money supply, banking & financial institutions section 4 MCQ Questions & Answers Detailed Explanation

Question : 1

When the exchange rate changes from 1 $ = 60 to 1 $ = 58, it means

1. Rupee value has appreciated
2. Dollar value has depreciated
3. Rupee value has depreciated
4. Dollar value has appreciated

a) 2 and 3 are correct

b) 2 and 4 are correct

c) 1 and 4 are correct

d) 1 and 2 are correct

Question : 2

When the Reserve Bank of India reduces the Statutory Liquidity Ratio by 50 basis points, which of the following is likely to happen?

a) Foreign Institutional Investors may bring more capital into our country

b) India’s GDP growth rate increases drastically

c) Scheduled Commercial Banks may cut their lending rates

d) It may drastically reduce the liquidity to the banking system

Question : 3

If an economy is in “Liquidity Trap”, then which of the following statements shall be true:

1. The interest rate in the market will be very low/zero
2. People and businesses both will hold on to their cash and don’t spend
3. People will be willing to spend
4. Demand Deposits of banks increases

a) (ii) & (iv) only

b) (i), (ii) & (iv) only

c) (i) only

d) (i) & (iv) only

Question : 4

What are the measures of checking deflation?

1. Increasing money supply
2. Promote credit creation by the banks.
3. Curtailment in taxes so as to increase the purchasing power of the people.

a) 2 only

b) 1 only

c) 3 only

d) 1, 2, 3

Question : 5

What is the difference between Inflation and Deflation?

1. Inflation is an increase in the price of goods while Deflation is that state in which the value of money rises and the price of goods and services falls.
2. Deflation is an increase in the price of goods while Inflation is that state in which the value of money rises and the price of goods and services falls.
3. Inflation is a state in which the value of money rises and the price of goods and services falls while deflation is an increase in the price of goods.

a) 2 only

b) 1 only

c) 3 only

d) 1, 2, 3

Question : 6

Which one of the following best describes the term ‘Merchant Discount Rate’ sometimes seen in news?

a) The amount paid back by banks to their customers when they use debit cards for financial transactions for purchasing goods or services

b) The incentive given by the Government to merchants for promoting digital payments by their customers through Point of Sale (PoS) machines and debit cards

c) The charge to a merchant by a bank for accepting payments from his customers through the bank’s debit cards

d) The incentive given by a bank to a merchant for accepting payments through debit cards pertaining to that bank