Financial institutions and markets

Question Bank 39 Pages

Mizoram University

Economics

Contributed by

Munni Doshi

CBCS
VI SEMESTER;
DEPARTMENT OF ECONOMICS;
OBJECTIVES
NAME OF THE PAPER: FINANCIAL INSTITUTIONS AND MARKETS
PAPER – XI

SECTION –A
MULTIPLE CHOICE QUESTIONS (200X1=200)

MODULE-I
CENTRAL BANKS -RBI

1. The Reserve Bank of India was established on
a) April 1, 1935 ( )
b) July 12, 1982 ( )
c) May 26, 2006 ( )
d) September 30, 2005 ( )

2. On which commission’s recommendations; Reserve Bank of India was established?
(a) Chamberlain Commission ( )
(b) Hilton Young Commission( )
(c) Keynes Commission ( )
(d) None of the above ( )

3. Which among the following is incorrect?
a) RBI is the Bank of Issue ( )
b) RBI acts as Banker to the Government ( )
c) RBI is Banker's Bank ( )
d) RBI does not regulate the flow of credit ( )

4. Which of the following is true about the restrictions on RBI?
(i) It is not to compete with the commercial banks.
(ii) It is not allowed to pay interest on its deposits.
(iii) It cannot engage directly or indirectly in trade.
(iv) It cannot acquire or advice loans against immovable property.
(v) It is prohibited from purchasing its own shares or the shares of any other bank or any
company or granting loans on such security.

(a) only (i),(ii),(iii), and (iv) ( )
(b) only (v) ( )
(c) all the above ( )
(d) none of the above ( )

5. Which of the following is not the work of RBI?
(a) Bank of the banks ( )
(b) Credit controller ( )
(c) Custodian of foreign currency ( )
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(d) Allocating funds directly to the farmers for agricultural development ( )

6. Which of the following words is not used in Monetary Policy?
(a) Cash reserve ratio ( )
(b) Repo Rate ( )
(c) Bank rate ( )
(d) Blue chip ( )

7. For issuing / printing currency notes, the RBI has adopted a system –
(a) Minimum Reserve System ( )
(b) Fixed fiduciary system. ( )
(c) Maximum limit system ( )
(d) Proportional reserve system. ( )

8. Central Bank is a
(a) Commercial Bank ( )
(b) Exchange bank ( )
(c) Apex bank. ( )
(d) Scheduled bank. ( )

9. Central Bank is an institution which is
(a) Privately owned ( )
(b) State owned ( )
(c) Internationally owned ( )
(d) Jointly owned by state and private. ( )

10. The methods of credit control used by RBI includes

(i) Open market operation
(ii) Changes in CRR and SLR
(iii) Selective credit control
(iv) Changes in SLR

(a) (i), (ii) and (iii) ( )
(b) (ii), (iii) and (iv) ( )
(c) (i), (iii) and (iv) ( )
(d) (i), (ii), (iii) and (iv) ( )

11. The full form of EMI used in the banking sector is
(a) Easy Monthly Installment ( )
(b) Equal Monthly Investment ( )
(c) Equated Monthly Installment ( )
(d) Equated Mortgage Investment. ( )

12. Bank rate is decided by
(a) Reserve Bank of India ( )
(b) Govt. of India ( )
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(c) State Bank of India ( )
(d) Securities and Exchange Board of India (SEBI) ( )

13. The reserves held by the Commercial Banks over and above the statutory minimum with the
RBI are called
(a) Cash reserves ( )
(b) Deposit reserves ( )
(c) Excess reserves ( )
(d) Momentary reserves. ( )

14. Banking in India is controlled by
(a) Union Finance Commission ( )
(b) Union Ministry of Finance ( )
(c) Union Ministry of Commerce ( )
(d) Reserve Bank of India ( )

15. Which of the following is not the function of Reserve Bank of India?
(a) Acting as banker to the Government. ( )
(b) Keeping foreign Exchange Reserve. ( )
(c) Regulating credit in the country. ( )
(d) Issuing of one rupee notes and coins. ( )

16. The objectives of monetary policy is / are
(a) Price Stability ( )
(b) Economic growth ( )
(c) Increase import of luxury goods ( )
(d) Both (a) and (b) ( )

17. Bank rate is defined as
(a) Rate of interest charged by commercial banks from borrowers ( )
(b) Rate of interest allowed by commercial banks on demand deposits. ( )
(c) Rate of interest allowed by commercial banks on time deposits. ( )
(d) Rate which RBI purchases or rediscount bills of exchange of commercial banks. ( )

18. The Reserve Bank of India was nationalized in
(a) 1st January 1949. ( )
(b) 1st April, 1935 ( )
(c) 1st May, 1947 ( )
(d) 1st June, 1949 ( )

19. The Governor of RBI is appointed by
(a) Board of Directors ( )
(b) Central Government ( )
(c) Finance Minister ( )
(d) None of the above ( )

20. The chairman of the Central Board of RBI is
(a) Governor ( )
(b) Deputy Governor. ( )
(c) Finance Minister, Govt. of India ( )
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(d) Prime Minister ( )

21. Which of the following is true about the functions performed by RBI -
(i) It is the Bank of Issue
(ii) It acts as banker to the Government
(iii) It is the banker of other banks
(iv) It regulates the flow of credit

(a) Both (i) and (ii) ( )
(b) Both (iii) and (iv) ( )
(c) All the Above ( )
(d) None of the above ( )

22. Which of the following is true about the objectives of RBI trying to achieve-
(i) Price Stability
(ii) Reduce deficit
(iii) Encourage export
(iv) Growth

(a) Both (i) and (ii) ( )
(b) Both (iii) and (iv) ( )
(c) All the Above ( )
(d) None of the above ( )

23. The custodian of India’s foreign exchange reserve is
(a) State Bank of India (SBI) ( )
(b) Reserve Bank of India (RBI) ( )
(c) International Monetary Fund (IMF) ( )
(d) World Bank ( )

24. Which of the following is true about the functions of RBI-
(a) Export finance
(b) Agriculture finance
(c) Collecting data and publication
(d) Exchange management and control

a) Both (i) and (ii) ( )
(b) Both (iii) and (iv) ( )
(c) All the Above ( )
(d) None of the above ( )

25. Which of the following is true that RBI as a banker to the government
(i) Maintaining and operating deposit accounts of Central and State Governments.
(ii) Receipt and collection of payments to the Central and State Governments.
(iii) Making payments on behalf of Central and state Governments.
(iv) Providing ways and means advances to the Central and State Governments.

(a) Both (i) and (ii) ( )
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(b) Both (iii) and (iv) ( )
(c) All the Above ( )
(d) None of the above ( )

26. Which of the following coins is not issued by the RBI ?
(a) Re. 1 ( )
(b) Rs. 2 ( )
(c) Rs. 5 ( )
(d) Rs. 10 ( )

27. RBI has withdrawn the circulation of coins in the denomination of 1 paise, 2 paise, 3 paise, 5
paise, 10 paise, 20 paise and 25 paise in which year ?
(a) 2010 ( )
(b) 2011 ( )
(c) 2012 ( )
(d) 2013 ( )

28. Which of the following is/ are the Quantitative Instrument of RBI ?
(a) CRR ( )
(b) SLR ( )
(c) All of the above( )
(d) None of above ( )

29. Which among the following would not help RBI to control the inflation in the country ?
(a) Increase in Reserve Ratio Requirements ( )
(b) Increase in Bank Rate ( )
(c) Purchase of securities in open market ( )
(d) Increase in Repo Rate ( )

30. What would be the impact on cash reserves of the commercial banks if RBI conducts the sale of
securities?
(a) Decrease ( )
(b) Increase ( )
(c) Either increase or decrease ( )
(d) Remains contant ( )

31. Which of the following works as the agent of RBI while it has no own offices ?
(a) IMF ( )
(b) SBI ( )
(c) GOI ( )
(d) Ministry of Finance ( )

32. Which of the followong Governors of RBI also served as the Finance Minister of India ?
(a) Pranav Mukherjee ( )
(b) Amitabha Ghosh ( )
(c) Sir Benegal Rama Rao ( )
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(d) Dr. Manmohan Singh ( )

33. Which of the following statements is/are not true ?
(a) RBI is the Bank of Issue. ( )
(b) RBI acts as the Banker of the Government. ( )
(c) RBI is known as the Banker's Bank. ( )
(d) RBI does not regulate the credit flow. ( )

34. Which is not a function of RBI ?
(a) Holding cash reserves of all commercial banks and make available financial accommodation
to them. ( )
(b) Assuming responsibility of all banking operations of the government. ( )
(c) Assuming the responsibility of the statistical analysis of data related to macro economy of
India . ( )
(d) Assuming the responsibility to meet directly or indirectly all reasonable demands for the
accommodation. ( )

35. To control inflation and tackle the problem of exchange liquidity due to foreign exchange
inflows, the RBI
(a) Sells government securities. ( )
(b) Purchase securities ( )
(c) Decrease bank rate. ( )
(d) Raise interest rate. ( )

36. Ways and Means advanced by RBI refers to
(a) Meeting temporary mismatches between receipts and expenditure. ( )
(b) Providing short term loans for consumption expenditure. ( )
(c) Buying goods from abroad. ( )
(d) Providing funds for recurring expenditure ( )

37. The commercial banks were required to keep some percentages of their time deposits and their
demand deposits with the RBI in the form of reserves is known as
(a) Statutory Liquidity ratio ( )
(b) Cash reserve ratio ( )
(c) Moral suasion ( )
(d) Open market operation ( )

38. Decreasing percentage of statutory liquidity ratio by RBI
(a) Increase the volume credits at the hands of commercial banks. ( )
(b) Reduce inflation. ( )
(c) Decrease the volume credit at the hands of commercial banks. ( )
(d) Raise the interest rate charged by the commercial banks. ( )

39. If the RBI wants to control the speculation on the price of essential commodities, adopted a
measure known as
(a) Open market Operations. ( )
(b) Credit monitoring Arrangement ( )
(c) Selective credit control ( )
(d) Moral suasion. ( )
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40. The RBI’s function of Banker to Government implies
(a) Issue of currency
(b) Buys and sells government securities
(c) Manages public debt by issuing government loans
(d) Sells treasury bills on behalf of government

(a) All of the above ( )
(b) (a), (b) and (c) ( )
(c) (b), (c ) and (d) ( )
(d) (a), (c) and (d) ( )
Multiple choice question key answers:

1-a
2-b
3-d
4-c
5-d
6-d
7-a
8-c
9-b
10-d
11-c
12-a
13-c
14-d
15-d
16-d
17-d
18-a
19-b
20-a
21-c
22-c
23-b
24-c
25-c
26-a
27-b
28-c
29-d
30-a
31-b
32-d
33-d
34-c
35-a
36-a
37-b
38-a
39-c
40-c

FILL UP THE BLANKS:

1. The Board of Directors of RBI were appointed by __________.

2. The first Headquarters of Reserve Bank of India (RBI) at_________.

3. The Headquarters of Reserve Bank of India (RBI) shifted from Kolkata to Mumbai in
______.

4. The first Reserve Bank of India (RBI) Governor was ____________.

5. The first Indian RBI Governor was__________.

6. Banking Ombudsman scheme was introduced by __________.

7. RBI can issue any amount of currency notes under the ___________.

8. All commercial banks maintain a certain proportion of their demand and time deposits
with the __________.

9. In India, the monopolistic control of note issue is vested in_________.

10. The Central Board of RBI should convene a Board Meeting atleast _____times in a year.
11. ____________aims at shifting the flow of bank credit from speculative and undesirable
purposes to socially desirable and economic useful uses.
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12. ________is the purchase and sale of securities, bills and bonds of Government by RBI
from and to public and financial institutions on the open market.
13. _________is an advances made by the RBI to the Government to meet the temporary
mismatches between receipts and expenditure.
14. In India, Bank rate is fixed by ____________
15. _________is the percentage of reserve that the commercial banks have to keep with the
RBI from the time and demand deposits.

16. _________is the rate at which the RBI borrows money from commercial banks.

17. Under Banking Regulation Act, 1949, all commercial banks are required to keep some
percentages out of the time and demand deposits with them in the form of liquidity ratio is
known as _____________.
18. _________is one of the techniques of credit control like persuasion and pressure on
commercial bank, followed by Reserve Bank of India.
19. A __________is the interest rate at which a nation’s central bank lends money to the
domestic commercial banks.
20. A ____________is the interest rate at which the central bank in a country repurchases
Government securities (such as Treasury securities) from commercial banks.

KEY ANSWER OF FILL UP THE BLANKS

1. Govt. of India.
2. Kolkata
3. 1937
4. Sir Osborne Smith
5. C.D.Deshmukh
6. Reserve Bank of India
7. Minimum reserve system
8. central bank
9. Reserve Bank of India
10. Six
11. Selective credit control
12. Open market operations
13. The ways and means
14. Reserve Bank of India.
15. Cash reserve Ratio (CRR)
16. Reverse Repo rate
17. Statutory Liquidity Ratio
18. Moral suasion
19. Bank Rate
20. Repo rate

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MODULE-II
MONEY & COMMERCIAL BANKING

MULTIPLE CHOICE QUESTIONS
1.Which of the following is a commercial bank?
a) State Bank of India ( )
b) Unit Trust of India (UTI) ( )
c) IDBI ( )
d) NABARD ( )
2. Which one of the following is near money?
a) Treasury Bills ( )
b) Bills of Exchange ( )
c) Bonds and Debentures ( )
d) All of the above ( )
3.In July 1969, 14 major Indian scheduled banks were nationalised and 6 more banks were
nationalised in
a) April 1980 ( )
b) May 1980 ( )
c) April 1981 ( )
d) May 1981 ()
4. The liabilities of a bank are
a) Advance and loans ( )
b) Time deposits and shares ( )
c) Cash with reserve ratio ( )
d) Bonds and debentures of share holders( )
5. The recent conversion of Financial Institutions into Commercial Banks or Non-Banking
Finance Companies (NBFCs) under the regulatory aspect of RBI was suggested by
a) Narasimham Committee ( )
b)Ministry of Company Affairs ( )
c) Ministry of Finance ( )
d) None of the above ( )
6. Which property the paper money does not possess
a) Acceptability ( )
b) Divisibility ( )
c) Duality ( )
d) Portability ( )
7. Rupee is a coin
a) Full Value ( )
b) Token money ( )
c) Credit money( )
d) Convertible ( )
8. Which one of the following is not includedin the function of money
a) Make demand and supply ( )
b) Store of value ( )
c) Medium of exchange ( )
d) Measure of value ( )
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9. Convertible money means
a) It can buy means( )
b) Government can give gold against it ( )
c) Illegal money ( )
d) Low value of money ( )
10. Commercial banks create
a) Credit money ( )
b) Token money ( )
c) Legal money ( )
d) Do not create money ( )
11. The most important features of money is
a) General acceptability ( )
b) Convertibility into gold ( )
c) Store of value ( )
d) Medium of exchange ( )
12. Which movement encourage the formation of commercial banks
a) Swadeshi movement ( )
b) Quit India movement ( )
c) Non-cooperationmovement ( )
d) Civil disobedience movement ( )
13. In which year was the Banking Regulation Act passed?
a) 1949 ( )
b)1955 ( )
c)1959 ( )
d)1969 ( )
14. What is the most widely used tool of monetary policy?
a) Issuing of notes ( )
b) Open market operation ( )
c)Discount rate ( )
d) None of the above ( )
15.Banking sector comes under which of the following sectors?
a) Manufacturing sectors ( )
b) Industrial sectors ( )
c) Service sectors ( )
d) None of the above ( )
16. Who is responsible for the supply of coins in India?
a) Reserve bank of India ( )
b) Ministry of finance ( )
c) Ministry of commerce and industry ( )
d) Bankers association of India ( )
17. Difference between total receipt and total expenditure is
a) Capital deficit ( )
b) budget deficit ( )
c) fiscal deficit ( )
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Financial institutions and markets

Financial institutions and markets

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