money supply, banking & financial institutions section 1 Practice Questions Answers Test with Solutions & More Shortcuts

Answer: (d)

When government deviates from the fiscal deficit target and spends more, it results in higher inflation. So even if RBI is trying to bring down the inflation, deviation in the fiscal deficit target will create issues in RBI achieving the inflation target.

To target inflation, RBI changes the repo rate which ultimately increases/decreases the interest rate, resulting in a change in the money supply. Through a change in money supply, RBI tries to achieve its inflation target. So, hindrances in monetary policy transmission may create issues in RBI achieving the inflation target.

In case of supply-side challenges like drought, floods or governance issues, just reducing the money supply may not result in bringing down the prices of commodities.

Answer: (d)

Monetary transmission is the pass-through of RBI’s monetary policy decisions to the economy at large in terms of interest rates, asset prices, or other economic parameters etc. And monetary transmission may result in any direction i.e. interest rates or asset prices moving up or down.

Answer: (b)

Section 227 of IBC 2016 says that "Notwithstanding anything to the contrary examined in this Code or any other law for the time being in force, the Central Government may, if it considers necessary, in consultation with the appropriate financial sector regulators, notify financial service providers or categories of financial service providers for the purpose of their insolvency and liquidation proceedings, which may be conducted under this Code.”

And the rules also say that to initiate resolution of FSPs under IBC 2016, the appropriate regulator should make an application. This is not applicable in other cases wherein the case of default, either the creditor or the debtor (company), anyone can move for resolution under IBC 2016.

Since section 227 got notified, the Ministry of Corporate Affairs (GoI) (using the powers under section 227) consulted the regulator (RBI) and said that those NBFCs with asset size of more than Rs. 500 crores can be brought under the IBC code for resolution.

This has been done only for those NBFCs which are regulated by RBI and not for those NBFCs which are regulated by other regulatory bodies like SEBI, IRDAI etc.

Answer: (b)

Answer: (d)

When foreign investors come to India, they bring dollars and this dollar they sell in forex market and demand rupees which results in increase in demand of rupee and rupee appreciates.

When exports increase, we earn more dollars from the foreign market and this dollar we sell in the forex market to purchase rupees which results in increase in demand of rupees and rupee appreciates.

When the interest rate in India increases, more foreign investors come to India to invest in fixed interest rate instruments, which results in rupee appreciation.

So, none of the statements are true.