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.

RBI monetary toolsKYC guidelinesInterest rate regulationsCurrency issuanceBanking business acts

Banking Regulation and Monetary Policy Questions

Multiple choice

Who is the custodian of monetary reserves in India?

  1. SBI

  2. SIDBI

  3. NABARD

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

The Reserve Bank of India (RBI) is India's central bank and serves as the custodian of monetary reserves. This is one of the RBI's core functions - managing the country's foreign exchange reserves and monetary stability. SBI is a commercial bank, SIDBI is for small industries, and NABARD is for agriculture and rural development - none of these are custodians of monetary reserves.

Multiple choice

Who is the fiscal agent and advisor to government in monetary and financial matters in India?

  1. SBI

  2. IDBI

  3. ICICI

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

The Reserve Bank of India (RBI) serves as the fiscal agent and advisor to the Government of India in monetary and financial matters. This includes managing government banking operations, debt management, and providing financial advice. SBI, IDBI, and ICICI are commercial or development banks, not fiscal agents to the government.

Multiple choice

The portion of total deposits of a commercial bank, which it has to keep with RBI in the form of cash reserves, is termed as

  1. CRR

  2. SLR

  3. Bank Rate

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

CRR (Cash Reserve Ratio) is the mandatory percentage of deposits that commercial banks must maintain with the RBI in cash form. This is a monetary policy tool used by RBI to control liquidity and inflation in the economy. SLR (Statutory Liquidity Ratio) is different - it requires banks to maintain specified liquid assets, not just cash with RBI.

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

SEBI is

  1. regulatory authority

  2. statutory authority

  3. both (A) and (B)

  4. none of these
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

SEBI (Securities and Exchange Board of India) is both a regulatory authority and a statutory authority. It was established as a statutory body through the SEBI Act 1992, giving it legal backing, and it functions as the primary regulator for securities markets in India, overseeing stock exchanges, brokers, and listed companies.

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

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

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.