[Mission 2022] QUIZ – 2022: INSIGHTS STATIC QUIZ, 7 March 2022 – Economy

Solution: a)

Typically, bonds are papers bearing the promise of a future stream of monetary returns over a certain period of time. These papers are issued by governments or firms for borrowing money from the public and they are tradable in the market.

When the interest rate is very high everyone expects it to fall in future and hence anticipates capital gains from bond-holding. Hence people convert their money into bonds. Thus, speculative demand for money is low. When interest rate comes down, more and more people expect it to rise in the future and anticipate capital loss. Thus, they convert their bonds into money giving rise to a high speculative demand for money. Hence speculative demand for money is inversely related to the rate of interest.

Solution: c)

Money supply, like money demand, is a stock variable. The total stock of money in circulation among the public at a particular point of time is called money supply. RBI publishes figures for four alternative measures of money supply, viz. M1, M2, M3 and M4. They are defined as follows

M1 = CU + DD

M2 = M1 + Savings deposits with Post Office savings banks

M3 = M1 + Net time deposits of commercial banks

M4 = M3 + Total deposits with Post Office savings organizations (excluding National Savings Certificates)

Where, CU is currency (notes plus coins) held by the public and DD is net demand deposits held by commercial banks. The word ‘net’ implies that only deposits of the public held by the banks are to be included in money supply. The interbank deposits, which a commercial bank holds in other commercial banks, are not to be regarded as part of money supply.

M1 and M2 are known as narrow money.

M3 and M4 are known as broad money. These measures are in decreasing order of liquidity. M1 is most liquid and easiest for transactions whereas M4 is least liquid of all. M3 is the most commonly used measure of money supply. It is also known as aggregate monetary resources.

Solution: b)

Hot currency

Hot currency is a term of the forex market and is a temporary name for any hard currency. Due to certain reasons, if a hard currency is exiting an economy at a fast pace for the time, the hard currency is known to be hot.

Heated currency

A term used in the forex market to denote the domestic currency which is under enough pressure (heat) of depreciation due to a hard currency’s high tendency of exiting the economy (since it has become hot). It is also known as currency under heat or under hammering.

Cheap currency

A term first used by the economist J. M. Keynes (1930s). If a government starts re-purchasing its bonds before their maturities (at full-maturity prices) the money which flows into the economy is known as the cheap currency, also called cheap money.

Dear currency

This term was popularized by economists in early 1930s to show the opposite of the cheap currency. when a government issues bonds, the money which flows from the public to the government or the money in the economy in general is called dear currency, also called as dear money. In the banking industry, it means a period of comparatively higher/costlier interest rates regime.

Solution: a)

Air India was started by JRD Tata as Tata Airlines in 1932.

State Bank of India was incorporated on 01 July 1955. The Government of India nationalized the Imperial Bank of India in the year 1955 with the Reserve Bank of India taking a 60% stake and name was changed to State Bank of India.

The Life insurance Corporation of India was established on September 1, 1956, when the Parliament of India passed the Life Insurance of India Act that nationalized the insurance industry in India.

India had set up extremely successful DFIs such as Industrial Finance Corporation of India (IFCI) in 1948, Industrial Development Bank of India (IDBI) in 1964 and Industrial Credit and Investment Corporation of India (ICICI) in 1955.

Solution: c)

Hard currency refers to money that is issued by a nation that is seen as politically and economically stable. Hard currencies are widely accepted around the world as a form of payment for goods and services and may be preferred over the domestic currency.

A hard currency is expected to remain relatively stable through a short period of time, and to be highly liquid in the forex or foreign exchange (FX) market. The most tradable currencies in the world are the U.S. dollar (USD), European euro (EUR), Japanese yen (JPY), British pound (GBP). All of these currencies have the confidence of international investors and businesses because they are not generally prone to dramatic depreciation or appreciation.