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 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. 

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

What is/ are the purpose/ purposes of the 'Marginal Cost of Funds based Lending Rate (MCLR)' announced by RBI?
1. These guidelines help improve the transparency in the methodology followed by banks for determining the interest rates on advances.
2. These guidelines help ensure availability of bank credit an interest rates which are fair to the borrowers as well as the banks.
Select the correct answer using the code given below.

  1. $1$ only
  2. $2$ only
  3. Both $1$ and $2$
  4. Neither $1$ nor $2$
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

The MCLR system was introduced by the RBI to improve the transmission of policy rates into the lending rates of banks. It ensures transparency in the methodology and promotes fair interest rates for both borrowers and the banking system.

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

Consider the following statements and select the correct ones using the code given below:
1. RBI takes recourse to open market operations (OMOs) to manage liquidity in the system.
2. In OMOs, RBI generally sells the G-Sec in open market, however, in rare cases it also buys back the same from the market.
3. A 'debt switch' is a method in which RBI buys back G-Secs of short-term maturity and replaces it with G-Secs with longer maturity periods.

  1. 1 nad 2

  2. 2 and 3

  3. 1 and 3

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

OMOs are an effective quantitative policy tool in the armoury of the RBI by which it modulates the liquidity in the system in the short-term. This is a two-way operation-through sell or buy of the G-Secs. The OMOs is constrained by the stock of the G-Secs available with the RBIonce it needs to siphon out money from the market. 

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

Select the correct tools used by the RBI in announcing the monetary policy-use the code given below to select your answer:
1. Term repo rates for 7,14 and 28 days.
2. Bank rate & Marginal standing facility rate.
3. Marginal cost of fund based lending rate.
4. Reverse repo rate for 7,14 and 28 days.

  1. 1 and 2

  2. 2 and 4

  3. 1 and 3

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

Repo rates for more than 1 day are known as the 'term repos' which was launched by the RBI in October 2013 for the first time besidef the one day repo rate (also known as overnight epo rate). 'Marginal cost of fund based lending rate' (MCLR) are announced by the bank. Reverse repo is only for 1 day.

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

Select the incorrect statements related to the functions of RBI, using the code given below :
1. The final decision regarding Credit & Monetary Policy is taken by the Union Ministry of Finance.
2. Open Market Operations by the RBI comes under its autonomous powers.
3. Ultimate power of issuing fresh currency notes in India remains with the RBI.
4. RBI has been given full autonomy in the area of regulating the All India 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
B Correct answer
Explanation

RBI avails no autonomy in its functioning-though the Narasimhan Committee-I, in 1991, has suggested to allow it autonomy in the areas of critical importance, similar to many Western economies. It is believed that it has been given a kind of working autonomy in the area of making and announcing the Credit & Monetary Policy (though there is no change in the official stand hitherto).

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

Select the functions of the RBI, which are correct using the code given below:
1. as 'banker to the Government' it performs merchant banking function for the central and the state governments and also acts are their 'banker'.
2. As 'banker to banks', it maintains banking accounts of all scheduled banks.

  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

It means the RBI functions as the body, which manage the borrowing programmes of the government in India. Statement-2 talks about the 'banker of the last resort' function of the RBI under which it lends money to all operating banks and the financial institutions in the country.

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

In respect of "Door Step Banking", RBI has issued directives under the provisions of _______.

  1. reserve bank of India act, 1934

  2. negotiable instruments act, 1881

  3. banking regulation act, 1949

  4. shops and establishments act
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

 In a bid to facilitate seamless banking for all sections of the society, the Reserve Bank of India directed all banks to implement doorstep banking facilities for differently-abled citizens and those above 70 years of age by December this year under Section 23 of the Banking Regulation Act, 1949.

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

In order to encourage investment in the country, the RBI may ____________.

  1. reduce CRR

  2. increase CRR

  3. sell securities in the open market

  4. increase bank rate
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

In order to encourage investment in the country, the RBI may reduce CRR. Reduction in CRR will increase the lending capacity of the banks, leading to higher credit creation which will encourage investment.

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

In order to control credit in the country, the RBI may _________________.

  1. buy securities in the open market

  2. sell securities in the open market

  3. reduce CRR

  4. reduce bank rate
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

In order to control credit in the country, the RBI may sell securities in the open market, other options will be useful when expansion of credit is undertaken.

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

In India, the Commercial Banks are given license of operation by _________.

  1. The Government of India

  2. The Ministry of Finance

  3. Reserve Bank of India

  4. Banking Companies Regulation Act. 1949
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

A commercial bank is that financial institution which  accepts deposit from people and offers loan for the purpose of consumption or investment. In India, the commercial banks are given license of operation by the Reserve bank of India which is an apex bank that controls the entire banking system of India.