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
(a) It reduces credit creation
(b) It denotes liberal monetary policy
(c) It does not affect credit
(d) It increases credit creation
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
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 : 2
What is “narrow money”?
a) The sum of currency in circulation with the public and the cash reserves held by banks
b) The market value of the stocks held by all the holders excluding the promoters
c) The sum of currency in circulation and the demand deposits in banks
d) The sum of MI money and the time deposits
Answer »Answer: (c)
The four main monetary aggregates of measures of money supply that reflect the state of the monetary sector are:-
- M1(Narrow money)= Currency with the public + demand deposits of the public;
- M2 = M1 + Post Office Savings deposits;
- M3 (Broad money)= M1 + time deposits of the public with banks; and
- M4 = M3 + Total post office deposits.
So ‘Narrow Money’ is simply a category of money supply that includes all physical money like coins and currency along with demand deposits and other liquid assets held by the central bank.
This category of money is considered to be the most readily available for transactions and commerce.
Question : 3
Bank money refers to
a) gold bullions
b) cheques
c) currency notes
d) coins
Answer »Answer: (b)
There are two types of money in a fractional-reserve banking system, currency originally issued by the central bank, and bank deposits at commercial banks:
- central bank money (all money created by the central bank regardless of its form, e.g. banknotes, coins, electronic money); and
- commercial bank money (money created in the banking system through borrowing and lending) - sometimes referred to as chequebook money.
Question : 4
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 : 5
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 : 6
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.
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