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

Answer: (d)

Continuing its financial inclusion drives, RBI has announced a “National Strategy for Financial Inclusion (NSFI)” for India 2019-2024.

The NSFI sets forth the vision and key objectives of the financial inclusion policies in India to help expand and sustain the financial inclusion process at the national level through a broad convergence of action involving all the stakeholders in the financial sector.

The strategy aims to provide access to formal financial services in an affordable manner, broadening & deepening financial inclusion and promoting financial literacy & consumer protection.

Following are the strategic objectives/pillars of the National Strategy for Financial Inclusion.

1. Universal Access to Financial Services
2. Effective co-ordination
3. Providing a basic bouquet of financial services
4. Customer protection and grievance redressal
5. Financial literacy and education
6. Access to livelihood and skill development
7. Some of the important milestones under the NSFI are:
8. Banking access to every village within 5-km of the radius or a hamlet of 500 households in hilly areas by March 2020
9. Every adult should have access to the financial service provider through a mobile device by March 2024
10. Every willing and eligible adult, who has been enrolled under the PMJDY, should be enrolled under an insurance scheme (PMJJBY, PMSBY, etc.), and a pension scheme (NPS, APY, etc.) by March 2020
11. Public Credit Registry (PCR) fully operational by March 2020

Answer: (c)

A bank run is a situation that occurs when a large number of bank's customers withdraw their deposits simultaneously due to concerns about the bank's solvency (Solvency is the ability of a company to meet its long-term financial obligations which is essential to staying in business).

As more and more people withdraw their funds, the probability of default increases, thereby prompting more people to withdraw their deposits. In extreme cases, the bank's reserves may not be sufficient to cover the withdrawals. A bank run is typically the result of panic which can ultimately lead to default.

In such a situation, the RBI stands by the commercial banks as a guarantor and extends loans to ensure the solvency of the banks. This function of RBI is also called 'lender of last resort'.

RBI comes to the rescue of a bank as a ‘lender of last resort’ that is solvent (has not gone bankrupt) but faces temporary liquidity/funds problems.

Answer: (c)

Answer: (d)

The GIC was formed in November 1972 consequent upon the nationalisation of the general insurance business.

The 107 private companies operating in the field were grouped together into four - National Insurance Company, United India Insurance Company, Oriental Insurance Company and New India Assurance Company, with GIC as the holding company.

Answer: (b)

The Wholesale Price Index (WPI) is a weighted average of indices covering 676 commodities, which are traded in primary, manufacturing and fuel and power-sectors.

Answer: (b)

Accommodative Monetary Policy:

When a central bank attempts to expand the overall money supply to boost the economy when growth is slowing. This is done to encourage more spending from consumers and businesses by making money less expensive to borrow by lowering the interest rate.

A neutral monetary policy is also called the "natural" or "equilibrium" rate where the policy (repo) rate is such that neither it stimulates nor restrains economic growth.

Whenever RBI conducts its monetary policy review, it also tells the general public what will be its future stand (this is also called ‘Forward Guidance’) i.e. going forward, in which direction the policy rate may move. If it wants to move the repo rate down in future then it will keep an ‘accommodative stance’. If it expects to move the repo rate up in future then it will keep a ‘hawkish stance’. And if it wants that it should be able to move the repo rate in any direction then it keeps a ‘neutral stance’.

When RBI is changing its stance from "accommodative" to "neutral", in any monetary policy review, that means RBI is expecting that in future it may be required to change the repo (policy) rate in any direction.

When RBI is having an accommodative monetary policy stance that means in future it expects to lower the policy rate. But if it thinks that the inflation or demand in the economy is edging up then it may change its stance from accommodative to neutral so that it has the leeway to change the policy rate even in the upward direction (or maybe downward direction).

When consumer confidence in the economy is up it shows that in future the consumers will be willing to purchase more goods and services which may lead to an increase in inflation. But if consumer confidence is down then it implies that consumers will be spending less in future.