money supply, banking & financial institutions section 11 MCQ Questions & Answers Detailed Explanation

Answer: (b)

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.

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

Answer: (c)

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.