money supply, banking & financial institutions section 12 Practice Questions Answers Test with Solutions & More Shortcuts

Answer: (d)

Money is something which is widely accepted in payment for goods and services and in setting debts. Money is an example of Floating Capital.

Answer: (c)

Answer: (b)

Answer: (a)

In 2018-19, to increase liquidity in the economy, RBI purchased a lot of Govt. bonds (open market operations), on which it earned interest income, resulting in income (including from other sources) of Rs. 1.23 lakh crore. Rs. 53,000 crores were transferred from the ‘Contingency Fund’ to RBI’s income.

This resulted in total income and then a transfer of Rs. 1.76 lakh crore in 2018-19 from RBI to Govt.

RBI’s surplus/excess capital (a pie of which the government was trying to extract) consists of two distinct types of items:

Contingency Fund:

It is meant for meeting unexpected and unforeseen contingencies, including depreciation in the value of securities, risks arising out of monetary/exchange rate policy operations, systemic risks and any risk arising on account of the special responsibilities given to RBI.

[Based on the recommendations of the Jalan Committee, the excess risk provision amounting to Rs. 53,000 crores were written back from Contingency Fund to RBI’s income.

As per the Annual Report of RBI 2018-19, RBI’s income was Rs. 1.76 lakh crore in 2018- 19, out of which Rs. 53,000 crore was because of transfer from Contingency Fund and rest Rs. 1.23 lakh crore was regular income.

This regular income in 2018-19 was also quite high as compared to the previous year’s income of Rs. 60,000 cr to Rs. 70,000 crores because of RBI’s open market operations where RBI purchased government securities from the market to pump liquidity in the economy. Holding cash does not give any income to RBI but the holding of government securities gives RBI interest income.]

Asset Development Fund:

It is meant for investments in subsidiaries and associate institutions and meets internal capital expenditure.

In 2018-19, Rs. 64 crore provision was made towards the Asset Development Fund on account of new investments in the National Centre for Financial Education (NCFE) and Indian Financial Technology and Allied Services (IFTAS).

Answer: (a)