money supply, banking & financial institutions section 8 MCQ Questions & Answers Detailed Explanation
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The following question based on Money Supply, Banking and Financial Institutions topic of indian economy mcq
(a) at which Commerical Banks borrow money from RBI
(b) at which Commerical Banks borrow money from public
(c) at which public borrows money from Commercial Bank
(d) at which public borrows money from RBI
The correct answers to the above question in:
Answer: (a)
Bank Rate is the interest rate at which a nation's central bank lends money to domestic banks. Managing the bank rate is a preferred method by which central banks can regulate the level of economic activity.
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Read more money and supply banking financial institutions Based Indian Economy Questions and Answers
Question : 1
Which of the following is not part of the money supply in the economy?
- Money lying with the government
- Deposits of commercial banks with other commercial banks
- Money lying with the Central bank
- Deposits of pubic with commercial banks
a) (ii) & (iv) only
b) (i) & (ii) only
c) (i) only
d) (i), (ii) & (iii) only
Answer »Answer: (d)
The money supply is defined as the stock of money in circulation among the public. So, money lying with the government, RBI and interbank deposits are not considered as money supply.
Question : 2
Which of the following statements are true regarding "Angel Investors":
- Angel investors generally invest their own money
- They invest in small start-ups and entrepreneurs
- They provide more favourable terms and conditions as compared to other lenders
- Angel investment is regulated by SEBI
a) (iii) only
b) (ii) & (iii) only
c) (i) & (ii) only
d) All of the above
Answer »Answer: (d)
An angel investor is a person who invests in highly risky companies, typically before those companies have any revenue or profits. Angel investors are often among an entrepreneur's family and friends and invest in small start-ups and entrepreneurs.
Angel investors provide more favourable terms compared to other lenders since they usually invest in the entrepreneur starting the business rather than the viability of the business.
Angel investors are focused on helping start-ups take their first steps, rather than the possible profit they may get from the business. Fund-raising with angel investors is typically done more casually, using networking and crowd funding platforms.
Essentially, angel investors are the opposite of venture capitalists. Angel investors typically use their own money, unlike venture capitalists who take care of pooled money from many other investors and place them in a strategically managed fund.
Angel Investment in India is regulated by the Securities and Exchange Board of India (SEBI) under Category I of Alternative Investment Funds (AIF).
Question : 3
Consider the following statement regarding the concept of money:
- $M_1$: Money with the Public (currency notes and coins) + Demand deposits of banks (on current and saving bank accounts) + Other demand deposits with RBI. It is highly liquid and banks will not be able to run their lending programmes on this basis.
- $M_2: M_1$ + Saving bank deposits with Post-offices.
- $M_3: M_2$ + Term deposits with the bank.
- $M_4: M_3$ + All deposits of Post-offices.
a) 1, 2, 3
b) 1, 2, 3, 4
c) 1, 3, 4
d) 1, 2, 4
Answer »Answer: (d)
The four concepts of money used in calculating money supply are known as the money stock measures or measures of monetary aggregates.
These are M1, M2, M3, M4.
M3 = M1 + Term deposits with the bank.
Question : 4
Consider the following statements:
- RBI can act as lender of last resort for banks and NBFCs both
- All NBFCs are registered with and regulated by RBI
a) (ii) only
b) Both (i) & (ii)
c) (i) only
d) Neither (i) nor (ii)
Answer »Answer: (c)
In all RBI related documents, it is written that RBI acts as a lender of last resort for banks.
But in the case of the IL&FS crisis in 2018, where it defaulted on loan papers, Mr Viraj Acharya, the ex-Deputy Governor of RBI clarified that RBI can act as lender of last resort for NBFCs also.
All NBFCs are not registered or regulated by RBI. Some NBFCs are regulated by SEBI, IRDAI etc. also
Question : 5
Which among the following is not the outcome of decrease in prime lending rate ?
a) decline in productivity
b) increased demand of consumer products
c) to raise the bank loan
d) decline in saving rate
Answer »Answer: (a)
Prime rate or prime lending rate is a term applied in many countries to a reference interest rate used by banks. The term originally indicated the rate of interest at which banks lent to favoured customers,
i.e., those with high credibility. When these rates are high, demand decreases and output falls to meet the new lower demand.
Less output requires fewer workers, driving unemployment higher.
Question : 6
Consider the following statements regarding the rupee-dollar rate in the foreign exchange market:
- Inflation in the domestic economy will lead to rupee depreciation
- Rupee depreciation will lead to inflation in the domestic goods in the economy
a) (ii) only
b) Both (i) & (ii)
c) (i) only
d) Neither (i) nor (ii)
Answer »Answer: (c)
If there is inflation in the economy then it means the rupee is losing value with respect to goods and services.
Now, when the rupee loses value with respect to goods and services in the economy (and the only purpose of the rupee is to purchase goods and services in the economy) then anyone selling dollars and demanding rupees will now demand more rupees per unit of dollar and rupee will depreciate.
But if the rupee is depreciating, then it means the rupee is losing value with respect to a specific item i.e. dollar. That does not mean the rupee will lose value with respect to all the goods and services in the economy.
(Layman’s explanation: If the rupee is losing value with respect to onions means onion becoming costlier. That does not mean the rupee will lose value with respect to all goods and services, and prices of other goods and services will not increase.)
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