Banking Financial Awareness · Economics

Banking Regulation and Monetary Policy

1,219 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.

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Banking Regulation and Monetary Policy Questions

Multiple choice business economics and quantitative methods introduction to micro economics microeconomics and macroeconomics : introduction economic ideas of j k mehta micro and macro economics

Consider the following statements about the idea of 'micro-finance' in India and select the correct ones using the code give below:
1. Micro-finance is a small-scale financial intermediation, inclusive of savings, credit, insurance, business services and technical support provided to the needy borrower.
2. The thrust of the micro finance initiative is to channelize production and consumption credit in multiple does based on the absorption capacity of the prospective borrower.
3. It has evolved through following different models at different times - a 'charity based model' to a 'third-based model' and finally to the 'trust and creditworthiness model'.
4. It was in Australia where evolved the link between microfinance institutions and the formal financial institutions.

  1. 1,2 and 3

  2. 2,3 and 4

  3. 1,3 and 4

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

Micro-finance (MF) is a small-scale financial intermediation, inclusive of savings, credit, insurance, business services and technical support provided to the needy borrower. The thrust of the MF initiative is to channelize production and consumption credit in multiple doses based on the absorption capacity of the prospective borrower. 


The presumption here is that the borrowers possess basic financial literacy and requisite capacity to operate their self-determined economic ventures profitably. The formal existence of MF was found in 1972. A charity based model (interest free loans where repayment was based on peer pressure) of MF was evolved in Ireland. Later on, in Germany, a thrift-based model was developed with establishment of savings funds. 

Bangladesh Grameen model is based on the principle of trust and creditworthiness of poor with both, obligatory and voluntary saving schemes. The Foundation for Development Cooperation (FDC) of Australia evolved a research project, The Banking with the Poor (BWTP) network to link between microfinance with formal financial institutions. 

Multiple choice instruments of monetary policy and the reserve bank of india money and banking economics

In order to reduce credit in the country, RBI may ________________.

  1. Buy securities in the open market

  2. Sell securities in the open market

  3. Reduce cash reserve ratio

  4. Reduce Repo Rate
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

If RBI sells securities to public then commercial bank will buy those using its reserves then commercial banks don't have enough fund to lend money to general public so it reduces the credit in the country.

Multiple choice instruments of monetary policy and the reserve bank of india money and banking economics

One of the State Government avails of a temporary financial assistance from Reserve Bank of India. This type of finance is called ____________ ?

  1. Overdraft

  2. Temporary loan

  3. Short term finance

  4. Ways and Means advance
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

Ways and Means Advances (WMA) are a facility provided by the RBI to the Central and State Governments to help them tide over temporary mismatches in the cash flow of their receipts and payments.

Multiple choice instruments of monetary policy and the reserve bank of india money and banking economics

Bank rate is the rate at which the RBI extends credit to the ______________.

  1. public

  2. foreign countries

  3. commercial banks

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

Bank Rate is the rate at which the commercial banks avail loans from the Reserve Bank of India. (R.B.I.)

It is used as a quantitative tool to change the quantity of money supplied in the economy.

Multiple choice instruments of monetary policy and the reserve bank of india money and banking economics

When RBI grants a loan to commercial banks and charges interest on it, it is called _________.

  1. Rapo rate

  2. Reverse Rapo rate

  3. Sweep stack rate, basic rate

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

A bank rate is the rate of interest which a central bank (RBI)  charges on the loans and advances that it extends to commercial banks and other financial intermediaries. RBI uses this tool to control the money supply.

Multiple choice instruments of monetary policy and the reserve bank of india money and banking economics

Banking ombudsman means.

  1. A person appointed by RBI to oversee the functioning of foreign banks

  2. Person appointed to recover dues from the defaulting borrowers

  3. A person to whom customer can approach for redressal of their grievances

  4. A person appointed to settle dispute between employees and management
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

The Banking Ombudsman Scheme is a grievance redressal mechanism for bank customers to resolve complaints regarding banking services.

Multiple choice instruments of monetary policy and the reserve bank of india money and banking economics

In the Monetary Policy announced for the year 2006-07 the following announcements have been made- Bank Rate, Repo Rate, Reverse Repo Rate and Cash Reserve Ratio have been kept unchanged at their present levels of 6 per cent, 6.5 per cent, 5.5 per cent and 5 per cent respectively. These have been kept unchanged as liquidity pressure seen during the last 4 months of 2005-06 have eased off considerably. In the given paragraph it is stated that Bank Rate and Cash Reserve Ratio (CRR) have been kept unchanged.
What is Bank Rate?

  1. The rate of interest charged by public sector banks from the general public.

  2. The rate of interest on housing loans.

  3. The rate of interest on educational loan.

  4. The rate at which the RBI discounts the bills of commercial banks.
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

Bank rate is defined as the rate at which the Reserve Bank of India is prepared to buy or rediscount bills of exchange or other commercial papers eligible for purchase under the Act.

Multiple choice instruments of monetary policy and the reserve bank of india money and banking economics

Which of the following is/are the benefit/s of the marginal cost of fund based lending rate (MCLR)? Use the code given below to select your answer:
1. Better transmission of the RBI's policy rates into the banks' lending rates.
2. Enhanced competition among the banks. 

  1. Only 1

  2. Only 2

  3. 1 and 2

  4. Neither 1 and 2
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

MCLR (Marginal Cost of Funds Based Lending Rate) was introduced to ensure better transmission of policy rates to lending rates and to enhance competition among banks by making the lending rate process more transparent.

Multiple choice instruments of monetary policy and the reserve bank of india money and banking economics

Select the correct statements related to the monetary policy announced by the RBI, using the code:
1. LAF includes repo, term repo and reserve repo.
2. RBI always keeps marginal standing facility rate higher than the repo rate.

  1. Only 1

  2. Only 2

  3. 1 and 2

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

Liquidity Adjustment Facility includes RBI's repo and reverse repo operations (thus it includes the term repo operation also). Being a penal rate the marginal standing facility rate has to be higher than that of the repo rate. 

Multiple choice instruments of monetary policy and the reserve bank of india money and banking economics

Select the correct statement's related to the monetary tools which are used by the RBIusing the code given below:
1. RBI's open market operations (OMOs) influences not only the size and cost of fund in the economy, but inflation too.
2. Market stabilisation scheme is a monetary policy tool used by the RBI to influence particularly inflation.

  1. Only 1

  2. 1 and 2

  3. Only 2

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

 Any tolls which regulates the floss of currency in the economy it influences the inflation also.