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

Answer: (c)

‘Monetary base’ is the total liability of RBI and it is also called ‘High Powered Money’ or ‘Reserve Money’ or M0.

Answer: (a)

Capital markets provide for the buying and selling of long term debt or equity-backed securities. When they work well, the capital markets channel the wealth of savers to those who can put it to long term productive use, such as companies or governments making long term investments.

Capital Markets allow businesses to raise long-term funds by providing a market for securities, both through debt and equity.

Capital Markets offer a whole range of sometimes complicated products which allow businesses and banks not just to raise capital but also to ‘hedge’ (protect) against risks.

Answer: (a)

As per Banking Regulation Act 1949 (Section 36) (and not by RBI Act 1934), RBI, in the public interest, can supersede the Board of Directors (management) of a banking company.

As per RBI Act 1934 (Section 30), the Central Government can supersede the ‘Central Board’ of RBI, and thereafter the general superintendence shall be entrusted to such agency as the government may decide and can exercise all the powers exercised by ‘Central Board’.

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: (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: (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.