Money & Banking

41. With reference to ‘Urban Cooperative Banks’ in India, consider the fol

With reference to ‘Urban Cooperative Banks’ in India, consider the following statements:

  • They are supervised and regulated by local boards set up by the State Governments.
  • They can issue equity shares and preference shares.
  • They were brought under the purview of the Banking Regulation Act, 1949 through an Amendment in 1966.

Which of the statements given above is/are correct?

1 only
2 and 3 only
1 and 3 only
1, 2 and 3
This question was previously asked in
UPSC IAS – 2021
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The correct option is B. Statements 2 and 3 are correct, while statement 1 is incorrect.
– Urban Cooperative Banks (UCBs) are regulated and supervised by both the Reserve Bank of India (RBI) (for banking functions) and the Registrar of Co-operative Societies (RCS) of the concerned State (or Central RCS if multi-state) (for registration and management). They are not solely supervised and regulated by local boards set up by State Governments. Statement 1 is incorrect.
– UCBs are permitted to raise capital through various means, including the issue of equity shares to their members and other forms of capital instruments akin to preference shares or long-term deposits with equity features, as per regulations issued by RBI and the Registrar. Recent amendments to the Banking Regulation Act have enhanced their ability to raise capital. Statement 2 is correct.
– Certain provisions of the Banking Regulation Act, 1949, were extended to cooperative banks, including UCBs, through the Banking Laws (Application to Co-operative Societies) Act, 1965, which came into effect on March 1, 1966. This brought their banking operations under the purview of the RBI. Statement 3 is correct.
The dual regulation structure (RBI and RCS) has historically posed some challenges. The Banking Regulation (Amendment) Act, 2020, sought to bring UCBs more directly under RBI supervision concerning banking-related matters, while cooperative administration remains with the RCS.

42. In India, the central bank’s function as the ‘lender of last resort’ u

In India, the central bank’s function as the ‘lender of last resort’ usually refers to which of the following?

  • 1. Lending to trade and industry bodies when they fail to borrow from other sources
  • 2. Providing liquidity to the banks having a temporary crisis
  • 3. Lending to governments to finance budgetary deficits

Select the correct answer using the code given below.

1 and 2
2 only
2 and 3
3 only
This question was previously asked in
UPSC IAS – 2021
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The central bank’s function as the ‘lender of last resort’ usually refers to providing liquidity to the banks having a temporary crisis.
The ‘lender of last resort’ is a function of the central bank where it provides emergency liquidity to financial institutions (primarily commercial banks) that are experiencing severe financial difficulties but are considered solvent. The purpose is to prevent bank runs and the collapse of the banking system, thereby maintaining financial stability.
Statement 1 is incorrect: The lender of last resort facility is primarily for banks and sometimes other critical financial institutions, not individual trade or industry bodies. Statement 3 is incorrect: Lending to the government to finance deficits is a fiscal operation or part of monetary policy implementation (e.g., buying government bonds), distinct from the emergency liquidity provision to illiquid banks in times of crisis.

43. With reference to India, consider the following statements: Retail i

With reference to India, consider the following statements:

  • Retail investors through demat account can invest in ‘Treasury Bills’ and ‘Government of India Bonds’ in primary market.
  • The ‘Negotiated Dealing System-Order Matching’ is a government securities trading platform of the Reserve Bank of India.
  • The ‘Central Depository Services Ltd.’ is jointly promoted by the Reserve Bank of India and the Bombay Stock Exchange.

Which of the statements given above is/are correct?

1 only
1 and 2
3 only
2 and 3
This question was previously asked in
UPSC IAS – 2021
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Statements 1 and 2 are correct.
Statement 1 is correct: The Reserve Bank of India (RBI) has launched the ‘RBI Retail Direct’ scheme, which allows retail investors to open a ‘Retail Direct Gilt Account’ with the RBI and invest in Government Securities (G-Secs), including Treasury Bills, GoI Bonds, etc., in both the primary auctions and the secondary market through an online portal.
Statement 2 is correct: Negotiated Dealing System-Order Matching (NDS-OM) is the main electronic trading platform for G-Secs in India, operated by the Reserve Bank of India.
Statement 3 is incorrect: Central Depository Services Ltd. (CDSL) is one of the two central securities depositories in India (the other being NSDL). CDSL was promoted by the Bombay Stock Exchange (BSE) along with several banks (Bank of India, Bank of Baroda, State Bank of India, HDFC Bank, Standard Chartered Bank, Union Bank of India). The Reserve Bank of India is not a promoter of CDSL.
RBI Retail Direct scheme aims to deepen the bond market by allowing direct participation of retail investors. Depositories like CDSL and NSDL hold securities in electronic form and facilitate trading and settlement.

44. With reference to Indian economy, demand-pull inflation can be caused/

With reference to Indian economy, demand-pull inflation can be caused/increased by which of the following?

  • Expansionary policies
  • Fiscal stimulus
  • Inflation-indexing wages
  • Higher purchasing power
  • Rising interest rates

Select the correct answer using the code given below.

1, 2 and 4 only
3, 4 and 5 only
1, 2, 3 and 5 only
1, 2, 3, 4 and 5
This question was previously asked in
UPSC IAS – 2021
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Demand-pull inflation can be caused/increased by Expansionary policies, Fiscal stimulus, and Higher purchasing power.
Demand-pull inflation occurs when aggregate demand in an economy outpaces aggregate supply.
1. Expansionary policies (monetary or fiscal) increase the money supply or government spending/reduce taxes, leading to higher aggregate demand.
2. Fiscal stimulus is a type of expansionary fiscal policy specifically aimed at boosting demand.
4. Higher purchasing power means consumers and businesses have more ability and willingness to spend, directly increasing aggregate demand.
3. Inflation-indexing wages can contribute to persistent inflation by maintaining demand and fueling a wage-price spiral, but it’s often discussed in the context of cost-push or inertial inflation as well. However, maintaining purchasing power supports demand.
5. Rising interest rates reduce borrowing and spending, thus decreasing aggregate demand, which is the opposite of what causes demand-pull inflation.
Given the options, {1, 2, 4} represent the most direct and clear drivers of demand-pull inflation. Statement 3 is debatable in its primary classification but does support demand. Statement 5 directly reduces demand.
The typical causes of demand-pull inflation include increased consumer spending, increased investment spending, increased government spending, and increased net exports. These are often stimulated by expansionary government policies or positive economic sentiment leading to higher purchasing power.

45. The money multiplier in an economy increases with which one of the

The money multiplier in an economy increases with which one of the following?

Increase in the Cash Reserve Ratio in the banks
Increase in the Statutory Liquidity Ratio in the banks
Increase in the banking habit of the people
Increase in the population of the country
This question was previously asked in
UPSC IAS – 2021
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The money multiplier in an economy increases with an increase in the banking habit of the people.
The money multiplier is the ratio of the money supply to the monetary base. It is influenced by the reserve requirements (CRR, SLR) and the public’s preference for holding currency versus deposits. The formula for the money multiplier is approximately (1 + Currency Ratio) / (Reserve Ratio + Currency Ratio). The Currency Ratio is the ratio of currency held by the public to demand deposits.
An increase in the banking habit of people means they prefer to hold less cash and deposit more money in banks, leading to a decrease in the Currency Ratio. A lower Currency Ratio in the money multiplier formula results in a higher money multiplier.
Increase in CRR (A) increases the Reserve Ratio, decreasing the money multiplier. Increase in SLR (B) also increases the Reserve Ratio, decreasing the money multiplier. Increase in population (D) does not directly determine the money multiplier, though it can affect the total volume of money and economic activity.

46. If you withdraw ₹ 1,00,000 in cash from your Demand Deposit Account at

If you withdraw ₹ 1,00,000 in cash from your Demand Deposit Account at your bank, the immediate effect on aggregate money supply in the economy will be

to reduce it by ₹ 1,00,000
to increase it by ₹ 1,00,000
to increase it by more than ₹ 1,00,000
to leave it unchanged
This question was previously asked in
UPSC IAS – 2020
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Money supply (specifically M1) is defined as the sum of currency in circulation (C) and demand deposits (DD) held by the public. When you withdraw ₹1,00,000 in cash from your demand deposit account, there is a decrease in the demand deposits component by ₹1,00,000 and a corresponding increase in the currency in circulation component by ₹1,00,000.
The total amount of money defined as M1 (Currency + Demand Deposits) remains unchanged; only the form in which the money is held by the public changes from demand deposits to physical currency.
The transaction is a transfer of funds between two components of the money supply (M1). If the definition of money supply included broader measures like M2, M3 etc., which include time deposits or other assets, the effect might be different depending on the nature of the withdrawal account and what the money is subsequently used for (e.g., if it shifts into a different asset type). However, in the context of a simple cash withdrawal from a demand deposit account affecting aggregate money supply (M1), the net effect is zero.

47. If the RBI decides to adopt an expansionist monetary policy, which of

If the RBI decides to adopt an expansionist monetary policy, which of the following would it not do?

  • 1. Cut and optimize the Statutory Liquidity Ratio
  • 2. Increase the Marginal Standing Facility Rate
  • 3. Cut the Bank Rate and Repo Rate

Select the correct answer using the code given below :

1 and 2 only
2 only
1 and 3 only
1, 2 and 3
This question was previously asked in
UPSC IAS – 2020
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In an expansionist (or loose) monetary policy, the Reserve Bank of India (RBI) aims to increase the money supply and credit availability in the economy to stimulate growth.
Statement 1: Cutting the Statutory Liquidity Ratio (SLR) reduces the percentage of net demand and time liabilities (NDTL) that banks must hold in liquid assets (like government securities). This releases more funds for banks to lend, increasing liquidity and credit, which is an expansionist measure. So, RBI *would* do this.
Statement 2: Increasing the Marginal Standing Facility (MSF) Rate makes it more expensive for banks to borrow overnight funds from the RBI when there is a significant liquidity deficit. This tightens liquidity in the banking system, which is a contractionary measure. RBI would *not* do this in an expansionist policy.
Statement 3: Cutting the Bank Rate and Repo Rate reduces the cost at which commercial banks can borrow money from the RBI (long-term via Bank Rate, short-term via Repo Rate). Lower borrowing costs encourage banks to lend more, increasing liquidity and credit, which is an expansionist measure. So, RBI *would* do this.
The question asks what RBI would *not* do. Among the given statements, only statement 2 describes an action that is contrary to an expansionist monetary policy.
RBI uses various tools for monetary policy, including policy rates (Repo Rate, Reverse Repo Rate, MSF Rate, Bank Rate), reserve ratios (CRR, SLR), and open market operations (OMOs). An expansionist stance typically involves lowering policy rates, reducing reserve requirements, and buying government securities through OMOs, all aimed at injecting liquidity and lowering borrowing costs in the economy.

48. In the context of the Indian economy, non-financial debt includes whic

In the context of the Indian economy, non-financial debt includes which of the following ?

  • 1. Housing loans owed by households
  • 2. Amounts outstanding on credit cards
  • 3. Treasury bills

Select the correct answer using the code given below :

1 only
1 and 2 only
3 only
1, 2 and 3
This question was previously asked in
UPSC IAS – 2020
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Non-financial debt refers to debt owed by sectors other than the financial sector. This includes debt of households, non-financial corporations, and the government.
– 1. Housing loans owed by households: Households are part of the non-financial sector. Housing loans are debt. Thus, this is non-financial debt. Correct.
– 2. Amounts outstanding on credit cards: Households are part of the non-financial sector. Credit card outstanding is debt. Thus, this is non-financial debt. Correct.
– 3. Treasury bills: Treasury bills are short-term debt instruments issued by the government. The government is part of the non-financial sector. Thus, government debt, including Treasury bills, is considered non-financial debt. Correct.
Total debt in an economy is often categorised into financial debt (debt within the financial sector) and non-financial debt (debt of households, corporations, and government). Non-financial debt is a key indicator of leverage in the real economy.

49. With reference to the Indian economy, consider the following statement

With reference to the Indian economy, consider the following statements:

  • ‘Commercial Paper’ is a short-term unsecured promissory note.
  • ‘Certificate of Deposit’ is a long-term instrument issued by the Reserve Bank of India to a corporation.
  • ‘Call Money’ is a short-term finance used for interbank transactions.
  • ‘Zero-Coupon Bonds’ are the interest bearing short-term bonds issued by the Scheduled Commercial Banks to corporations.

Which of the statements given above is/are correct ?

1 and 2 only
4 only
1 and 3 only
2, 3 and 4 only
This question was previously asked in
UPSC IAS – 2020
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The question asks to identify the correct statements regarding different financial instruments in the Indian economy.
– Statement 1: ‘Commercial Paper’ is indeed a short-term (typically 7 days to one year) unsecured promissory note issued by highly-rated corporations to raise funds from the money market. This statement is correct.
– Statement 2: ‘Certificate of Deposit’ (CD) is a marketable receipt for funds deposited in a bank for a specified period (minimum 7 days). It is issued by commercial banks and financial institutions, not the Reserve Bank of India, and can be short to medium-term, not exclusively long-term. This statement is incorrect.
– Statement 3: ‘Call Money’ is a short-term finance (usually overnight) used in the interbank market for lending and borrowing funds to manage liquidity. This statement is correct.
– Statement 4: ‘Zero-Coupon Bonds’ do not pay periodic interest (coupon). They are sold at a discount to their face value, and the difference between the face value and the purchase price represents the investor’s return. They are not characterized as “interest bearing” in the traditional sense and can be issued by various entities (government, corporations, banks), not just Scheduled Commercial Banks to corporations. This statement is incorrect.
These instruments are key components of the money market (short-term) and capital market (long-term), facilitating funding and investment activities in the economy.

50. Consider the following statements: The weightage of food in Consumer

Consider the following statements:

  • The weightage of food in Consumer Price Index (CPI) is higher than that in Wholesale Price Index (WPI).
  • The WPI does not capture changes in the prices of services, which CPI does.
  • Reserve Bank of India has now adopted WPI as its key measure of inflation and to decide on changing the key policy rates.

Which of the statements given above is/are correct ?

1 and 2 only
2 only
3 only
1, 2 and 3
This question was previously asked in
UPSC IAS – 2020
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The question asks which of the given statements regarding CPI, WPI, and RBI’s inflation measure are correct.
– Statement 1: The weightage of food in Consumer Price Index (CPI) is indeed significantly higher than its weight in the Wholesale Price Index (WPI) in India. CPI basket reflects typical household consumption patterns where food items constitute a large share of expenditure, while WPI tracks prices at the wholesale level which includes manufactured products, fuel, power, and primary articles (including food).
– Statement 2: WPI primarily measures price changes of goods traded in wholesale markets. CPI measures price changes of a basket of goods and services consumed by households. Therefore, WPI does not capture changes in the prices of services, while CPI does.
– Statement 3: The Reserve Bank of India (RBI) officially adopted the Consumer Price Index (Combined) (CPI-C) as its key measure for inflation targeting and monetary policy decisions following the recommendations of the Urjit Patel Committee in 2014. Prior to this, WPI was more commonly used, but now CPI is the primary target variable for inflation.
CPI reflects the impact of price changes on the final consumer, making it a more relevant measure for monitoring the welfare impact of inflation and for informing monetary policy aimed at price stability for consumers. WPI captures price movements at an earlier stage of the economic transaction.
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