money supply, banking & financial institutions section 11 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
Devaluation of a currency may promote export.
Reason (R):
The price of the country’s products in the international market may fall due to devaluation.
In the context of the above two statements, select the correct answer from the codes given below.
(a) Both (A) and (R) are true, but (R) is not the correct explanation of (A)
(b) (A) is false, but (R) is true
(c) (A) is true, but (R) is false
(d) Both (A) and (R) are true and (R) is the correct explanation of (A)
The correct answers to the above question in:
Answer: (d)
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Read more money and supply banking financial institutions Based Indian Economy Questions and Answers
Question : 1
Which of the following would best describe the role of a merchant bank?
a) To monitor the activities of publicly-list companies
b) To provide borrowing and leading services, primarily to the business sector
c) To act as banker and financial agent to the federal government
d) To provide loans to the corporate sector through receipts of insurance premiums
Answer »Answer: (b)
Question : 2
Under flexible exchange rate system, the exchange rate is determined by
a) the price of gold
b) the purchasing power of currencies
c) the Central Bank of the country
d) the forces of demand and supply in the foreign exchange market
Answer »Answer: (d)
A floating exchange rate is a type of exchange rate regime wherein a currency's value is allowed to fluctuate according to the foreign exchange market.
It refers to a country's exchange rate regime where its currency is set by the foreign exchange market through supply and demand for that particular currency relative to other currencies.
Question : 3
Consider the following statements:
- Foreign Portfolio investments are more volatile than FDI
- FDI investors can easily sell their holdings and quit the market
- Foreign Portfolio investment is sector-specific
- FDI investment in general targets the capital market
a) (i) & (iii) only
b) (iii) & (iv) only
c) (i) only
d) (iv) only
Answer »Answer: (c)
FDI FPI/FII 1 It is only in equity/shares/ownership It is both in equity and debt (loan) 2 It is through primary market Generally, through the secondary market but can happen through primary market 3 Generally new shares are issued and the new capital (money) comes to the company through which the company invests in the new factory, machines etc.
Generally, only the owners change hands and new capital does not come to the company 4 The foreign investors purchase large shareholding and appoints Board of Directors and get involved in the decision making (active management) of the company Foreign investors generally purchase small shareholdings and do not get involved in the management of the company 5 Foreign investors try to make the company profitable through their decision making and target the profit of the company Foreign investors target the share price of the company and derive their gain from rising of share prices 6 It is sector-specific.
For example, a steel company in the US will invest only in a steel company in India and try to make that company profitable through their management and decision making and get a share of the profit It is in the general capital market.
For example, a foreign investor is not particular about any company/ sector in India and is willing to invest in any company which gives a chance of share price appreciation 7 It is a long-term investment as to turn the company profitable, the foreign investor needs to get invested for a long time.
It is generally short-term investment 8 Generally, the government specify a lock-in period and during this period the foreign investor cannot sell his investment and hence it is quite stable There is no lock-in period and the foreign investor can return any time by selling his investment. This makes the currency volatile
Question : 4
In the context of Indian economy, ‘Open Market Operations’ refers to
a) lending by commercial banks to industry and trade
b) None of the above
c) purchases and sale of government securities by the RBI
d) borrowing by scheduled banks from the RBI
Answer »Answer: (c)
Question : 5
Consider the following statements regarding ‘ways and means’ advance:
- It is available for both Central and State governments
- Government need to pay interest on ways and means advance
- It is to meet the temporary mismatches of receipts and payments
a) (i) & (iii) only
b) (ii) & (iii) only
c) (i) only
d) All of the above
Answer »Answer: (d)
The Reserve Bank of India gives temporary loan facilities to the centre and state governments as a banker to the government. This temporary loan facility is called Ways and Means Advances (WMA).
The WMA scheme was designed to meet temporary mismatches in the receipts and payments of the government. This facility can be availed by the government if it needs immediate cash from the RBI.
The WMA is a loan facility from the RBI for 90 days which implies that the government has to vacate the facility after 90 days.
The interest rate for WMA is currently charged at the repo rate. The limits for WMA are mutually decided by the RBI and the Government of India.
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money supply, banking & financial institutions section 11
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