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
(a) 1982
(b) 1989
(c) 1981
(d) 1980
The correct answers to the above question in:
Answer: (a)
Practice Money Supply, Banking and Financial Institutions (money supply, banking & financial institutions section 11) Online Quiz
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Read more money and supply banking financial institutions Based Indian Economy Questions and Answers
Question : 1
RBI keeps its foreign exchange reserves with which of the following agency/ies?
- Bank for International Settlement (BIS)
- Foreign Commercial banks
- Other/foreign Central banks
- Other institutions approved by Central Board of RBI
a) (ii) & (iii) only
b) (iii) & (iv) only
c) (i) only
d) All of the above
Answer »Answer: (d)
Reserve Bank of India invests the reserves in the following types of instruments:
- Deposits with Bank for International Settlements
- Deposits with other central banks
- Deposits with foreign commercial banks
- Debt instruments representing sovereign or sovereign-guaranteed liability
- Other instruments/institutions as approved by the Central Board of RBI
Question : 2
Which of the following statements are true regarding the "Prompt Corrective Action (PCA)" framework:
- It is applicable to banks and non-banking financial companies (NBFCs)
- The institutions under PCA may cease to lend
- It is a supervisory tool of RBI for banks
- It applies once financial institutions reach a certain threshold level regarding Capital and NPAs.
a) (iii) & (iv) only
b) (ii), (iii) & (iv) only
c) (i), (ii) & (iii) only
d) All of the above
Answer »Answer: (b)
RBI, under its supervisory framework, uses various measures/tools to maintain the sound financial health of banks. Prompt Correction Action (PCA) framework is one of such supervisory tools under which RBI has specified certain regulatory trigger points in terms of three parameters,
i.e. capital to risk-weighted assets ratio (CRAR), net non-performing assets (NPA) and Return on Assets (RoA), for initiation of certain structured and discretionary actions in respect of banks hitting such trigger points. It involves monitoring certain performance indicators of the banks as an early warning exercise and is initiated once such thresholds are breached.
Its objective is to facilitate the banks to take corrective measures including those prescribed by the Reserve Bank, in a timely manner, in order to restore their financial health.
The framework also provides an opportunity for the Reserve Bank to pay focused attention to such banks by engaging with the management more closely in those areas. The PCA framework is, thus, intended to encourage banks to eschew certain riskier activities and focus on conserving capital so that their balance sheets can become stronger.
The RBI has clarified that the PCA framework is not intended to constrain normal operations of the banks for the general public like lending and depositing. But in extreme cases, RBI can put restrictions on lending activity also.
The PCA framework is applicable only to commercial banks and not extended to co-operative banks and non-banking financial companies (NBFCs).
Question : 3
Among the supply side measures to contain inflation is:
a) postponing public expenditure
b) credit control measures of RBI
c) mopping up excess liquidity through taxation
d) maintaining price levels through an effective PDS
Answer »Answer: (d)
Question : 4
Consider the following statements regarding MUDRA Bank:
- It will provide direct lending to small entrepreneurs
- MUDRA loans will be available for agriculture, manufacturing, trading and service activities
a) (ii) only
b) Both (i) & (ii)
c) (i) only
d) Neither (i) nor (ii)
Answer »Answer: (d)
MUDRA would be responsible for refinancing all Last Mile Financiers such as
- NonBanking Finance Companies,
- Societies,
- Trusts,
- Companies,
- Co-operative Societies,
- Small Banks,
- Scheduled Commercial Banks and
- Regional Rural Banks
Which are in the business of lending to micro/small business entities engaged in manufacturing, trading and services activities (not for agriculture).
Refinancing means MUDRA loans will be available through Banks/NBFCs/MFIs and not directly from MUDRA Bank.
MUDRA loans are available in three categories. For a small business, loans up to 50000/- is available under the ‘Shishu’ category, beyond 50,000 and up to 5 lakhs under the ‘Kishor’ category and between 5 lakhs to 10 lakhs under the 'Tarun' category.
These products have been designed to cater to customers operating at the lower end of the enterprise spectrum i.e. informal/unorganized sector.
Question : 5
Consider the following statements:
- Capital Adequacy Ratio (CAR) is the amount that banks have to maintain in the form of their own funds to offset any loss that banks incur if the account-holders fail to repay dues.
- CAR is decided by each individual bank.
a) (ii) only
b) Both (i) & (ii)
c) (i) only
d) Neither (i) nor (ii)
Answer »Answer: (c)
Capital Adequacy Ratio (CAR) is the ratio of a bank’s capital to its risk-weighted asset ratio. A bank’s capital consists of Tier1 (share) and Tier2 (bonds) capital.
The bank has to maintain this capital so that, if there are defaults then the bank should be able to sustain. RBI mandates how much CAR has to be maintained by banks.
Question : 6
Which of the following grants / grant direct credit assistance to rural households?
- Regional Rural Banks
- National Bank for Agriculture and Rural Development
- Land Development Banks
a) 2 only
b) 1 and 2 only
c) 1 and 3 only
d) 1, 2 and 3
Answer »Answer: (c)
Land development banks started financing long term loans for more significant rural development activities like rural and cottage industries, rural artisans etc.
The main purpose of RRBs is to mobilize financial resources from rural / semi-urban areas and grant loans and advances mostly to small and marginal farmers, agricultural labourers and rural artisans.
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