money supply, banking & financial institutions section 9 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
money supply, banking & financial institutions section 2
money supply, banking & financial institutions section 3
money supply, banking & financial institutions section 4
money supply, banking & financial institutions section 5
money supply, banking & financial institutions section 6
money supply, banking & financial institutions section 7
money supply, banking & financial institutions section 8
money supply, banking & financial institutions section 9
money supply, banking & financial institutions section 10
money supply, banking & financial institutions section 11
money supply, banking & financial institutions section 12
Question : 6
Which of the following could be a cause of demand inflation?
a) An increase in the cost of labour
b) An increase in the level of consumer spending
c) An increase in domestic interest rates
d) An increase in import prices, resulting from a depreciating dollar
Answer »Answer: (b)
Question : 9
Consider the following statements regarding the “spread” charged over the external benchmark rate by the banks:
- The spread will be decided by the banks
- The spread will change with the change of external benchmark rate
- The spread may be different for different categories of loans
a) (ii) & (iii) only
b) (i) & (iii) only
c) (i) & (ii) only
d) All of the above
Answer »Answer: (b)
Every Bank calculates its own MCLR Rate based on marginal cost of deposits, operational costs, reserve requirements and tenor premium. So MCLR (or Base Rate) is an “internal benchmark” that varies from bank to bank. Banks link their lending rate with MCLR.
But, the transmission of policy (repo) rate changes to the lending rate of banks under the MCLR framework has not been satisfactory due to various reasons like:
- Banks feared that they will lose the depositors/customers if they will reduce the deposit rate first, and since the deposit rate was not reduced, MCLR (or base rate) was also not coming down.
- Government offering higher interest rates on its own small savings schemes like Kisan Vikas Patra, Sukanya Samriddhi Scheme, PPF etc.
Hence, RBI has made it mandatory for banks to link all new floating rate personal or retail loans and floating rate loans to MSMEs to an external benchmark effective October 1, 2019.
Banks can choose one of the four external benchmarks –
- repo rate,
- three-month Treasury bill yield,
- six-month treasury bill yield or
- any other benchmark interest rate published by Financial Benchmarks India Pvt. Ltd.
Banks are not mandated to link their deposit rates with an external benchmark rate.
Now, suppose Axis Bank links its loan rates as per following: Home Loan = repo rate + 3% (3% is called the Spread) Education Loan = repo rate + 4% Personal Loan = repo rate + 5%
Here, all the loans are linked to the repo rate, which is an external benchmark, on which Axis Bank does not have any control. So, the moment RBI changes the repo rate, it will automatically be transmitted to all the lending rates at the same moment for the new loans (Even if the bank links the lending rate with Treasury bill yield; when RBI changes repo rate, the T-bill yield also changes in the market immediately).
The purpose of linking the lending rate with an external benchmark is the faster transmission of repo rate into the lending rate and this mechanism is more transparent also. Adopting multiple benchmarks by the same bank is not allowed within a loan category
Banks are free to decide the components of spread and the amount of spread. But in general, the spread consists of credit risk premium, business strategy, operational costs of banks etc. While the banks will be free to decide on the spread over the external benchmark, credit risk premium can change only when the borrower’s credit assessment undergoes a substantial change. The other components of the spread like operating cost can be altered once in three years.
The interest rate under the external benchmark shall be reset at least once in three months. This means that if a borrower has taken a loan on 1st Jan 2020 and RBI changes the repo rate on 1st Feb 2020, then the borrower may not get the immediate benefit of the rate cut as the interest rate on his loan will only get revised at the latest by 1st April 2020 (within three months of the loan taken).
RBI has mandated banks to link the lending rate with an “anchor rate” like MCLR or repo rate (while MCLR was the internal rate of banks, but the repo is an external rate). But there is no mandate for NBFCs to link their lending rates.
IMPORTANT indian economy mcq EXERCISES
-
500+ Banking & Money Supply GK MCQ Quiz PDF For IBPS Exam »
-
Top 500+ Indian Financial System GK MCQ Live Quiz For SSC »
-
Top 500+ Money Supply & Banking Functions GK MCQ Quiz PDF »
-
New Banking & Financial Institutions GK MCQ Quiz For RRB »
-
Top 500+ Money Supply Methods & Concepts GK MCQ For UPSC »
-
Banking & Financial Institutions Features GK MCQ Quiz PDF »
-
New 500+ Money Supply Concepts Types Formulas GK MCQ Quiz »
-
499+ Indian Monetary Aggregates & Money Supply GK MCQ PDF »
-
Top 500+ Money & Banking Questions And Answers Test PDF »
-
New Banking & Money Supply Questions And Answers Test PDF »
-
Top 500+ Money Supply Trends & Developments MCQ For IBPS »
-
Top 500+ Banking & Financial Institutions GK MCQ Test PDF »
Money Supply, Banking and Financial Institutions Shortcuts »
Click to Read...money supply, banking & financial institutions section 9 Online Quiz
Click to Start..Money Supply, Banking and Financial Institutions Shortcuts and Techniques with Examples
indian economy MCQ CATEGORIES
-
» Introduction to Indian Economy
-
» Planning, Economic Development & Five year Plans
-
» National Income & Human Development Index
-
» Agriculture Sector, Subsidy and Food Processing
-
» Industries, Manufacturing & Service Sectors
-
» Inclusive growth, Sustainable development and employment
-
» Poverty & Unemployment
-
» Introduction to Micro Economics
-
» Introduction to Macro Economics
-
» Macro fundamentals, GDP, Investment, Growth
-
» Demand & Supply, Profit Loss, Inflation & Price Index
-
» Fiscal Policy, Public Finance and Monetary Policy
-
» Money Supply, Banking and Financial Institutions
-
» Taxes Types, Methods & Budgeting Process
-
» Banking, Security Market & Insurance
RECENT BLOGS
Recently Added Subject & Categories For All Competitive Exams
Most Important Antonyms Vocabulary - IBPS Clerk Prelims 2024
Latest Antonyms multiple choice questions and answers with free PDFfor IBPS Clerk Prelims 2024. English Vocabulary practice exercise for all bank exam
Continue Reading »
Syllogism Practice Questions Answers PDF - IBPS Clerk 2024
Practice Verbal Reasoning Syllogism multiple choice questions and answers with Fully solved explanation, PDF for the IBPS Clerk Prelims 2024 Bank Exam
Continue Reading »
IBPS Clerk Prelims 2024 Synonyms Questions Solved Answers
Most important IBPS Clerk Prelims 2024 Synonyms and Antonyms multiple choice questions and answers with detailed solutions, English vocabulary PDF Download
Continue Reading »
New Cloze Test Questions and Answers PDF - IBPS Clerk 2024
The most important Cloze Test questions with detailed answers for upcoming IBPS Clerk prelims 2024. Latest English verbal ability practice MCQs, PDF
Continue Reading »