money supply, banking & financial institutions section 9 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
- 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
The correct answers to the above question in:
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.
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Read more money and supply banking financial institutions Based Indian Economy Questions and Answers
Question : 1
Which of the following statements are true regarding “Alternative Mechanism”?
a) It is an inter-ministerial body to identify PSUs for strategic disinvestment
b) It is the nodal department for strategic disinvestment
c) It is an inter-ministerial body to fasten the process of strategic disinvestment
d) None of the above
Answer »Answer: (c)
As per the new policy (2019), Department of Investment and Public Asset Management (DIPAM) under the Ministry of Finance has been made the nodal department for the strategic disinvestment. DIPAM and NITI Aayog will now jointly identify PSUs for strategic disinvestment and then it is approved by CCEA.
Government has created an “Alternative Mechanism”, which is an inter-Ministerial body to fasten the process of strategic disinvestment. It will decide the following:
The quantum of shares to be transacted, mode of sale and final pricing of the transaction or lay down the principles/ guidelines for such pricing; and the selection of strategic partner/ buyer; terms and conditions of sale; and
To decide on the proposals of Core Group of Secretaries on Disinvestment (CGD) with regard the timing, price, the terms & conditions of sale, and any other related issue to the transaction.
This will facilitate quick decision-making and obviate the need for multiple instances of approval by CCEA for the same CPSE.
Question : 2
Which one of the following statement is correct regarding increase in the cash reserve ratio in India?
a) It reduces credit creation
b) It denotes liberal monetary policy
c) It does not affect credit
d) It increases credit creation
Answer »Answer: (a)
Question : 3
Convertibility of the Rupee as it exists at present means
a) Rupee is convertible into foreign currencies for trade transactions only
b) Rupee is convertible into foreign currencies for capital transactions only
c) Rupee is convertible into foreign currencies for all current transactions only
d) Rupee is convertible into foreign currencies for all types of transactions
Answer »Answer: (c)
Question : 4
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 : 5
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 : 6
An increase in CRR by the Reserve Bank of India results in
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
Answer »Answer: (a)
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money supply, banking & financial institutions section 12
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