money supply, banking & financial institutions section 10 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) The Reserve Bank of India has no role in controlling the inflation
(b) Controlling the inflation in India is the responsibility of the Government of India only
(c) Decreased money circulation helps in controlling the inflation
(d) Increased money circulation helps in controlling the inflation
The correct answers to the above question in:
Answer: (c)
When inflation becomes very high, the RBI decreases supply of money (to check inflation) by adopting light monetary policy.
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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 part of Monetary Base of an economy?
- Currency notes and coins with the public
- Vault cash of commercial banks
- Deposits of commercial banks with RBI
- Deposits of Government of India with RBI
a) (i) & (ii) only
b) (iii) & (iv) only
c) (i) only
d) All of the above
Answer »Answer: (d)
Monetary Base or High-Powered Money is the total liability of the Monetary Authority of India i.e. RBI.
All the currency notes and coins issued by RBI does not matter who is holding them, is always the liability of RBI. When Government and banks deposit their money with RBI, it becomes the liability of RBI. (In the same way as when you deposit money in your bank, then the deposits become the bank’s liability towards you).
For a detailed understanding, you can refer to the book on Indian Economy by Vivek Singh.
Question : 2
Credit creation power of the commercial banks gets limited by which of the following?
a) Cash reserve ratio
b) All of the above
c) Credit policy of the central bank
d) Banking habits of the people
Answer »Answer: (b)
Question : 3
Consider the following statements regarding the ‘Supervisory Action Framework’:
- It is applicable for UrbanCooperative banks
- It can be initiated in case of serious governance issues
a) (ii) only
b) Both (i) & (ii)
c) (i) only
d) Neither (i) nor (ii)
Answer »Answer: (b)
Since a lot of urban-cooperative banks (UCBs) were also facing issues, RBI has brought in the “Supervisory Action Framework” (SAF) for UCBs in place of PCA for commercial banks. The three parameters (NPA level, Return on Assets
i.e. profit and Capital Adequacy Ratio), based on which PCA is invoked, SAF is also invoked based on three similar parameters (NPA level, two consecutive years loss and capital adequacy ratio), but the level may be different at which SAF is triggered.
SAF in UCB can also be initiated in case of serious governance issues. Once a UCB has been put under SAF, various restrictions on dividends, donations, new loans, capital expenditure etc. can be imposed, which are again similar to PCA restrictions.
Question : 4
In India, regional rural banks were established in the year
a) 1975
b) 1982
c) 1980
d) 1976
Answer »Answer: (b)
Question : 5
Consider the following statements regarding the "Banks Board Bureau (BBB)" constituted in 2016:
- It will be responsible for the appointment of heads in PSBs and Financial Institutions
- It will help PSBs in developing strategies and capital raising plans
- It will improve the governance of the Public Sector Banks (PSBs)
a) (i) & (iii) only
b) (ii) & (iii) only
c) (i) only
d) All of the above
Answer »Answer: (d)
With a view to improving the Governance of Public Sector Banks (PSBs), the GoI appointed an autonomous Banks Board Bureau (BBB) which started functioning from 1st April 2016. The Board has three ex-officio members and three expert members in addition to a Chairman. The following are the functions of the BBB
It will be responsible for the selection and appointment of Board of Directors in PSBs and Financial Institutions (FIs) It will advise the Government on matters relating to appointments, confirmation or extension of tenure and termination of services of the Board of Directors
It will help banks to develop a robust leadership succession plan for critical positions
It will build a data bank containing data relating to the performance of PSBs/FIs and their officers It will advise the Government on the formulation and enforcement of a code of conduct and ethics for managerial personal in PSBs/FIs
It will advise the Government on evolving suitable training and developmentØ programmes for management personnel in PSBs/FIs
It will help banks in terms of developing business strategies and capital raising planØ etc.
Question : 6
What is ‘Future Trading’?
- It is a trade between two stock exchanges wherein it is decided to purchase stocks of each other on a fixed price throughout the year
- It is an agreement between two parties to buy or sell an underlying asset in the future at a predetermined price
- It is an agreement between stock exchange that they will not trade in stocks of each other in future or for a predetermined period of time
a) 2 only
b) 1 only
c) 3 only
d) All 1, 2 and 3
Answer »Answer: (a)
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