Banking Financial Awareness · Economics

Banking Regulation and Monetary Policy

1,180 Questions

Banking regulation and monetary policy questions test your understanding of the Reserve Bank of India functions, regulatory frameworks, and monetary tools. Topics include KYC guidelines, repo rates, and foreign exchange reserves management. This section is crucial for candidates preparing for banking and financial awareness exams.

RBI monetary toolsKYC guidelinesInterest rate regulationsCurrency issuanceBanking business acts

Banking Regulation and Monetary Policy Questions

Multiple choice

The sum of which of the following constitutes Broad Money in India?

  1. Currency with the public
  2. Demand deposits with banks
  3. Time deposits with banks
  4. Other deposits with RBI

  1. 1 and 2

  2. 1, 2 and 3

  3. 1, 2, 3 and 4

  4. 1, 2 and 4
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

Narrow money is the most liquid part of the money supply because the demand deposits can be withdrawn anytime during the banking hours. Time deposits on the other hand have a fixed maturity period and hence, cannot be withdrawn before expiry of this period. When we add time deposits into narrow money, we get broad money, which is of public with banks.

Multiple choice

Consider the following statements:

  1. Reserve Bank of India was nationalized on 26th January, 1950.
  2. The borrowing programme of the Government of India is handled by the Department of Expenditure, Ministry of Finance.

Which of the statements given above is/are correct?

  1. 1 only

  2. 2 only

  3. Both 1 and 2

  4. Neither 1 nor 2
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

RBI was established in 1935 and its shares were held by private individuals. There are 20 directors who govern its activities. It was nationalized on 1st January, 1949. The borrowing programme of the Government of India is handled by the Department of Economic Affairs under Union Finance Ministry.

Multiple choice

Consider the following statements regarding Reserve Bank of India:

  1. It is a banker to the Central Government.
  2. It formulates and administers monetary policy.
  3. It acts as an agent of the Government in respect to India.
  4. It handles the borrowing programme of Government of India.

Which of these statements are correct?

  1. 1 and 2

  2. 2, 3 and 4

  3. 1, 2, 3 and 4

  4. 3 and 4
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

Functions of RBI: sole authority to issue currency; government’s bank; banker’s bank; guardian of money market; lender of the last resort; sole reservoir of foreign exchange reserves; controller of credit; clearing house for setting inter bank transactions. It follows an independent monetary policy.

Multiple choice

With reference to Non-Banking Financial Companies (NBFCs) in India, consider the following statements:

  1. They cannot engage in the acquisition of securities issued by the government.
  2. They cannot accept demand deposits like Savings Account.

Which of the statements given above is/are correct?

  1. 1 only

  2. 2 only

  3. Both 1 and 2

  4. Neither 1 nor 2
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

A non–banking financial company (NBFC) is a company registered under the Companies Act, 1956 and is engaged in the business of loans and advances, acquisition of shares/stocks/bonds/debentures/securities issued by government or local authority or other securities of like marketable nature, leasing, hire-purchase, insurance business, chit business, etc.

Multiple choice

The Reserve Bank of India was nationalized in the year

  1. 1934

  2. 1935

  3. 1947

  4. None of these
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

The Reserve Bank of India was established in 1935 and was nationalized in 1949. Since none of the specific years listed (1934, 1935, 1947) match the nationalization year of 1949, 'None of these' is the correct answer.

Multiple choice

The apex body of Indian money market is

  1. SBI

  2. CBI

  3. RBI

  4. CID
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

RBI (Reserve Bank of India) is the apex body of Indian money market and central bank. It regulates money market instruments, controls liquidity, and sets monetary policy. SBI is a commercial bank, CBI is a law enforcement agency, and CID is a criminal investigation department - none of these are money market regulators.

Multiple choice

The central bank of India is

  1. Indian Overseas Bank

  2. Reserve Bank of India

  3. Central Bank

  4. State Bank of India
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

Reserve Bank of India (RBI) is India's central bank since 1935. It controls monetary policy, issues currency, regulates banks, and manages forex reserves. Indian Overseas Bank and Central Bank are commercial banks. SBI is the largest commercial bank but not the central bank. Only RBI has central bank powers.

Multiple choice

Match the correct terms.

   
List- I
List - II
(a)
Bank rate
(i) The rate of interest charged by a bank from another bank

on money supply | | (b) | Burgeoise | (ii) Where goods are sold by evading taxes. | | (c) | Open market operations | (iii) When professionals and business class plays a key role In developing the economy of the country. | | (d) | Grey market | (iv) RBI monetary policy to control money supply in the market. |

  1. (a) - (i), (b) - (iii), (c) - (iv), (d) - (ii)

  2. (a) - (i), (b) - (ii), (c) - (iii), (d) - (iv)

  3. (a) - (ii), (b) - (iv), (c) - (iii), (d) - (i)

  4. (a) - (i), (b) - (iii), (c) - (ii), (d) - (iv)
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

Bank rate is the interest rate charged by banks when lending to other banks (money supply), bourgeois refers to the professional/business class driving economic development, open market operations is the RBI's monetary policy tool to control money supply, and grey market involves tax evasion in goods sales. Option A correctly pairs all terms.

Multiple choice

Bank of International Settlements (or BIS) is an international organization of central banks which exists to “foster cooperation among central banks and other agencies in pursuit of monetary and financial stability”. It was an outcome of the Hague convention of

  1. 1945

  2. 1930

  3. 1928

  4. 1948
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

The Bank for International Settlements (BIS) was established in 1930 as an outcome of the Hague Convention. It serves as a bank for central banks and fosters international monetary and financial cooperation. The BIS played a crucial role in post-World War I financial stabilization and continues to be important in global finance.

Multiple choice

The basic regularity authority for mutual funds and stock markets lies with the

  1. RBI

  2. Government of India

  3. Stock Exchange

  4. SEBI
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

SEBI (Securities and Exchange Board of India) is the primary regulatory authority for mutual funds and stock markets in India. RBI regulates banking and monetary policy, while stock exchanges are platforms regulated by SEBI, not regulators themselves.

Multiple choice

A sheduled bank is a bank which is

  1. nationalised

  2. not-nationalised

  3. based in a foreign country

  4. included in the Second Schedule of RBI
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

Correction is (4). 

Multiple choice

Which of the following concept of money supply is called 'Broad Money' in India?

  1. M1

  2. M2

  3. M3

  4. M4
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

In India's monetary classification, M3 is formally designated as 'Broad Money'. M3 includes M1 (currency + demand deposits) plus time deposits (fixed deposits, recurring deposits) in banks. M2 and M4 are aggregates used in different countries' monetary systems, but M3 is India's standard broad money measure that captures the most liquid and near-liquid assets in the economy.