money supply, banking & financial institutions section 5 Practice Questions Answers Test with Solutions & More Shortcuts

Answer: (b)

Circuit breakers are pre-defined values in percentage terms, which trigger an automatic check/halt/stop when there is a runaway move in any security or index in either direction (either increase or decrease).

The values are calculated from the previous closing level of the security or the index. Usually, circuit breakers are employed for both stocks (share of a particular company) and indices (SENSEX/NIFTY). That means if one company's share fluctuates too much then also circuit breakers can apply OR if the overall market i.e. either SENSEX/NIFTY fluctuates then also circuit breakers come into play.

The index-based market-wide circuit breaker system applies at 3 stages of the index movement, either way viz. at 10%, 15% and 20%. These circuit breakers when triggered bring about a coordinated trading halt in all equity and equity derivative markets nationwide.

The market-wide circuit breakers are triggered by the movement of either the BSE Sensex 30 or the Nifty 50, whichever is breached earlier. This means that if either NIFTY or SENSEX moves beyond 10% then the nationwide markets regulated by SEBI will come to halt. (But in the case of a company, only the trading in that company is halted.)

Stock exchanges BSE and NSE on 23rd March 2020 halted trading for 45 minutes within less than an hour of market opening after benchmark index Sensex crashed 10% in early trade.

The Securities and Exchange Board of India (SEBI) is the regulatory body for dealing with all matters related to the development and regulation of the securities market in India. SEBI was established on the 12th of April in 1988.

SEBI was given statutory powers on 12 April 1992 through the SEBI Act, 1992.

Answer: (b)

When RBI floats/raises loans on behalf of the government then it is acting as a "Debt Manager" of government and not as a Banker to the government.

So (iv) statement is not true.

Answer: (b)

When the cost of money (interest rate) is cheaper in the economy, it helps in investment.

For investment, the main cost is the cost of capital i.e. the rate at which capital/money is available.

Answer: (d)

Government companies can issue bonds directly also to the investors/public but in the case of "Bharat Bond ETF", various govt companies will issue bonds to "Bharat Bond ETF" and then "Bharat Bond ETF" will club these bonds and issue new bonds under the name "Bharat Bond ETF".

So now when a person is investing in "Bharat Bond ETF" means purchasing the bonds of "Bharat Bond ETF" then basically he is investing in various PSUs through "Bharat Bond ETF". The money which the "Bharat Bond ETF" will get, it will pass on to the various govt companies to purchase their bonds.

The minimum size of bond is Rs. 1000, so retail public/individual can purchase and hence the "corporate bond market" will deepen (reach to more and more people).

It will provide liquidity to investors as it will be traded on the stock exchange and it will be more accessible. The bonds will be issued either with 3-year maturity or 10-year maturity.

For the government companies, it is a new way of finance other than the bank financing and it will expand their investor base which will ultimately increase the demand for the bonds of govt. companies resulting in a lower cost of borrowing for government companies.

CPSU, CPSE, CPFI are just different categories of Public Sector companies, no need to go into it.

Answer: (a)