INSIGHTS STATIC QUIZ 2020 - 21
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Question 1 of 5
1. Question
When the Reserve Bank of India increases the repo rate by 50 basis points, which of the following likely to happen?
- India’s GDP growth rate increases drastically
- Foreign Institutional Investors may bring more capital into our country
- Scheduled Commercial Banks may increase their lending rates
Select the correct answer code:
Correct
Solution: d)
Increase in repo rate by RBI would largely lead to increase in lending rates of banks.
Incorrect
Solution: d)
Increase in repo rate by RBI would largely lead to increase in lending rates of banks.
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Question 2 of 5
2. Question
In economics, the monetary base includes:
- Total currency circulating in the public.
- Currency that is physically held in the vaults of commercial banks.
- Sum total of the capital of all financial institutions regulated by Central Bank.
- Commercial banks’ reserves held in the central bank.
Select the correct answer code:
Correct
Solution: b)
In economics, the monetary base (also base money, high-powered money, reserve money) in a country is the total amount of bank notes and coins. This includes:
- the total currency circulating in the public,
- plus the currency that is physically held in the vaults of commercial banks,
- plus the commercial banks’ reserves held in the central bank.
The monetary base should not be confused with the money supply, which consists of the total currency circulating in the public plus certain types of non-bank deposits with commercial banks.
Incorrect
Solution: b)
In economics, the monetary base (also base money, high-powered money, reserve money) in a country is the total amount of bank notes and coins. This includes:
- the total currency circulating in the public,
- plus the currency that is physically held in the vaults of commercial banks,
- plus the commercial banks’ reserves held in the central bank.
The monetary base should not be confused with the money supply, which consists of the total currency circulating in the public plus certain types of non-bank deposits with commercial banks.
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Question 3 of 5
3. Question
Which of the following are RBI’s main risk provision accounts?
- Contingency Fund
- Currency and Gold Revaluation Account (CGRA)
- Investment Revaluation Account Foreign Securities (IRA-FS)
- Investment Revaluation Account-Rupee Securities (IRA-RS)
Select the correct answer code:
Correct
Solution: d)
The central bank’s main risk provision accounts are Contingency Fund, Currency and Gold Revaluation Account (CGRA), Investment Revaluation Account Foreign Securities (IRA-FS) and Investment Revaluation Account-Rupee Securities (IRA-RS).
Incorrect
Solution: d)
The central bank’s main risk provision accounts are Contingency Fund, Currency and Gold Revaluation Account (CGRA), Investment Revaluation Account Foreign Securities (IRA-FS) and Investment Revaluation Account-Rupee Securities (IRA-RS).
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Question 4 of 5
4. Question
Which of the following statements is correct regarding Accommodative monetary policy?
Correct
Solution: b)
Accommodative monetary policy, also known as loose credit or easy monetary policy, occurs when a central bank attempts to expand the overall money supply to boost the economy when growth is slowing (as measured by GDP). These measures are meant to make money less expensive to borrow and encourage more spending.
Incorrect
Solution: b)
Accommodative monetary policy, also known as loose credit or easy monetary policy, occurs when a central bank attempts to expand the overall money supply to boost the economy when growth is slowing (as measured by GDP). These measures are meant to make money less expensive to borrow and encourage more spending.
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Question 5 of 5
5. Question
With reference to RBI’s role in the economy, consider the following statements.
- RBI lends borrowers who cannot avail credit through formal banking channels or SHGs.
- RBI can help banks in matters of insolvency and defaults.
Which of the above statements is/are correct?
Correct
Solution: b)
RBI plays an important role as ‘lender of last resort’ in the Indian Financial system.
But, RBI is not a last resort for individual borrowers, and so statement 1 is wrong. RBI does not indulge in commercial borrowing.
The total amount of deposits held by all commercial banks in the country is much larger than the total size of their reserves.
So, if all the account-holders of all commercial banks in the country want their deposits back at the same time, the banks will not have enough means to satisfy the need of every accountholder and there will be bank failures.
The Reserve Bank of India plays a crucial role here. In case of a crisis like the above it stands by the commercial banks as a guarantor and extends loans to ensure the solvency of the latter.
This system of guarantee assures individual account-holders that their banks will be able to pay their money back in case of a crisis and there is no need to panic thus avoiding bank runs.
Incorrect
Solution: b)
RBI plays an important role as ‘lender of last resort’ in the Indian Financial system.
But, RBI is not a last resort for individual borrowers, and so statement 1 is wrong. RBI does not indulge in commercial borrowing.
The total amount of deposits held by all commercial banks in the country is much larger than the total size of their reserves.
So, if all the account-holders of all commercial banks in the country want their deposits back at the same time, the banks will not have enough means to satisfy the need of every accountholder and there will be bank failures.
The Reserve Bank of India plays a crucial role here. In case of a crisis like the above it stands by the commercial banks as a guarantor and extends loans to ensure the solvency of the latter.
This system of guarantee assures individual account-holders that their banks will be able to pay their money back in case of a crisis and there is no need to panic thus avoiding bank runs.
