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Money & Banking — UPSC Prelims Economy previous year questions — page 4

195 solved previous year questions on Money & Banking, papers from 1995 to 2023, drawn from UPSC CSE Prelims, UPPCS, UPSC CDS. Each carries the printed answer key and the explanation from the source compilation.

1. #121Practice set
   to Indian economy, what is 'Banker's Acceptance'?
   • AIt is a letter from a bank guaranteeing that the buyer's payment to a seller will be received for the correct amount
   • BIt is a financial instrument that represents a bank's guarantee for payment at a future date
   • CIt is a direct payment method in which the issuing bank makes the payments to the beneficiary
   • DIt is a secondary payment method in which the bank pays the beneficiary only when the holder cannot
   Answer: (B) It is a financial instrument that represents a bank's guarantee for payment at a future date
   Explanation

   Option b is the correct banker's acceptance is a financial instrument bank (instead of the account holder) guarantees payments at a future date. Banker's Acceptance is of Exchange drawn on and 'accepted' by a bank as to pay a third party. The Bank becomes obligator of the draft or bill of exchange drawn accepted by it. Important Tips Letter of credit is a letter from a bank guaranteeing that a buyer's payment to a seller will be received on time and for the correct amount. If the buyer is unable to make a payment on the purchase, the bank will be required to cover the full or remaining amount of the purchase. It may be offered as a facility. Commercial Letter of Credit is a direct payment method in which the issuing bank makes the payments to the beneficiary. Standby letter of credit is a secondary payment method in which the bank pays the beneficiary only when the holder cannot. A stand

2. #122Practice set
   With reference to Open Market Operations (OM Os), consider the following statements: 1. It can be used for both increasing or decreasing the supply of money in the banking system. 2. It is conducted through E- Kub er platform of the Reserve bank of India. 3. Operation Twist is a type of OMO under sale and purchase of Governments securities is conducted simuitaneously.How many of the above given statements are incorrect?
   • AOnly one
   • BOnly two
   • CAll three
   • DNone
   Answer: (D) None
   Explanation

   Option d is the correct market operations (OM Os) are an effective tool at the disposal of RBI. It helps in maintaining on inflation and interest rate l is correct: OMOs refers to the purchase of government done by RBI on behalf. When G-sec is bought, it liquidity or money supply in the market on the hand when G-sec is sold, money supply is decreased, is drained from the 2 is correct: RBI carries out the OMO banks and does not directly deal with the participants are required to key in their bids core banking electronic solution platform 3 is correct: Simultaneous purchase and sale securities under OMOs is popularly Operation Twist. It involves buying long-end debt short-tenor bonds to keep borrowing costs down. Important Tips Operation Twist is a way employed by the central bank to manage yields in the market. It is a program of quantitative easing used by the RBI that was first introduc

3. #123Practice set
   In context of the Ways and Means Advances (WMA), often seen in news, consider the following statements: 1. It is a temporary loan facility provided by the Reserve Bank of India to State governments. 2. The interest rate charged on such loans is always equal to the Repo Rate. 3. WMA funding is much costlier than borrowings from the market.How many of the above given statements are correct?
   • AOnly one
   • BOnly two
   • CAll three
   • DNone
   Answer: (A) Only one
   Explanation

   Option a is the correct 1 is correct: Ways and Means Advances was introduced in 1997. These are temporary provided by the Reserve Bank of India (RBI) to and state governments lo meet mismatches In and payments. The limits for WMA are decided government and RBI mutually and revised 2 is incorrect: There are two types of WMAs Normal Ways and Means Advances; and 2. Special against government securities/Special WMA. of interest applicable for Normal WMA funding is the repo rate The interest levied for special be lower than the repo rate due to the backing 3 is incorrect: WMA funding is much borrowings from markets as it is charged at the WMA can be an alternative to other tools of raising longer-tenure funds from the markets, issue government securities or borrowing from for short-term funding. Important Tips Special WMA or Special Drawing Facility is provided against the collateral of the g

4. #124Practice set
   With reference to Priority Sector Lending (PSL), consider the following statements: 1. The guidelines for PSL in India are issued by the Reserve Bank of India. 2. Financing of certain types of start-ups are included under priority sector lending. 3. Foreign banks operating in India are exempted from priority sector lending. 4. Self Help Groups are considered as 'Weaker Section' to avail Priority sector loans.How many of the above given statements are correct?
   • AOnly one
   • BOnly two
   • COnly three
   • DAll four
   Answer: (A) Only one
   Explanation

   Option a is the correct l is correct: Public Debt in India Internal and External Debt incurred by the 2 is incorrect: Public Debt Management has been established as an interim setting up an independent and statutory agency, namely the Public Debt (PDMA). PDMA is yet to be established. deals with Internal public debt management of Under Section 21 of the Reserve Bank of 3 is incorrect: Department of Economic Ministry of Finance is responsible for management debt for Central Government (not the Reserve Important Tips Government/Public Debt is the money owed by the Union government. It comprises G-secs, Treasury bills, shot term borrowings, external assistance. While non-government debt comprises ofall the loans raised by private companies, corporate sector and individuals such as home loans, auto loans, personal loans

5. #125Practice set
   With reference to Marginal Cost of Funds based Lending Rate (MCLR), consider the following statements: 1. It is the maximum rate of interest above which the banks cannot lend. 2. It replaced the earlier Base Rate structure of determining lending rates. 3. It is determined internally by the banks.How many of the above given statements are correct?
   • AOnly one
   • BOnly two
   • CAll three
   • DNone mmlllt
   Answer: (B) Only two
   Explanation

   Option b is the correct Cost of Funds-based Lending Rate (MCLR) is to determine lending rates for banks. The Reserve Bank of India introduced the MCLR system on l is incorrect: MCLR refers to the below which banks or lender cannot lend. Because transmission of monetary policy under MCLR, RBI switched to the external benchmark linked (EBLR) 2 is correct: Earlier, Base Rate determines rate. But base rate differed from bank to bank short of its aim at better assessment of monetary policy. Hence in 2015 banks shifted to of calculating their lending rate which 3 is correct: MCLR is a tenor-linked which means the rate is determined the bank depending on the period left for the a loan. Under the MCLR regime, banks are free to offer of loans on fixed or floating interest rates. Important Tips In the external benchmark linked lending rate (EBLR) system, banks need to link their loan interest rate

6. #126Practice set
   Which of the following statements is/are correct in context to the Prompt Corrective Action (PCA) framework of the Reserve Bank of India (RBI)?
   • ACapital, Asset Quality and Leverage are the key areas for monitoring in the PCA framework
   • BThe PCA framework is applicable on both Payment Banks and Small Finance Banks
   • CWhenever PCA is enforced on a bank, it may face restrictions on branch expansions
   • DBoth statements (a) and (c) are correct in the above given context. 96
   Answer: (D) Both statements (a) and (c) are correct in the above given context. 96
   Explanation

   Option dis the correct Corrective Action or PCA is a framework financial institutions with weak financial metrics under watch by the RBI. Earlier the RBI had only on banks. Now the PCA framework is a is correct. Capital, asset quality and the key areas for monitoring in the revised Indicators to be tracked for capital, asset leverage would be CRAR/ common equity tier I NPA ratio and tier I leverage ratio, b is incorrect. All Scheduled Commercial under the ambit of PCA framework (Excluding Banks, Payment Banks and Regional Rural c is correct. PCA is enforced by RBI when cerlaln regulatory reqmrements such as return minimum capital, and quantum of Banks under PCA face restrictions like branch expansion, and or may require promoters to infuse the bank

7. #127Practice set
   Consider the following statements regarding the Non-Resident Indian (NRI) Deposits made in Indian banks: 1. Such type of deposits are denominated in India's domestic currency only. 2. Such type of deposits are excluded from the Balance of Payments record of India.Which of the statements given above is/are correct?
   • A1 only
   • B2 only
   • CBoth 1 and 2
   • DNeither 1 nor 2
   Answer: (D) Neither 1 nor 2
   Explanation

   Option d is the correct Indian Deposits are foreign made in an Indian bank by a non-resident deposits can be repatriated by the NRI on with the interest l is incorrect: Non-Resident Indian foreign currency deposits made in an Indian bank non-resident Indian. These deposits can be repatriated NRI on maturity along with the interest earned. different kinds of schemes offered to like FCNR foreign currency non-resident (banks) and (rupee accounts or NRE 2 is incorrect: NRI deposits are included in account under Balance of Payment. They have important source of foreign exchange in times of deposits are capital flows and hence, vulnerable

8. #128Practice set
   reference to the Asset Reconstruction Companies (ARCs) in India, which of the statemenb,; given below is incorrect?
   • ABanking Regulations Act, 1949 provides the basis for the establishment of in India
   • BThey are rer; 11 lated by the Reserve Bank of India as Non-Banking Financial Company
   • CThey are not permitted to undertake lending activities in India
   • DARCs in India are required to maintain the Capital Adequacy Ratio (CAR)
   Answer: (A) Banking Regulations Act, 1949 provides the basis for the establishment of in India
   Explanation

   Option a is the correct Reconstruction Company (ARC) is a institution that buys the Non-Performing from banks and financial institutions. It helps cleaning up their balance sheets by buying their bad a is incorrect. The Securitisation of Financial Assets and Enforcement Interest ( ) Act, 2002 provides the to set up the Asset Reconstruction Company. Company (ARC) is a company the Companies Act and registered with of India under section 3 of The Securitisation of Financial Assets and Enforcement Interest ( ) Act, b is correct. ARCs are regulated by RBI as a Financial Company [NBFC] (under RBI They function under the supervision and control Reserve Bank of India c is correct. ARCs are not permitted to activities. One ARC can be a sponsor or investor ARC or it can acquire debt from another d is correct. The ARCs also have to maintain adequacy ratio (CAR) of of its Important Tips Capital Adeq

9. #129Practice set
   Which of the following is the main aim of Standing Deposit Facility (SDF), recently introduced by the Reserve Bank of India?
   • ATo increase demand in the economy by increasing the money supply
   • BTo absorb excess liquidity from the banking system in India
   • CTo ensure effective monetary policy transmission at ground level
   • DTo ensure that banks have enough capital to handle certain amount of losses
   Answer: (B) To absorb excess liquidity from the banking system in India
   Explanation

   Option b is the correct banks have excess funds, they lend it to the RBI reverse repo rate in order to get returns from funds. To execute the reverse repo rate needs government securities as is a monetary tool that allows banks to park their with RBI without any collateral. RBI has tool to absorb excess liquidity in the market as it important role in determining the policy !ii to demonetization, funds with banks increased recently RBI also increased the reverse repo rate, started attracting more funds towards the operations. As the collaterals with RBI are nature, it introduced a new facility known as facility, that allows RBI to execute reverse without using collaterals to absorb excess the banking Solution: Option c is the correct correct sequence is: National Bank for Agriculture and Rural established in 1982 on the recommendation of Committee for the overall regulation and regional r

10. #130Practice set
    Which among the following are the initiatives of the National Payments Corporation of India (NPCI)? g 1. 2. Aadhaar enabled Payment System 3. National Electronic Funds Transfer (NEFT) 4. National Automated Clearing House (NACH) 5. National Financial Switch (NFS) 6. National Electronic Toll Collection (NETC) programSelect the correct answer using the codes given below
    • A1, 3, 5 and 6 only
    • B2, 3, 4 and 5 only
    • C1, 2, 4, 5 and 6 only
    • D1, 2, 3, 4, 5 and 6
    Answer: (C) 1, 2, 4, 5 and 6 only
    Explanation

    Option c is the correct of the initiatives undertaken by NPCI (Option l is correct): supports the issuance credit and prepaid cards by banks in India and the growth of retail electronic payments in (Option 2 is correct): To access these funds at drive the financial inclusion in India, Aadhaar System has been (Option 4 is correct): National Automated (NACH) is an offline web based system for and pull transactions. NACH provides platform to register mandates facilitating paper process for the corporates and banks. It both account based and Aadhaar based (Option 5 is correct): National Financial Switch the largest network of shared Automated Teller in India facilitating interoperable cash to card funds transfer and interoperable cash among other value-added services in (Option 6 is correct): National Payments India (NPCI) has developed the National Electronic (NETC) program to meet the elec

11. #131Practice set
    Consider the following statements regarding Priority Sector Lending (PSL): 1. The concept of PSL norms was first introduced in India in 2008 due to setbacks received as a result of global financial crisis. 2. Loans given to renewable energy projects can be included under PSL obligations. 3. PSL Norms are not applicable to Non- Banking Financial Companies. 4. Regional Rural Banks and Small Finance Banks are required to lend of their Adjusted Net Bank Credit under Priority Sectors Lending.How many of the above given statements are correct?
    • AOnly One
    • BOnly Two
    • COnly Three
    • DAll Four
    Answer: (C) Only Three
    Explanation

    option c is the correct l is incorrect: The description of the was first formalised in 1972 on the basis of the by the Informal Study Group on Statistics advances to the Priority Sectors constituted by the in May 1971. First time in 197 4, the banks were target of as share of the priority sector in the 2 is correct: To provide adequate investment, the Reserve Bank of India has energy in the PSL (priority sector lending) commercial 3 is correct: PSL norms are not applicable Financial 4 is correct: According to the RBI finance banks and regional rural banks will be extend of their Net Bank Credit to eligible for classification as priority sector by the 03. Solution: Option b is the correct funds under KCC can be used for the following 1 is correct: The funds can be used for related to post-harvest activities such as and marketing of agricultural 2 is correct: The funds can be used for requ

12. #132Practice set
    With reference to Payment Banks and Small Finance Banks, consider the following statements: 1. Unlike Small Finance Banks, Payment Banks are allowed to lend money to their customers. 2. Unlike Small Finance Banks, Payment Banks can accept fixed deposits or recurring deposits. 3. Unlike Small Finance Banks, Payment Banks cannot invest their deposits in government securities.How many of the above given statements are correct?
    • AOnly One
    • BOnly Two
    • CAll Three
    • DNone
    Answer: (D) None
    Explanation

    Option d is the correct banks and Small finance banks are two of banks operating in India with distinct features 1 is incorrect: Payment banks are not lend money to their customers, while SFBs can to their customers. Small finance banks are set up financial inclusions by providing credit facilities to small businesses operating from marginal and small farmers, small and and other businesses operating specifically in 2 is incorrect: Small Finance Banks can and Fixed Deposits, while Payment Banks time deposits i.e., fixed or recurring deposits. 3 is incorrect: Payment Banks are only invest the money received from customers' deposits securities

13. #133Practice set
    Consider the following options: 1. Currency held by the public 2. Vault cash of commercial banks 3. Deposits held by the Government of India with the RBIHow many of the above given items form a part of High-Powered Money?
    • AOnly One
    • BOnly Two
    • CAll Three
    • DNone
    Answer: (C) All Three
    Explanation

    Option c is the correct the statements are total liability of the monetary authority of the is called the monetary base or high powered money. Monetary /Jose B.ank reserves Note: bank NOT put No R NOT fl.il-rt oi consists l is correct: currency (notes and coins in the 2 is correct: reserves of the commercial banks vault cash and banks' deposits) with 3 is correct: deposits held by the Government with SOCIA

14. #134Practice set
    With reference to 'Non-Banking Financial Companies (NBFC consider the following statements: 1. They do not form part of the payment and settlement system managed by Reserve Bank of India. 2. The deposit insurance facility of Deposit Insurance and Credit Guarantee Corporation is available to depositors of NBFCs. 3. Some NBFCs can accept deposits from the public. 4. They are not required to maintain a Cash Reserve Ratio (CRR).How many of the above given statements are correct?
    • AOnly One
    • BOnly Two
    • COnly Three
    • DAll Four
    Answer: (C) Only Three
    Explanation

    Option c is the correct l is correct: Non-Banking Financial do not form part of the payment and managed by the Reserve Bank of India (RBI). Gross Settlement (RTGS), National Electronic (NEFT), Immediate Payment Service (IMPS), under payments and settlement 2 is incorrect: The deposit insurance facility Insurance and Credit Guarantee Corporation is to depositors of NBFCs. It is available only of banks. The DICGC provides insurance cover depositor in a bank up to a maximum of Rs. 5 lakh principal and interest amount held by the depositor same capacity and same 3 is correct: Some NBFCs to which the had given a specific authorisation and have grade rating are allowed to accept/ hold but up to a 4 is correct: Unlike Scheduled Non-Banking Financial Companies (NBFCs) are to maintain a Cash Reserve Ratio (CRR) as not accept demand deposits

15. #135Practice set
    With respect to the NHB Residex, consider the following statements: 1. It is India's first-ever official residential price index. 2. It was prepared by National Housing Bank on behest of Ministry of Housing and Urban Affairs. 3. The index can predict future trends of the housing market prices.How many of the above given statements are correct?
    • AOnly one
    • BOnly two
    • CAll three
    • DNone
    Answer: (B) Only two
    Explanation

    Option b is the correct l is correct: NHB is India's residential price index. NHB Residex from Housing Bank, designed by a technical to track housing price indicators across 2 is incorrect: NHB was an the National Housing Bank (NHB), undertaken at of the Government of India, Ministry of the Ministry of Housing and Urban 3 is correct: NHB will help trends in micro as well as macro markets, future behaviour of the housing market. It will immediate use to banks, HFCs, developers, and home buyers

16. #136Practice set
    Which of the following measures/actions by the government/RBI will most likely lead to an increase in Demand-Pull Inflation? 1. Increasing the salaries of government employees 2. Increasing the minimum support price (MSP) 3. Increasing customs duty of raw materials 4. Reducing monetary policy interest ratesSelect the correct answer using the code given below
    • A1, 2 and 3 only
    • B1 and 4 only
    • C1, 2 and 4 only
    • D2, 3 and 4 only
    Answer: (C) 1, 2 and 4 only
    Explanation

    Option c is the correct inflation exists when aggregate demand for or service outstrips aggregate I is correct: Increasing the salaries of will lead to an increase in government this consumer will have more discretionary spend on goods and services. When that increases supply, it creates demand pull 2 is correct: Enhancing the minimum support of the notified agricultural commodities will money into the hands of farmers. will lead to in money supply in the economy, thereby the demand for goods and services thus contributing pull inflation. Option 3 is incorrect: Increasing customs duty will of raw materials expensive which drives up without increase in demand. This is push inflation. Cost-push inflation occurs when increase (inflation) due to increases in the cost and raw materials 4 is correct: Lower interest rates: A cut in causes a rise in consumer spending and This may cause a rise in

17. #137Practice set
    With respect to net interest margin of a financial institution which of the following statement is incorrect?
    • AIt is a measurement comparing the net interest income with the outgoing interest of a financial institution
    • BIf demand for savings account increases compared to loans, then net interest margin may decrease
    • CMonetary policy has no affect on the net interest margins of a financial institution
    • DIt acts as an indicator to investors while investing in a financial services firm
    Answer: (C) Monetary policy has no affect on the net interest margins of a financial institution
    Explanation

    Option c is the correct a is correct. Net interest margin is a the net interest income a financial firm credit products like loans and mortgages, with interest it pays holders of savings b is correct. If there's a large demand for compared to loans, net interest margin decreases, bank is required to pay out more interest than it c is incorrect. Monetary policies set by heavily influence a bank's net interest margins play a pivotal role in governing the demand for credit. When interest rates are low, consumers are to borrow money and less likely to save it leading net interest margins and d is correct. This metric helps determine whether or not to invest in a services firm by providing visibility into of their interest income versus their

18. #138Practice set
    With reference to the Call Money Market, which of the statements given below is/are correct? 1. Payments Banks are eligible to participate in the Call money market both as borrowers and lenders 2. Higher call rate indicates liquidity stress in the economy.Select the correct answer using the code given below
    • A1 only
    • B2 only
    • CBoth 1 and 2
    • DNeither 1 nor 2
    Answer: (C) Both 1 and 2
    Explanation

    Option c is the correct 1 is correct. Participants in the call are banks and related entities specified by Scheduled commercial banks (excluding RRBs), banks (other than Land Development Banks) Dealers (PDs), are permitted to participate in money market both as borrowers and Banks and Small Finance Banks are eligible in the Call money market both as lenders. Such eligibility is valid even prior to of the process to get themselves included in Schedule of Reserve Bank of India Act, 2 is correct. Since the participants are call money rate tells about the overall liquidity the economy. Higher call rate indicates liquidity the economy. In this case, the RBI may follow up support measures by through its monetary - cutting CRR (Cash Reserve Ratio) or repos. Hence, the call money rate is taken as target of monetary policy. Important Tips The call money is usually availed for one day. If the bank

19. #139Practice set
    Which one of following is incorrect regarding Voluntary Retention Route (VRR)?
    • AIt is introduced to encourage Foreign Portfolio Investors to undertake long-term investments in Indian debt markets
    • BThe amount that may be invested via the Route shall be decided by the Reserve Bank from time to time
    • CThe minimum retention period shall be 10 years, or as decided by SEBI for each auction
    • DAny entity registered as an FPI with Securities and Exchange Board of India is eligible to participate through this route
    Answer: (C) The minimum retention period shall be 10 years, or as decided by SEBI for each auction
    Explanation

    Option c is the correct a is correct. Reserve Bank, in consultation Government of India and Securities and Exchange India (SEBI), proposes to introduce a separate the 'Voluntary Retention Route' (VRR), to to invest in debt markets in India. is introduced to encourage Foreign Portfolio to undertake long-term investments in Indian Broadly, investments through the Route will be the macro-prudential and other regulatory to FPI investments in debt markets, provided commit to retain a required minimum their investments in India for a period of their through this Route will be entirely b is correct. The total amount that may via the Route shall be decided by the Reserve time to time based on macro-prudential assessment of investment c is incorrect. The minimum retention be three (and not 10) years, or as decided by RBI SEBI) for each d is correct. Eligible investors: Any as an FPI with SERI is

20. #140Practice set
    Which of the following statements with reference to Secured Overnight Financing Rate is incorrect?
    • AIt is benchmark interest rate for dollar ckrivatives
    • BIt is expected to replace the London interbank offered rate (LIBOR)
    • CIt is a collateral free window for banks to borrow from RBI in emergency situation
    • DIt is based on data from observable transactions rather than on estimated borrowing rates
    Answer: (C) It is a collateral free window for banks to borrow from RBI in emergency situation
    Explanation

    Option c is the correct a, b and d are correct. The secured rate (SOFR) is a benchmark interest rate derivatives and loans. It is replace the London interbank offered rate (LIBOR) end of 2021. It is based on transactions in the market and collateral are provided to It is seen as preferable to LIBOR since it is based from observable transactions rather than on rates. Statement c is incorrect. It is a not collateral-free window to borrow from RBI in an emergency situation. is a benchmark interest rate for and loans

21. #141Practice set
    Consider the following statements with reference to the Financial Services Centres Authority (IFSCA): 1. It is a statutory body for the regulation of all international services centres (IFSCs) in India. 2. All members of the authority are appointed by the Central government. 3. All the banking and financial within are regulated by the IFSCA.How many of the statements given above are correct?
    • AOnly one
    • BOnly two
    • CAll three
    • DNone
    Answer: (C) All three
    Explanation

    Option c is the correct l is correct: The International Financial Authority (IFSCA) is a statutory body established 27, 2020 under the International Financial Authority Act, 2019. It is headquartered at Gandhinagar in 2 is correct: It will consist of nine by the central government. They will of authority, a member each from RBI, PFRDA; two members from the ministry of two members will be appointed on recommendation of 3 is correct: The IFSCA regulates and financial institutions which have approved by any appropriate regulator such SEBI etc., in IFSC. It may also recommend to the any other financial products, financial financial institutions, which may be permitted in an IFSC

22. #142Practice set
    Which of the following statem,cnt describes a 'Vulture fund'?
    • AAn investment fund that seeks out and buys securities in distressed investments
    • BA financial partnership that uses pooled funds to invest in startups with consistently high growth
    • CPooled funds that manage the money of investors for Green and ecologically sustainable projects
    • DA species conservation fund launched by the recently
    Answer: (A) An investment fund that seeks out and buys securities in distressed investments
    Explanation

    Option a is the correct vulture fund is an investment fund that seeks out and in distressed investments, such as high-yield or near default, or equities that are in or near vulture fund invests in assets whose prices have depressed in the goal is to 'swoop in' and pick up underpriced shares perceived to have been oversold to make high-risk high-reward 72. Solution: Option b is the correct a is correct. Certificate of Deposits (CDs) can by scheduled commercial banks (excluding Banks and Local Area Banks). The maturity period issued by banks should not be less than 7 days and than one year, from the date of b is incorrect. CDs are negotiable and tradable market. There is no lock-in period for the c is correct. Some Financial Institutions (Fis) permitted by RBI can issue CDs to raise for a maturity period above l year and upto d is correct. Minimum amount of a CD should l lakh, i.e., the mi

23. #143Practice set
    With reference to the call money market, which of the statements given below is/are correct? 1. The scheduled commercial banks act as both the borrowers and lenders in the money market. 2. A tight liquidity condition leads to a fall in the call money rate.Select the correct answer using the code given below
    • A1 only
    • B2 only
    • CBoth 1 and 2
    • DNeither 1 nor 2
    Answer: (A) 1 only
    Explanation

    Option a is the correct 1 is con-ect. Call money market is an market where funds are borrowed and lent, one day. Banks resort to these types of loans to fill liability mismatch, comply with the statutory SLR requirements and to meet the sudden demand The scheduled commercial banks and act in this market as both the borrowers and UC, GIC, Mutual Funds, NABARD are operate as only lenders in this 2 is incorrect. The call money rate is affected demand and supply of liquidity in the market. A condition leads to a rise in call money rate versa)

24. #144Practice set
    With reference to venture capital fonding, which of the statements given below is incorrect?
    • AIt is a private equity capital which lends capital to entrepreneurs
    • BIt is generally invested for long-term duration
    • CIt is a high risk, high gain investment
    • DVenture capitalists do not get power to influence decisions of the companies
    Answer: (D) Venture capitalists do not get power to influence decisions of the companies
    Explanation

    Option d is the correct a is correct. It is a private equity capital capital to entrepreneurs. Sturt up companies amount of investment. Many times, they cannot funding from conventional set-ups like banks etc. This the role of venture capital funding becomes bis correct. This funding is generally term duration. Wealthy investors are like to invest in new businesses. This capital is known as and the investors are called venture c is correct. Such investments are risky as illiquid, but are capable of giving impressive invested in the right venture. The returns to the depend upon the growth of the d is incorrect. Venture hove to influence major decisions of the companies investing in as it is their money at stake

25. #145Practice set
    With reference to the Call Money Market in India, consider the following statements: 1. Call money market facilitates borrowing and lending of funds on overnight basis. 2. Regional rural banks can participate in call money market.Which of the statements given above is/are correct?
    • A1 only
    • B2 only
    • CBoth 1 and 2
    • DNeither 1 nor 2 k
    Answer: (C) Both 1 and 2
    Explanation

    Option c is the correct l is correct: Banks can avail overnight loans in the call money market through If the loan is provided for 2 to 14 days, it 'Notice Money'. Banks use this short-term to meet statutory reserve requirements or in sudden shortfall in cash on any particular day. The market is an important segment of the where borrowing and lending of funds take place 2 is correct: The RBI allowed RRBs to call money market in December 2020 They were so permitted to access the liquidity windows of the as well as the call/notice money market

26. #146Practice set
    Consider the following statements regarding the money market in India: 1. It helps in meeting the day-to-day capital requirements of enterprises. 2. It does not include local money lenders. ok 3. The discount rate depends on the availability of cash in the market. 4. No financial asset is traded in the money market.How many of the statements given above are correct?
    • AOnly one
    • BOnly two
    • COnly three
    • DAll four
    Answer: (B) Only two
    Explanation

    Option b is the correct l is correct. The money market fulfils of funds for the period upto 364 days. They for day-to-day fund mismatches of the they are also called as the working capital 2 is incorrect. Money market in India has i.e., organized and unorganized. The the unorganized money market are not the organized segment. But they are recognized government. Unorganised money market non-bank financial intermediaries like It also includes indigenous bankers like Chettiars. Local money lenders are also part of money 3 is correct. Trading in money market is done rate. Discount rate is determined by the guided by the availability of and demand for the the day-to-day trading. The repo rate of the Reserve India works as the guiding rate for the current 4 is incorrect. In the money market the which have quick conversion quality into carry minimal transaction cost, are also market is where sh

27. #147Practice set
    With reference to Indian economy, consider the following statements: 1. Call Money market is an inter-bank market used by banks to meet short term liquidity requirements. 2. Term Money refers to the borrowing or lending of funds for one day. 3. Notice Money refers to the borrowing and lending of funds for 2-14 days.How many of the statements given above are correct?
    • AOnly one
    • BOnly two
    • CAll three
    • DNone
    Answer: (B) Only two
    Explanation

    Option b is the correct 1 is correct. Call money market is also known at call and short notice market. It is an and lending market. One bank demands another bank to cover its cash RBI every fortnight and to gain from foreign 2 is incorrect. Term Money refers to Money 15 days or more in the Inter-Bank money that is lent for one day in call money market as "Call 3 is correct. if the need of money exceeds (but less than 15 days) it is referred to as

28. #148Practice set
    With reference to Trade Receivables Discounting System consider the following staternents: 1. It is an online institutional mechanism regulated by Reserve Bank of India. 2. It facilitates the discounting of both invoices as well as bills of exchange only for big Multinational Companies.Which of the statements given above is/are correct?
    • A1 only
    • B2 only
    • CBoth 1 and 2
    • DNeither 1 nor 2
    Answer: (A) 1 only
    Explanation

    Option a is the correct Receivables Discounting System is mechanism set up in order to facilitate of invoices for MSMEs from corporate multiple l is correct: The would be governed regulatory fram'ework put in place by the Reserve India under the Payment and settlement Systems It is an online institutional mechanism for financing of trade 2 is incorrect: The will facilitate of both invoices as well as bills of is an electronic platform for facilitating the discounting of trade receivables of Micro, Small Enterprises (MSMEs) through multiple financiers. These receivables can be due from corporates and including Government Departments and Undertakings (PSUs)

29. #149Practice set
    Consider the following statements regarding 'International Financial Services Centres Authority': 1. It is an apex body in arbitration matters related to international financial services. 2. All the members of the authority will have a term of three years subject to reappointment. 3. Gujarat International Finance Tee-City in Gandhinagar is India's first International Financial Services Centre.How many of the above pairs are correctly matched?
    • AOnly one
    • BOnly two
    • CAll three
    • DNone
    Answer: (B) Only two
    Explanation

    Option b is the correct 1 is incorrect: International Financial Authority is not an arbitral body but it financial services market in the International Centres set up under the Special Economic 2005. It will regulate financial products such deposits or contracts of insurance, and financial institutions which have by an appropriate regulator in an 2 is correct: International Financial Authority consists of nine members: a) members each from the RBI, SEBI, IRDAI, PFRDA c) from the Ministry of Finance and d) two appointed on the recommendation of a The members will have a term of three to 3 is correct: The first International Centre in India has been set up at the Finance Tee-City (GIFT City) in Gandhinagar. It will enables bringing back the and transactions that are currently carried offshore financial centres by Indian corporate overseas branches/ subsidiaries of Financial as banks, insur

30. #150Practice set
    Consider the following pairs:List I Term List n Description 1. Certificales of These can be issued Deposits by commercial banks and financial institutions 7 1'11 2. Commercial Unsecured and paper short-term debt instrument issued by corporations. 3. Cash Issued to meet Management bill the temporary mismatches in the cash flow of the Government.How many pairs given above are correctly matched?
    • AOnly one pair
    • BOnly two pairs
    • CAll three pairs
    • DNone of the above pairs
    Answer: (C) All three pairs
    Explanation

    Option c is the correct 1 is correct: Certificates of Deposits (CDs) are commercial banks and financial institutions to funds. These are issued in multiples of 25 to a minimum amount of 1 crore. The ranges from three months to one year in the banks and one year to three years in the case of 2 is correct: Commercial paper is an debt instrument issued by corporations. It used to the finance short-term liabilities such accounts payable, and inventories. It was 3 is correct: Cash Management Bills (CMBs) term debt instruments issued to meet the in the cash flow of the Government of India Important Tips Certificate of Deposit (CD) is a negotiable money market instrument and issued in dematerialized form or as a Promissory Note against funds deposited at a bank or other eligible financial institution for a specified time period. Similar to Fixed deposits, the CD aims to denote in writing that y

31. #151Practice set
    Consider the following statements with reference to the State Development Loans: 1. The purpose of issuing such loans is to meet the budgetary needs of state governments. 2. These loans are issued through normal auctions conducted by the Reserve Bank of India. 3. These securities do not qualify for Statutory Liquidity Ratio (SLR) status. PractkebHow many of the above given statements are correct?
    • AOnly one
    • BOnly two
    • CAll three
    • DNone
    Answer: (B) Only two
    Explanation

    Option b is the correct 1 is correct: State Development Loans are are issued by the state government to manage finances and fund their fiscal deficit. Each state to issue securities up to a certain limit per year. SD traded at a spread above the benchmark G-sec security same 2 is correct: State Development Loans in the primary market through normal by the Reserve Bank of India and traded in market. Interest on state development loan at half-yearly intervals and the principal is the maturity 3 is incorrect: SDLs qualify for Ratio (SLR) status, that is a proportion of be maintained in liquid sovereign securities. So mainly nationalized banks, who on account of their base have a large SLR requirement

32. #152Practice set
    Which of the following statements correctly defines the term 'Credit Spread'?
    • AIt is the difference between the returns from two different debt instruments having the same maturity but different credit rating. ook
    • BIt is the difference between the interest rate that a bank charges on a borrower and the interest rate a bank pays to a depositor
    • CIt is the Jifference between amount of credit availed by people in rural areas from a formal source and that from an informal source
    • DIt is the difference between the repo rate and average interest rate charged by commercial banks
    Answer: (A) It is the difference between the returns from two different debt instruments having the same maturity but different credit rating. ook
    Explanation

    Option a is the correct spread is the difference between the yield two different debt instruments with the same different credit ratings. In other words, the spread is in return, due to different credit qualities. It to reflect the,1 itional yield required by an taking on additional risk. For example, if a note is a yield of and a bond is trading at a yield of the credit

33. #153Practice set
    With reference to 'Commercial Paper', consider the following statements: 1. It is a short-term debt instrument issued to raise funds. 2. It is considered as an unsecured instrument as it is not backed by a collateral. 3. It can only be issued by scheduled commercial banks in India.How many of the above given statements are correct?
    • AOnly One
    • BOnly Two
    • CAll Three
    • DNone
    Answer: (B) Only Two
    Explanation

    Option b is the correct l is correct: Commercial paper, also called a short-term debt instrument issued by companies funds generally for a time period up to one year. It is money market instrument issued in the form of 2 is correct: Commercial paper is an debt instrument issued by paper is not backed by any form of it unsecured debt. It's typically used to liabilities such as payroll, accounts payable, 3 is incorrect: They are issued by companies discount to face value, and have a maturity period of one year. Corporates, primary dealers (PDs) and the financial institutions (Fis) that have been permitted short-term resources under the umbrella limit fixed Reserve Bank of India are eligible to issue CP

34. #154Practice set
    With reference to 'Treasury Bills', consider the following statements: 1. In India, Treasury bills were first issued in 1991 by Reserve Bank of India. 2. They can be purchased by banking entities as well as by individuals. 3. They can be a part of Bank's Statutory Liquidity Ratio.How many of the above given statements are correct?
    • AOnly One
    • BOnly Two
    • CAll Three
    • DNone
    Answer: (B) Only Two
    Explanation

    Option b is the correct l is incorrect: Treasury Bills (T-Bills) were in India in 1917 during the British Raj. The initially issued to meet the war expenditure needs of during the First World 2 is correct: T-Bills are issued by the have no risks attached to them. They have high to their short maturities of 14 days, 91 days, 182 364 days. T-Bills can be purchased by organizations, and 3 is correct: T-Bills have a relation with Liquidity Ratio (SLR) in India. Banks in required to maintain a certain percentage of demand and time liabilities (NDTL) as liquid as government securities, including T-Bills, to and solvency. Important Tips T-Bills are short-term debt instruments issued by the government to raise funds for a period of up to one year. They are zero-coupon bonds, which means they do not pay any interest to the holder, but are issued at a discount to their face value. The difference b

35. #155Practice set
    Consider the following statements: 1. Under the Liquidity adjustment facility (LAF), only scheduled commercial banks are eligible to access funds from RBI. 2. Under Marginal standing facility (MSF), banks cannot borrow money by pledging Government Securities that are part of bank's SLR (Statutory Liquidity Ratio) quota.Which of the statements given above is/are correct?
    • A1 only
    • B2 only
    • CBoth 1 and 2
    • DNeither 1 nor 2
    Answer: (D) Neither 1 nor 2
    Explanation

    Option dis the correct l is incorrect: Under, liquidity (LAF) all clients of RBI are eligible to access includes All Scheduled Commercial Banks and (PDs). Whereas under marginal standing scheduled commercial banks can 2 is incorrect: Under marginal standing can sell the Government security from its SLR quota while this cannot be done for the

36. #156Practice set
    With reference to the recently launched digital payment system "e-RUPI". Consider the following statements: 1. It is a cashless and contactless digital payment medium. 2. Under e-RUPI system, banks are the issuing entities for electronic vouchers. 3. A mobile app and internet banking is necessary for using the system.How many of the statements given above are correct?
    • AOnly one
    • BOnly two
    • CAll three
    • DNone
    Answer: (B) Only two
    Explanation

    Option b is the correct I is correct: e-RUPI is a cashless and payment medium, which will be delivered to of beneficiaries in form of an SMS-string or a 2 is correct: Banks are the issuing electronic vouchers. Any corporate or will have to approach the partner banks, which are both private and public-sector lenders, with the details persons and the purpose for which payments be made. The beneficiaries will be identified using number and a voucher allocated by a bank to provider in the name of a given person would only to that 3 is incorrect: It is a prepaid gift-voucher be redeemable at specific accepting centres credit or debit card, a mobile app or internet will connect the sponsors of the services with and service providers in a digital any physical interface. Important Tips e-RUPI is an electronic voucher based digital payment system. It has been developed by the National Payments Co

37. #157Practice set
    Which of the following statements correctly describes the meaning of 'homemade leverage'?
    • AA change in the financial leverage of a company due to personal borrowings of investors
    • BIt is the ability of a company to meet its financial obligations
    • CIt is the weighted average of a bank's current liabilities
    • DThe effect of a firm's financial leverage on the payment of dividends to its investors
    Answer: (A) A change in the financial leverage of a company due to personal borrowings of investors
    Explanation

    Option a is the correct leverage is the use of personal borrowing to change the amount of financial leverage firm. Leverage refers to the amount of debt u firm finance its assets. Homemade leverage is a investor can use to synthetically increase of a firm or a company. Homemade leverage is an individual investor lo artificially adjust the leverage company. An individual investing in a company with can recreate the effect of leverage using which includes taking out personal loans on It holds as long as investors can borrow same terms as a firm, which prevails only under

38. #158Practice set
    India enacted The Geographical Indications of Goods (Registration and Protection) Act, 1999 in order to com ply with the obligations to
    • AInternational Labour Organization
    • BInternational Monetary Fund
    • CUnited Nations Conference on Trade and Development
    • DWorld Trade Organization
    Answer: (D) World Trade Organization
    Explanation

    Option dis the correct Geographical Indications of Goods Protection) Act, 1999 (GI Act) is a sui generis Act Parliament of India for protection of in India. India, as a member of the World (WTO), enacted the Act to comply Agreement on Trade-Related Aspects of Rights

39. #159Practice set
    Which of the following are the steps to boost growth in MSME sector? 1. MUDRA Yoja.na 2. Atmanirbhar Bharat Abhiyaan 3. India Aspiration Fund 4. ASPIRE 5.Select the correct answer using the code given below
    • A1, 2 and 3 only
    • B1, 2, 3 and 4 only
    • C3 and 5 only
    • D1, 2, 3, 4 and 5
    Answer: (B) 1, 2, 3 and 4 only
    Explanation

    Option b is the correct Micro Units Development Refinance Agency set up to provide development and refinance banks/NBFCs/cooperative banks for loans Bharat Abhiyan includes Rs 3 lakh free automatic loans for businesses Aspiration Fund (IAF) was set up as a fund of the Small Industries Development Bank of in order to boost the startup ecosystem in (Promoting Innovation and Rural launched in March 2015 for setting up a technology and incubation centres to and promote start-ups. is for transformation of railways through mode activities. It was launched in budget 2016

40. #160Practice set
    Which of the following correctly describes the impediments faced by the Steel Industry in India? 1. Saturation of the consumer demand in all steel categories 2. Large amount of NPAs and stressed assets in the industry 3. Large scrap imports 4. High power costsChoose the correct answer using the options given below
    • A1 and 2 only
    • B2 and 3 only
    • C2, 3 and 4 only
    • D1, 2, and 4 only
    Answer: (C) 2, 3 and 4 only
    Explanation

    Option c is the correct l is incorrect - According to Indian (ISA) the finished steel demand in India to be up by around 16.7 per cent to reach million tonnes in the coming year and by the end year, it will be at million tonnes. As per the Policy 2017, the government has set a target to ramp country's crude steel production output to 300 (MT) by 2 is correct - Out of the total loans to the steel sector has a share of (Rs 3.1 lakh crores). reported that the stressed assets of steel sector out gross NPAs comprise around of the total at Rs 1.5 lakh crores. In China the financial the banks and financial institutions to the steel of SOEs and SMEs is also 3 is correct - Availability of ferrous scrap in very limited-around 25 million tonnes annually sources. In 2018-19 and 2019-20, the nearly 6.5 million tonnes of scrap each year large forex spending was 4 is correct - The power cost in India a

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