Indian Economy Test 51

Result

Indian Economy Test 51

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Weekly Quiz Competition

Question 1
1 / -0

Consider the following statements
1. Interest Tax is the tax imposed on the interest income of commercial banks on their gross loans and advances .
2. Interest tax is in effect currently only in India.
Which of the above statements is/are correct ?

A
Only 1

B
Only 2

C
Both 1 and 2

D
Neither 1 nor 2
Question 2
1 / -0

Which from the followings is NOT true when the interest rate in the economy goes up ?

A
Saving increases

B
Lending decreases

C
Cost of production increases

D
Return on capital increases

Solution

The rise in interest rates results in increasing cost of borrowing so lending decreases because businesses do not borrow at high cost. Moreover it results in increase in cost of production as the cost for all suppliers of raw material increases due to increase in their borrowing cost. For individuals the savings increase as they start saving in lieu for higher return s interest. Higher rates of interest result in decrease in return on capital as cost of investment in capital increases.
Question 3
1 / -0

When the Reserve Bank of India reduces the Statutory Liquidity Ratio by 50 basis points, which of the following is likely to happen?

A
India's GDP growth rate increases drastically.

B
Foreign Institutional Investor may bring more capital into our country.

C
Scheduled Commercial Banks may cut their lending rates.

D
It may drastically reduce the liquidity to the banking system.

Solution

SLR is a mechanism used by RBI to regulate liquidity of assets and requires the banks to invest a certain portion of their deposits in RBI approved securities or gold. When SLR is reduced, banks have more money to lend which may lead to decrease in lending rates.
Question 4
1 / -0

An increase in the bank rate generally indicates that the ___________.

A
market rate of interest is likely to fall.

B
central Bank is no longer making loans to commercial banks.

C
central Bank is following an easy monetary policy.

D
central Bank is following a tight monetary policy.

Solution

TION
Bank rate refers to rate at which the Central bank lends money to its clients for long term. An increase in this rate means that the Central bank is following a tight monetary policy as increase in rates will lead to decrease in money supply thereby leading to decrease in inflation and reduction in investment.
Question 5
1 / -0

Consider the Following Statements
1 . Scheduled Commercial Banks are those which have been included in the First Scheduled of RBI Act , 1934 .
2 . Non -scheduled Commercial Banks are those which have been included in the Second Scheduled of RBI Act , 1934 .
Which of the statement given above is / are correct ?

A
Only 1

B
Only 2

C
Both 1 and 2

D
Neither 1 nor 2
Question 6
1 / -0

Consider the following measures:
1) Repo Rate
2) Cash Reserve Requirement
3) Reverse Repo Rate
Which of the measures given above is/are major instrument(s) used in the Liquidity Adjustment Facility (LAF)?

A
1 and 2

B
1 and 3

C
2 and 3

D
Only 2

Solution

Liquidity Adjustment Facility is a mechanism used by RBI to control liquidity and transmit interest rate signals to the market. Banks can borrow money for short term at repo rate in case of emergency or for making adjustments to comply with SLR/CRR requirements. Government securities are used as collateral in this case.

On the other hand, RBI can borrow from the banks at reverse repo rate by lending securities.
Question 7
1 / -0

Consider the following statements about the Reserve Requirements:
1) Reserve requirement can be used as an instrument of monetary policy.
2) Required reserve ratio is used as a tool to influence the country's borrowing and interest rates.
Which of the statements given above is/are correct?

A
Only 1

B
Only 2

C
Both 1 and 2

D
Neither 1 nor 2

Solution

Reserve ratios like CRR, SLR are key instruments of monetary policy at the disposal of the RBI. An increase in these ratios can lead to decrease in money supply and liquidity in the market and vice-versa. This in turn can influence the country's borrowing and interest rates as banks change their rates depending upon the money available for lending with them.
Question 8
1 / -0

Consider the following statements:
1) Buying and selling of the eligible securities by Reserve Bank of India is an important feature of the open market operation.
2) Open market operation influences the volume of loans and advance made by the commercial banks in India.
Which of the statements given above is/are correct?

A
Only 1

B
Only 2

C
Both 1 and 2

D
Neither 1 nor 2

Solution

Open market operations refer to buying and selling of Govt securities by the Central Bank, i.e. RBI to control money supply in the economy. This in turn has an effect on the amount of loans and various other advantages given by the commercial banks due to the change in money available for lending operations.
Question 9
1 / -0

Consider the following statements
1 . In Indian Commercial Banking System , the number of the Non-scheduled Bank is more than the Scheduled Banks.
2 . The Non-Scheduled Banks in India Commercial Banking System are even less than a dozen in number.
Which of the statement given above is / are correct ?

A
Only 1

B
Only 2

C
Both 1 and 2

D
Neither 1 nor 2
Question 10
1 / -0

Which one of the following is the custodian of Foreign Exchange Reserve of the Indian Government?

A
Security Exchange Board of India

B
Insurance Regulatory Development Authority

C
Reserve Bank of India

D
President of India

Solution

India's Forex reserves consist of foreign currencies, bank deposits, bonds and other financial assets like gold. They are managed by the Reserve Bank of India. India's Forex reserves are worth roughly $425 billion.

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Re-Attempt Weekly Quiz Competition

Indian Economy Test 51

Result

Indian Economy Test 51

Score

-

Rank

-

SHARING IS CARING

Question 1

Only 1

Only 2

Both 1 and 2

Neither 1 nor 2

Question 2

Saving increases

Lending decreases

Cost of production increases

Return on capital increases

Solution

Question 3

India's GDP growth rate increases drastically.

Foreign Institutional Investor may bring more capital into our country.

Scheduled Commercial Banks may cut their lending rates.

It may drastically reduce the liquidity to the banking system.

Solution

Question 4

market rate of interest is likely to fall.

central Bank is no longer making loans to commercial banks.

central Bank is following an easy monetary policy.

central Bank is following a tight monetary policy.

Solution

Question 5

Only 1

Only 2

Both 1 and 2

Neither 1 nor 2

Question 6

1 and 2

1 and 3

2 and 3

Only 2

Solution

Question 7

Only 1

Only 2

Both 1 and 2

Neither 1 nor 2

Solution

Question 8

Only 1

Only 2

Both 1 and 2

Neither 1 nor 2

Solution

Question 9

Only 1

Only 2

Both 1 and 2

Neither 1 nor 2

Question 10

Security Exchange Board of India

Insurance Regulatory Development Authority

Reserve Bank of India

President of India

Solution

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