money supply, banking & financial institutions section 9 Practice Questions Answers Test with Solutions & More Shortcuts

Answer: (b)

Sovereign Gold Bonds (SGB) are government securities denominated in grams of gold. They are substitutes for holding physical gold. Investors have to pay the issue price in cash and the bonds will be redeemed in cash on maturity. The Bond is issued by RBI on behalf of the Government of India.

Suppose somebody is purchasing gold bonds worth Rs. 100 by payment in rupees, then this Rs. 100 bond will also be denominated in grams of gold as per the market price of gold at the time of purchase and the investor will earn a fixed interest rate.

So, an investor holding gold bonds will get the benefit of price appreciation if the price of physical gold in the market is increasing and interest both but he will lose if the price of gold in the market decreases.

The quantity of gold for which the investor pays is protected since he receives the ongoing market price at the time of redemption/ premature redemption. The SGB offers a superior alternative to holding gold in physical form.

The risks and costs of storage are eliminated. Investors are assured of the market value of gold at the time of maturity and periodical interest (@2.5% per annum paid semi-annually). SGB is free from issues like making charges and purity in the case of gold in jewellery form.

It can be purchased from Scheduled Commercial Banks, Post office, BSE and NSE.

Answer: (c)

As per the new policy (2019), Department of Investment and Public Asset Management (DIPAM) under the Ministry of Finance has been made the nodal department for the strategic disinvestment. DIPAM and NITI Aayog will now jointly identify PSUs for strategic disinvestment and then it is approved by CCEA.

Government has created an “Alternative Mechanism”, which is an inter-Ministerial body to fasten the process of strategic disinvestment. It will decide the following:

The quantum of shares to be transacted, mode of sale and final pricing of the transaction or lay down the principles/ guidelines for such pricing; and the selection of strategic partner/ buyer; terms and conditions of sale; and

To decide on the proposals of Core Group of Secretaries on Disinvestment (CGD) with regard the timing, price, the terms & conditions of sale, and any other related issue to the transaction.

This will facilitate quick decision-making and obviate the need for multiple instances of approval by CCEA for the same CPSE.

Answer: (a)

Answer: (c)

Answer: (c)

The four main monetary aggregates of measures of money supply that reflect the state of the monetary sector are:-

1.  M₁(Narrow money)= Currency with the public + demand deposits of the public;
2. M₂ = M₁ + Post Office Savings deposits;
3. M₃ (Broad money)= M₁ + time deposits of the public with banks; and
4. M₄ = M₃ + Total post office deposits.

So ‘Narrow Money’ is simply a category of money supply that includes all physical money like coins and currency along with demand deposits and other liquid assets held by the central bank.

This category of money is considered to be the most readily available for transactions and commerce.