money supply, banking & financial institutions section 10 MCQ Questions & Answers Detailed Explanation

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.

Answer: (c)

Answer: (a)

When people deposit money in banks (public deposits), then banks keep only a certain portion with them and the rest they lend. Whatever they keep with themselves is considered as reserves.

The portion that they keep as reserves can be in the form of cash or gold or they can purchase government securities (bonds) or they can also deposit with RBI.

So only (ii), (iii) & (iv) statements are true.

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.

Answer: (b)

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.