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

Answer: (a)

Answer: (c)

RBI intervenes in the forex market to contain volatility in the exchange rate of the Rupee with respect to the dollar. There is no targeted band in which RBI tries to keep the Rupee-Dollar exchange rate.

For example, if the Rupee starts depreciating slowly over a period of time and it moves to $1 = Rs 85, then RBI may not intervene in the forex market.

Answer: (d)

Inflation, or the general rise of price levels in an economy, has many deleterious effects. It leaves the economy as a whole poorer relative to pre-inflation levels of wealth (individual and societal).

Inflation reduces the value of each unit of currency and thus leaves the holder of that currency with lower purchasing power.

Generally speaking, those who benefit from higher inflation are debtors and those who suffer from it- creditors. If one has substantial debt, each dollar one has to repay would be worth less than when it was borrowed.

In this way, one pays back less in real terms than one had borrowed. Those who may benefit from higher inflation are people with significant debt.

Answer: (b)

The RESIDEX was first launched in 2007 by the National Housing Bank (NHB) to provide an index of residential prices in India across cities and over time. It is the first housing price index in India.

It was launched in order to fill the price information gap and to streamline the process of development of property in various cities across the country.

Answer: (d)

One of the most famous axioms in economics is “bad money drives out good.” This rule has generally been attributed to Sir Thomas Gresham (1519–1579), an English financier who advised King Edward VI and Queen Elizabeth I with regard to financial matters, and it is popularly known as Gresham’s Law.

The key prerequisite is that there must be two forms of money or currency (with the same face value) in circulation simultaneously.

The acceptance of both currencies at the same face value is required by legal tender laws enacted by the government. One of the currencies is artificially overvalued, and the other currency is artificially undervalued.

In such situations, the bad money (the artificially overvalued one) tends to drive the good money (the artificially undervalued one) out of circulation. In other words, people spend the bad money and hoard the good money.

Answer: (c)