money supply, banking & financial institutions section 7 MCQ Questions & Answers Detailed Explanation

Answer: (d)

Open Market Operations (OMO) is a monetary policy tool where RBI buys/sells government securities in the secondary (open) market to increase or decrease the money supply.

Due to foreign investments inflow or outflow, the money supply in the Indian economy increases/ decreases. To prevent or sterilize the economy from such external shocks, RBI buys or sells government securities to keep the money supply unchanged.

This is called sterilization or Market Stabilization Scheme (MSS) and it is not a day to day phenomenon, rather less frequently used.

Answer: (d)

Answer: (a)

Revaluation is a calculated adjustment to a country’s official exchange rate relative to a chosen baseline.

The baseline can be anything from wage rates to the price of gold to a foreign currency.

In a fixed exchange rate regime, only a decision by a country’s government (i.e. central bank) can alter the official value of the currency.

It is the opposite of devaluation.

Answer: (c)

The Special Bearer Bonds (Immunities And Exemptions) Act, 1981 laid down the purpose of such bonds as necessary to canalize for productive purposes black money which has become a serious threat to the national economy.

With a view to such canalization, the Central Government decided to issue at par certain bearer bonds to be known as the Special Bearer Bonds, 1991.

Answer: (b)

Inflation occurs due to two main factors:

1. Increase in demand for goods & services,
2. Decrease in the supply of goods & services

Answer: (c)

Currency pegging is the idea of fixing the exchange rate of a currency by matching its value to the value of another single currency or to a basket of other currencies, or to another measure of value, such as gold or silver.

A fixed exchange rate is usually used to stabilize the value of a currency, with respect to the currency or the other valuable it is pegged to.