money supply, banking & financial institutions section 2 Practice Questions Answers Test with Solutions & More Shortcuts
Money Supply, Banking and Financial Institutions PRACTICE TEST [12 - EXERCISES]
money supply, banking & financial institutions section 1
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money supply, banking & financial institutions section 12
Question : 26
Which of the following statements are true regarding “Shadow Banking”:
- They by and large raise funds from public deposits
- Their activities are transparent and properly regulated
- IL&FS is an example of a Shadow bank
a) (ii) only
b) (iii) only
c) (i) only
d) (i) & (ii) only
Answer »Answer: (b)
Shadow banking operates outside the regular banking system and financial intermediation activities are undertaken with less transparency and regulation than conventional banking.
Shadow banks, like conventional banks, undertake various intermediation activities akin to banks, but they are fundamentally distinct from commercial banks in various respects. NBFCs are examples of shadow banks.
The following are differences between normal banks and shadow banks.
- First, unlike commercial banks, which by dint of being depository institutions can create money, shadow banks cannot create money.
- Second, unlike the banks, which are comprehensively and tightly regulated, the regulation of shadow banks is not that extensive and their business operations lack transparency.
- Third, while commercial banks, by and large, derive funds through the mobilization of public deposits, shadow banks raise funds, by and large, through market-based instruments such as commercial paper, debentures, or other structured credit instruments.
- Fourth, the liabilities of the shadow banks are not insured, while commercial banks’ deposits, in general, enjoy Government guarantees to a limited extent.
- Fifth, in times of distress, unlike banks, which have direct access to central bank liquidity, shadow banks do not have such recourse.
Question : 29
Consider the following statements:
- RBI is a wholly owned subsidiary of Govt. of India
- RBI’s surplus transfer to the central government has steadily decreased in the last 5 years
a) (ii) only
b) Both (i) & (ii)
c) (i) only
d) Neither (i) nor (ii)
Answer »Answer: (c)
RBI is 100% owned by govt. of India but its surplus transfer to govt has fluctuated in the previous years.
Refer the Trends
Question : 30 [SSC SO 2003]
The main source of long-term credit for a business unit is
a) loans from the Government
b) deposits from the public and financial institutions
c) sale of stocks and bonds to the public
d) borrowing from banks
Answer »Answer: (c)
Companies issue securities called stocks and bonds to raise necessary capital which funds the company’s daily operations and growth. Stock represents fractional ownership in the company. Investors may purchase preferred or common stock.
Bonds represent loans of the company to lenders called bondholders. A company decides to sell stock when it needs long-term access to capital.
Unlike bond loans, issuing stock to owners called stockholders doesn’t require the company’s repayment of investor principal.
IMPORTANT indian economy mcq EXERCISES
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Money Supply, Banking and Financial Institutions Shortcuts »
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indian economy MCQ CATEGORIES
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» Introduction to Indian Economy
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» Planning, Economic Development & Five year Plans
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» National Income & Human Development Index
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» Agriculture Sector, Subsidy and Food Processing
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» Industries, Manufacturing & Service Sectors
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» Inclusive growth, Sustainable development and employment
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» Poverty & Unemployment
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» Introduction to Micro Economics
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» Introduction to Macro Economics
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» Macro fundamentals, GDP, Investment, Growth
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» Demand & Supply, Profit Loss, Inflation & Price Index
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» Fiscal Policy, Public Finance and Monetary Policy
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» Money Supply, Banking and Financial Institutions
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» Taxes Types, Methods & Budgeting Process
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» Banking, Security Market & Insurance
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