money supply, banking & financial institutions section 6 MCQ Questions & Answers Detailed Explanation

Answer: (d)

Nominal Interest Rate (Deposit Rate) = Inflation + Real Interest Rate

If inflation is 5% and banks offer a deposit rate of 5% then nobody will deposit money in banks as whatever banks are offering will be eaten away by inflation. People deposit money in banks to earn something and this is possible only when the real interest rate is positive.

So, if inflation is 5% and banks are offering a deposit rate of 7% then the real interest rate will be 2%.

This means the depositors are actually/really getting a 2% return.

When the real interest rate is positive then it leads to people saving (depositing) money in banks, and somewhat reduction in their consumption.

When inflation increases a lot and banks do not increase their deposit rate then the real interest rate may turn negative. Inflation in the economy may be negative.

So, (i) & (iv) statements are true.

Answer: (d)

Answer: (b)

As per the RBI Act 1934, Section 25, "the design, form and material of bank notes shall be such as may be approved by the Central Government after consideration of the recommendations made by the Central Board of RBI.”

Answer: (d)

The SEBI is authorised to:

1. Oversee the working of stock exchanges;
2. Regulate merchant banks and mutual funds;
3. Register and regulate intermediaries such as stockbrokers;
4. Curb fraudulent and unfair trade practices including insider trading;
5. Promote the development of a healthy capital market.

Answer: (a)

The main objective of monetary policy is to control the supply of money, often targeting an inflation rate or interest rate to ensure price stability and general economic growth.

Further goals of a monetary policy are usually to contribute to lower unemployment and to maintain predictable exchange rates with other currencies.

Answer: (a)

Because Reserve requirements are designed as “precautionary measures” and not to stop banks from “excessive” profit.