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 RBI classifies currency with public plus demand deposits with the public as

  1. M1

  2. M2

  3. M3

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

 In 1979, the RBI classified money stock in India in the following four categories: M1 = Currency with the public, i.e. coins and currency notes + demand deposits of the public known as narrow money M2 = M1 + Post office saving deposits M3 = M1 + Time deposits of the pubic with banks called broad money M4 = M3 + Total post office deposits (excluding National Saving Certificates)

Multiple choice

Directions: The short passage below is followed by a question based on its content. Answer the question on the basis of what is stated or implied in the passage.

Currency convertibility is not by any means an unmixed blessing. There are several issues that need to be carefully examined before rushing headlong towards full convertibility. The first, obviously, is with reference to the advantages & costs of a fully convertible currency. The second issue concerns the distinction between convertibility on the current account and on the capital account and the sequencing of the two. The final issue has to do with the preconditions that have to exist in the domestic economy before it is possible to maintain a fully convertible currency. It is a moot question whether the Indian economy will achieve these in the near future.

What is the theme of the passage?

  1. Currency convertibility is not advisable in India at this stage.

  2. Indian policy makers must think hard before taking the plunge on the currency convertibility issue.

  3. Currency convertibility has several aspects requiring a thorough analysis.

  4. The issue of currency convertibility in India has brought forth several unsolved questions.

  5. Indian economy is not yet ready for currency convertibility on capital account.
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

 The first line gives us hint that the author talks about 'currency convertibility'. The second line and last line indicate that many issues and questions need to be analyzed before going headlong for convertibility. This marks options (4).

Multiple choice

What is the minimum stake that the Union government has to maintain in the State Bank of India according to the prevailing rules?

  1. 74%

  2. 55%

  3. 51%

  4. 49%
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

The government, which is currently required to hold at least 55 per cent stake of the bank, intended to introduce a legislation in both houses of parliament and secure approval when law makers reconvene this month, the official said, declining to be named before an announcement. The government holds 59.4 per cent of SBI, according to Bloomberg data.

Multiple choice

Which of the following is/are the measure(s) taken by the Reserve Bank of India (RBI) to ease the liquidity crunch in the country?

(a) Cut in Cash Reserve Ratio and Statutory Liquidity Ratio. (b) Increase the flow of foreign direct investment. (c) Supply of additional currency notes in the market.

  1. Only (a)

  2. Only (b)

  3. Only (c)

  4. All (a), (b) and (c)
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

The RBI manages liquidity primarily through monetary policy tools like the Cash Reserve Ratio (CRR) and Statutory Liquidity Ratio (SLR). FDI flow is influenced by government policy, and printing more notes is not a standard liquidity management tool.

Multiple choice

The financial turmoil all over the world in recent past has put some effect on Indian economy. What measure(s) did RBI take to improve the situation ?

  1. SLR has been reduced by one percentage points and at present is 24%
  2. An advance of Rs. 25,000 crore provided to banks/financial institutions under the Agricultural debt waiver and Debt Relief Schemes.
  3. RBI allowed banks to raise their capital by issuing Investment Bonds. Almost all big banks have issued such bond in recent past.

  1. Only 1

  2. Only 3

  3. Only 1 and 2

  4. All 1, 2 and 3
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

During the 2008 financial crisis, the RBI reduced the SLR to 24% to inject liquidity into the banking system. The other options involve government fiscal measures rather than direct RBI liquidity actions.