated interest rates on term/ time deposits since Oct 1997.

RBI had deregulated interest rates on savings deposits since May 2011.

RBI regulates three categories of financial markets; money markets, government securities markets and foreign exchange markets.

Answer: (b)

“In terms of Section 42(1) of the RBI Act, 1934 the Reserve Bank, having regard to the needs of securing the monetary stability in the country, prescribes the CRR for Scheduled Commercial Banks (SCBs) without any floor or ceiling rate”.

The other purpose of CRR is to manage liquidity (RBI can increase CRR to decrease liquidity in the economy) and it also ensures that a part of the bank’s deposit is with the Central Bank and is hence, safe.

As a depositor, the CRR and SLR requirements together ensure that some portion of the deposits with Indian banks remain secure, even if banks make poor lending decisions.

In absence of the CRR and SLR requirements, to make more profits banks may lend most of the deposits and if there is a sudden rush to withdraw, banks will struggle to meet the repayments to the depositors. The maximum limit for SLR is 40%.

Answer: (a)

Currencies and coins are fiat money because they derive their value from government "fiat"/ order. If the coin is melted then it will not fetch the same value in the market and the paper of which the currency note is made does not have any value in the market.

Hence, Currency notes and coins are called fiat money and they do not have intrinsic value.

They are also called legal tenders as they cannot be refused by any citizen of the country for settlement of any kind of transaction. Cheques were drawn on savings or current accounts, however, can be refused by anyone as a mode of payment. Hence cheques are not legal tenders.

So only (i) & (iii) statements are true.