Money & Banking

101. Which one among the following is not an institution of Indian Money

Which one among the following is not an institution of Indian Money Market?

[amp_mcq option1=”Reserve Bank of India” option2=”Bill Brokers” option3=”Merchant Bankers” option4=”Non-Banking Financial Intermediaries” correct=”option3″]

This question was previously asked in
UPSC CAPF – 2011
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The money market deals with short-term funds. The Reserve Bank of India is the central bank and a crucial regulator and participant in the money market. Bill Brokers are specialized intermediaries in the bill market, a segment of the money market. Non-Banking Financial Intermediaries (NBFI), like NBFCs, Mutual Funds, etc., are significant participants in the money market, involved in short-term lending, borrowing, and dealing in money market instruments. Merchant Bankers, while involved in financial services, are primarily associated with the capital market, handling issues of securities (shares, bonds), underwriting, corporate advisory services (M&A), etc., which relate more to long-term finance. While they might interact with money market instruments or raise short-term funds, their core function is rooted in the capital market.
– The Money Market is for short-term funds; the Capital Market is for long-term funds.
– RBI, Bill Brokers, and many NBFIs are direct institutions/participants in the Money Market.
– Merchant Bankers are primarily involved in Capital Market activities like issuing securities and corporate finance.
Institutions can operate in both money and capital markets, but their primary focus often distinguishes them. Merchant bankers’ main business lines typically lie in areas like public issue management, project appraisal, corporate restructuring, and portfolio management, which are characteristic of capital market functions.

102. Which of the following statements regarding Regional Rural Banks (RRB)

Which of the following statements regarding Regional Rural Banks (RRB) in India is/are correct ?

  • The basic aim of setting up the RRBs is to develop rural economy.
  • The area of RRBs is limited to a specific region comprising one or more districts.
  • RRBs are sponsored by Commercial Banks.

Select the correct answer using the code given below :

[amp_mcq option1=”1 only” option2=”1 and 2 only” option3=”2 and 3 only” option4=”1, 2 and 3″ correct=”option4″]

This question was previously asked in
UPSC CAPF – 2011
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All three statements are correct regarding Regional Rural Banks (RRBs) in India. RRBs were established with the primary objective of providing credit and other banking facilities to small and marginal farmers, agricultural labourers, artisans, and small entrepreneurs in rural areas to facilitate the development of the rural economy. The operations of each RRB are confined to a specific geographical area, usually comprising one or more districts within a state. Every RRB is sponsored by a Scheduled Commercial Bank, which provides financial and managerial assistance. The ownership structure is Central Government (50%), State Government (15%), and Sponsor Bank (35%).
– RRBs were set up to cater to the credit and banking needs of the rural population.
– Their operational area is restricted to a defined region (districts).
– RRBs are sponsored by Commercial Banks.
RRBs were established based on the recommendations of the Narasimham Working Group (1975). They combine the local feel and familiarity of cooperative banks with the professional management and resource base of commercial banks.

103. Which one of the following best describes the term ‘Quantitative

Which one of the following best describes the term ‘Quantitative Easing’?

[amp_mcq option1=”It is a policy tool used by central banks to inject liquidity into the financial system.” option2=”It is a policy tool used by governments to stimulate economic growth.” option3=”It is a monetary policy tool used to control inflation.” option4=”It is a fiscal policy tool used to reduce government debt.” correct=”option1″]

This question was previously asked in
UPSC CAPF – 2010
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Quantitative Easing (QE) is a monetary policy tool used by central banks.
– Quantitative Easing is a form of unconventional monetary policy used by central banks to stimulate the economy when standard monetary policy (like lowering interest rates) is no longer effective (e.g., when interest rates are near zero).
– It involves the central bank purchasing long-term securities from the open market to increase the money supply and encourage lending and investment. This injects liquidity into the financial system.
– It is distinct from traditional monetary policy aimed solely at controlling inflation via interest rates, and it is not a fiscal policy tool used by the government.
QE aims to lower long-term interest rates and increase the money supply, making it cheaper for businesses and consumers to borrow money, thereby stimulating economic activity. It is typically employed during times of economic crisis or recession.

104. Who among the following was the Chairman of the Committee on Financial

Who among the following was the Chairman of the Committee on Financial Sector Assessment (CFSA) set up by the Government of India and the Reserve Bank of India in 2006 to undertake a complete health checkup of the country’s financial sector ?

[amp_mcq option1=”Shri Ashok Chawla” option2=”Shri Ashok Jha” option3=”Dr. Rakesh Mohan” option4=”Dr. D. Subbarao” correct=”option3″]

This question was previously asked in
UPSC CAPF – 2009
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The correct option is C (Dr. Rakesh Mohan).
– The Committee on Financial Sector Assessment (CFSA) was set up jointly by the Government of India and the Reserve Bank of India (RBI) in 2006.
– The committee was tasked with undertaking a self-assessment of the country’s financial sector stability and development, in line with the Financial Sector Assessment Program (FSAP) of the International Monetary Fund (IMF) and the World Bank.
– Dr. Rakesh Mohan, who was then the Deputy Governor of the RBI, was the Chairman of this committee.
The CFSA submitted its report in March 2009, which provided a comprehensive analysis of the Indian financial sector, covering areas like financial regulation, supervision, institutions, and markets, and assessed compliance with international standards and codes.

105. Consider the following statements: 1. When the inflation decreases,

Consider the following statements:

  • 1. When the inflation decreases, but still remains positive, it is deflation.
  • 2. Deflation reduces the real value of money over time.
  • 3. Historically not all episodes of deflation correspond with periods of poor economic growth.

Which of the statements given above is/are correct ?

[amp_mcq option1=”1, 2 and 3″ option2=”1 and 3 only” option3=”3 only” option4=”2 only” correct=”option3″]

This question was previously asked in
UPSC CAPF – 2009
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The correct option is C (3 only).
– Statement 1 is incorrect: Deflation is a decrease in the general price level of goods and services, meaning the inflation rate is negative. When inflation decreases but remains positive, it is called disinflation.
– Statement 2 is incorrect: Deflation increases the real value of money over time. If prices are falling, a fixed amount of money can buy more goods and services than before. Inflation, conversely, reduces the real value of money.
– Statement 3 is correct: While deflation is often associated with severe economic downturns (like the Great Depression), historical episodes exist where deflation occurred alongside economic growth, particularly during periods of significant productivity gains and technological advancements (e.g., late 19th century). This type of deflation, driven by falling production costs, can lead to lower prices for consumers without necessarily causing a recession.
Economists generally view deflation negatively in modern economies because falling prices can lead to decreased consumer spending (as people postpone purchases anticipating lower prices), reduced business profits, wage cuts, and an increased real burden of debt, potentially spiraling into a recession or depression.

106. Which one of the following is not a function of Reserve Bank of India?

Which one of the following is not a function of Reserve Bank of India?

[amp_mcq option1=”(a)” option2=”(b)” option3=”(c)” option4=”(d)” correct=”option3″]

This question was previously asked in
UPSC CAPF – 2009
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This question is presented in an incomplete form as the list of functions labeled (a), (b), (c), and (d) is missing. Therefore, a definitive correct option cannot be identified from the provided text. However, assuming a standard set of functions often presented in such questions, and if option C corresponds to a function like “Formulating Fiscal Policy” or “Directly financing industrial projects” (which are typically government or development bank functions, not core RBI functions), then C would be the correct answer in that hypothetical scenario. Without the actual list of functions (a), (b), (c), (d), this explanation is based on inference about common question patterns.
– The Reserve Bank of India (RBI) is India’s central bank and performs functions such as issuing currency, acting as banker to the government, regulating banks, managing foreign exchange, conducting monetary policy, and supervising the financial system.
– Functions typically *not* performed by the RBI include formulating the government’s budget or fiscal policy (which is the responsibility of the Ministry of Finance) or direct involvement in commercial banking operations for the general public or direct long-term financing of industrial projects (which are roles of commercial banks and development financial institutions, respectively).
– Standard RBI functions include: Monetary Authority, Regulator and Supervisor of the Financial System, Manager of Foreign Exchange, Issuer of Currency, Developmental Role, and Banker to Government and Banks.
– Any statement describing a function outside this purview is likely the intended answer.

107. Which one of the following is the name of the dashboard launched recen

Which one of the following is the name of the dashboard launched recently by the Reserve Bank of India to assess and monitor the progress of financial inclusion by capturing relevant parameters ?

[amp_mcq option1=”Pragya” option2=”Antardrishti” option3=”Divyachakshu” option4=”Antahgyan” correct=”option2″]

This question was previously asked in
UPSC NDA-2 – 2023
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The dashboard launched by the Reserve Bank of India (RBI) to assess and monitor the progress of financial inclusion by capturing relevant parameters is named ‘Antardrishti’.
The dashboard provides required data on financial inclusion parameters in one place, enabling better monitoring and policy formulation.
It was launched by the RBI Governor Shaktikanta Das. The name ‘Antardrishti’ means ‘inner vision’.

108. Which one of the following is not a fund managed by NIIFL (National In

Which one of the following is not a fund managed by NIIFL (National Investment and Infrastructure Fund Limited) ?

[amp_mcq option1=”Master Fund” option2=”Fund of Funds” option3=”Strategic Opportunities Fund” option4=”Global Investment Fund” correct=”option4″]

This question was previously asked in
UPSC CDS-2 – 2024
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National Investment and Infrastructure Fund Limited (NIIFL) manages specific funds focused on infrastructure and strategic investments in India. The listed funds managed by NIIFL include the Master Fund, the Fund of Funds, and the Strategic Opportunities Fund. The option “Global Investment Fund” is not one of the officially listed or standard funds managed by NIIFL.
NIIFL manages various sector-specific and strategy-specific funds to channel investment into Indian infrastructure and related sectors.
The Master Fund primarily invests in core infrastructure sectors such as transportation, energy, and urban infrastructure. The Fund of Funds acts as an anchor investor in alternative investment funds managed by experienced fund managers. The Strategic Opportunities Fund focuses on growth equity and strategic investments in sectors beyond core infrastructure.

109. Consider the following statements: A rupee Vostro account is an acco

Consider the following statements:

  • A rupee Vostro account is an account that an Indian bank holds for a foreign bank in the domestic currency (rupee) to enable domestic banks to provide international banking services.
  • Insurance density, i.e., average insurance premium per capita does not fully capture the financing gap in the event of a premature death because most of the insurance products sold in India are savings-linked with a small component of protection.

Which of the statements given above is/are correct ?

[amp_mcq option1=”1 only” option2=”2 only” option3=”Both 1 and 2″ option4=”Neither 1 nor 2″ correct=”option3″]

This question was previously asked in
UPSC CDS-2 – 2024
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Statement 1 is correct. A Vostro account is an account that one bank holds on behalf of another bank. A Rupee Vostro account, specifically, is an account maintained by an Indian bank for a foreign bank in Indian Rupees. This facilitates international transactions and trade settlements in the Indian currency, allowing domestic banks to handle international banking services for their foreign counterparts and customers.

Statement 2 is correct. Insurance density (average premium per capita) measures the penetration of insurance based on premium collection. However, in India, a significant portion of insurance policies sold are traditional plans that combine savings/investment with a relatively small life cover (protection component). While these policies contribute to premium collection and thus increase insurance density, the sum assured in case of the policyholder’s premature death might not be sufficient to cover the financial needs of the family, leaving a significant “financing gap” despite a seemingly higher insurance density figure. Therefore, insurance density alone may not fully reflect the adequacy of protection cover.

– A Rupee Vostro account is an INR account held by an Indian bank for a foreign bank.
– Insurance density calculation may not fully reflect the adequacy of life cover due to the nature of policies sold in India (savings-linked).
Vostro accounts are part of correspondent banking relationships between banks in different countries. Insurance density is often used as an indicator of insurance market development, alongside insurance penetration (premium as a percentage of GDP).

110. What would be the impact on the economy if people start holding more c

What would be the impact on the economy if people start holding more currency in hand and less in deposits ?

[amp_mcq option1=”Money demand will increase” option2=”Money multiplier will decrease” option3=”Money multiplier will increase” option4=”Money demand will decrease” correct=”option2″]

This question was previously asked in
UPSC CDS-2 – 2023
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The correct answer is B) Money multiplier will decrease.
When people hold more currency in hand and less in deposits, the currency-deposit ratio increases. The money multiplier, which determines the total money supply in the economy based on the monetary base, is inversely related to the currency-deposit ratio. Specifically, the simple money multiplier formula is (1+c)/(c+r), where c is the currency-deposit ratio and r is the reserve-deposit ratio. An increase in ‘c’ directly reduces the value of the money multiplier.
A higher currency-deposit ratio means that for every unit of reserves held by banks, a smaller amount of deposits can be supported, and less money can be created through the banking system’s lending process. This leads to a contraction in the potential money supply multiplier effect. While an increased preference for holding currency might reflect a change in the form of money demanded, the most direct and certain impact described is on the money multiplier.
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