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

Answer: (c)

Answer: (a)

A “Real estate investment trust" is a trust registered under the Indian Trusts Act, 1882 which manages a fund/ corpus where the funds are invested in real estate property.

REITS are mutual fund like institutions that enable investment into the real estate sector by pooling small sums of money from a multitude of individual investors. REITS are regulated by the Securities and Exchange Board of India (SEBI).

Most middle-class investors presently do not invest in commercial real estate because of the big size of the investment. This entry barrier will be removed through REITs as it will make the expensive real estate sector accessible to the middle-class investor (min. investment limit is Rs. 2 lac).

REITS will also help the real estate industry which is currently plagued with problems such as weak demand, cash constraints, stuck projects etc. Now, the developers will be able to sell their property to REITs and move on to the execution of new projects.

SEBI has also approved Infrastructure Investment Trusts (InvITs) along with REITs which are very similar to REITs but are for the infrastructure sector.

Answer: (d)

In the case of a forex swap, RBI may give rupees to banks and can take dollars, which leads to an increase in rupee liquidity in the economy, resulting in inflation. Of course, forex swaps can also be used to take out the excess liquidity in the economy (RBI giving dollars to banks and taking rupees).

An increase in foreign capital inflow leads to an increase in money supply leading to inflation. General elections lead to higher spending levels by the government increasing inflation.

Answer: (d)

When the interest rate moves up in the economy, government securities (bonds) prices go down. If the liquidity in the economy is surplus, the interest rate comes down in the economy resulting in higher bond prices.

Developments in money, capital and forex markets also impact the interest rates and liquidity in the domestic economy resulting in changes in government securities prices.

Answer: (b)

There is no international authority that directs that trade between two countries should happen only with some specific currencies. Any two countries are free to transact with any currency if they are willing.

Generally, any country will accept that currency for its trade (exports), if that currency is not losing value (less inflation) and it is stable and it is freely convertible in other currencies.