Money & Banking

1. Consider the following statements: With an overall objective of bringi

Consider the following statements:
With an overall objective of bringing transparency in the Indian real estate market, the housing price index is expected to serve some highly important and timely purposes:

  • Whether a broker is quoting too high a price for houses in the cities.
  • Banks/housing finance bodies will be able to estimate only if the loan applications are realistic for the properties.
  • This will also show the level of performing assets in the housing sector.

Which of the above statements are correct ?

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1 and 2 only
2 and 3 only
1 and 3 only
1, 2 and 3
This question was previously asked in
UPSC SO-Steno – 2018
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Statements 1 and 2 are correct.
A transparent housing price index provides valuable market data. Statement 1 is correct because the index can help potential buyers or sellers gauge whether a quoted price is reasonable compared to market averages. Statement 2 is correct because banks rely on market data to assess property values when considering loan applications, ensuring that the loan amount is appropriate relative to the collateral’s worth. Statement 3 is incorrect; a housing price index tracks property values, not the repayment status or ‘performing’ nature of housing loans, which is a measure of asset quality for lenders.
Housing price indices contribute to market transparency and efficiency, benefiting buyers, sellers, lenders, and policymakers. However, they are distinct from metrics that measure the health of the loan portfolio itself.

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2. The rate of inflation is the rate of change of general price level whi

The rate of inflation is the rate of change of general price level which is measured as

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Rate of inflation (year x) = Price level (year x) – Price level (year x – 1) / Price level (year x – 1) × 100
Rate of inflation (year x) = Price level (year x) – Price level (year x + 1) / Price level (year x + 1) × 100
Rate of inflation (year x) = Price level (year x) + Price level (year x – 1) / Price level (year x – 1) × 100
Rate of inflation (year x) = Price level (year x) + Price level (year x + 1) / Price level (year x + 1) × 100
This question was previously asked in
UPSC SO-Steno – 2018
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The rate of inflation (year x) is measured as (Price level (year x) – Price level (year x – 1)) / Price level (year x – 1) × 100.
Inflation rate is defined as the percentage change in the general price level over a period. The standard formula for calculating the percentage change between two values (in this case, price levels in year x and year x-1) is (New Value – Old Value) / Old Value * 100. Applying this to price levels, where the “old value” is the price level in the base year (year x-1) and the “new value” is the price level in the current year (year x), yields the formula in option A.
Price level can be represented by indices like the Consumer Price Index (CPI) or the Wholesale Price Index (WPI). The formula calculates the annual inflation rate if year x and year x-1 are consecutive years.

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3. Core CPI inflation is generally lower than headline CPI inflation

Core CPI inflation is generally lower than headline CPI inflation because

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food inflation is generally higher than non-food inflation
food prices fluctuate too widely over the year
food prices are controlled by the Government
share of food in consumption basket has been increasing over time
This question was previously asked in
UPSC SO-Steno – 2017
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Option A is the most accurate explanation among the choices for why core CPI is *generally* lower than headline CPI. Headline CPI includes food and energy, while core CPI excludes them. When food inflation is high (which it often is in economies like India due to supply shocks, weather dependency, etc.), it pushes headline inflation up relative to core inflation.
Core inflation measures inflation excluding volatile items like food and energy. Headline inflation includes all items. If the excluded items (food and energy) experience higher price increases than the included items, then headline inflation will be higher than core inflation.
Option B is true, food prices do fluctuate widely, but the *reason* core is generally lower than headline is specifically when these fluctuations lead to high food inflation. Option C is generally incorrect; food prices are largely market-driven, though the government might intervene through procurement or subsidies for certain items. Option D, the share of food in the consumption basket, affects the *weight* of food in CPI calculation, not directly why core is lower than headline, although a large food share means food inflation has a significant impact on headline CPI.

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4. Which one of the following is a qualitative tool of monetary policy ?

Which one of the following is a qualitative tool of monetary policy ?

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Bank Rate
Credit Ceiling
Credit Rationing
Cash Reserve Ratio
This question was previously asked in
UPSC Combined Section Officer – 2024
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The correct answer is Credit Rationing (C).
Monetary policy tools are generally classified into quantitative and qualitative measures. Quantitative tools affect the overall volume of credit in the economy (e.g., Bank Rate, CRR, Open Market Operations). Qualitative tools, also known as selective credit controls, aim to influence the direction or flow of credit to specific sectors or for particular purposes. Credit Rationing, where the central bank or government restricts the availability of credit to certain sectors or mandates allocation to others, is a classic example of a qualitative tool.
Bank Rate and Cash Reserve Ratio (CRR) are quantitative tools that impact the lending capacity and cost for banks across the board. Credit Ceiling, while potentially limiting overall credit, can sometimes be implemented in a selective manner, blurring the lines, but Credit Rationing is a more explicit form of selective credit control, making it a clear qualitative tool used to manage the distribution of credit rather than just its total volume.

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5. Micro credit in India comes under which one of the following activitie

Micro credit in India comes under which one of the following activities ?

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Commercial Banking
Cooperative Banking
Private Banking
Non-Banking Finance
This question was previously asked in
UPSC Combined Section Officer – 2024
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The correct answer is Non-Banking Finance (D).
Micro credit in India is significantly provided by Microfinance Institutions (MFIs), many of which are registered as Non-Banking Financial Companies (NBFCs). While commercial and cooperative banks also offer microcredit, the non-banking finance sector, particularly dedicated MFIs, plays a crucial role in extending financial services to the unbanked or underbanked population, which is the primary target of microcredit.
NBFC-MFIs are a specific category of NBFCs regulated by the Reserve Bank of India (RBI) that primarily lend to low-income groups. They are distinct from traditional commercial, cooperative, or private banks, although these banking types can also offer microfinance products. The question asks what activity microcredit *comes under*, and given the prevalence of MFIs as NBFCs and the specialized nature of microfinance often operating outside traditional banking structures for wider reach, Non-Banking Finance is the most appropriate overarching category among the options provided that encompasses a large part of microcredit activity.

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6. Which among the following maintains Real Time Gross Settlement ?

Which among the following maintains Real Time Gross Settlement ?

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Reserve Bank of India
Asian Development Bank
World Bank
State Bank of India
This question was previously asked in
UPSC Combined Section Officer – 2024
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The Reserve Bank of India (RBI) maintains Real Time Gross Settlement (RTGS) in India.
Real Time Gross Settlement (RTGS) is a system where there is continuous (real-time) settlement of individual funds transfer orders. ‘Gross Settlement’ means the settlement of funds transfer instructions occurs individually (on an instruction-by-instruction basis). Because RTGS is a real-time system, transactions are settled as soon as they are processed.
In India, the RTGS system is operated and maintained by the central bank, the Reserve Bank of India (RBI). It is used for large-value interbank transactions.
RTGS is one of the prominent payment systems in India, alongside the National Electronic Funds Transfer (NEFT) system. While RTGS is primarily for large-value transactions, NEFT is for smaller value transactions and operates on a deferred net settlement basis. Both systems are critical components of the modern payment infrastructure in India, managed by the RBI. Commercial banks (like State Bank of India) are participants in these systems, facilitating transfers for their customers.

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7. Which one of the following is an example of optional money ?

Which one of the following is an example of optional money ?

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Currency note
Coins
Cheque
Bond
This question was previously asked in
UPSC Combined Section Officer – 2024
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Optional money, also known as fiduciary money, is money that is accepted based on the trust between the payer and the payee. Unlike legal tender (currency notes and coins issued by the central bank/government), it is not legally compulsory for everyone to accept optional money in payment. A cheque is a classic example of optional money; a seller or creditor is not legally bound to accept a cheque, they can insist on payment in legal tender.
– Legal Tender: Currency (notes and coins) that a debtor is legally permitted to offer a creditor in payment of a debt, and the creditor is legally required to accept.
– Optional Money (Fiduciary Money): Money accepted based on trust, not legal compulsion.
– Examples of Optional Money: Cheques, Bank Drafts, Promissory Notes (in certain contexts).
While cheques are optional money, they form a crucial part of the modern payments system, facilitating large-value transactions and reducing the need for carrying large amounts of cash.

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8. Why were Banks nationalised in India ? 1. To borrow money from USA

Why were Banks nationalised in India ?

  • 1. To borrow money from USA
  • 2. To follow the IMF guidelines
  • 3. To provide the Government of India more control of credit delivery

Select the correct answer using the code given below:

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1 only
2 and 3
3 only
1, 2 and 3
This question was previously asked in
UPSC Combined Section Officer – 2024
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The primary reason for nationalizing banks in India (initially in 1969 and further in 1980) was to align the banking sector with the socialist planning goals of the government. This included ensuring that credit flowed to priority sectors like agriculture and small-scale industries, expanding banking services to rural areas, and reducing the concentration of wealth in the hands of a few industrialist families who controlled private banks. Reason 3, “To provide the Government of India more control of credit delivery,” accurately reflects this key objective.
Nationalization aimed to make banking a tool for socio-economic development and planned economic growth by giving the government control over credit allocation.
Reasons 1 and 2 are incorrect. Bank nationalization was an internal policy decision driven by domestic economic and political considerations, not a means to borrow from the USA or to follow IMF guidelines. In fact, IMF prescriptions often lean towards privatization rather than nationalization.

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9. The ‘Interest Rate Policy’ is a component of which one of the followin

The ‘Interest Rate Policy’ is a component of which one of the following policies ?

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Fiscal Policy
Monetary Policy
Trade Policy
Direct Control
This question was previously asked in
UPSC Combined Section Officer – 2024
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Interest Rate Policy is a key component of Monetary Policy. Monetary Policy refers to the actions undertaken by a central bank (like the Reserve Bank of India) to manipulate the money supply and credit conditions to stimulate or constrain economic activity.
Central banks use tools like policy interest rates (e.g., repo rate, reverse repo rate) to influence the overall cost of borrowing and lending in the economy.
Fiscal Policy is related to government spending and taxation. Trade Policy concerns international trade regulations. Direct Control is a broad term and not a specific policy category containing interest rates in this context. Monetary policy, through interest rate adjustments and other measures, impacts inflation, economic growth, and liquidity in the financial system.

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10. Which one of the following organizations is the capital market regulat

Which one of the following organizations is the capital market regulator ?

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NSE
RBI
SEBI
IRDAI
This question was previously asked in
UPSC Combined Section Officer – 2024
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The Securities and Exchange Board of India (SEBI) is the statutory regulatory body established under the SEBI Act, 1992, responsible for regulating the securities market in India.
SEBI’s primary objectives include protecting the interests of investors in securities, promoting the development of the securities market, and regulating it.
NSE (National Stock Exchange) is a stock exchange, a platform within the capital market regulated by SEBI. RBI (Reserve Bank of India) is the central bank and regulates the banking system and monetary policy. IRDAI (Insurance Regulatory and Development Authority of India) regulates the insurance sector.

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