Money & Banking

Which one of the following statements correctly describes the meaning of legal tender money ?

[amp_mcq option1=”The money which is tendered in courts of law to defray the fee of legal cases” option2=”The money which a creditor is under compulsion to accept in settlement of his claims” option3=”The bank money in the form of cheques, drafts, bills of exchange, etc.” option4=”The metallic money in circulation in a country” correct=”option2″]

The correct answer is B.

Legal tender money is currency (coins and banknotes) that is legally valid for the fulfillment of a financial obligation. A creditor is legally compelled to accept legal tender in settlement of a debt. The refusal to accept legal tender money in payment of a debt discharges the debtor from the obligation to pay that amount.

Option A is incorrect as legal tender is not specifically for court fees, though it can be used for them. Option C is incorrect as cheques, drafts, and bills of exchange are types of “bank money” or “credit money” and their acceptance is voluntary, not compulsory legal tender. Option D is too narrow; while metallic money can be legal tender, the definition applies to any form of currency that the law designates as such, including banknotes, and the key characteristic is compulsory acceptance by creditors.

Consider the following statements :

• 1. Capital Adequacy Ratio (CAR) is the amount that banks have to maintain in the form of their own funds to offset any loss that banks incur if the account-holders fail to repay dues.
• 2. CAR is decided by each individual bank.

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=”option1″]

The correct option is A because statement 1 provides a largely accurate description of Capital Adequacy Ratio (CAR), while statement 2 is incorrect.

CAR is a crucial prudential regulation for banks, ensuring they have sufficient capital to absorb potential losses from risks like loan defaults (credit risk). This minimum ratio is set by the banking regulator, not individual banks.

Statement 1 correctly describes CAR as the ratio of a bank’s capital to its risk-weighted assets, maintained to absorb potential losses, including those from account holders failing to repay dues (Non-Performing Assets or NPAs). It ensures the bank remains solvent. Statement 2 is incorrect. The minimum Capital Adequacy Ratio that banks must maintain is mandated by the central bank (like the RBI in India) based on guidelines such as the Basel norms. Individual banks may choose to maintain a higher ratio for safety, but the minimum is externally determined by the regulator.

Which one of the following links all the ATMs in India ?

[amp_mcq option1=”Indian Banks’ Association” option2=”National Securities Depository Limited” option3=”National Payments Corporation of India” option4=”Reserve Bank of India” correct=”option3″]

The correct option is C. The National Payments Corporation of India (NPCI) links all the ATMs in India through its National Financial Switch (NFS).

NPCI is the umbrella organization for retail payments and settlement systems in India, responsible for operating various critical payment infrastructures including the network that connects ATMs.

The National Financial Switch (NFS) is the largest network of shared automated teller machines (ATMs) in India, operated by the National Payments Corporation of India (NPCI). It connects the ATMs of various banks, enabling interoperability for cash withdrawal and other services. The other options are incorrect: Indian Banks’ Association is an industry body; National Securities Depository Limited is related to the stock market; and RBI is the regulator but does not operate the physical network connecting ATMs.

Which one of the following best describes the term “Merchant Discount Rate” sometimes seen in news ?

[amp_mcq option1=”The incentive given by a bank to a merchant for accepting payments through debit cards pertaining to that bank.” option2=”The amount paid back by banks to their customers when they use debit cards for financial transactions for purchasing goods or services.” option3=”The charge to a merchant by a bank for accepting payments from his customers through the bank’s debit cards.” option4=”The incentive given by the Government to merchants for promoting digital payments by their customers through Point of Sale (PoS) machines and debit cards.” correct=”option3″]

Merchant Discount Rate (MDR) is the fee charged by a bank or a payment service provider to a merchant for processing debit or credit card transactions. It is typically calculated as a percentage of the transaction value. This fee is paid by the merchant to the bank for the service of facilitating card payments from customers.

– MDR is a charge paid by the merchant.
– It is paid to the bank or payment processor.
– It is for accepting payments through debit/credit cards.
– It is usually a percentage of the transaction value.

MDR includes fees paid to various parties involved in the transaction, such as the issuing bank, the acquiring bank, the payment networks (like Visa, Mastercard), and the payment gateway provider. The government has taken steps to lower MDR, especially for small value transactions and digital payments, to promote a cashless economy.

Consider the following statements:

• 1. National Payments Corporation of India (NPCI) helps in promoting the financial inclusion in the country.
• 2. NPCI has launched RuPay, a card payment scheme.

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″]

The correct answer is C) Both 1 and 2. Both statements accurately describe aspects related to the National Payments Corporation of India (NPCI).

– Statement 1 is correct. NPCI is an initiative to create robust payment and settlement systems in India, which are foundational for financial inclusion. By developing affordable and accessible payment platforms like UPI, AePS, and RuPay, NPCI facilitates easier access to financial services for a wider population, especially in rural and semi-urban areas.
– Statement 2 is correct. RuPay is a domestic card payment network launched by NPCI. It is an alternative to international card networks like Visa and Mastercard and plays a significant role in promoting cashless transactions and financial inclusion in India.

NPCI was founded in 2008 as a not-for-profit organization under the guidance of the Reserve Bank of India (RBI) and the Indian Banks’ Association (IBA). Its mandate is to provide retail payment infrastructure to the country. Besides RuPay, NPCI operates other major payment systems like Unified Payments Interface (UPI), Immediate Payment Service (IMPS), Aadhaar Enabled Payment System (AePS), Bharat Bill Payment System (BBPS), etc., all of which contribute significantly to the digital transformation of India’s payment landscape and financial inclusion efforts.

Which of the following statements best describes the term ‘Scheme for Sustainable Structuring of Stressed Assets (S4A), recently seen in the news?

[amp_mcq option1=”It is a procedure for considering ecological costs of developmental schemes formulated by the Government.” option2=”It is a scheme of RBI for reworking the financial structure of big corporate entities facing genuine difficulties.” option3=”It is a disinvestment plan of the Government regarding Central Public Sector Undertakings.” option4=”It is an important provision in ‘The Insolvency and Bankruptcy Code’ recently implemented by the Government.” correct=”option2″]

The term ‘Scheme for Sustainable Structuring of Stressed Assets (S4A)’ refers to a scheme by RBI for reworking the financial structure of big corporate entities facing difficulties.

– The Scheme for Sustainable Structuring of Stressed Assets (S4A) was introduced by the Reserve Bank of India (RBI) in June 2016.
– It provided a framework for the resolution of large stressed accounts (non-performing assets) of ₹500 crore or more.
– The scheme allowed for the bifurcation of a stressed asset into sustainable debt (debt which can be serviced by the current operations of the borrower) and unsustainable debt. The unsustainable debt could be converted into equity or other hybrid instruments, allowing banks to resolve large NPAs without having to classify the entire account as NPA immediately after restructuring, provided certain conditions were met.

S4A was one of the measures taken by the RBI to address the issue of rising non-performing assets (NPAs) in the Indian banking system, particularly those involving large corporate borrowers. It aimed to provide a path for resolution and revival of viable businesses while taking a hit on the unsustainable portion of the debt. This scheme was later superseded by other resolution frameworks introduced by the RBI and ultimately the Insolvency and Bankruptcy Code (IBC).

Which of the following is a most likely consequence of implementing the ‘Unified Payments Interface (UPI)’ ?

[amp_mcq option1=”Mobile wallets will not be necessary for online payments.” option2=”Digital currency will totally replace the physical currency in about two decades.” option3=”FDI inflows will drastically increase.” option4=”Direct transfer of subsidies to poor people will become very effective.” correct=”option1″]

The correct answer is A) Mobile wallets will not be necessary for online payments.

The Unified Payments Interface (UPI) enables instant transfer of money directly between any two bank accounts using a mobile platform. It simplifies digital payments by allowing direct debits and credits from bank accounts linked via a UPI ID or mobile number. This significantly reduces the dependency on pre-loading money into separate mobile wallets for many online transactions, making mobile wallets less necessary for *all* online payments compared to the pre-UPI era.

Option B is a radical and unlikely outcome within a couple of decades. Physical currency still serves essential functions. Option C is speculative; while improved digital infrastructure can support economic activity, a drastic increase in FDI is not a direct or guaranteed consequence of UPI implementation. Option D is plausible as UPI facilitates direct bank transfers useful for subsidies (DBT), but existing systems also enable this. UPI’s most direct and noticeable impact is on the payment methods available to individuals and businesses, particularly reducing reliance on wallets.

What is the purpose of setting up of Small Finance Banks (SFBs) in India ?

• To supply credit to small business units
• To supply credit to small and marginal farmers
• To encourage young entrepreneurs to set up business particularly in rural areas.

Select the correct answer using the code given below:

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

The correct answer is A) 1 and 2 only.

Small Finance Banks (SFBs) are a category of banks introduced by the Reserve Bank of India (RBI) with the primary objective of furthering financial inclusion by providing access to financial services to unserved and underserved sections of the society. The target segments for SFBs specifically include small business units, small and marginal farmers, micro and small industries, and entities in the unorganized sector. Statement 1 and Statement 2 directly align with these objectives. Statement 3, while potentially a positive outcome, is not listed as a core or explicit purpose of setting up SFBs compared to the focus on specific segments like small businesses and farmers.

SFBs are regulated by the RBI and are subject to prudential norms and regulations similar to scheduled commercial banks, with some specific adjustments to reflect their focus on small-scale lending. They are required to extend 75% of their Adjusted Net Bank Credit (ANBC) to the sectors categorized as priority sector lending by the RBI.

Which of the following statements is/are correct regarding the Monetary Policy Committee (MPC) ?

• 1. It decides the RBI’s benchmark interest rates.
• 2. It is a 12-member body including the Governor of RBI and is reconstituted every year.
• 3. It functions under the chairmanship of the Union Finance Minister.

Select the correct answer using the code given below :

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

The correct answer is A, stating that only statement 1 is correct.

The Monetary Policy Committee (MPC) was established to fix the benchmark policy interest rate (repo rate) to achieve the inflation target set by the government.

Statement 2 is incorrect. The MPC in India is a six-member body. Three members are from the RBI (including the Governor, who is the ex-officio Chairperson) and three members are appointed by the Central Government. The terms of government-appointed members are typically fixed (e.g., four years) and not necessarily reconstituted every year. Statement 3 is incorrect; the MPC functions under the chairmanship of the Governor of the Reserve Bank of India, not the Union Finance Minister.

What is/are the purpose/purposes of Government’s ‘Sovereign Gold Bond Scheme’ and ‘Gold Monetization Scheme’?

• 1. To bring the idle gold lying with Indian households into the economy
• 2. To promote FDI in the gold and jewellery sector
• 3. To reduce India’s dependence on gold imports

Select the correct answer using the code given below.

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

Statement 1 is correct. Both the Sovereign Gold Bond Scheme (SGBS) and the Gold Monetization Scheme (GMS) aim to mobilize the large quantity of idle gold held by households and institutions in India, bringing it into the formal financial system. Statement 2 is incorrect. The schemes are primarily focused on domestic gold and reducing reliance on imports, not on promoting Foreign Direct Investment (FDI) in the gold and jewellery sector. Statement 3 is correct. By providing alternatives to holding physical gold and encouraging the use of domestic idle gold, the schemes aim to reduce the demand for gold imports, thereby helping to manage the current account deficit. Therefore, statements 1 and 3 correctly describe the purposes.

Sovereign Gold Bonds offer an alternative to holding physical gold, providing returns linked to gold prices plus an interest. The Gold Monetization Scheme allows individuals/institutions to deposit idle physical gold with banks, earn interest, and get principal and interest in gold or rupees.

The SGBS is a scheme where investors can buy bonds in denominations of grams of gold. These are issued by the Reserve Bank of India on behalf of the Government. The GMS aims to convert physical gold into deposit certificates. Both schemes are part of the government’s strategy to reduce reliance on gold imports and promote financial savings.