money supply, banking & financial institutions section 9 MCQ Questions & Answers Detailed Explanation

Answer: (a)

Answer: (d)

Answer: (d)

An open market operation (also known as OMO) is an activity by a central bank to buy or sell government bonds on the open market.

India’s Open Market Operation is much influenced by the fact that it is a developing country and that the capital flows are much different than those in the other developed countries. Economists claim that an increase in money supply alone constitutes inflation.

In India, the Reserve Bank of India uses policy rates and reserve ratios such as Cash Reserve Ratio (CRR) in controlling the money supply. Apart from the CRR, banks are required to maintain liquid assets in the form of gold, cash and approved securities.

A higher liquidity ratio forces commercial banks to maintain a larger proportion of their resources in liquid form and thus reduces their capacity to grant loans and advances, thus it is an anti-inflationary impact.

A higher liquidity ratio diverts the bank funds from loans and advances to investment in government and approved securities.

Answer: (d)

The Kisan Credit Card Scheme is being implemented by Commercial Banks, RRBs, Small Finance Banks and Cooperatives.

Answer: (b)

The inflation target is decided by the Government of India in consultation with RBI

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:

1. central bank money (all money created by the central bank regardless of its form, e.g. banknotes, coins, electronic money); and
2. commercial bank money (money created in the banking system through borrowing and lending) - sometimes referred to as chequebook money.