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
- Regional Rural Banks
- Lead Bank Plan
- NABARD
- State Bank of India
(a) 4, 2, 1, 3
(b) 2, 1, 4, 3
(c) 2, 3, 4, 1
(d) 4, 3, 1, 2
The correct answers to the above question in:
Answer: (a)
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Read more money and supply banking financial institutions Based Indian Economy Questions and Answers
Question : 1
Consider the following statements regarding the interest rates linked with an external benchmark rate:
- External benchmark rate can be repo rate or yield on government securities or any rate published by Financial Benchmarks India Pvt. Ltd.
- Once repo rate changes the lending rate of banks will automatically change
- Banks are mandated by RBI to link the deposit and lending rate with external benchmark rate
a) (i) & (ii) only
b) (ii) only
c) (i) only
d) (i) & (iii) only
Answer »Answer: (a)
Question : 2
Consider the following statements regarding payment banks:
- They can open demand and time deposit accounts both
- They are set up as differentiated banks
- They may act as Business Correspondents for other banks
- They will provide payments/remittance services to migrant labour workforce and small businesses
a) (i) & (ii) only
b) (ii), (iii) & (iv) only
c) (i) & (iv) only
d) All of the above
Answer »Answer: (b)
The objectives of setting up payment banks are to promote financial inclusion by providing small savings accounts and payments/remittance services to migrant labour workforce, low-income households, small businesses, other unorganized sector entities and other users.
The following will be the scope of activities for payment banks:
- Acceptance of demand deposits (savings and current) but no time deposits
- No lending activity
- Issuance of ATM/debit cards but not credit cards
- Payments and remittance services through various channels
- Acting as Banking Correspondent (BC) of another bank
- Distribution of simple financial products like mutual funds/insurance products, etc.
Payment banks will be required to maintain Cash Reserve Ratio (CRR) and Statutory Liquidity Ratio (SLR). The total deposits of the public must be invested in government securities and/ or deposited in other commercial banks (i.e. no lending is allowed).
This makes the public deposit in payment banks safe. Payment banks will be set up as differentiated banks for serving niche interests. (Differentiated banks have restrictions either in geography or in operation or both. Opposite of differentiated banks are universal banks).
Question : 3
With reference to the Indian Public Finance, consider the following statements:
- External liabilities reported in the Union Budget are based on historical exchange rates
- The continued high borrowing has kept the real interest rates high in the economy
- The upward trend in the ratio of Fiscal Deficit of GDP a recent years has a adverse effect on private investment
- Interest payments is the single largest component of the non-plan revenue expenditure of the Union Government
a) 1 and 4
b) 1, 2 and 3
c) 2, 3 and 4
d) 1, 2, 3 and 4
Answer »Answer: (c)
Question : 4
Which of the following statements are true regarding “Teaser Loans”?
- It is a fixed cum floating loan product
- These are short term loans
- These loans are banned by RBI
a) (i) & (ii) only
b) (iii) only
c) (i) only
d) (ii) & (iii) only
Answer »Answer: (c)
“Teaser Loans” is the unofficial term used to describe housing loans that carry ultra-low fixed rates in the initial years, but charge market-linked rates thereafter.
These products were first launched in 2009-10 by SBI. This scheme was termed a ‘teaser loan’ scheme by market players because it lured the borrower with low rates in the initial years, only to bump up the rates later.
Home loans in India face a very low incidence of default, even amid NPAs. But RBI was worried because in case of a teaser home loan, offering borrowers ultra-low rates in the first few years may tempt them to take on a far bigger housing bet than they can afford. In a rising rate cycle, a transition from a fixed to a floating rate can well throw a salary earner's EMI calculation out of their range.
While such teaser products are not banned by the regulator, the standard asset provisioning requirement is higher for such loans. For normal home loans, the standard asset provisioning is 0.4% but for teaser loans, it is 2%. RBI, to discourage such products, had increased the provisioning by five times for such loans since these loans are perceived as riskier.
Question : 5
International capital flows have been uncertain and volatile, causing exchange rate and balance of payment crisis among developing countries. Among the various sources of external capital available to India which source should you consider as the most preferable?
a) Foreign institutional investment
b) External commercial borrowing
c) Portfolio investment
d) Foreign direct investment
Answer »Answer: (d)
Question : 6
Consider the following statements regarding ‘Agency Banks’ of RBI:
- RBI Act 1934 allows it to appoint agency banks
- Public sector and private sector banks both can act as agency banks
a) (ii) only
b) Both (i) & (ii)
c) (i) only
d) Neither (i) nor (ii)
Answer »Answer: (b)
RBI carries out the general banking business of the governments through its own offices and commercial banks, both public and private, appointed as its agents (called Agency Banks).
Section 45 of the Reserve Bank of India Act, 1934, provides for the appointment of scheduled commercial banks as agents at all places or at any place in India.
A network comprising the Government Banking Division of RBI and branches of agency banks appointed under Section 45 of the RBI Act carry out the government transactions.
At present all the public sector banks and select private sector banks act as RBI's agents. Only designated branches of agency banks can conduct government banking business.
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