money supply, banking & financial institutions section 12 MCQ Questions & Answers Detailed Explanation
MOST IMPORTANT indian economy mcq - 12 EXERCISES
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The following question based on Money Supply, Banking and Financial Institutions topic of indian economy mcq
(a) Concrete capital
(b) Social capital
(c) Sunk capital
(d) Floating capital
The correct answers to the above question in:
Answer: (d)
Money is something which is widely accepted in payment for goods and services and in setting debts. Money is an example of Floating Capital.
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Read more money and supply banking financial institutions Based Indian Economy Questions and Answers
Question : 1
Which of the following is not true of the Regional Rural Banks (RRBs)?
a) They provide direct loans to small and marginal farmers;
b) They also perform other banking operations;
c) They are co-sponsored by Reserve Bank of India;
d) State Governments are share-holders in RRBs.
Answer »Answer: (c)
Question : 2
When was the first Regional Rural Bank formed?
a) 1976
b) 1975
c) 1974
d) 1977
Answer »Answer: (b)
Question : 3
In the year 2018-19, RBI transferred a much higher amount (Rs. 1.76 lakh cr) to the government of India. Which of the following are the sources of this higher fund?
- Transfer from Contingency Fund
- Transfer from Asset Development Fund of RBI
- Income as a result of higher open market operations
a) (i) & (iii) only
b) (ii) & (iii) only
c) (i) only
d) All of the above
Answer »Answer: (a)
In 2018-19, to increase liquidity in the economy, RBI purchased a lot of Govt. bonds (open market operations), on which it earned interest income, resulting in income (including from other sources) of Rs. 1.23 lakh crore. Rs. 53,000 crores were transferred from the ‘Contingency Fund’ to RBI’s income.
This resulted in total income and then a transfer of Rs. 1.76 lakh crore in 2018-19 from RBI to Govt.
RBI’s surplus/excess capital (a pie of which the government was trying to extract) consists of two distinct types of items:
Contingency Fund:
It is meant for meeting unexpected and unforeseen contingencies, including depreciation in the value of securities, risks arising out of monetary/exchange rate policy operations, systemic risks and any risk arising on account of the special responsibilities given to RBI.
[Based on the recommendations of the Jalan Committee, the excess risk provision amounting to Rs. 53,000 crores were written back from Contingency Fund to RBI’s income.
As per the Annual Report of RBI 2018-19, RBI’s income was Rs. 1.76 lakh crore in 2018- 19, out of which Rs. 53,000 crore was because of transfer from Contingency Fund and rest Rs. 1.23 lakh crore was regular income.
This regular income in 2018-19 was also quite high as compared to the previous year’s income of Rs. 60,000 cr to Rs. 70,000 crores because of RBI’s open market operations where RBI purchased government securities from the market to pump liquidity in the economy. Holding cash does not give any income to RBI but the holding of government securities gives RBI interest income.]
Asset Development Fund:
It is meant for investments in subsidiaries and associate institutions and meets internal capital expenditure.
In 2018-19, Rs. 64 crore provision was made towards the Asset Development Fund on account of new investments in the National Centre for Financial Education (NCFE) and Indian Financial Technology and Allied Services (IFTAS).
Question : 4
Bank Rate refers to the interest rate at which
a) Government loans are floated
b) Commercial banks grant loans to their customers
c) Commercial banks receive deposits from the public
d) Central bank gives loans to Commercial banks
Answer »Answer: (d)
Bank rate is the interest rate at which a nation’s central bank lends money to domestic banks. Often these loans are very short in duration.
Question : 5
Consider the following statements:
- Foreign Direct Investment in India has steadily increased in the last 5 years
- Foreign Portfolio Investment in India has steadily increased in the last 5 years
a) (ii) only
b) Both (i) & (ii)
c) (i) only
d) Neither (i) nor (ii)
Answer »Answer: (d)
Refer the trends
Question : 6
Consider the following statements regarding “Commercial Papers”:
- It is an unsecured debt instrument
- It is a short-term money market instrument
- NBFCs issue commercial papers
a) (ii) & (iii) only
b) (ii) only
c) (i) only
d) All of the above
Answer »Answer: (d)
Commercial Paper (CP) is an unsecured money market debt instrument issued in the form of a promissory note for less than one year.
NBFCs and high rated companies also are allowed to issue commercial papers to raise short term money.
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