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

Answer: (a)

Price level is measured by Wholesale Price Index, Consumer Price Index, Gross Domestic Product (GDP) Deflator.

Answer: (a)

A bear market is a market condition in which the prices of securities are falling, and widespread pessimism causes the negative sentiment to be self-sustaining.

As investors anticipate losses in a bear market and selling continues, pessimism only grows.

Bear investors believe that the value of a specific security or an industry is likely to decline in the future. Bears attempt to profit from a decline in prices. Bears are generally pessimistic about the state of a given market.

Answer: (d)

IBC Code 2016 was not made applicable for the insolvency of financial service providers like Banks and NBFCs. But since some major NBFCs like DHFL, IL&FS faced a crisis, the government thought of bringing NBFCs temporarily under IBC for resolution.

So, GoI, on 15th Nov 2019 notified section 227 under IBC Code which says that the IBC rules shall apply to such financial service providers or categories of financial service providers, as may be notified by the Central Government under section 227, from time to time, for the purpose of their insolvency and liquidation proceedings under these rules.

This is a temporary mechanism because, for the resolution of insolvencies of Banks and NBFCs, we have a bill pending, Financial Resolution and Deposit Insurance (FRDI) Bill, which the government is planning to introduce soon.

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)

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.