money supply, banking & financial institutions section 5 MCQ Questions & Answers Detailed Explanation

Answer: (d)

Electoral bonds can be purchased for any value in multiples of Rs. 1,000, Rs. 10,000, Rs. 10 lakh, and Rs. 1 crore from any of the specified branches of the State Bank of India.

The purchaser will be allowed to buy electoral bonds only on due fulfilment of all the extant KYC norms and by making payment from a bank account. A citizen of India or a body incorporated in India will be eligible to purchase the electoral bond which will be an interest free instrument.

The bonds will have a life of 15 days during which they can be used to make donations to registered political parties (which they can encash through a designated bank account) that have secured not less than 1% of the votes polled in the last election to the Lok Sabha or Assembly.

At present, the donor, the quantum and the source of funds is not known. Now, with electoral bonds, the balance sheet of the donor will reflect the purchase of these bonds. The donor will know, which party he is depositing money to.

The political party will file return with the election commission as to how much money has come through electoral bonds. Now, which donor gave to which political party, that is the only thing which will not be known.

It will ensure cleaner money coming from donors, cleaner money coming to political party and ensure significant transparency against the current system of unclean money.

Answer: (b)

A country or its citizens may use many modes of exchange in their daily lives. History tells us that ancient humans used salt and spices as currency. But ‘Legal tender’ is the money that is recognized by the law of the land, as valid for payment of debt.

It must be accepted for discharge of debt. RBI Act 1934, Section 26 states that “Every central bank note shall be legal tender at any place in India in payment or on account for the amount expressed therein”.

Legal tender can be limited or unlimited in character. In India, coins function as limited legal tender. Therefore, 50 paise coins can be offered as legal tender for dues up to Rs. 10 and smaller coins for dues up to Rs. 1. Currency notes are unlimited legal tender and can be offered as payment for dues of any size.

As per the RBI Act 1934, all currency notes are guaranteed by the Central Government

Answer: (b)

Through ECB and Masala Bonds, the money is raised in foreign currency which is then sold in the forex market to purchase rupees which leads to rupee appreciation. Restricting FPI investments will reduce the supply of dollar and will have an opposite impact.

When we reduce imports by restricting non-essential items, it leads to reduction in demand of dollars and appreciation of rupee.

Answer: (a)

Answer: (d)

Government companies can issue bonds directly also to the investors/public but in the case of "Bharat Bond ETF", various govt companies will issue bonds to "Bharat Bond ETF" and then "Bharat Bond ETF" will club these bonds and issue new bonds under the name "Bharat Bond ETF".

So now when a person is investing in "Bharat Bond ETF" means purchasing the bonds of "Bharat Bond ETF" then basically he is investing in various PSUs through "Bharat Bond ETF". The money which the "Bharat Bond ETF" will get, it will pass on to the various govt companies to purchase their bonds.

The minimum size of bond is Rs. 1000, so retail public/individual can purchase and hence the "corporate bond market" will deepen (reach to more and more people).

It will provide liquidity to investors as it will be traded on the stock exchange and it will be more accessible. The bonds will be issued either with 3-year maturity or 10-year maturity.

For the government companies, it is a new way of finance other than the bank financing and it will expand their investor base which will ultimately increase the demand for the bonds of govt. companies resulting in a lower cost of borrowing for government companies.

CPSU, CPSE, CPFI are just different categories of Public Sector companies, no need to go into it.

Answer: (b)

When the cost of money (interest rate) is cheaper in the economy, it helps in investment.

For investment, the main cost is the cost of capital i.e. the rate at which capital/money is available.