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Bank Rates and Monetary Policy

Description: Bank Rates and Monetary Policy
Number of Questions: 15
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Tags: Bank Rates and Monetary Policy Indian Banking and Financial System Market Economy
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An instrument that derives its value from currency, gold and stocks is known as

  1. derivative

  2. securitisation receipt

  3. hedge fund

  4. factoring

  5. venture capital funding


Correct Option: A
Explanation:

Correct answer is (1). 

Currency swap is an instrument used to manage

  1. currency risk

  2. interest rate risk

  3. currency risk and interest rate risk

  4. cash flow in different currencies

  5. All of the above


Correct Option: D
Explanation:

Option 4 is correct.

What does bank rate mean?

  1. It is the rate of interest charged by commercial banks.

  2. It is the rate of interest at which commercial banks discount the bills of their borrowers.

  3. It is the rate of interest allowed by commercial banks on their deposits.

  4. It is the rate at which RBI purchases or rediscounts bills of exchange of commercial banks.

  5. None of these


Correct Option: D
Explanation:

Correct answer is (4). 

What is an Indian Depository Receipt?

  1. A deposit account with a Public Sector Bank

  2. A depository account with any of the depositories in India

  3. An instrument in the form of depository receipt created by an Indian depository against underlying equity shares of the issuing company

  4. An instrument in the form of deposit receipt issued by Indian government

  5. None of these


Correct Option: C

Government securities with terms of more than one year are called

  1. treasury bills

  2. government bonds

  3. capital bills

  4. bills of exchange


Correct Option: B

‘Sub-prime’ refers to

  1. lending done by banks at rates below PLR

  2. funds raised by banks at sub-libor rates

  3. group of banks which is not rated as prime bank as per Banker’s Almanac

  4. lending done by financing institutions including banks to customers not meeting with normally required credit appraisal standards

  5. All of the above


Correct Option: D
Explanation:

Correct answer is (4). 

Which of the following are categories of inflation?

(A) Open and suppressed (B) Cost push (C) Demand pull

  1. Only (A) and (C)

  2. Only (A) and (B)

  3. Only (B) and (C)

  4. (A), (B) and (C)

  5. None of these


Correct Option: C
Explanation:

Cost push inflation is inflation caused by an increase in prices of inputs like labour, raw material, etc. The increased price of the factors of production leads to a decreased supply of these goods.

Demand-pull Inflation is asserted to arise when aggregate demand in an economy outpaces aggregate supply. This is commonly described as "too much money chasing too few goods". 

Open and suppressed inflation are the conditions and not the types of inflation.

Reverse repo means

  1. injecting liquidity by the Central Bank of a country through purchase of government securities

  2. absorption of liquidity from the market by sale of government securities

  3. balancing liquidity with a view to enhance economic growth rate

  4. improving the position of availability of securities in the market

  5. None of these


Correct Option: B
Explanation:

Option 2 is correct.

FDI refers to

  1. Fixed Deposit Interest

  2. Fixed Deposit Investment

  3. Foreign Direct Investment

  4. Future Derivative Investment

  5. None of these


Correct Option: C

What is FOREX?

  1. It is defined as buying of a foreign currency.

  2. It is defined as selling of a foreign currency.

  3. It is defined as buying of one currency and selling of another currency at different times.

  4. It is defined as simultaneous buying of one currency and selling of another currency.


Correct Option: D
Explanation:

The sale and purchase of two currencies at the same time is known as FOREX.

Fixed deposits are offered with

  1. fixed interest rates

  2. floating interest rates

  3. fixed and floating interest rates

  4. none of these


Correct Option: A

Increase in bank rates generally is followed by

  1. an increase in market rate of interest

  2. a fall in market rate of interest

  3. a rise only in the deposit rate, but not the lending rate

  4. a rise only in the lending rates


Correct Option: A

Which of the following formulates, implements and monitors the monetary policy?

  1. Ministry of Finance

  2. State Bank of India

  3. Reserve Bank of India

  4. None of these


Correct Option: C

A checking deposit in a bank is considered __________ of that bank.

  1. net worth

  2. a liability

  3. an asset

  4. a capital


Correct Option: B

What is a Repo Rate?

  1. It is a rate at which RBI sells government securities to banks.

  2. It is a rate at which banks borrow money from RBI.

  3. It is a rate at which RBI allows small loans in the market.

  4. It is a rate offered by banks to their most valued customers or prime customers.

  5. None of these


Correct Option: B
Explanation:

Correct answer is (2). 

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