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) 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
The correct answers to the above question in:
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.
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Read more money and supply banking financial institutions Based Indian Economy Questions and Answers
Question : 1
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 : 2
Consider the following statements regarding lending by “Microfinance Institutions (MFIs)”:
- RBI has put a cap on household income limit to avail credit from MFIs
- RBI has increased the lending limit by MFIs per borrower to Rs. 1.25 lakhs
a) (ii) only
b) Both (i) & (ii)
c) (i) only
d) Neither (i) nor (ii)
Answer »Answer: (b)
RBI has increased the income limit for each rural household to be eligible for microfinance from Rs. 1 lakh to Rs. 1.25 lakh, and from Rs. 1.6 lakh to Rs. 2 lakh for urban and semi-urban areas.
Second, RBI has also increased the lending limit per borrower from Rs. 1 lakh to Rs. 1.25 lakh.
Both these eligibility measures are necessary to qualify a loan as a microfinance asset by MFIs. (One individual can borrow from two MFIs at the most, no need to remember) Both measures are expected to expand the pool of beneficiaries at the bottom of the pyramid, as well as increase the flow of credit in absolute amounts through this channel.
The RBI board set up a sub-committee in 2011, under the chairmanship of Y.H. Malegam, to study issues and concerns relating to the microfinance industry. It covers a range of services which include, in addition to the provision of credit, many other services such as savings, insurance, money transfers, counselling, etc.
As a consequence of the Malegam committee report, RBI decided to set up a separate category of non-banking financial institutions: Non-banking financial company-micro finance institution (NBFC-MFI).
Question : 3
The outcome of ‘devaluation of currency’ is
a) increased import and improvement in balance of payment
b) increased export and import
c) increased export and improvement in balance of payment
d) increased export and foreign reserve deficiency
Answer »Answer: (c)
Devaluation is a reduction in the exchange value of a country’s monetary unit in terms of gold, silver, or foreign currency.
By decreasing the price of the home country’s exports abroad and increasing the price of imports in the home country, devaluation encourages the home country’s export sales and discourages expenditures on imports, thus improving its balance of payments.
Question : 4
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 : 5
RBI giving its surplus reserves to government may result in which of the following:
- 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
Answer »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.
Question : 6
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]
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