IASbaba's Daily Static Quiz
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DAILY STATIC QUIZ will cover all the topics of Static/Core subjects – Polity, History, Geography, Economics, Environment and Science and technology.
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UPSC Static Quiz - 2020 : IASbaba's Daily Static Quiz - ECONOMY [Day 14]
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Question 1 of 10
1. Question
Consider the following statements
- Price of a bond is inversely related to the market rate of interest.
- Speculative demand for money is inversely related to the rate of interest.
Which of the statements given above is/are NOT correct?
Correct
Solution (d)
Price of a bond is inversely related to the market rate of interest.
Hence Statement 1 is correct.
Speculative demand for money is inversely related to the rate of interest.
Hence Statement 2 is correct.
Incorrect
Solution (d)
Price of a bond is inversely related to the market rate of interest.
Hence Statement 1 is correct.
Speculative demand for money is inversely related to the rate of interest.
Hence Statement 2 is correct.
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Question 2 of 10
2. Question
Consider the following statements
- Net Reserve Bank credit to Government includes the Reserve Bank’s credit to Central as well as State Governments.
- Demand deposits include all liabilities which are payable on demand except unclaimed deposits.
Which of the statements given above is/are correct?
Correct
Solution (a)
‘Net Reserve Bank credit to Government’ includes the Reserve Bank’s credit to Central as well as State Governments. It includes ways and means advances and overdrafts to the Governments, the Reserve Bank’s holdings of Government securities, and the Reserve Bank’s holdings of rupee coins less deposits of the concerned Government with the Reserve Bank.
Hence Statement 1 is correct.
‘Demand deposits’ include all liabilities which are payable on demand and they include current deposits, demand liabilities portion of savings bank deposits, margins held against letters of credit/ guarantees, balances in overdue fixed deposits, cash certificates and cumulative/ recurring deposits, outstanding Telegraphic Transfers (TTs), Mail Transfers (MTs), Demand Drafts (DDs), unclaimed deposits, credit balances in the Cash Credit account and deposits held as security for advances which are payable on demand.
Hence Statement 2 is incorrect.
Incorrect
Solution (a)
‘Net Reserve Bank credit to Government’ includes the Reserve Bank’s credit to Central as well as State Governments. It includes ways and means advances and overdrafts to the Governments, the Reserve Bank’s holdings of Government securities, and the Reserve Bank’s holdings of rupee coins less deposits of the concerned Government with the Reserve Bank.
Hence Statement 1 is correct.
‘Demand deposits’ include all liabilities which are payable on demand and they include current deposits, demand liabilities portion of savings bank deposits, margins held against letters of credit/ guarantees, balances in overdue fixed deposits, cash certificates and cumulative/ recurring deposits, outstanding Telegraphic Transfers (TTs), Mail Transfers (MTs), Demand Drafts (DDs), unclaimed deposits, credit balances in the Cash Credit account and deposits held as security for advances which are payable on demand.
Hence Statement 2 is incorrect.
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Question 3 of 10
3. Question
Consider the following statements
- M2 and M3 are known as broad money.
- Broad money (M3) growth has been on declining trend from 2009 to 2017-18.
Which of the statements given above is/are correct?
Correct
Solution (b)
M1 and M2 are known as narrow money. M3 and M4 are known as broad money. These gradations are in decreasing order of liquidity.
Hence Statement 1 is incorrect.
Broad money (M3) growth has been on declining trend since 2009. However, since 2018-19 it has picked up marginally, mainly driven by the growth in aggregate deposits and stands at 10.4 per cent as on December 2019.
Hence Statement 2 is correct.
Incorrect
Solution (b)
M1 and M2 are known as narrow money. M3 and M4 are known as broad money. These gradations are in decreasing order of liquidity.
Hence Statement 1 is incorrect.
Broad money (M3) growth has been on declining trend since 2009. However, since 2018-19 it has picked up marginally, mainly driven by the growth in aggregate deposits and stands at 10.4 per cent as on December 2019.
Hence Statement 2 is correct.
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Question 4 of 10
4. Question
Consider the following statements:
- The currency deposit ratio is the ratio of money held by the public in currency to that they hold in bank deposits.
- Reserve deposit ratio is the proportion of the total deposits commercial banks keep as reserves.
Which of the statements given above is/are NOT correct?
Correct
Solution (d)
The currency deposit ratio (cdr) is the ratio of money held by the public in currency to that they hold in bank deposits.
Hence Statement 1 is correct.
Reserve deposit ratio (rdr) is the proportion of the total deposits commercial banks keep as reserves.
Hence Statement 2 is correct.
Incorrect
Solution (d)
The currency deposit ratio (cdr) is the ratio of money held by the public in currency to that they hold in bank deposits.
Hence Statement 1 is correct.
Reserve deposit ratio (rdr) is the proportion of the total deposits commercial banks keep as reserves.
Hence Statement 2 is correct.
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Question 5 of 10
5. Question
Consider the following statements:
- Statutory Liquidity Ratio specifies the fraction of their deposits that banks must keep with RBI.
- The rate of interest offered by the bank to deposit holders is called the borrowing rate.
Which of the statements given above is/are correct?
Correct
Solution (b)
Statutory Liquidity Ratio requires the banks to maintain a given fraction of their total demand and time deposits in the form of specified liquid assets.
Hence Statement 1 is incorrect.
The rate of interest offered by the bank to deposit holders is called the ‘borrowing rate’ and the rate at which banks lend out their reserves to investors is called the ‘lending rate’. The difference between the two rates, called ‘spread’, is the profit that is appropriated by the banks.
Hence Statement 2 is correct.
Incorrect
Solution (b)
Statutory Liquidity Ratio requires the banks to maintain a given fraction of their total demand and time deposits in the form of specified liquid assets.
Hence Statement 1 is incorrect.
The rate of interest offered by the bank to deposit holders is called the ‘borrowing rate’ and the rate at which banks lend out their reserves to investors is called the ‘lending rate’. The difference between the two rates, called ‘spread’, is the profit that is appropriated by the banks.
Hence Statement 2 is correct.
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Question 6 of 10
6. Question
Consider the following statements about the reverse repo rate:
- Decrease in the reverse repo rate will decrease the money supply in the country.
- If reverse repo rate is increased the bank’s lending rates to customers will also increase.
Which of the following statements is/are INCORRECT?
Correct
Solution (a)
Reverse repo rate is the rate at which the central bank of a country (Reserve Bank of India in case of India) borrows money from commercial banks within the country.
An increase in the reverse repo rate will decrease the money supply and vice-versa, other things remaining constant.
Hence Statement 1 is incorrect
An increase in reverse repo rate means that commercial banks will get more incentives to park their funds with the RBI, thereby decreasing the supply of money in the market. This also means that lending to the consumers becomes risky, as they can easily get risk free returns from parking the money with the RBI. To compensate this, the Banks increase their interest rates to earn more profits for taking the risk.
Hence Statement 2 is correct
Incorrect
Solution (a)
Reverse repo rate is the rate at which the central bank of a country (Reserve Bank of India in case of India) borrows money from commercial banks within the country.
An increase in the reverse repo rate will decrease the money supply and vice-versa, other things remaining constant.
Hence Statement 1 is incorrect
An increase in reverse repo rate means that commercial banks will get more incentives to park their funds with the RBI, thereby decreasing the supply of money in the market. This also means that lending to the consumers becomes risky, as they can easily get risk free returns from parking the money with the RBI. To compensate this, the Banks increase their interest rates to earn more profits for taking the risk.
Hence Statement 2 is correct
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Question 7 of 10
7. Question
Consider the following statements with reference to the Cash reserve ratio (CRR)
- The Cash Reserve Ratio in India is decided by RBI’s Monetary Policy Committee.
- CRR allows RBI to maintain a desired level of inflation, control the money supply and also liquidity in the economy.
- CRR deposits earn interest at the rate which is equal to reverse repo rate.
Which of the above statements is/are correct?
Correct
Solution (c)
The percentage of cash required to be kept in reserves, vis-a-vis a bank’s total deposits, is called the Cash Reserve Ratio.
The Cash Reserve Ratio in India is decided by RBI’s Monetary Policy Committee in the periodic Monetary and Credit Policy.
Hence Statement 1 is correct
CRR is one of the major weapons in the RBI’s arsenal that allows it to maintain a desired level of inflation, control the money supply, and also liquidity in the economy.
Hence Statement 2 is correct
The cash reserve is either stored in the bank’s vault or is sent to the RBI. Banks do not get any interest on the money that is with the RBI under the CRR requirements.
Hence Statement 3 is incorrect
Incorrect
Solution (c)
The percentage of cash required to be kept in reserves, vis-a-vis a bank’s total deposits, is called the Cash Reserve Ratio.
The Cash Reserve Ratio in India is decided by RBI’s Monetary Policy Committee in the periodic Monetary and Credit Policy.
Hence Statement 1 is correct
CRR is one of the major weapons in the RBI’s arsenal that allows it to maintain a desired level of inflation, control the money supply, and also liquidity in the economy.
Hence Statement 2 is correct
The cash reserve is either stored in the bank’s vault or is sent to the RBI. Banks do not get any interest on the money that is with the RBI under the CRR requirements.
Hence Statement 3 is incorrect
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Question 8 of 10
8. Question
Which of the following statements correctly explains the Marginal Standing Facility (MSF)?
Correct
Solution (b)
Marginal Standing Facility (MSF):
A facility under which scheduled commercial banks can borrow additional amount of overnight money from the Reserve Bank by dipping into their Statutory Liquidity Ratio (SLR) portfolio up to a limit at a penal rate of interest. This provides a safety valve against unanticipated liquidity shocks to the banking system.
Incorrect
Solution (b)
Marginal Standing Facility (MSF):
A facility under which scheduled commercial banks can borrow additional amount of overnight money from the Reserve Bank by dipping into their Statutory Liquidity Ratio (SLR) portfolio up to a limit at a penal rate of interest. This provides a safety valve against unanticipated liquidity shocks to the banking system.
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Question 9 of 10
9. Question
An increase in the Bank Rate generally indicates that the
Correct
Solution (c)
A bank rate is the interest rate at which a nation’s central bank lends money to domestic banks, often in the form of very short-term loans. Managing the bank rate is a method by which central banks affect economic activity. Lower bank rates can help to expand the economy by lowering the cost of funds for borrowers, and higher bank rates help to reign in the economy when inflation is higher than desired.
Tight monetary policy: when RBI raises the rates to decrease liquidity.
Incorrect
Solution (c)
A bank rate is the interest rate at which a nation’s central bank lends money to domestic banks, often in the form of very short-term loans. Managing the bank rate is a method by which central banks affect economic activity. Lower bank rates can help to expand the economy by lowering the cost of funds for borrowers, and higher bank rates help to reign in the economy when inflation is higher than desired.
Tight monetary policy: when RBI raises the rates to decrease liquidity.
-
Question 10 of 10
10. Question
Consider the following statements regarding Regional Rural Banks (RRB):
- RRBs have a statutory backing under RRB Act 1976.
- Regional Rural Banks are supervised by National Bank for Agriculture and Rural Development (NABARD)
- Their area of operation includes rural areas only.
Which of the above statements is/are correct?
Correct
Solution (a)
The rural banks had the legislative backing of the Regional Rural Banks Act 1976. This act allowed the government to set up banks from time to time wherever it considered necessary.
Hence Statement 1 is correct
Regional Rural Banks are supervised by National Bank for Agriculture and Rural Development (NABARD).
Hence Statement 2 is correct
They have been created with a view to serve primarily the rural areas of India with basic banking and financial services. RRBs may have branches set up for urban operations and their area of operation may include urban areas too.
Hence Statement 3 is incorrect
Incorrect
Solution (a)
The rural banks had the legislative backing of the Regional Rural Banks Act 1976. This act allowed the government to set up banks from time to time wherever it considered necessary.
Hence Statement 1 is correct
Regional Rural Banks are supervised by National Bank for Agriculture and Rural Development (NABARD).
Hence Statement 2 is correct
They have been created with a view to serve primarily the rural areas of India with basic banking and financial services. RRBs may have branches set up for urban operations and their area of operation may include urban areas too.
Hence Statement 3 is incorrect
