money supply, banking & financial institutions section 6 Practice Questions Answers Test with Solutions & More Shortcuts

Answer: (b)

To reduce the rate of inflation government should reduce the money supply which it can do through increase in income tax.

So, (c) option is true.

All the other options increases money supply.

Answer: (a)

Price level is measured by Wholesale Price Index, Consumer Price Index, Gross Domestic Product (GDP) Deflator.

Answer: (a)

A bear market is a market condition in which the prices of securities are falling, and widespread pessimism causes the negative sentiment to be self-sustaining.

As investors anticipate losses in a bear market and selling continues, pessimism only grows.

Bear investors believe that the value of a specific security or an industry is likely to decline in the future. Bears attempt to profit from a decline in prices. Bears are generally pessimistic about the state of a given market.

Answer: (d)

IBC Code 2016 was not made applicable for the insolvency of financial service providers like Banks and NBFCs. But since some major NBFCs like DHFL, IL&FS faced a crisis, the government thought of bringing NBFCs temporarily under IBC for resolution.

So, GoI, on 15th Nov 2019 notified section 227 under IBC Code which says that the IBC rules shall apply to such financial service providers or categories of financial service providers, as may be notified by the Central Government under section 227, from time to time, for the purpose of their insolvency and liquidation proceedings under these rules.

This is a temporary mechanism because, for the resolution of insolvencies of Banks and NBFCs, we have a bill pending, Financial Resolution and Deposit Insurance (FRDI) Bill, which the government is planning to introduce soon.

Answer: (b)

Commercial banks create credit on the basis of their deposits. Credit creation is the multiple expansions of banks that demand deposits.

Whenever, customer deposits a sum of money, a part of that money is kept by the commercial banks with the credit bank of the country which is obligatory by the law.

The amount of credit that can be created by the bank will depend on the primary deposits and also on the amounts of minimum legal resource requirement.