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) Cash reserve ratio
(b) All of the above
(c) Credit policy of the central bank
(d) Banking habits of the people
The correct answers to the above question in:
Answer: (b)
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Read more money and supply banking financial institutions Based Indian Economy Questions and Answers
Question : 1
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 : 2
The Scheduled Commercial Banks (SCB) are required to maintain CRR with RBI as per which act:
a) The Banking Regulation Act 1949
b) Securities Contract (Regulation) 1956
c) Reserve Bank of India Act 1934
d) None of the above
Answer »Answer: (c)
As per Section 42 of the RBI Act 1934, every Scheduled (included in the second schedule of RBI Act 1934, whether commercial or cooperative) bank need to maintain CRR with RBI.
Question : 3
Which of the following statements are true regarding the “Long Term Repo Operation” (LTRO) Conducted by RBI as per the 6th February 2020 monetary policy review meeting?
- It was a fixed-term repo operation
- It was done at above the repo rate
- RBI did not conduct an auction to select the bank for this operation
a) (i) & (iii) only
b) (ii) & (iii) only
c) (i) only
d) None of the above
Answer »Answer: (c)
On 6th Feb 2020 monetary policy review meeting, RBI decided to conduct a long term repo operation at a fixed rate of “repo rate” i.e. 5.15% worth Rs. 1 lakh crore (at that time repo rate was 5.15%).
Since it was done at a fixed rate, so the auction was not required but a lot of banks wanted money at the repo rate, so RBI had to do an auction to select the bank which will get money from RBI at the repo rate.
As all banks combined together, during the auction, quoted much more than Rs. 1 lakh crore, so proportionally it was given to banks depending on which bank bid for how much amount during the auction.
LTRO auctions were conducted on the electronic platform called the E-Kuber, the Core Banking Solution (CBS) platform of RBI.
Question : 4
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 : 5
With reference to inflation in India, which of the following statements is correct?
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
Answer »Answer: (c)
When inflation becomes very high, the RBI decreases supply of money (to check inflation) by adopting light monetary policy.
Question : 6
In India, regional rural banks were established in the year
a) 1975
b) 1982
c) 1980
d) 1976
Answer »Answer: (b)
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