public finance fiscal & monetary policy section 2 MCQ Questions & Answers Detailed Explanation

Answer: (a)

Treasury bills are instruments of short-term borrowing by the Government of India, issued as promissory notes under discount.

The interest received on them is the discount which is the difference between the price at which they are issued and their redemption value. They have assured yield and negligible risk of default. They are thus useful in managing short-term liquidity.

At present, the Government of India issues three types of treasury bills through auctions, namely, 91-day, 182-day and 364-day. There are no treasury bills issued by State Governments.

Answer: (c)

Instruments (certificates) issued by the ultimate borrower are called primary securities. Instruments issued by intermediaries on behalf of the ultimate borrower are called indirect securities.

The market for instruments (also called securities) issued for the first time, is called the primary market.

Primary security is the asset created out of the credit facility extended to the borrower and/or which are directly associated with the business/project of the borrower for which the credit facility has been extended.

Answer: (b)

Answer: (b)

Custom duty is a tax on imports imposed on an ad valorem basis, i.e, fixed in the form of a percentage on the value of the commodity imported.

Answer: (c)

Internal debt, Other internal liabilities and External debt are three components of Public debt wherein Internal debt include market loans from banks and financial institutions, short-term borrowings on treasury bills and other bonds and certificates issued by the government.

External debt includes loans from foreign countries and international financial institutions like the World Bank, IMF, ADB, etc.

Other internal liabilities includes small saving schemes, provident fund, a reserve fund of the railways, post and telegraph on which the central government has to pay interest

Answer: (b)

Black market is the market in which illegal goods are traded. Goods acquired illegally take one of two price levels:

1. they may be cheaper than legal market prices as the supplier does not have to pay for production costs or taxes; or
2. they may be more expensive than legal market prices as the product is difficult to acquire or produce, dangerous to handle or not easily available legally.

Black-market transactions typically occur as a way for participants to avoid government price controls or taxes, conducting transactions 'under the table.'

So the most defining feature of black markets is that they have to be carried out secretly as they are illegal.