money supply, banking & financial institutions section 7 Practice Questions Answers Test with Solutions & More Shortcuts

Answer: (b)

Disinflation is when inflation is decreasing but prices are still increasing.

So, in an economy when inflation decreases, the demand for goods and services increases and people spending increases and it supports business activity resulting in a decrease in unemployment.

So, all the statements are wrong.

Answer: (b)

Mergers and Acquisitions of commercial banks require the approval of the Competition Commission of India (CCI) and the Reserve Bank of India (RBI) both.

CCI is the "Fair Trade Regulator".

CCI looks into the competition part of such dealings and RBI looks into the prudential aspects. The RBI is the sector regulator, so the health of banks is its concern. The CCI’s concern is their behaviour in the market and the consumers in the market,”

If any merger/amalgamation/acquisition is happening and after the merger/amalgamation/acquisition the combined asset value is more than Rs. 1000 crore or Turnover (sales in a year) is more than Rs 3000 crore then they are required to take the approval of the Competition Commission of India (CCI) under the Competition Commission of India Act 2002.

But as per section 54 of the CCI Act, the Central government may be exempt from the application of the CCI Act, any class of enterprises, if such exemption is necessary for the interest of the security of the State or public interest.

So, when SBI and its associates got merged, the Central government had waived the approval of CCI. When SBI was acquiring a 49% stake in Yes Bank the also central government waived off the CCI approval.

A merger is a process wherein two or more companies/entities are combined together to form either a new company or an existing company absorbing the other target companies.

Basically, it’s a process to consolidate multiple businesses into one business entity.

Amalgamation is a type of merger process in which two or more companies combine their businesses to form an entirely new entity/company.

An acquisition is when one company purchases most or all of another company's shares to gain control of that company.

Consolidation is a general term that means the action or process of combining a number of things into a single more effective or coherent whole. So, mergers, amalgamation and acquisitions all will come under consolidation.

Answer: (d)

NBFCs borrow from banks and then lend. They also issue bonds in financial markets to raise money and then this money they lend at a higher interest rate. NBFCs also borrow from abroad through debt financing (called ECB).

Mutual funds also invest in NBFCs which means, NBFCs issue debt papers to mutual funds and then this money they lend.

But, the main wholesale funding sources of the NBFCs comprise mainly of:

Banks (primarily via term loans and rest through non-convertible debentures and commercial paper); and

debt mutual funds (via non-convertible debentures and commercial paper).

Debentures are long-term unsecured debt financial instruments (they are similar to bonds in functioning). Some debentures have a feature of convertibility into shares after a certain point of time. The debentures which can't be converted into shares or equities are called non-convertible debentures (or NCDs) and earn a higher interest rate.

Commercial Paper (CP) is an unsecured money market debt instrument issued in the form of a promissory note for less than one year.

Answer: (a)

Disinflation is a decrease in the rate of inflation – a slowdown in the rate of increase of the general price level of goods and services in a nation’s gross domestic product over time.

It is the opposite of reflation. Disinflation occurs when the increase in the “consumer price level” slows down from the previous period when the prices were rising. Disinflation is the reduction in the general price level in the economy but for a very short period of time.

Disinflation takes place only when an economy is suffering from a recession.

Answer: (d)