money supply, banking & financial institutions section 9 MCQ Questions & Answers Detailed Explanation
MOST IMPORTANT indian economy mcq - 12 EXERCISES
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The following question based on Money Supply, Banking and Financial Institutions topic of indian economy mcq
(a) reduction in liquidity in the economy
(b) more flow of credit to desired sector
(c) attracting more FDI in the country
(d) decrease in debt of the government
The correct answers to the above question in:
Answer: (a)
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Read more money and supply banking financial institutions Based Indian Economy Questions and Answers
Question : 1
Which of the following are instrument/s of the money market?
- Cash management bills
- Treasury bills
- Certificate of Deposits
- State Development Loans
a) (ii) & (iii) only
b) (i) & (iv) only
c) (i) & (ii) only
d) (i), (ii) & (iii) only
Answer »Answer: (d)
In money market, short term (less than one-year maturity), highly liquid and debt instruments are traded. State Development Loans (SDL) have a maturity of more than a year.
Cash management bills, Treasury bills and Certificate of deposits are debt instruments with less than one year maturity.
Certificate of Deposit (CD) is a negotiable/tradable money market instrument (a kind of Promissory Note) and issued in dematerialised form against funds deposited at a bank or other eligible financial institution for a specified time period.
(It is different from the Deposit certificates that individuals get when they deposit money in a bank that is non-tradable).
Question : 2
RBI is keeping the policy rate at a higher level for quite some time. Which of the following conditions may have led to such behaviour?
- Inflation in the economy is high
- Inflation expectation in the economy is high
a) (ii) only
b) Both (i) & (ii)
c) (i) only
d) Neither (i) nor (ii)
Answer »Answer: (b)
RBI keeps the repo rate high or increases it when the inflation in the economy increases.
When "inflation expectation" of the people is high, i.e. they are expecting that in future inflation will increase, then such a behaviour of the people ultimately leads to higher inflation in the economy due to which RBI increases the repo rate.
So, both the statements are true.
Question : 3
Consider the following statements regarding "Sovereign Gold Bonds":
- These are government securities denominated in grams of gold
- Issued by RBI on behalf of Govt. of India
- Investors will receive a fixed interest rate
- If the market price of gold declines, investors will be protected against capital loss
a) (ii) & (iii) only
b) (i), (ii) & (iii) only
c) (i) & (ii) only
d) All of the above
Answer »Answer: (b)
Sovereign Gold Bonds (SGB) are government securities denominated in grams of gold. They are substitutes for holding physical gold. Investors have to pay the issue price in cash and the bonds will be redeemed in cash on maturity. The Bond is issued by RBI on behalf of the Government of India.
Suppose somebody is purchasing gold bonds worth Rs. 100 by payment in rupees, then this Rs. 100 bond will also be denominated in grams of gold as per the market price of gold at the time of purchase and the investor will earn a fixed interest rate.
So, an investor holding gold bonds will get the benefit of price appreciation if the price of physical gold in the market is increasing and interest both but he will lose if the price of gold in the market decreases.
The quantity of gold for which the investor pays is protected since he receives the ongoing market price at the time of redemption/ premature redemption. The SGB offers a superior alternative to holding gold in physical form.
The risks and costs of storage are eliminated. Investors are assured of the market value of gold at the time of maturity and periodical interest (@2.5% per annum paid semi-annually). SGB is free from issues like making charges and purity in the case of gold in jewellery form.
It can be purchased from Scheduled Commercial Banks, Post office, BSE and NSE.
Question : 4
The export competitiveness of a country with its trading partners can be best measured through which of the following exchange rates:
a) Real Exchange Rate
b) Nominal Effective Exchange Rate
c) Nominal Exchange Rate
d) Real Effective Exchange Rate
Answer »Answer: (d)
Question : 5
The term "SWIFT" is sometimes seen in the news, is related to:
a) It is used to securely transmit information and instructions by financial institutions
b) It is used for messaging in secret defence communication
c) It is used in space technology
d) It is used for faster transmission of data
Answer »Answer: (a)
SWIFT stands for the ‘Society for Worldwide Interbank Financial Telecommunications’. It is a messaging network that financial institutions use to securely transmit information and instructions through a standardized system of codes.
SWIFT code is an 8 digit or 11- digit code and is interchangeably also called Bank Identifier Code (BIC). (It was in the news in the context of Punjab National Bank fraud of Rs. 11,000 crore)
Question : 6
In order to control credit, Reserve Bank of India should
a) decrease CRR and reduce Bank rate
b) reduce CRR and increase Bank rate
c) increase CRR and increase Bank rate
d) increase CRR and decrease Bank rate
Answer »Answer: (c)
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