IASbaba Daily Prelims Quiz
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The Current Affairs questions are based on sources like ‘The Hindu’, ‘Indian Express’ and ‘PIB’, which are very important sources for UPSC Prelims Exam. The questions are focused on both the concepts and facts. The topics covered here are generally different from what is being covered under ‘Daily Current Affairs/Daily News Analysis (DNA) and Daily Static Quiz’ to avoid duplication. The questions would be published from Monday to Saturday before 2 PM. One should not spend more than 10 minutes on this initiative.
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Question 1 of 5
1. Question
Consider the following statements about the Repo rate
- The Repo Rate is the interest rate at which the Reserve Bank of India (RBI) lends money from commercial banks.
- A reduction in the Repo Rate leads to an increase in the money supply in the economy.
- The Repo Rate is an only tool used by the RBI to control inflation.
How many of the statements given above are correct?
Correct
Solution (a)
Statement Analysis
Statement 1 Statement 2 Statement 3 Incorrect correct Incorrect - That’s incorrect. The Repo Rate is actually the interest rate at which the Reserve Bank of India (RBI) lends money to commercial banks.
- It’s a crucial tool used by the RBI to control the money supply and interest rates in the economy.
- When the RBI lowers the Repo Rate, it encourages banks to borrow more money, which in turn leads to increased lending and lower interest rates for consumers and businesses. Conversely, when the RBI raises the Repo Rate, it discourages borrowing and can lead to higher interest rates
- A reduction in the Repo Rate leads to an increase in the money supply in the economy.
Here’s how it works:
- Lower Borrowing Cost: When the Repo Rate is lowered, commercial banks can borrow money from the central bank at a cheaper rate.
- Increased Lending: With lower borrowing costs, banks are encouraged to lend more money to businesses and individuals.
- Increased Money Supply: As banks lend more, the money supply in the economy increases.
- Economic Stimulus: Increased money supply can stimulate economic activity, leading to higher consumption
- No, the Repo Rate is not the only tool used by the RBI to control inflation.
While the Repo Rate is a powerful tool, the RBI employs a range of monetary policy instruments to manage inflation and maintain price stability. Some of these include:
- Reverse Repo Rate: This is the interest rate at which the RBI borrows money from commercial banks. By increasing the reverse repo rate, the RBI can absorb excess liquidity from the market, reducing inflationary pressures.
- Cash Reserve Ratio (CRR): This is the minimum percentage of deposits that commercial banks must hold with the RBI. By increasing the CRR, the RBI can reduce the amount of money available for lending, thereby controlling inflation.
- Open Market Operations (OMO): The RBI can buy or sell government securities in the open market to influence the money supply. Selling securities absorbs liquidity, while buying securities injects liquidity.
- Marginal Standing Facility (MSF): This is a facility through which banks can borrow funds from the RBI overnight at a higher interest rate than the Repo Rate. It acts as a safety valve to prevent liquidity crises.
Context: Amid high inflation, RBI retains repo rate at 6.5%
Incorrect
Solution (a)
Statement Analysis
Statement 1 Statement 2 Statement 3 Incorrect correct Incorrect - That’s incorrect. The Repo Rate is actually the interest rate at which the Reserve Bank of India (RBI) lends money to commercial banks.
- It’s a crucial tool used by the RBI to control the money supply and interest rates in the economy.
- When the RBI lowers the Repo Rate, it encourages banks to borrow more money, which in turn leads to increased lending and lower interest rates for consumers and businesses. Conversely, when the RBI raises the Repo Rate, it discourages borrowing and can lead to higher interest rates
- A reduction in the Repo Rate leads to an increase in the money supply in the economy.
Here’s how it works:
- Lower Borrowing Cost: When the Repo Rate is lowered, commercial banks can borrow money from the central bank at a cheaper rate.
- Increased Lending: With lower borrowing costs, banks are encouraged to lend more money to businesses and individuals.
- Increased Money Supply: As banks lend more, the money supply in the economy increases.
- Economic Stimulus: Increased money supply can stimulate economic activity, leading to higher consumption
- No, the Repo Rate is not the only tool used by the RBI to control inflation.
While the Repo Rate is a powerful tool, the RBI employs a range of monetary policy instruments to manage inflation and maintain price stability. Some of these include:
- Reverse Repo Rate: This is the interest rate at which the RBI borrows money from commercial banks. By increasing the reverse repo rate, the RBI can absorb excess liquidity from the market, reducing inflationary pressures.
- Cash Reserve Ratio (CRR): This is the minimum percentage of deposits that commercial banks must hold with the RBI. By increasing the CRR, the RBI can reduce the amount of money available for lending, thereby controlling inflation.
- Open Market Operations (OMO): The RBI can buy or sell government securities in the open market to influence the money supply. Selling securities absorbs liquidity, while buying securities injects liquidity.
- Marginal Standing Facility (MSF): This is a facility through which banks can borrow funds from the RBI overnight at a higher interest rate than the Repo Rate. It acts as a safety valve to prevent liquidity crises.
Context: Amid high inflation, RBI retains repo rate at 6.5%
-
Question 2 of 5
2. Question
Consider the following statements about Small Finance Banks
- Small Finance Banks are allowed to accept deposits and provide loans, but they cannot provide credit cards or foreign exchange services.
- They are not required to maintain a minimum capital adequacy ratio
- Minimum capital requirement for setting up a Small Finance Bank is 50 Cr rupees.
How many of the statements given above are correct?
Correct
Solution (d)
Statement Analysis
Statement 1 Statement 2 Statement 3 Incorrect Incorrect Incorrect - Small Finance Banks (SFBs) are indeed allowed to accept deposits and provide loans, but they are not restricted from providing credit cards or foreign exchange services.
- They are permitted to offer a range of banking services, including credit cards and foreign exchange services, subject to specific regulations and guidelines set by the Reserve Bank of India (RBI).
- Small Finance Banks (SFBs) are required to maintain a minimum capital adequacy ratio. This is a regulatory requirement imposed by the Reserve Bank of India (RBI) to ensure the financial stability and resilience of these bank
That’s incorrect. - As of 2023, the minimum capital requirement for setting up a Small Finance Bank (SFB) in India is Rs. 200 crore.
- This was increased from the previous requirement of Rs. 100 crore.
Context:Small finance banks allowed to transfer loan amounts via UPI
Incorrect
Solution (d)
Statement Analysis
Statement 1 Statement 2 Statement 3 Incorrect Incorrect Incorrect - Small Finance Banks (SFBs) are indeed allowed to accept deposits and provide loans, but they are not restricted from providing credit cards or foreign exchange services.
- They are permitted to offer a range of banking services, including credit cards and foreign exchange services, subject to specific regulations and guidelines set by the Reserve Bank of India (RBI).
- Small Finance Banks (SFBs) are required to maintain a minimum capital adequacy ratio. This is a regulatory requirement imposed by the Reserve Bank of India (RBI) to ensure the financial stability and resilience of these bank
That’s incorrect. - As of 2023, the minimum capital requirement for setting up a Small Finance Bank (SFB) in India is Rs. 200 crore.
- This was increased from the previous requirement of Rs. 100 crore.
Context:Small finance banks allowed to transfer loan amounts via UPI
-
Question 3 of 5
3. Question
Who is eligible to open an FCNR(B) deposit account?
Correct
Solution (b)
Option b Correct - Foreign Currency Non-Resident (FCNR) (B) deposit accounts are primarily designed for Non-Resident Indians (NRIs) and Persons of Indian Origin (PIOs). These accounts allow individuals residing outside India to deposit funds in foreign currencies.
- Eligibility:To open an FCNR (B) account, you must be a:Non-Resident Indian (NRI): An Indian citizen who has gone abroad for employment, business, or studies.
Person of Indian Origin (PIO): A person of Indian origin who holds a foreign passport.
Context: Interest rate ceiling on FCNR(B) deposits hiked to attract capital
Incorrect
Solution (b)
Option b Correct - Foreign Currency Non-Resident (FCNR) (B) deposit accounts are primarily designed for Non-Resident Indians (NRIs) and Persons of Indian Origin (PIOs). These accounts allow individuals residing outside India to deposit funds in foreign currencies.
- Eligibility:To open an FCNR (B) account, you must be a:Non-Resident Indian (NRI): An Indian citizen who has gone abroad for employment, business, or studies.
Person of Indian Origin (PIO): A person of Indian origin who holds a foreign passport.
Context: Interest rate ceiling on FCNR(B) deposits hiked to attract capital
-
Question 4 of 5
4. Question
Consider the following statements about the MSP
- Wheat, rice, and pulses are only covered under MSP scheme.
- Role of the Commission for Agricultural Costs and Prices (CACP) in fixing the Minimum Support Price (MSP) is to announce the MSP at the beginning of each crop season
Choose the incorrect statements:
Correct
Solution (c)
Statement Analysis
Statement 1 Statement 2 Incorrect Incorrect - Wheat, rice, and pulses, Sugarcane, cotton, and tobacco,Oilseeds, maize, and soybean etc are covered under MSP Prices system
- Role of the Commission for Agricultural Costs and Prices (CACP) in fixing the Minimum Support Price (MSP) is to recommend the MSP at the beginning of each crop season
Context: Centre to fix MSP at over 50% and procure Farmers’ Produce: Shivraj Singh Chouhan
Incorrect
Solution (c)
Statement Analysis
Statement 1 Statement 2 Incorrect Incorrect - Wheat, rice, and pulses, Sugarcane, cotton, and tobacco,Oilseeds, maize, and soybean etc are covered under MSP Prices system
- Role of the Commission for Agricultural Costs and Prices (CACP) in fixing the Minimum Support Price (MSP) is to recommend the MSP at the beginning of each crop season
Context: Centre to fix MSP at over 50% and procure Farmers’ Produce: Shivraj Singh Chouhan
-
Question 5 of 5
5. Question
Consider the following statements about the Dedollarisation
- De-dollarization can help countries to reduce the impact of US sanctions and trade policies.
- De-dollarization is being pursued by countries like China, Russia, and India to reduce their dependence on the US dollar.
Choose the correct statements:
Correct
Solution (c)
Statement Analysis
Statement 1 Statement 2 correct correct - Reduced Dependence on US Dollar: Countries could reduce their vulnerability to US economic and political policies.
- Increased Economic Sovereignty: Countries could have more control over their monetary policies and economic destiny.
- Reduced Transaction Costs: Using local currencies could lower transaction costs associated with foreign exchange.
- Diversification of Risks: Reducing reliance on a single currency can help mitigate risks associated with currency fluctuations and geopolitical tensions
- De-dollarization is being pursued by countries like China, Russia, and India to reduce their dependence on the US dollar.
Context: No plans for de-dollarisation: Das
Incorrect
Solution (c)
Statement Analysis
Statement 1 Statement 2 correct correct - Reduced Dependence on US Dollar: Countries could reduce their vulnerability to US economic and political policies.
- Increased Economic Sovereignty: Countries could have more control over their monetary policies and economic destiny.
- Reduced Transaction Costs: Using local currencies could lower transaction costs associated with foreign exchange.
- Diversification of Risks: Reducing reliance on a single currency can help mitigate risks associated with currency fluctuations and geopolitical tensions
- De-dollarization is being pursued by countries like China, Russia, and India to reduce their dependence on the US dollar.
Context: No plans for de-dollarisation: Das
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