money supply, banking & financial institutions section 4 Practice Questions Answers Test with Solutions & More Shortcuts

Answer: (d)

A bond (debt paper) holder is expected to get a fixed interest regularly and principal at maturity.

But if the inflation in the economy starts increasing the price of the bond decreases (because now the actual value of the principal and interest which the bondholder will get will be of less value) and bondholders lose.

When the price of the bond decreases in the market, the person who will purchase the bond will have to pay less price and hence he will get more return/yield.

(The interest rate on the bond remains fixed but its price fluctuates in the market and hence the return also fluctuates.

If the market price of the bond is low, then the return/yield on the bond will be high.

This is because the person who will purchase the bond will have to pay less price to get the same bond).

For a detailed understanding, you can refer to the book on Indian Economy by Vivek Singh.

Answer: (c)

In normal companies/banks, the Board of Directors (BoD) are independent and representatives of shareholders/owners, but not exactly the shareholders. But in cooperative banks, the Board of Directors are elected from among the shareholders themselves. Because of this, professionalism is missing from the cooperative banks and there were several cases of fraud discovered.

To bring improvement in the governance and functioning of Urban-Cooperative Banks (UCBs), a new organization structure consisting of a Board of Management (BoM), in addition to the Board of Directors (BoD), was suggested by the Malegam Committee (2011). (As changing the selection/appointment process of BoD required changes in Cooperative Societies Act)

Accordingly, RBI published guidelines on 31st Dec 2019, as per which, the BoD of UCBs with deposit size of Rs. 100 crore and above, shall constitute BoM. It shall be mandatory for such banks to constitute BoM for seeking approval to expand their area of operation and/or open new branches.

These UCBs will also require prior approval of RBI for the appointment of their CEOs. UCBs with a deposit size less than Rs. 100 crores are exempted from constituting BoM although they are encouraged to do so voluntarily.

The BoM shall report to the BoD and shall exercise oversight over the banking-related functions of the UCBs, assist the BoD on the formulation of policies and any other related matter specifically delegated to it by the BoD for the proper functioning of the bank.

The BoD will continue to be the apex policy setting body and shall continue to be responsible for the general direction and control of a UCB. It will continue to look after all the administrative functions as spelt out in the respective Co-operative Societies Acts.

Answer: (a)

Answer: (a)

Correct matching between Stock exchange name & Set up Year

1. NSE - a. 1984
2. BSE - b. 1887
3. OTCEI - c. 1989
4. ISE - d. 1998

Answer: (d)

The currency held by the public is the liability of RBI as whenever somebody comes with the currency note to the RBI, it needs to return a sum equivalent to the value of the currency.

So, if some old notes do not come to the banking system then they will become invalid, and RBI will never have to return the equivalent value of those currency notes.

If the black money does not come back to the banking system after demonetization then RBI's liability would reduce by that amount and its net Assets (net worth) will increase.

This ultimately means that the private money has been transferred to the RBI. Hence it is a kind of transfer of illicit black money to the public sector.

Demonetization may have some negative impact on GDP growth which will impact the revenues from indirect and corporate taxes.

"Black economy is the market-based production of goods and services – legal or illegal – that escapes capture in the official GDP statistics. And the tax that the government forfeits on this activity circulates as black money."