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

Answer: (c)

Answer: (b)

The RBI Act of 1934, Section 22 gives the central bank the sole right to issue currency notes.

Answer: (d)

Answer: (d)

The monetary policy framework in India, as it is today, has evolved over the years.

A new “Monetary Policy Framework” Agreement was signed between the Government of India and RBI in Feb 2015. As per the new monetary policy framework agreement, the following are the important points:

The objective of the monetary policy is

1. to primarily maintain price stability, while keeping in mind the objective of growth
2. The monetary policy framework is operated by RBI
3. The inflation target is 4% with a band of +/- 2%
4. The inflation target is decided by the Government of India in consultation with RBI
5. The inflation is the “Consumer Price Index (CPI) – Combined” published by the Ministry of Statistics and Programme Implementation (NSO)
6. The RBI shall be seen to have failed to meet the Target if inflation is more than 6% or less than 2% for three consecutive quarters
7. In case RBI fails to meet the target, it will have to give a written report to the Government of India explaining the reasons for failure, remedial actions to be taken and an estimated time period within which the Target would be achieved

Answer: (a)

Answer: (c)

The bank rate also referred to as the discount rate, is the rate of interest that the central bank charges on the loans and advances to a commercial bank. Whenever the banks have any shortage of funds they can borrow them from the central bank. Repo (Repurchase) rate is the rate at which the central bank lends short-term money to the banks against securities.

A reduction in the repo rate will help banks to get money at a cheaper rate. When the repo rate increases borrowing from the central bank becomes more expensive. It is more applicable when there is a liquidity crunch in the market.