money supply, banking & financial institutions section 10 Practice Questions Answers Test with Solutions & More Shortcuts

Answer: (d)

RBI earns income from all of the sources. RBI invests Forex to purchase US govt. bonds and lend to other Central Banks and earns interest. It also earns interest on Indian Govt securities (OMO) and it earns interest by lending to banks (Repo Operations).

Answer: (b)

Answer: (d)

In 2010, the Government of India, in consultation with RBI introduced a new short-term instrument, known as Cash Management Bills (CMBs).

It is not used to fund the Fiscal deficit but is used to meet the temporary mismatches in the cash flow of the Government of India. The CMBs have the generic character of T-bills but are issued for maturities less than 91 days. (Traded in money market)

Treasury bills or T-bills:
These are short term debt instruments issued by the Government of India for a maturity of less than one year. Treasury bills are zero-coupon securities and pay no interest. Instead, they are issued at a discount and redeemed at the face value at maturity. For example, a 91-day Treasury bill of Rs. 100/- (face value) may be issued at say Rs. 98.20, that is, at a discount of say, ?1.80 and would be redeemed at the face value of Rs. 100/-. (Treasury bills are traded in the money market).

Dated Securities:
Dated central government securities have a tenor of more than one year up to 40 years.

Answer: (b)

A group of economists including Keynes is of the opinion that inflation, in one form or the other, is a factor that helps economic growth.

Usually, it is argued that inflation tends to redistribute income and wealth. The redistributive effect of inflation is always in favour of the profit-earning class, that is to say, it redistributes income always from the wage-recipient class towards the profit-recipient class in the community.

As a result, the saving ratio will increase because the marginal propensity to save of the profit earners is generally high as against the high marginal propensity to consume of the wage- earners because of their near-subsistence level of income.

Answer: (a)