Tag: commercial studies

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Multiple choice commercial studies money loans from banks and financial institutions introduction to money - barter system owned fund and borrowed fund

Interest is____.

  1. money loaded

  2. money borrowed

  3. extra money paid on borrowed money

  4. borrowed run and above
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

Interest refers to payment against the loan which we borrow from other people. It is the regular charge which a borrower pay to the lender for holding a sum of money of the lender. So, interest is the excess money which is paid by the borrower for holding a specified sum of money. Therefore, interest is the extra money paid on borrowed money. 

Multiple choice commercial studies money loans from banks and financial institutions introduction to money - barter system owned fund and borrowed fund

Positive economic analysis ___________.

  1. compares the desirability of alternative government policy outcomes

  2. provides a framework within which we can study how some groups are better off than others

  3. analyses the sources of improvements in the standard of living that result from favourable government policies.

  4. is based on observed cause and effect relationship in the economy
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

Positive economics deals with objective analysis and facts, describing how the economy works based on observed cause-and-effect relationships, rather than making value judgments.

Multiple choice commercial studies money loans from banks and financial institutions introduction to money - barter system owned fund and borrowed fund

Quantitative measures aim at influencing total volume of credit.

  1. True

  2. False
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

True.

Quantitative measures of monetary policy includes those instruments which focus on the overall supply of the money. It influences the total volume of credit in the economy. It includes: 

A. Two Policy Rates: 

Bank rate is the rate charged on the loans offered by the Central bank to the commercial banks without any collateral. It is increased at the time of inflation to reduce the money supply in the economy and vice versa. 

Repo rate is the rate charged on the secured loans offered by the Central bank to the commercial banks that includes collateral. It is increased at the time of inflation to reduce the  money supply in the economy and vice versa. 

B. Two Policy Ratio:

Statutory Liquidity Ratio (SLR) refers to liquid assets that the commercial banks must hold on daily basis as a percentage of their total deposits. SLR is determined by the central bank and is a legal requirement to be fulfilled by the commercial banks.  It is increased at the time of inflation to reduce the money supply in the economy and vice versa. 

Cash Reserves Ratio (CRR) refers to the proportion  of total deposits of the commercial banks which they must  keep as cash reserves with the central bank. The ratio is fixed by the central bank and is varied from time to time to control the supply of money in the economy depending upon the prevailing situation of inflation or deflation.

C. Open Market Operations: 

Open market operation (OMO) is a monetary policy by the central bank in which the bank deals in the sale and purchase of securities in the open market to control the supply of money in the economy. By selling the securities, the central bank soaks liquidity from the economy and by buying the securities, the central bank releases liquidity. 

Multiple choice commercial studies money loans from banks and financial institutions introduction to money - barter system owned fund and borrowed fund

Raising of margin requirement _______ the borrowing capacity.

  1. reduces

  2. increases

  3. stabilizes

  4. none of above
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

Margin requirement refers to the difference between the current value of the security offered for loan (called collateral) and the value of loan granted. By raising the margin requirement, the borrowing capacity of the borrower reduces as with the same amount of loan borrowed, the value of the loan decreases due to high margin requirement. 

Multiple choice commercial studies money loans from banks and financial institutions introduction to money - barter system owned fund and borrowed fund

The open market Operations occur when the government:

  1. reduces spending

  2. buys and sells bonds and securities

  3. increases taxation

  4. increases the exchange rate
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

Open market operation (OMO) is a monetary policy by the central bank in which the bank through government deals in the sale and purchase of securities and bonds in the open market to control the supply of money in the economy. By selling the securities and bonds, the government soaks liquidity from the economy which controls the inflation in the economy by decreasing the purchasing power of the people and by buying the securities and bonds, the government releases liquidity which controls deflation in the economy by increasing the purchasing power of the people.

Multiple choice commercial studies money loans from banks and financial institutions introduction to money - barter system owned fund and borrowed fund

Credit creation is

  1. Process where money is given by banks through loan

  2. Process where the money is taken by lenders

  3. Process by which the money is taken by depositors

  4. All of the above
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

Credit creation is the process by which banks expand the money supply through lending, as deposits are used to create new loans.

Multiple choice commercial studies money loans from banks and financial institutions introduction to money - barter system owned fund and borrowed fund

Because money serves as a medium of exchange, it eliminates

  1. the need to write checks.

  2. The need for specialization.

  3. The use of commodities as money

  4. The need for a double coincidence of wants
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

In a barter system, you need a double coincidence of wants. Money acts as a medium of exchange, allowing people to trade without needing the other person to want exactly what they have.

Multiple choice commercial studies money loans from banks and financial institutions introduction to money - barter system owned fund and borrowed fund

Money's function as a medium of exchange means that

  1. money is a common denominators for expressing the value of goods and services.

  2. money can be sued to store wealth.

  3. money serves as an acceptable means of payment.

  4. money is a standard f deferred payment on exchange contracts extending into the future.
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

As a medium of exchange, money is universally accepted as a means of payment for goods and services, facilitating trade.

Multiple choice commercial studies money loans from banks and financial institutions introduction to money - barter system owned fund and borrowed fund

Limitations for the demand of credit are

  1. Demand should exist in the market

  2. Amount of loan granted should increase the paying capacity of borrower

  3. Bad debts should be avoided

  4. All of the above
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

Effective credit management requires market demand, the borrower's ability to repay, and the mitigation of bad debts to ensure the sustainability of the lending process.

Multiple choice commercial studies money loans from banks and financial institutions introduction to money - barter system owned fund and borrowed fund

Banks lend money mainly for ___________.

  1. industrial purposes

  2. commercial Purpose

  3. Both (a) and (b)

  4. None of the above.
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

Banks act as financial intermediaries that mobilize savings from the public to lend to various sectors. They provide credit for both industrial and commercial activities to facilitate economic growth.