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

Currency chest balance will be periodically verified by

  1. bank's own officials

  2. RBI officials

  3. both (A) and (B)

  4. officials of AG's office
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

Currency chests maintained by banks are subject to periodic verification by both the bank's own internal officials and officials from the Reserve Bank of India. This dual verification system ensures accountability, proper maintenance of cash balances, and adherence to RBI guidelines regarding currency chest operations.

Multiple choice

Janakiraman Committee was constituted with the aim

  1. to suggest measures to raise Post Office deposits

  2. to suggest reforms in banking structure

  3. to investigate the malpractices of industrial finance

  4. to investigate the security transactions of the bank
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

The Janakiraman Committee (1992) was constituted to investigate the securities transactions of banks following the 1992 securities scam. It examined how banks had illegally diverted funds into the stock market, leading to major financial reforms.

Multiple choice

The money market in our country consists of two sectors viz - the organised sector and the unorganised sector. Which of the following do not fall under the organised sector?

  1. Reserve Bank of India, State Bank of India and Commercial Banks

  2. Life Insurance Corporation of India and Geneal Insurance Corporation

  3. Unit Trust of India

  4. Indigenous bankers

  5. Regional Rural Banks
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

Correct answer - They belong to unorganised sector and are not governed by any set of guidelines

Multiple choice

RBI’s open market operation transactions are carried out with a view to regulate

  1. liquidity in the economy

  2. prices of essential commodities

  3. inflation

  4. borrowing power of the <font face="Arial" size="2">banks</font>

  5. All of the above
Reveal answer Fill a bubble to check yourself
E Correct answer
Explanation

Option (5) is correct. Its main objective is to infuse or reduce liquidity in the market which indirectly regulates inflation, borrowing power of banks and prices of essential commodities.

Multiple choice

The stance of RBI monetary policy is for

  1. controlling inflation with adequate liquidity for growth

  2. improving credit quality of banks

  3. strengthening credit delivery mechanism

  4. supporting investment demand in the economy

  5. All of the above
Reveal answer Fill a bubble to check yourself
E Correct answer
Explanation

Option 5 is correct.

Multiple choice

Which of the following regulates mutual funds in India?

  1. RBI

  2. SEBI

  3. Stock exchanges

  4. RBI and SEBI
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

Correct Answer: SEBI.  In 1996, SEBI, the regulator of mutual funds in India, formulated the Mutual Fund Regulation which is a comprehensive regulatory framework. 

Multiple choice

The Reserve Bank of India has issued guidelines to banks on Pillar 2 of Basel II framework. Pillar 2 deals with which of the following?

(A) Better human resource management (B) Adequate capital to support risks (C) Better profitability with minimum number of employees

  1. Only (A)

  2. Only (B)

  3. Only (C)

  4. (A), (B) and (C)

  5. None of these
Reveal answer Fill a bubble to check yourself
E Correct answer
Explanation

Option (5) is correct. Pillar II is for supervisory review. Pillar II provides a framework for dealing with systemic risk, pension risk, concentration risk, strategic risk, reputational risk, liquidity risk and legal risk, which the accord combines under the title of residual risk. Banks can review their risk management system.

Multiple choice

Which of the following tools is used by RBI for selective credit control?

  1. It advises banks to lend against certain commodities.

  2. It advises banks to recall the loans for advances against certain commodities.

  3. It advises banks to charge higher rate of interest for advance against certain commodities.

  4. It discourages certain kinds of lending by assigning higher risk weights to the loans it deems undesirable.

  5. None of these
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

Correct Answer: It advises banks to lend against certain commodities. Selective credit control is used to restrict bank finance against sensitive commodities (food grains, sugar, gur, cotton textiles, raw cotton, kapas). 

Multiple choice

Which of the following rates is not decided by RBI?

  1. Cash Reserve Ratio

  2. Repo Rate

  3. Reverse Repo Rate

  4. Bank Rate

  5. Prime Lending Rate
Reveal answer Fill a bubble to check yourself
E Correct answer
Explanation

Option (5) is correct. Prime lending rate is the interest rate used by a bank which is decided by the concernend bank.

Multiple choice

At present (2015), the contribution of Government of India and Reserve Bank of India in the capital of NABARD is in the ratio

  1. 75 : 25

  2. 60 : 40

  3. 49 : 51

  4. 99 : 01

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

Correct option is (4). NABARD was set up with an initial capital of 100 crore. Consequent to the revision in the composition of share capital between Government of India and RBI, the paid up capital as on 31 March 2015, stood at 5000 crore with Government of India holding 4,980 crore (99.60%) and Reserve Bank of India 20.00 crore (0.40%).

Multiple choice

If Reserve Bank of India (RBI) increases repo rate, rate of interest of the loans offered by the bank ________.

  1. decreases

  2. becomes zero

  3. becomes 100%

  4. increases

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

Correct Answer: increases. Repo rate is the rate at which the central bank of a country (Reserve Bank of India in case of India) lends money to commercial banks in the event of any shortfall of funds. Thus, the money supply will decrease with the bank which will mean that the rate of interest on loans offered by the bank will increase.