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
- Increasing inflation in the economy
- Decreasing inflation in the economy
- No impact on inflation
- Meeting the fiscal deficit target of the government
(a) (ii) only
(b) (i) & (iv) only
(c) (i) only
(d) (iii) & (iv) only
The correct answers to the above question in:
Answer: (b)
Till the time, reserves are with RBI, it is not part of the money supply.
But if RBI gives its surplus reserves to the government which will ultimately spend this amount will result in this extra money reaching to the public resulting in higher inflation.
RBI paying dividends to the government is a part of budgetary resources of govt. of India and it helps in reducing the fiscal deficit.
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Read more money and supply banking financial institutions Based Indian Economy Questions and Answers
Question : 1
Reserve Bank of India issues currency notes against which of the following?
a) Foreign security
b) All of the above
c) Govt. of India Security
d) Gold
Answer »Answer: (b)
Question : 2
The term “On-lending model” was recently in the news is related to which of the following?
a) Loans given by Development Financial Institutions to banks for further lending
b) Loans given by banks to Development Financial Institutions
c) Loan given by NBFCs out of bank borrowing to priority sectors will be considered as Priority Sector Lending
d) RBI giving loans to NBFCs for onward lending
Answer »Answer: (c)
Priority sector lending is applicable to banks and not NBFCs.
RBI recently allowed that onward lending by registered Non-Banking Finance Companies (NBFCs) including Micro Finance Institutions (MFI) for the various priority sectors will be considered as Priority Sector Lending (PSL) by BANKS. RBI has done the above changes in order to boost credit to the needy segment of borrowers.
Under the revised on-lending model, banks can classify only the fresh loans sanctioned by NBFCs out of bank borrowing as priority sector lending (it will be considered as PSL by banks).
Bank credit to NBFCs for ‘On-Lending’ will be allowed up to a limit of five per cent of individual bank’s total priority sector lending on an ongoing basis.
Question : 3
Inflation can be checked by
a) increasing Government expenditure
b) decreasing money supply
c) increasing exports
d) increasing money supply
Answer »Answer: (b)
The technical and most often used way to control inflation is by tightening the money supply.
The logic goes that when people do not have excess money, they will buy a lesser quantity of goods and services and postpone luxurious expenses.
This will reduce the demand for the products and thus lead to a reduction in prices. Most central banks use high-interest rates as the traditional way to fight or prevent inflation.
Question : 4
Who cannot bid for companies put up for sale under the new Insolvency and Bankruptcy Code (IBC):
- A wilful defaulter
- Promoters of the company
a) (ii) only
b) Both (i) & (ii)
c) (i) only
d) Neither (i) nor (ii)
Answer »Answer: (c)
As per the amendment done in the Insolvency and Bankruptcy Code (IBC) in November 2017, Wilful Defaulters cannot bid for the companies put up for sale during the resolution process.
It also prohibits bidding any borrower (or promoter) whose account has been identified as an NPA for over a year and has not repaid the dues.
But if the borrower/promoter has made payment of all overdue amounts with interest and charges, then he can bid (submit a resolution plan) for the company.
[Ref: Economic Survey 2017-18 Vol 2 page 52]
Question : 5
Consider the following statements regarding the resolution of stressed assets:
- RBI can issue directions to banking companies for the resolution of stressed assets
- RBI can direct banking companies to move through IBC 2016 for resolution of stressed assets only upon authorization of Govt. of India
- Lenders require RBI authorization for resolution of stressed assets under IBC Code 2016
a) (i) & (ii) only
b) (ii) & (iii) only
c) (i) only
d) All of the above
Answer »Answer: (a)
Following are the amendments done in 2017 in Banking Regulation Act 1949 regarding the resolution of stressed assets/NPAs
The Central Government may, by order, authorize RBI to issue directions to any banking company to initiate insolvency resolution process in respect of a default, under the provisions of Insolvency and Bankruptcy Code 2016
RBI may from time to time issue directions to any banking company for resolution of stressed assets
Based on the above amendments, RBI issued directions to banks (in general and not against any specific default) to move to IBC 2016 for resolution of stressed assets, then some lenders approached Court and the Supreme Court gave the following judgement dated 2nd April 2019:
“RBI can only direct banking institutions to move under the IBC Code 2016 if there is a central government authorization and it should be in respect of specific defaults.
Thus, any directions which are in respect of debtors, in general, would be ultra vires Section 35AA of Banking Regulation Act 1949”.
So, RBI in general can issue guidelines for resolution of stressed assets but it cannot force a banking company to move to IBC 2016 without Govt. of India authorization. And in case after Govt. approval, RBI is asking a banking company to move to IBC 2016 for resolution of stressed assets, then it should be in cases of specific defaults. Lenders do not require RBI permission to move to IBC Code 2016.
Question : 6
Consider the following statements:
a) Central Government can give directions to RBI if it considers necessary
b) Central government cannot supersede the Central Board of Directors of RBI
c) RBI is fully autonomous institution
d) All of the above
Answer »Answer: (a)
Section 7, RBI Act 1934 says “The Central Government may from time to time give such directions to RBI as it may, after consultation with the governor of the RBI, consider necessary in the public interest”.
Section 30, RBI Act 1934 says that, “If RBI fails to carry out any of the obligations imposed on it under the RBI Act, then Central government can supersede the Central Board” of RBI.
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