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

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: (a)

the main cost-push factor in India are:

1. Fluctuations in output and supply in both agriculture and industry sectors. Fluctuations in the output of food grains have been a major factor responsible for rising in food-grain prices as well as general prices. In the same way, the supply of manufactured goods also did not increase adequately in the last few years. Power breakdowns, strikes and lock-outs and shortage of transport facilities have been the major constraints responsible for lowering the production of manufactured goods. With ever-rising demand for manufactured goods, the producers are in a position to hike the prices of their products.
2. The problem of hoarding by traders and black marketeers.
3. Taxation gives the traders an opportunity to raise the prices of goods, the proportion of which is often more than the levy of taxes.
4. Administered Prices.
5. Hike in Oil Prices.

Answer: (b)

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: (c)

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.