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

Answer: (d)

In practice, FDI is defined as cross-border financial investments between firms belonging to the same multinational group, and much of it is phantom in nature which means investments that pass through empty corporate shells.

These shells, also called special purpose entities, have no real business activities.

Answer: (b)

The Reserve Bank of India (RBI) was set up on the basis of the recommendations of the Hilton Young Commission.

The Reserve Bank of India Act, 1934 provides the statutory basis of the functioning of the RBI, which commenced operations on April 1, 1935.

RBI began its operations by taking over from the Government the functions so far being performed by the Controller of Currency and from the Imperial Bank of India, the management of Government accounts and public debt. Burma (Myanmar) seceded from the Indian Union in 1937 but the Reserve Bank continued to act as the Central Bank for Burma till the Japanese Occupation of Burma and later up to April 1947.

After the partition of India, the Reserve Bank served as the central bank of Pakistan up to June 1948 when the State Bank of Pakistan commenced operations. The Reserve Bank, which was originally set up as a shareholder’s (private) bank, was nationalised in 1949.

Answer: (b)

The main players in Indian capital markets are:

1. Banks, Indigenous and commercial.
2. Insurance companies
3. Development Finance Institutions (DFI), and
4. Non-Banking Finance Companies (NBFCs)
5. Non-Banking Financial Institutions.

Answer: (d)

IRDA is a multimember nodal agency. It is vested with regulatory powers in respect of the insurance sector similar to those vested in SEBI in respect of the capital markets and of RBI for the banking sector.

The IRDA Act, 1999 cleared the way for private sector entry into the insurance business.

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: (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.