money supply, banking & financial institutions section 4 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) entrepreneurs
(b) government servants
(c) corporate servants
(d) creditors
The correct answers to the above question in:
Answer: (a)
Inflation has the effect of redistributing income because prices of all factors do not decline in the same proportion.
Entrepreneurs stand to gain more than wage earners or fixed income groups.
Speculators, hoarders, black marketers and smugglers gain on account of windfall profits.
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Read more money and supply banking financial institutions Based Indian Economy Questions and Answers
Question : 1
Which of the following statements will be true if the inflation in the economy is increasing?
- Bond price will decrease
- Bondholders will loose
- The yield on bonds will increase
a) (i), & (ii) only
b) (iii) only
c) (i) only
d) All of the above
Answer »Answer: (d)
A bond (debt paper) holder is expected to get a fixed interest regularly and principal at maturity.
But if the inflation in the economy starts increasing the price of the bond decreases (because now the actual value of the principal and interest which the bondholder will get will be of less value) and bondholders lose.
When the price of the bond decreases in the market, the person who will purchase the bond will have to pay less price and hence he will get more return/yield.
(The interest rate on the bond remains fixed but its price fluctuates in the market and hence the return also fluctuates.
If the market price of the bond is low, then the return/yield on the bond will be high.
This is because the person who will purchase the bond will have to pay less price to get the same bond).
For a detailed understanding, you can refer to the book on Indian Economy by Vivek Singh.
Question : 2
A new organizational structure ‘Board of Management’ was proposed for the Urban Cooperative Banks by which committee?
a) Nachiket Mor Committee
b) Raghuram Rajan Committee
c) Malegam Committee
d) Narasimhan Committee
Answer »Answer: (c)
In normal companies/banks, the Board of Directors (BoD) are independent and representatives of shareholders/owners, but not exactly the shareholders. But in cooperative banks, the Board of Directors are elected from among the shareholders themselves. Because of this, professionalism is missing from the cooperative banks and there were several cases of fraud discovered.
To bring improvement in the governance and functioning of Urban-Cooperative Banks (UCBs), a new organization structure consisting of a Board of Management (BoM), in addition to the Board of Directors (BoD), was suggested by the Malegam Committee (2011). (As changing the selection/appointment process of BoD required changes in Cooperative Societies Act)
Accordingly, RBI published guidelines on 31st Dec 2019, as per which, the BoD of UCBs with deposit size of Rs. 100 crore and above, shall constitute BoM. It shall be mandatory for such banks to constitute BoM for seeking approval to expand their area of operation and/or open new branches.
These UCBs will also require prior approval of RBI for the appointment of their CEOs. UCBs with a deposit size less than Rs. 100 crores are exempted from constituting BoM although they are encouraged to do so voluntarily.
The BoM shall report to the BoD and shall exercise oversight over the banking-related functions of the UCBs, assist the BoD on the formulation of policies and any other related matter specifically delegated to it by the BoD for the proper functioning of the bank.
The BoD will continue to be the apex policy setting body and shall continue to be responsible for the general direction and control of a UCB. It will continue to look after all the administrative functions as spelt out in the respective Co-operative Societies Acts.
Question : 3
When there is an inflationary trend in the economy, what would be trend in the pricing of the Bank Products?
a) Increasing Trend
b) Constant Trend
c) Decreasing Trend
d) There is no relevance of the inflation in pricing of the Banking Products
Answer »Answer: (a)
Question : 4
Devaluation of currency means
a) permitting a currency to seek its worth in the international market
b) None of the above
c) fixing the value of currency with the help of IMF and WB
d) reduction in the value of the currency vis-a-vis major internationally traded currencies
Answer »Answer: (d)
Question : 5
Why is the offering of “teaser loans’’ by commercial banks 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 inexperienced entrepreneurs to set up manufacturing or export units.
a) 2 only
b) 1 only
c) Both 1 and 2
d) Neither 1 nor 2
Answer »Answer: (b)
The statement (1) is correct because it includes the definition of teaser loans but the statement (2) is not correct, because in India teaser loan is provided to the home buyers not for setting up manufacturing or export units.
Question : 6
NABARD provides refinance to which of the following types of financial institutions:
- Commercial Banks
- Regional Rural Banks
- State Cooperative Banks & Land Development Banks
- Non-Banking Financial Companies
a) (ii) & (iii) only
b) (i), (ii) & (iii) only
c) (ii) only
d) All of the above
Answer »Answer: (d)
NABARD does not give direct loans to individuals but it gives loans to
- Commercial Banks,
- Regional Rural Banks (RRBs),
- State Cooperative Banks & Land Development Banks and
- Non-Banking Financial Companies (NBFCs) for further lending (refinance) to the agriculture and rural sectors.
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