money supply, banking & financial institutions section 2 Practice Questions Answers Test with Solutions & More Shortcuts

Answer: (c)

Bombay Stock Exchange (BSE) India’s oldest stock exchange formally came into being in 1887 and was a regional exchange till 2002 when it became a national exchange.

Answer: (d)

Answer: (b)

Answer: (c)

Soft currency is a currency with a value that fluctuates as a result of the country's political or economic uncertainty which may be due to the balance of payments problem.

Currencies from most developing countries are considered to be soft currencies.

Often, governments from these developing countries will set unrealistically high exchange rates, pegging their currencies to a currency such as the U.S. dollar

Answer: (d)

NBFCs rely on short-term financing like commercial papers to fund long-term investments (long term loans to businesses). So, the tenure of liability (the commercial papers issued by NBFCs) is short and the tenure of assets (loans given by NBFCs) is long. This is called Asset Liability Mismatch (ALM).

So, NBFCs are required to refinance these commercial papers at short frequencies of a few months. The frequent repricing of loans/advances (as they need to be raised again and again and interest rate keeps on changing in the market) exposes NBFCs to the risk of facing higher financing costs, and in the worst case, credit rationing. Such refinancing risks are referred to as rollover risks.

Credit rationing is the limiting by lenders of the supply of additional credit to borrowers who demand funds, even if the latter are willing to pay higher interest rates.