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
- RBI's liability would reduce to the extent the old notes does not come to the banking system
- Transfer of wealth from holders of illicit black money to the public sector
- The shift of resources from the private sector to the government
- Indirect and corporate taxes would decline to the extent growth slows
(a) (i), (ii) & (iii) only
(b) (ii), (iii) & (iv) only
(c) (i) & (iii) only
(d) All of the above
The correct answers to the above question in:
Answer: (d)
The currency held by the public is the liability of RBI as whenever somebody comes with the currency note to the RBI, it needs to return a sum equivalent to the value of the currency.
So, if some old notes do not come to the banking system then they will become invalid, and RBI will never have to return the equivalent value of those currency notes.
If the black money does not come back to the banking system after demonetization then RBI's liability would reduce by that amount and its net Assets (net worth) will increase.
This ultimately means that the private money has been transferred to the RBI. Hence it is a kind of transfer of illicit black money to the public sector.
Demonetization may have some negative impact on GDP growth which will impact the revenues from indirect and corporate taxes.
"Black economy is the market-based production of goods and services – legal or illegal – that escapes capture in the official GDP statistics. And the tax that the government forfeits on this activity circulates as black money."
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Read more money and supply banking financial institutions Based Indian Economy Questions and Answers
Question : 1
”Smart Money” term is used for
a) eBanking
b) Cash with Public
c) Credit Card
d) Internet Banking
Answer »Answer: (c)
Credit cards are sometimes considered as smart money since they enable transactions without the need for physical cash and that, too, is a convenient manner.
It is plastic money that is used to pay for products and services at over 20 million locations around the world. In purely economic terms, Smart Money refers to investments made by people experienced in matters of finance.
Question : 2
Consider the following statements regarding Reserve Bank of India.
- It is a banks to the Central Government.
- It formulates and administer monetary policy.
- It acts as an agent of government in respect of India.
- It handles the borrowing programme of Government of India.
a) 2, 3 and 4
b) 3 and 4
c) 1, 2, 3 and 4
d) 1 and 2
Answer »Answer: (c)
Question : 3
The Cash Reserve Ratio is a tool of :
a) Agricultural policy
b) Fiscal policy
c) Monetary policy
d) Tax policy
Answer »Answer: (c)
Cash Reserve Ratio (CRR) is a specified minimum fraction of the total deposits of customers, which commercial banks have to hold as reserves either in cash or as deposits with the central bank.
CRR is a crucial monetary policy tool and is used for controlling the money supply in an economy.
Question : 4
Match the following.
List I | List II |
(Stock exchange name) | (Set up Year) |
i. NSE | 1. 1887 |
ii. BSE | 2. 1984 |
iii. OTCEI | 3. 1989 |
iv. ISE | 4. 1998 |
a) i-b, ii-a, iii-c, iv-d
b) i-a, ii-b, iii-c, iv-d
c) i-d, ii-c, iii-b, iv-a
d) i-c, ii-b, iii-a, iv-d
Answer »Answer: (a)
Correct matching between Stock exchange name & Set up Year
- NSE - a. 1984
- BSE - b. 1887
- OTCEI - c. 1989
- ISE - d. 1998
Question : 5
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 : 6
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.
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