money supply, banking & financial institutions section 10 MCQ Questions & Answers Detailed Explanation
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The following question based on Money Supply, Banking and Financial Institutions topic of indian economy mcq
(a) Department for Promotion of Industry and Internal Trade (DPIIT)
(b) Reserve Bank of India (RBI)
(c) Department of Economic Affairs
(d) Respective administrative Ministry/ Department
The correct answers to the above question in:
Answer: (d)
Foreign Direct Investment can come through two routes viz. automatic and government approval routes. More than 95% of the FDI comes in India through the “Automatic Route” where no government approval is required and are subject to only sectoral laws. Certain sectors that are still under the “Government approval route” are scrutinised and cleared by the respective departments and ministries.
In respect of applications in which there is a doubt about the Administrative Ministry/Department concerned, DPIIT shall identify the Administrative Ministry/Department where the application will be processed.
In respect of proposals where the respective department/ ministry proposes to reject the proposals or in cases where conditions for approval are stipulated in addition to the conditions laid down in the FDI policy or sectoral laws/regulations, the concurrence of DPIIT shall compulsorily be sought by the said Ministry.
The Department for Promotion of Industry and Internal Trade (DPIIT), Ministry of Commerce and Industry sets the rules for foreign investment and makes policy pronouncements on FDI through various Press Releases.
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Read more money and supply banking financial institutions Based Indian Economy Questions and Answers
Question : 1
Consider the following statements.
- Bank rate is the rate of interest which RBI charges its clients on their short-term borrowing.
- Repo rate is the rate of interest which RBI charges its clients on their long-term borrowing.
a) Only 2
b) Neither 1 nor 2
c) Both 1 and 2
d) Only 1
Answer »Answer: (b)
Question : 2
A speculator who sells stocks, in order to buy back when price falls, for gain is a
a) Boar
b) Bison
c) Bull
d) Bear
Answer »Answer: (d)
A bear is a speculator who is wary of fall in prices and hence sells securities so that he may buy them at cheap prices in future.
He does not have securities at present but sells them at higher prices in anticipation that he will supply them business purchasing at lower prices in the future.
If the prices move down as per the expectations of the bear he will earn profits out of these transactions.
Question : 3
Consider the following statement regarding ‘Market Stabilization Bonds’ (MSBs):
- These are Treasury bills and Dated securities
- RBI is empowered to issue MSBs
- The interest payment on these bonds is made by the government from its budgetary resources
a) (ii) only
b) (ii) & (iii) only
c) (i) only
d) All of the above
Answer »Answer: (d)
Market Stabilization Scheme is an instrument of sterilisation, which empowered the RBI to issue Government Treasury Bills and medium duration Dated Securities for the purpose of liquidity absorption.
This instrument of monetary management was introduced in 2004 to absorb surplus liquidity of a more enduring nature arising from large capital inflows.
The scheme worked by impounding/taking the proceeds of auctions of Treasury bills and Dated Government securities in a separate identifiable MSS cash account maintained and operated by the RBI.
At the same time, interest payments have to be given to the institutions that buy the Market Stabilization Bonds (MSB) (the Treasury bills and Dated securities of govt). Here, for the interest payment, the government allocates money from its budget to the RBI. This expenditure to service interest payment for MSBs is called carrying cost.
The amounts credited into the MSS cash account by selling MSBs are appropriated only for the purpose of redemption/buyback of the Treasury Bills/dated securities issued under the MSS.
Question : 4
Consider the following statements regarding ‘money supply’:
- It can be increased by increasing the money multiplier
- It can be increased by increasing the monetary base
a) (ii) only
b) Both (i) & (ii)
c) (i) only
d) Neither (i) nor (ii)
Answer »Answer: (b)
Money supply = (Money Multiplier) X (Monetary Base)
From the above formula, the money supply can be increased by increasing the money multiplier or monetary base or both.
Question : 5
Which one of the following is a developmental expenditure?
a) Debt services
b) Grant–in–aid
c) Irrigation expenditure
d) Civil administration
Answer »Answer: (c)
Public expenditure whether plans or non-plan or capital or revenue is classified into developmental and non-developmental expenditure. The expenditure which is incurred on activities directly related to economic development is called developmental expenditure.
Hence, expenditure incurred on education, health care, scientific research; infrastructure and so on is developmental expenditure. Expenditure incurred on general essential services required for the normal running of the government is termed as a non-developmental expenditure.
Therefore, expenditure incurred on services relating to general administration, police, defence, judiciary etc. is non-developmental expenditure.
Question : 6
Consider the following statements regarding Cash Reserve Ratio (CRR) kept with RBI by commercial banks:
- It ensures safety to the people’s deposits in banks
- It ensures the solvency of banks
- It increases the cost of funds for the banks
- Banks earn interest on CRR
a) (i) & (ii) only
b) (i), (ii) & (iii) only
c) (i) only
d) All of the above
Answer »Answer: (b)
One of the basic reasons for keeping CRR with RBI is to provide safety to the public deposits. It also ensures the solvency of banks i.e. staying in business and proper functioning and liquidity situation.
Since banks do not earn interest on the CRR, so it is idle money for the banks which increases costs for banks.
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