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Money and Banking Test - 13

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Money and Banking Test - 13
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  • Question 1
    1 / -0.25

    Directions: In the following questions, a statement of assertion (A) is followed by a statement of reason (R). Mark the correct choice as:

    Assertion (A): Demand Deposits are not legal tenders.

    Reason (R): They are with the bank, so only can be used as a legal tender when cheques are issued for the transfer.

    Solution

    Demand Deposits are not legal tender. It is the bank money issued by the bank, not by the government. Legal tender is the money that is authorized and issued by the order of the government. Thus Demand deposits in no way can be used as legal tender. The Acceptor can refuse to accept it.

  • Question 2
    1 / -0.25

    Directions: In the following questions, a statement of assertion (A) is followed by a statement of reason (R). Mark the correct choice as:

    Assertion (A): Currency held with the government and banks is not included in the Money Supply.

    Reason (R): Currency can be legally used to make payment of debts or other obligations.

    Solution

    Money supply includes the currency that is in circulation with the public at a particular point of time, hence it does not include the money held by government or commercial banks as it is not in circulation with the public at a given point in time.

  • Question 3
    1 / -0.25

    Directions: In the following questions, a statement of assertion (A) is followed by a statement of reason (R). Mark the correct choice as:

    Assertion (A): Currency Money is also termed as Fiat Money.

    Reason (R): Under the law, the currency must be accepted for payment of all debts.

    Solution

    Fiat money is a form of currency that is declared legal tender. This includes money in circulation such as paper money or coins. Fiat money is backed by a country's government instead of a physical commodity or financial instrument. This means most coin and paper currencies that are used throughout the world are fiat money. This includes the U.S. dollar, the British pound, the Indian rupee, and the euro.

  • Question 4
    1 / -0.25

    Directions: In the following questions, a statement of assertion (A) is followed by a statement of reason (R). Mark the correct choice as:

    Assertion (A): Paper Money is becoming more popular these days.

    Reason (R): It is generally acceptable and convenient to carry.

    Solution

    Paper money is a country's official, paper currency that is circulated for transaction related purposes of good and service.since we live in a digital age and use credit cards for online transactions,the reason why paper money still popular these days is rather simple.one still needs physical,paper money to back up online transactions. paper money and currencies may be the concept of value that humans arbitrarily assigned,but the system has worked perfectly to this day.

  • Question 5
    1 / -0.25

    Directions: In the following questions, a statement of assertion (A) is followed by a statement of reason (R). Mark the correct choice as:

    Assertion (A) Central bank as a banker to the government, works as a financial adviser.

    Reason (R) Government borrows internally from banks and the general public.

    Solution

    Explanation:- Both Assertion and Reason are ture. But Reason does not explain how a central bank is the banker of the government.

    The central Bank acts as a banker and financial advisor to the government. As a banker to the government, it performs the following functions.

    1. It manages the account of the government

    2 It accepts receipts from the government and makes payment of behalf of it.

    3 It grants short-term loans and credit to the government.

    4 It performs the task of managing the public debt.

    5 The central bank advises the government on all banking and financial matters.

  • Question 6
    1 / -0.25

    Directions: In the following questions, a statement of assertion (A) is followed by a statement of reason (R). Mark the correct choice as:

    Assertion (A): Money Supply is considered to be a stock concept.

    Reason (R): Money Supply is measured at a particular point in time.

    Solution

    Money supply is a stock concept similar to money demand. the total stock of money in circulation among the public at particular point of time is called money supply. The RBI publishes the money supply figures according to the stock of money circulating in public.

  • Question 7
    1 / -0.25

    Directions: In the following questions, a statement of assertion (A) is followed by a statement of reason (R). Mark the correct choice as:

    Assertion (A): Central Bank, as an  adviser  to the government it advises the government on all monetary and economic matters.

    Reason (R): Central Bank acts as an agent of the central government.

    Solution

    As an advisor, the central bank gives advice to the government regarding economic policy matters, money market, capital market, and government loans. Apart from this, the central bank formulates and implements fiscal and monetary policies to regulate the supply of money in the market and control inflation.

  • Question 8
    1 / -0.25

    Directions: In the following questions, a statement of assertion (A) is followed by a statement of reason (R). Mark the correct choice as:

    Assertion (A): Higher the value of LRR, the higher the value of total deposits that are generated in the economy.

    Reason (R): There exists an inverse relation between Money Multiplier and LRR.

    Solution

    Money multiplier is inversely related to LRR as Money Multiplier = 1/LRR

  • Question 9
    1 / -0.25

    Directions: In the following questions, a statement of assertion (A) is followed by a statement of reason (R). Mark the correct choice as:

    Assertion (A): We can still encounter a barter system in the modern economic system.

    Reason (R): People exchange old clothes for utensils.

    Solution

    Bartering occurs when two or more parties – such as individuals, businesses and nations – exchange goods or services evenly without the use of a monetary medium. While a barter economy is considered more primitive than modern economies, barter transactions still regularly transpire in the marketplace.

  • Question 10
    1 / -0.25

    Directions: In the following questions, a statement of assertion (A) is followed by a statement of reason (R). Mark the correct choice as:

    Assertion (A): Money supply is a stock concept.

    Reason (R): Money supply is measured over a period of time.

    Solution

    Money supply is a stock concept. It’s true. But Reason is false as it says Money supply is measured over a period of time. The money supply is measured at a point of time.

  • Question 11
    1 / -0.25

    Directions: In the following questions, a statement of assertion (A) is followed by a statement of reason (R). Mark the correct choice as:

    Assertion (A): The monetary policy is a policy formulated by the central bank.

    Reason (R): The policy involves measures taken to regulate the supply of money, availability, and cost of credit in the economy.

    Solution

    The monetary policy is a policy formulated by the central bank, i.e., RBI (Reserve Bank of India) and relates to the monetary matters of the country. The policy involves measures taken to regulate the supply of money, availability, and cost of credit in the economy.

    The policy also oversees distribution of credit among users as well as the borrowing and lending rates of interest. In a developing country like India, monetary policy is significant in the promotion of economic growth.

    The various instruments of monetary policy include variations in bank rates, other interest rates, selective credit controls, supply of currency, variations in reserve requirements and open market operations.

  • Question 12
    1 / -0.25

    Directions: In the following questions, a statement of assertion (A) is followed by a statement of reason (R). Mark the correct choice as:

    Assertion (A): Net Demand Deposits (and not Gross Demand Deposits) of Commercial Banks are included in Money Supply.

    Reason (R): Inter-Bank Deposits are the deposits held by banks on behalf of other banks and do not belong to the public.

    Solution

    Money supply refers to the total stock of money of all types ( currency as well as demand deposits) held by the people of a country at a given point of time.

    Money supply is measured in several ways among which M1 is a type of measurement that measures the money as a medium of exchange function.

    M1= C+ DD+ OD

    where,

    C: It refers to currency held by public in terms of coins and paper notes.

    DD: It refers demand deposits of the people with the commercial bank.

    OD: These includes other deposits with public financial institution, foreign central banks and international financial institution.

  • Question 13
    1 / -0.25

    Directions: In the following questions, a statement of assertion (A) is followed by a statement of reason (R). Mark the correct choice as:

    Assertion (A): The currency notes do not carry as much value in it, as is written, still possess general acceptance.

    Reason (R): Currency notes are backed by a legal promise from the central bank.

    Solution

    The face value of currency notes is more than its materialistic value. These notes are accepted by people because they are backed by the government of the country.

  • Question 14
    1 / -0.25

    Directions: In the following questions, a statement of assertion (A) is followed by a statement of reason (R). Mark the correct choice as:

    Assertion (A): Commercial banks contribute to the quantum of money supply in the economy through credit creation.

    Rcason(R): As they do have note-issuing authority.

    Solution

    Commercial banks contribute to quantum of money supply in the economy through credit creation. 

    Commercial banks do not have the note-issuing authority , but they do contribute to the money supply in the economy.

     

  • Question 15
    1 / -0.25

    Directions: In the following questions, a statement of assertion (A) is followed by a statement of reason (R). Mark the correct choice as:

    Assertion : Repo rate is fixed by the Reserve bank of India, while Reverse repo rate is fixed by the commercial bank themselves.

    Reason: Both repo rate and reverse repo rate is fixed by the Reserve bank of India ,as it is an apex bank.

    Solution

    The term 'REPO' refers to a repurchase option or agreement. It is a monetary tool used by the RBI to allow commercial banks to borrow money, when in need, against collaterals such as government bonds and treasury bills. While lending money to commercial banks, the apex bank of India charges a certain amount of interest, which is called repo rate. This present repo rate is subject to change as per the RBI changing policies. In the situation of shortage of funds, commercial lenders can reach out to RBI to secure funds for a specified tenure by depositing government bonds as collateral. Repo rate is the rate at which commercial banks borrow money from RBI by using government bonds as collateral to achieve its fiscal goals.

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