Money & Banking Archives

111. The Wholesale Price Inflation has increased in India during 2021 – 202

The Wholesale Price Inflation has increased in India during 2021 – 2022 due to which of the following factors ?

1. Sharp increase in international prices of crude oil
2. Decrease in economic activity post-Covid
3. Disruption of global supply chain
4. High freight cost

Select the correct answer using the code given below :

[amp_mcq option1=”2 and 3 only” option2=”1, 3 and 4″ option3=”1 and 2 only” option4=”1 and 4 only” correct=”option2″]

This question was previously asked in

UPSC CDS-2 – 2023

The factors that contributed to the increase in Wholesale Price Inflation (WPI) in India during 2021-2022 are 1, 3, and 4.

1. **Sharp increase in international prices of crude oil**: Correct. Global energy prices, especially crude oil, saw a significant surge in 2021-2022 due to recovering demand post-pandemic and later amplified by geopolitical tensions (like the Russia-Ukraine conflict which intensified in early 2022). Since crude oil and petroleum products have a high weight in the WPI index and affect costs across various sectors (transportation, manufacturing inputs), this was a major driver of inflation.
2. **Decrease in economic activity post-Covid**: Incorrect. Economic activity in India was recovering significantly in 2021-2022 from the depths of the pandemic-induced slowdown. Increased economic activity typically contributes to demand-side inflation, though WPI is more cost-driven. A decrease in activity would likely dampen inflation.
3. **Disruption of global supply chain**: Correct. The COVID-19 pandemic caused widespread disruptions in global supply chains, leading to shortages of components and finished goods. This mismatch between supply and demand pushed up input costs for producers, directly contributing to higher WPI.
4. **High freight cost**: Correct. Global shipping and logistics costs increased substantially in 2021-2022 due to supply chain bottlenecks, port congestion, and increased fuel prices. Higher freight costs translate into higher landed costs for imported goods and higher transportation costs for domestic movement, adding to WPI.

WPI measures inflation at the wholesale level, reflecting changes in the prices of goods traded in bulk. It is heavily influenced by input costs, including raw materials, energy, and transportation. In 2021-22, WPI inflation remained in double digits for many months, driven primarily by supply-side factors and rising global commodity prices.

112. Which of the following are included in the definition of Narrow Money

Which of the following are included in the definition of Narrow Money ?

1. Currency with the public
2. Demand deposits
3. ‘Other’ deposits with Reserve Bank of India
4. Banker’s deposits with Reserve Bank of India

Select the correct answer using the code given below :

[amp_mcq option1=”1, 2 and 4″ option2=”1 and 2 only” option3=”1, 2 and 3″ option4=”3 and 4 only” correct=”option3″]

This question was previously asked in

UPSC CDS-2 – 2023

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In India, Narrow Money (M1) is defined by the Reserve Bank of India as the sum of Currency with the Public, Demand Deposits with the Banking System, and ‘Other’ Deposits with the Reserve Bank of India. The components listed in options 1, 2, and 3 align with this definition.

1. **Currency with the public:** Notes and coins held by the public.
2. **Demand deposits:** Deposits held by the public with commercial banks and co-operative banks that are withdrawable on demand (e.g., savings accounts, current accounts).
3. **’Other’ deposits with Reserve Bank of India:** Demand deposits with RBI of entities other than banks and the government (e.g., deposits of quasi-government institutions, international financial institutions like IMF).
4. **Banker’s deposits with Reserve Bank of India:** Deposits of commercial banks with the RBI, which form a part of the reserves maintained by banks. These are included in the definition of M0 (Reserve Money) but not M1 in the standard Indian monetary aggregates.

The different measures of money supply (M0, M1, M2, M3, M4) represent different degrees of liquidity. M1 and M2 are considered Narrow Money, while M3 and M4 are considered Broad Money. M0 (Reserve Money) is the monetary base, representing the most liquid form of money.

113. Which of the following action(s) by the Government would lead to contr

Which of the following action(s) by the Government would lead to contraction of money supply in the economy ?

1. Purchase of Treasury Bills by the central bank from public
2. Sale of Treasury Bills by the central bank to public
3. Sale of foreign exchange by the central bank
4. Purchase of foreign exchange by the central bank

Select the correct answer using the code given below :

[amp_mcq option1=”1 and 4 only” option2=”1 and 3 only” option3=”2 and 3 only” option4=”2 only” correct=”option3″]

This question was previously asked in

UPSC CDS-2 – 2023

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To contract the money supply in the economy, the central bank (like the Reserve Bank of India) needs to take actions that reduce the amount of money available with the public and commercial banks. Selling government securities and selling foreign exchange are tools used for monetary contraction.

1. **Purchase of Treasury Bills by the central bank from public:** The central bank pays money to the public in exchange for securities. This injects money into the economy, increasing money supply (expansionary).
2. **Sale of Treasury Bills by the central bank to public:** The central bank receives money from the public in exchange for securities. This withdraws money from the economy, decreasing money supply (contractionary). This is an Open Market Operation (OMO) used for contraction.
3. **Sale of foreign exchange by the central bank:** The central bank sells foreign currency and receives domestic currency in return. This takes domestic currency out of circulation, decreasing money supply (contractionary).
4. **Purchase of foreign exchange by the central bank:** The central bank buys foreign currency and pays domestic currency. This injects domestic currency into circulation, increasing money supply (expansionary).
Therefore, actions 2 and 3 lead to a contraction of the money supply.

Monetary policy tools used by central banks include OMOs (buying/selling government securities), adjusting policy rates (like repo rate, reverse repo rate), and varying reserve requirements (like Cash Reserve Ratio, Statutory Liquidity Ratio). Selling securities and selling foreign exchange are typically tightening measures.

114. The Insolvency and Bankruptcy Board of India (IBBI) was established in

The Insolvency and Bankruptcy Board of India (IBBI) was established in the year

[amp_mcq option1=”2014″ option2=”2015″ option3=”2016″ option4=”2017″ correct=”option3″]

This question was previously asked in

UPSC CDS-2 – 2022

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The Insolvency and Bankruptcy Board of India (IBBI) is the regulator for overseeing insolvency proceedings in India. It was established on 1st October 2016 under the Insolvency and Bankruptcy Code, 2016.

The Insolvency and Bankruptcy Code, 2016 was a landmark legislation aimed at consolidating and amending the laws relating to reorganization and insolvency resolution of corporate persons, partnership firms and individuals in a time bound manner.

IBBI is a unique regulator regulating a profession as well as processes. It regulates insolvency professionals, insolvency professional agencies, insolvency professional entities, and information utilities.

115. The terms ‘Ethereum, Solana, Polkadot and Tether’, sometimes mentioned

The terms ‘Ethereum, Solana, Polkadot and Tether’, sometimes mentioned in the news, refer to

[amp_mcq option1=”Cryptocurrencies” option2=”Earth Observation Satellites” option3=”Hypersonic Cruise Missiles” option4=”Virtual Private Network service providers” correct=”option1″]

This question was previously asked in

UPSC CDS-2 – 2022

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The terms ‘Ethereum, Solana, Polkadot and Tether’ are well-known names in the world of cryptocurrencies. They represent different types of digital assets based on blockchain technology.

Cryptocurrencies are digital or virtual currencies that are secured by cryptography, which makes it nearly impossible to counterfeit or double-spend. Many cryptocurrencies are decentralized networks based on blockchain technology—a distributed ledger enforced by a disparate network of computers.

Ethereum is a platform that enables developers to build decentralized applications (dApps) and issue smart contracts, with Ether (ETH) being its native cryptocurrency. Solana is known for its high transaction speed and scalability. Polkadot aims to connect different blockchains. Tether (USDT) is a stablecoin, meaning its value is pegged to a traditional currency (the US dollar) to reduce volatility.

116. Which one of the following forms of money supply is considered as the

Which one of the following forms of money supply is considered as the most widely used in the Indian monetary system ?

[amp_mcq option1=”M1″ option2=”M2″ option3=”M3″ option4=”M4″ correct=”option3″]

This question was previously asked in

UPSC CDS-2 – 2022

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The correct answer is C. M3 is considered the most widely used measure of money supply in the Indian monetary system.

– The Reserve Bank of India (RBI) tracks several measures of money supply: M1, M2, M3, and M4.
– M1 is narrow money (most liquid assets). M3 is broad money.
– M3 includes M1 plus net time deposits of commercial banks. It is considered a better indicator of the overall liquidity in the economy and is the measure most commonly used by the RBI for monetary policy purposes.

In 1998, the RBI introduced new monetary aggregates (NM1, NM2, NM3) and liquidity aggregates (L1, L2, L3) based on the recommendations of the Working Group on Money Supply. However, M3 continues to be the traditional and widely referred measure of money supply in India.

117. Which one of the following is considered as an agency function of comm

Which one of the following is considered as an agency function of commercial banks in India ?

[amp_mcq option1=”Acceptance of deposits” option2=”Investment of surplus funds” option3=”Acceptance of income tax payments” option4=”Providing overdraft facilities” correct=”option3″]

This question was previously asked in

UPSC CDS-2 – 2022

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The correct answer is C. Accepting income tax payments is considered an agency function of commercial banks.

– Agency functions of a bank involve acting as an agent or representative for their customers.
– This includes services like collecting payments (like taxes, utility bills), paying subscriptions, acting as an executor or trustee, buying and selling securities on behalf of customers, and handling foreign exchange transactions.
– Primary banking functions include accepting deposits (creating liabilities for the bank) and providing loans and advances (creating assets for the bank). Investment of surplus funds and providing overdraft facilities fall under these broad categories (asset management and lending).

Modern banks perform a wide range of functions classified into primary functions (accepting deposits, granting advances), agency functions, and general utility functions (like locker facilities, issuing drafts, etc.).

118. Which one of the following statements about Non-Banking Financial Comp

Which one of the following statements about Non-Banking Financial Companies (NBFCs) is not correct ?

[amp_mcq option1=”NBFCs cannot accept demand deposits.” option2=”NBFCs cannot give loans.” option3=”NBFCs cannot issue cheques drawn on themselves.” option4=”NBFCs cannot offer deposit insurance facility of Deposit Insurance and Credit Guarantee Corporation.” correct=”option2″]

This question was previously asked in

UPSC CDS-2 – 2022

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Non-Banking Financial Companies (NBFCs) are institutions that provide financial services, but do not have a banking license. Their primary activities include providing loans and advances, investing in shares, stocks, bonds, debentures, securities, and other marketable securities. Therefore, the statement “NBFCs cannot give loans” is incorrect. Lending is one of the principal business activities of NBFCs.

NBFCs are financial institutions whose main functions include lending and investment.

Unlike banks, NBFCs cannot accept demand deposits, cannot issue cheques drawn on themselves, and deposits with NBFCs are not covered by the Deposit Insurance and Credit Guarantee Corporation (DICGC). They are registered under the Companies Act, 2013, and regulated by the Reserve Bank of India (RBI).

119. Which one of the following statements about a borrower from a Microfin

Which one of the following statements about a borrower from a Microfinance Company is not correct ?

[amp_mcq option1=”The borrower should not have annual income beyond a limit.” option2=”The borrower should not seek loan amount beyond a limit.” option3=”The borrower should not refuse to offer a collateral.” option4=”The borrower should not refuse to pay any rate of interest offered.” correct=”option3″]

This question was previously asked in

UPSC CDS-2 – 2022

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Microfinance aims to provide financial services to low-income individuals or groups who typically lack access to traditional banking and collateral. A key characteristic of microfinance lending is that it does not require borrowers to provide physical collateral. Loans are often granted based on group guarantee and social collateral. Therefore, the statement “The borrower should not refuse to offer a collateral” is incorrect because microfinance models are specifically designed to lend *without* requiring collateral from the borrower.

Microfinance typically serves low-income individuals and does not require traditional collateral from borrowers.

Microfinance operations are regulated in India, and there are guidelines regarding the annual income limit for borrowers, the maximum loan amount, and responsible lending practices, including terms like interest rates.

120. Who among the following was the Chairman of the Committee on Deepening

Who among the following was the Chairman of the Committee on Deepening Digital Payments appointed by the RBI ?

[amp_mcq option1=”H.R. Khan” option2=”Nandan Nilekani” option3=”N.R. Narayana Murthy” option4=”Sanjay Jain” correct=”option2″]

This question was previously asked in

UPSC CDS-2 – 2019

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Nandan Nilekani was the Chairman of the five-member committee appointed by the Reserve Bank of India (RBI) to make recommendations on deepening digital payments in India.

The committee was tasked with reviewing the existing status of digitalization of payments in the country, identifying the bottlenecks and suggesting measures to accelerate the adoption of digital payments.

The committee submitted its report in May 2019. Other members included H.R. Khan (former Deputy Governor, RBI), Kishore Sansi (former MD & CEO, Vijaya Bank), Aruna Sharma (former Secretary, Meity), and Sanjay Jain (Partner, Bharat Innovation Fund).