Discover comprehensive UPSC Prelims Topic Wise Questions focusing on the Indian Economy, specifically delving into Money, Banking, and the Capital Market. These meticulously curated questions offer insightful preparation for aspirants aiming to ace the UPSC Preliminary examination. Covering key concepts, theories, and practical applications, this resource aids in mastering the nuances of economic principles crucial for success in the competitive exam. From understanding monetary policies to dissecting banking regulations and exploring capital market dynamics, this collection equips candidates with the knowledge and confidence needed to excel. Dive deep into the intricacies of India’s economic landscape, enhance your understanding, and elevate your preparation with targeted questions designed to sharpen your skills and boost your performance on exam day. Unlock your potential and embark on your UPSC journey with a solid foundation in Indian economic principles.
Q1. To prevent recurrence of scams in Indian Capital Market, the Government of India has assigned regulatory powers to (1995)
(a) SEBI
(b) RBI
(c) SBI
(c) ICICI
Ans. (a)
The Securities and Exchange Board of India (SEBI) was originally formed in 1988 as an informal entity. Subsequently, in 1992, it obtained legal recognition and authority via an ordinance to oversee the Indian Capital Market. Its main office is situated in Mumbai. Utilizing its regulatory authority, SEBI has the capacity to oversee and endorse regulations for stock exchanges, examine the financial records of acknowledged stock exchanges, and mandate specific corporations to list on one or multiple stock exchanges, among other functions.
Q2. As part of the liberalisation programme and with a view to attract foreign exchange, the government and the RBI have devised two schemes known as FCNR ‘A’ and FCNR ‘B’. Which of the following is/are true regarding these two schemes ? (1995)
1. Under scheme ‘A’ RBI bears exchange rate fluctuations.
2. Under scheme ‘B’ other banks are to meet out the difference in exchange rate fluctuations.
3. Both the schemes stand withdrawn now.
4. Only scheme ‘A’ has been withdrawn.
Which of the above statement(s) are correct?
(a) Only 3
(b) 1 and 2
(c) 1, 2 and 3
(d) 1, 2 and 4
Ans. (d)
The assertions (1), (2), and (4) are accurate.
Within the FCNR ‘A’ framework, the RBI assumed the currency risk, whereas under the FCNR ‘B’ scheme, banks shoulder this risk. The inception of the Foreign Currency Non-Resident deposits FCNR ‘A’ scheme dates back to 1975, aimed at bolstering foreign exchange reserves. FCNR accounts cater to individuals desiring to hold deposits in a foreign currency of their preference. Essentially, it constitutes a term deposit that NRIs can establish with banks in India, with a maturity period ranging from a minimum of 1 year to a maximum of 5 years. Under the FCNR ‘B’ arrangement, other banks are tasked with bridging the gap resulting from fluctuations in exchange rates. It is advisable for banks to maintain distinct ledgers for FCNR (B) deposits acquired under both schemes, accompanied by a comprehensive audit trail of transactions.
The FCNR (A) initiative was discontinued in 1993 and replaced by FCNR (B) (B for bank). At present, FCNR (B) deposits can be made in 6 currencies: US Dollar, Pound Sterling, Japanese Yen, Euro, Australian Dollar, and Canadian Dollar. FCNR (B) continues to be operational. Consequently, statement (3) is incorrect.
Q3. Which of the following are among the non-plan expenditures of the Government of India? (1995)
1. Defence expenditure
2. Subsidies
3. All expenditures linked with the previous plan periods
4. Interest payment
(a) 1 and 2
(b) 1 and 3
(c) 2 and 4
(d) 1, 2, 3 and 4
Ans. (d)
All the statements are accurate.
Non-Plan expenditure encompasses all expenditures of the Government of India that are not included in the Plan.
This category encompasses both developmental and non-developmental expenses.
Certain expenditures, such as defense and internal security, are fundamental obligations of the state.
Additionally, the central government has unique responsibilities such as managing external affairs, fostering cooperation with other nations, and overseeing currency and minting.
Non-Plan expenditure constitutes the largest proportion of the Indian Government’s total expenditure.
Examples of Non-Plan expenditure include subsidies, defense spending, interest payments, government aid, law and order expenditures, and maintenance costs for existing projects.
It also covers the cost of tax collection, audit expenses, and currency note printing, among others.
Q4. Corporation tax (1995)
(a) is levied and appropriated by the States
(b) is levied by the Union and collected and appropriated by the States
(c) is levied by the Union and shared by the Union and the States
(d) is levied by the Union and belongs to it exclusively
Ans. (c)
The Corporation tax is imposed by the Union and distributed between the Union and the States. Corporation Tax, also known as Corporate Tax, is a direct tax imposed on the net income or profits of corporate entities, whether derived from domestic or foreign business activities. This tax falls within the Union List and is distributed according to the provisions outlined in Article 270. Tolls, sales taxes, land revenue, and vehicle taxes are among the taxes imposed and allocated by the States.
Q5. Which one of the following is not an instrument of selective credit control in India? (1995)
(a) Regulation of consumer credit
(b) Rationing of credit
(c) Margin requirements
(d) Variable cost reserve ratios
Ans. (d)
Among the provided options, Variable cost reserve ratios, which in India is also referred to as Statutory Liquidity Ratio (SLR), is not employed as an instrument of selective credit control in India. Selective or Qualitative Credit Control is utilized to channel credit towards certain activities while restricting and rationing it for others based on priorities and objectives, without altering the total volume of credit. Conversely, Bank Rate, Cash Reserve Ratio (CRR), Statutory Liquidity Ratio (SLR), Repo Rate, and Open Market Operations are instruments of quantitative credit control under monetary policy.
SLR not only aids in credit control but also supports the government’s borrowing programs.
Q6. The Narasimhan Committee for Financial sector Reforms has suggested reduction in (1995)
(a) SLR and CRR
(b) SLR, CRR and Priority Sector Financing
(c) SLR and Financing to capital goods sector
(d) CRR, Priority Sector Financing and Financing to capital goods sector
The Narasimhan Committee on Financial Sector Reforms proposed a decrease in SLR, CRR, and Priority Sector Financing. Established in August 1991, the committee was tasked with examining all facets of India’s financial system. Its primary recommendation was to gradually reduce SLR to 25% and CRR to 10%. Additionally, the committee proposed that banks should have greater funds available for deployment in profitable loan assets as a result of lower SLR and CRR requirements.
Ans. (b)
Q7. The price fluctuations of 4 scripts in a stock market in the four quarters of a year are shown in the table below. Four different investors had the following portfolios of investment in the four companies throughout the year. (1995)
Investor 1 10 of A, 20 of B, 30 of C and 40 of D
Investor 2 40 of A, 10 of B, 20 of C and 30 of D
Investor 3 30 of A, 40 of B, 10 of C and 20 of D
Investor 4 20 of A, 30 of B, 40 of C and 10 of D
Stock Market Performance
| I | II | III | IV | |
| Quarter | Quarter | Quarter | Quarter | |
| Script A | Up 10% | Down 15% | Up 10% | Down 10% |
| Script B | Up 2% | Up 1% | Up 2% | Up 2% |
| Script C | Up 1% | Up 1% | Down 1% | Down 1% |
| Script D | Up 20% | Down 15% | Up 30% | Down 10% |
In the light of the above which one of the following statements is correct?
(a) Investor 2 has made the best investment
(b) Investor 1 has made the best investment
(c) Investor 2 suffered a net loss during the year
(d) Investor 3 suffered a net loss during the year
Ans . (b)
Based on the provided information, Investor 1 has made the most advantageous investment. This is evidenced by their substantial subscription of 40 units in scrip D, which yields the highest effective profit of 25% at the end of the year. In contrast, the other scrips—A and C—are experiencing significant losses, while scrip B is generating a modest profit of 6%. Therefore, Investor 1’s investment in scrip D stands out as the most lucrative choice.
Q8. The main reason for low growth rate in India, inspite capital formation is of high rate of savings and capital formation is (1995)
(a) high birth rate
(b) low level of foreign aid
(c) low capital/output ratio
(d) high capital/output ratio
Ans. (d)
The primary factor contributing to the low growth rate in India, despite the country’s high rate of savings and capital formation, is the “high capital/output ratio.” The capital output ratio delineates the connection between investment levels and the resultant economic growth.
In economics, there exists a straightforward equation that elucidates the interplay among investment, capital output ratio, and economic growth, expressed as G = S/V. Here, G represents economic growth, S denotes saving as a percentage of GDP, and V signifies the capital output ratio.
Q9. Consider the following. (1995)
1. Industrial Finance Corporation of India (IFCI).
2. Industrial Credit and Investment Corporation of India (ICICI).
3. Industrial Development Bank of India (IDBI).
4. Unit Trust of India (UTI).
The correct sequence in which the above were established is
(a) 1,2,4,3
(b) 1,3,2,4
(c) 4,3,2,1
(d) 1,4,3,2
Ans. (a)
The correct sequence of the establishment of the given options is 1, 2, 4, 3. The Industrial Finance Corporation of India (IFCI) Ltd was set up as a Statutory Corporation in 1948, for providing medium and long-term finance to industry. The Industrial Credit and Investment Corporation of India was established in 1955. It was established as the ICICI bank in 1994. Unit Trust of India (UTI) was established in 1963, by an Act of Parliament. It was repealed in 2003, paving way for the bifurcation of UTI into: Unit Trust of India and UTI Mutual Fund. Industrial Development Bank of India (IDBI) was constituted in 1964, as a Development Financial Institution (DFI). On 1st, October 2004, the erstwhile IDBI was converted into a banking company – IDBI Ltd.
Q10. Agricultural Income Tax is assigned to the State government by (1995)
(a) the Finance Commission
(b) the National Development Council
(c) the Inter-State Council
(d) the Constitution of India
Ans. (d)
The Constitution of India assigns the responsibility of Agricultural Income Tax to the State governments. According to Section 2(1A) of the Income Tax Act, 1961, ‘agricultural income’ encompasses income derived from land utilized for agricultural purposes, including rent or revenue.
The collection of agricultural tax falls under the purview of the Finance Commission, whose primary function involves the equitable distribution of the net proceeds of taxes between the Centre and the States. This distribution is determined based on the respective contributions of the Centre and the States to the overall tax revenue.
Q11. The sum of which of the following constitutes Broad Money in India? (1997)
1. Currency with the public
2. Demand deposits with banks
3. Time deposits with banks
4. Other deposits with RBI
Choose the correct answer using the codes given below.
(a) 1 and 2
(b) 1,2 and 3
(c) 1, 2, 3 and 4
(d) 1, 2 and 4
Ans. (c)
All the statements (1), (2), (3), and (4) are accurate.
Broad money encompasses a wider spectrum of bank deposits and other assets that are less liquid in nature. Time deposits, which have a predetermined maturity period, cannot be withdrawn before the expiration of this term.
Broad money (M3) is considered the most adaptable metric for gauging an economy’s money supply. In India, M3 comprises:
- M1: Currency held by the public and demand deposits with banks.
- Time deposits with commercial banks, which have a fixed maturity period and cannot be withdrawn prematurely.
- Other deposits with the Reserve Bank of India, including deposits from foreign central banks, multilateral institutions, financial institutions, and miscellaneous deposits.
A time deposit is an interest-bearing bank account with a specified maturity date. It enables depositors to accrue interest at higher rates compared to regular savings accounts.
Q12. The banks are required to maintain a certain ratio between their cash in hand and total assets. (1998)
This is called
(a) SBR (Statutory Bank Ratio)
(b) SLR (Statutory Liquidity Ratio)
(c) CBR (Central Bank Reserve)
(d) CLR (Central Liquidity Reserve)
Ans. (b)
The Statutory Liquidity Ratio (SLR) is the mandated ratio set by the Reserve Bank of India (RBI), dictating the proportion of a bank’s total assets that must be maintained in the form of cash, gold, or other approved securities. Essentially, it represents the reserve requirement that banks must fulfill before extending credit to customers. Unlike cash reserves, these liquid assets are held by banks themselves rather than being deposited with the RBI. The specific SLR percentage is determined by the RBI.
According to the latest policy rates introduced by the RBI in Indian banking as of May 5, 2022, the SLR rate stands at 18.00%.
Q13. The accounting year of the Reserve Bank of India is (1998)
(a) April-March
(b) July-June
(c) October-September
(d) January-December
Ans. (b)
The accounting year of the Reserve Bank of India traditionally spanned from July to June. However, in September 2019, a decision was made during an RBI directors’ meeting to shift the financial accounting year to March-April, aligning it with the calendar year of the Central Government.
Q14. Which of the following statements is/are correct regarding the Monetary Policy Committee (MPC)? (2017)
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 codes given below.
(a) Only 1
(b) 1 and 2
(c) Only 3
(d) 2 and 3
Ans. (a)
Only statement (1) is accurate.
The RBI’s benchmark interest rates, including MSF, Repo Rate, Reverse Repo Rate, and Liquidity Adjustment Facility, among others, are indeed determined by the Monetary Policy Committee (MPC). The MPC was established on June 27, 2016. The Monetary Policy Department (MPD) of the Reserve Bank assists the MPC in shaping monetary policy.
Q15. Consider the following statements. (2017)
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 statement(s) given above is/are correct?
(a) Only 1
(b) Only 2
(c) Both 1 and 2
(d) Neither 1 nor 2
Ans. (c)
. Both the statements (1) and (2) are correct. National Payments Corporation of India (NPCI) helps in promoting the financial inclusion in the country. The NPCI was incorporated in 2008, as an umbrella organisation for operating retail payments and settlement systems in India. Financial inclusion means that individuals and businesses have access to useful and affordable financial products and services that meet their needs such as transactions, payments, savings, credit and insurance. NPCI has launched RuPay, an indigenously developed Card Payment System designed to meet the expectation and needs of the Indian consumer, banks and merchant eco-system. RuPay supports the issuance of debit, credit and prepaid cards by banks in India and thereby supporting the growth of retail electronic payments in India.
Q16. If a commodity is provided free to the public by government, then (2018)
(a) the opportunity cost is zero.
(b) the opportunity cost is ignored.
(c) the opportunity cost is transferred from the consumers of the product to the tax paying public.
(d) the opportunity cost is transferred from the consumers of the product to the government.
Ans. (c)
If a commodity is distributed freely to the public by the government, the opportunity cost is shifted from the consumer of the product to the tax-paying public. According to microeconomics, free goods such as air and common goods like fish and grazing land have an opportunity cost of zero. However, for public goods such as street lights and defense, the opportunity cost is not zero. When individuals or businesses choose one option over another, the opportunity cost represents the benefit they forgo.
Q17. Despite being a high saving economy, capital formation may not result in significant increase in output due to (2018)
a) weak administrative machinery
(b) illiteracy
(c) high population density
(d) high capital-output ratio
Ans. (d)
Investing in an economy with a high Capital-Output Ratio (COR) may not necessarily lead to a significant increase in output. The Capital-Output Ratio represents the amount of capital required to produce one unit of output. A higher COR value indicates inefficiency in production. For instance, if investment in an economy constitutes 32% of its GDP and the corresponding economic growth is 8%, the Capital-Output Ratio would be 32/8, or 4. This means that for every unit of output produced, 4 units of capital are required.
In cases of high Capital-Output Ratios, despite substantial investments and capital formation, there may not be a substantial increase in output. This inefficiency arises from the fact that a larger proportion of capital is needed to generate each unit of output, which can hinder the overall productivity and effectiveness of the investment.
Q18. With reference to the governance of the public sector banking in India, consider the following statements. (2018)
1. Capital infusion into public sector banks by the Government of India has steadily increased in the last decade.
2. To put the public sector banks in order, the merger of associate banks with the parent State Bank of India has been affected.
Which of the statement(s) given above is/are correct?
(a) Only 1
(b) Only 2
(c) Both 1 and 2
(d) Neither 1 nor 2
Ans. (b)
With regard to the governance of public sector banking in India, statement (2) is accurate. The merger of associate banks with the parent State Bank of India has indeed been executed to streamline the operations of public sector banks. This move, coupled with capital infusion, has assisted SBI in recovering from incurring losses attributed to issues such as bad loans (NPAs) and poor management practices. Capital infusion typically involves transferring funds from a profitable unit or subsidiary of a company to a loss-making unit.
However, statement (1) is incorrect. Capital infusion into public sector banks by the Government of India has not steadily increased but has, on average, risen over the past decade.
Q19. Consider the following statements. (2018)
1. The Reserve Bank of India manages and services Government of India securities, but not any State Government securities.
2. Treasury bills are issued by the Government of India and there are no treasury bills issued by the State Governments.
3. Treasury bills offers are issued at a discount from the par value.
Which of the statement(s) given above is/are correct?
(a) 1 and 2
(b) Only 3
(c) 2 and 3
(d) 1,2 and 3
Ans. (c)
Statements (2) and (3) are indeed accurate.
Treasury bills are exclusively issued by the Government of India, and there are no treasury bills issued by state governments. These bills, also known as T-bills, are short-term debt instruments traded in the money market. They are issued in three tenors: 91 days, 182 days, and 364 days.
Treasury bills are typically issued at a discount from their par value. For instance, a ₹1,000 bill might be purchased by an investor for ₹950. These bills are considered zero-coupon securities, meaning they do not pay any interest.
However, statement (1) is incorrect. The Reserve Bank of India (RBI) manages securities issued by both the Central and State Governments.
Q20. Consider the following statements. (2018)
1. Capital Adequacy Ratio (CAR) is the amount that the 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 any dues.
2. CAR is decided by each individual bank.
Which of the statements given above is/are correct?
(a) Only 1
(b) Only 2
(c) Both 1 and 2
(d) Neither 1 nor 2
Ans. (a)
Only statement (1) is accurate.
Capital Adequacy Ratio (CAR) represents the amount that banks are required to maintain as their own funds to mitigate potential losses in case account holders default on repayment obligations. It is calculated as the ratio of a bank’s capital to its risk-weighted assets and current liabilities. CAR ensures that banks possess sufficient capital to safeguard depositors’ funds.
Q21. Which of the following best describes the term ‘Merchant Discount Rate’? (2018)
(a) The incentive by a bank given to a merchant for accepting payments through debit cards for financial transactions for purchasing goods and services.
(b) The amount paid by banks to their customers when they pay by debit cards for financial transactions for purchasing goods and services.
(c) The charge to a merchant by a bank for accepting payments from his customers through the bank’s debit card.
(d) The incentive given by the Government to merchants for promoting digital payments by their customers through POS (Point of Sale) machines and debit cards.
Ans. (c)
The term “Merchant Discount Rate” (MDR) refers to the charge imposed by a bank on a merchant for accepting payments from their customers through the bank’s debit card. MDR encompasses the fee levied on a merchant by a bank for facilitating transactions made by customers using credit and debit cards at their establishments.
This rate compensates various parties involved, including the card issuing bank, the lender providing the Point of Sale (POS) terminal, and payment gateways such as MasterCard or Visa, for their services. Typically, MDR charges are shared between the bank and the merchant in a pre-agreed proportion and are expressed as a percentage of the transaction amount.
Q22. Which one of the following links all the ATMs in India? (2018)
(a) Indian Banks’ Association
(b) National Securities Depository Ltd.
(c) National Payments Corporation of India
(d) Reserve Bank of India
Ans. (c)
The National Payments Corporation of India (NPCI) indeed serves as the entity that connects all ATMs across India. It acts as the apex authority responsible for maintaining a nationwide network of ATMs. The National Financial Switch (NFS) is the largest network of shared Automated Teller Machines (ATMs) in the country and serves as the primary multilateral ATM network.
The NFS ATM network was conceptualized, developed, and deployed by the Institute for Development and Research in Banking Technology (IDRBT) in 2004. Its purpose is to interconnect ATMs throughout the nation, facilitating convenience banking for individuals.
Q23. Which one of the following is not the most likely measure the government/RBI takes to stop the slide of Indian rupee? (2019)
(a) Curbing imports of non-essential goods and promoting exports
(b) Encouraging Indian borrowers to issue rupee denominated Masala Bonds
(c) Easing conditions relating to external commercial borrowing
(d) Following an expansionary monetary policy
Ans. (d)
Following an expansionary monetary policy is the least likely measure for the government to stimulate the economy.
To halt the depreciation of the Indian rupee, the following measures can be undertaken:
- Curbing imports and promoting exports: By reducing imports and encouraging exports, the demand for foreign currency decreases, which helps stabilize the value of the rupee.
- Review of External Commercial Borrowing (ECB) route: This involves evaluating and possibly adjusting the policies related to external commercial borrowing to regulate the flow of foreign currency into the economy, which can impact the exchange rate.
- Exemption of Masala Bonds from withholding tax: Masala bonds are rupee-denominated bonds issued in overseas markets. Exempting them from withholding tax can make them more attractive to foreign investors, leading to inflows of foreign currency and potentially stabilizing the rupee.
Q24. Consider the following statements. (2019)
The Reserve Bank of India’s recent directives relating to ‘Storage of Payment System Data’, popularly known as Data Diktat, command the payment system providers that
1. they shall ensure that the entire data relating to payment systerhs operated by them are stored in a system only in India.
2. they shall ensure that the systems are owned and operated by public sector enterprises.
3. they shall submit the consolidated system audit report to the Comptroller and Auditor General of India by the end of the calendar year.
Which of the statement(s) given above is/are correct?
(a) Only 1
(b) 1 and 2
(c) Only 3
(d) 1,2 and 3
Ans. (a)
Statement (1) is indeed accurate. The Reserve Bank of India (RBI) issued directives regarding the ‘Storage of Payment System Data,’ mandating that payment system providers ensure that all data related to payment systems they operate is stored solely within India. This data must encompass complete end-to-end transaction details or information collected, carried, or processed as part of the payment instruction.
Regarding foreign transactions, the RBI specified that data can also be stored in a foreign country if necessary. However, system providers must ensure compliance with data storage requirements within a period of six months and report their compliance to the RBI.
Q25. The money multiplier in an economy increases with which one of the following? (2019)
(a) Increase in the Cash Reserve Ratio.
(b) Increase in the banking habit of the population.
(c) Increase in the Statutory Liquidity Ratio.
(d) Increase in the population of the country.
Ans. (b)
The increase in the banking habit of the population tends to enhance the money multiplier.
The money multiplier is defined as the ratio of the stock of money to the stock of high-powered money in an economy. Its value is invariably greater than 1. The formula for calculating the money supply is given by:
[ M = \frac{1}{edr \times Hedr + rdr} ]
Where:
- ( M ) = stock of money
- ( H ) = high-powered money stock
- ( edr ) = currency deposit ratio
- ( rdr ) = reserve deposit ratio
A high (or low) value of Cash Reserve Ratio (CRR) or Statutory Liquidity Ratio (SLR) influences the Reserve Deposit Ratio. An increase (or decrease) in CRR or SLR tends to decrease (or increase) the value of the Reserve Deposit Ratio, thereby impacting the money multiplier.
Q26. Which of the following is not included in the assets of a commercial bank in India? (2019)
(a) Advances
(b) Deposits
(c) Investments
(d) Money at call and short notice
Ans. (b)
Deposits are indeed not considered assets of a commercial bank in India.
The assets of commercial banks encompass various items, such as cash in hand and with the Reserve Bank of India (RBI), money at call and short notice, investments, and loans, advances, and bills discounted and purchased.
On the other hand, liabilities of commercial banks include paid-up capital and reserves, time deposits, demand deposits, and borrowing. Deposits represent a liability for a commercial bank, as the bank is obligated to return the deposited amount to its customers upon demand.
Q27. What was the purpose of Inter-Creditor Agreement signed by Indian banks and financial institutions recently? (2019)
(a) To lessen the Government of India’s perennial burden of fiscal deficit and current account deficit
(b) To support the infrastructure projects of Central and State Governments
(c) To act as independent regulator in case of applications for loans of₹ 50 crore or more
(d) To aim at faster resolution of stressed assets of t 50 crore or more which are under consortium lending
Ans. (d)
Banks and financial institutions have entered into an Inter-Creditor Agreement (ICA) with the aim of expediting the resolution process for stressed assets valued at 50 crore or more, particularly those under consortium lending arrangements. This agreement has been endorsed by 22 public sector banks, 19 private sector banks, 32 foreign banks, and 12 major financial intermediaries such as LIC and HUDCO. The initiative forms a part of the broader ‘Sashakt’ project.
The Inter-Creditor Agreement (ICA) was developed under the guidance of the Indian Banks Association and aligns with the recommendations put forth by the Sunil Mehta Committee on stressed asset resolution. Essentially, the ICA serves as an agreement among banks with outstanding dues from a borrower experiencing financial distress.
Q28. The Chairman of public sector banks are selected by the (2019)
(a) Banks Board Bureau
(b) Reserve Bank of India
(c) Union Ministry of Finance
(d) Management of concerned bank
Ans. (a)
Statement (1) and (2) are indeed accurate with reference to India’s Five Year Plans.
The Second Five Year Plan underscored India’s focus on leveraging modern technology to enhance production capacity across sectors such as minerals, basic industries, and capital goods.
Similarly, the Fourth Five Year Plan prioritized the objective of rectifying inequalities in income, wealth, and economic power within the country.
However, statement (3) is incorrect. The financial sector was indeed included as an integral part of the Fifth Five Year Plan, not the Fourth. The Fifth Five Year Plan, covering the period from 1974 to 1979, emphasized the importance of financial sector reforms and development to support overall economic growth.
Q29. With reference to India’s Five Year Plans, which of the following statements is/are correct? (2019
1. From the Second Five Year Plan, there was a determined thrust towards substitution of basic and capital good industries.
2. The Fourth Five Year Plan adopted the objective of correcting the earlier trend of increased concentration of wealth and economic power.
3. In the Fifth Five Year Plan, for the first time, the financial sector was included as an integral part of the plan.
Select the correct answer by using the codes given below.
(a) 1 and 2
(b) Only 2
(c) Only 3
(d) 1, 2 and 3
Ans. (a)
Statement (1) and (2) are accurate concerning India’s Five Year Plans. The Second Five Year Plan underscored India’s adoption of modern technology, necessitating increased production in sectors such as minerals, basic, and capital goods industries. The Fourth Five Year Plan aimed to rectify inequalities of income, wealth, and economic power.
Statement (3) is incorrect because the financial sector was not integrated as an essential component of the Fifth Five Year Plan. Instead, it was incorporated in the Fourth Five Year Plan.
Q30. 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 (2020)
(a) to reduce it by 1,00,000
(b) to increase it by ₹ 1,00,000
(c) to increase it by more than 1,00,000
(d) to leave it unchanged
Ans. (d)
The initial impact on the aggregate money supply in the economy would be to keep it constant. Money supply denotes the money available for transactions within the economy. The fundamental constituents of money supply are: Currency with the Public (C), comprising currency notes issued by the RBI and rupee coins and notes in circulation, and Demand Deposits of the public with Banks (D), which can be withdrawn by the public at any time.
At a rudimentary level, we can represent money supply as: M = C + D. If we withdraw 1 lakh from ‘D’, it would increase ‘C’ held by the public. Consequently, the immediate consequence would be no alteration in the aggregate money supply in the economy. This conclusion holds true even when employing technical measures of money supply such as M1, M2, M3, and M4.
Q31. If the RBI decides to adopt an expansionist monetary policy, which of the following would it not do? (2020)
1. Cut and optimise 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.
(a) 1 and 2
(b) Only 2
(c) 1 and 3
(d) 1, 2 and 3
Ans. (b)
Statement (2) is accurate.
Should the RBI opt for an expansionary monetary approach,
it raises the marginal standing facility rate.
Expansionary measures are enacted by the Reserve Bank of India to ease interest standards and enhance liquidity in the market, thereby stimulating economic growth.
This action enhances the buying capacity of workers. It is alternatively termed as the ‘relaxed-moderate strategy’.
An expansionary stance from the RBI encompasses the following:
Decreasing statutory liquidity ratio
Decreasing the marginal standing facility rate
Decreasing both bank rate and repo rate
Q32. Consider the following statements. (2020)
1. In terms of short-term credit delivery to the agriculture sector, District Central Cooperative to Scheduled Commercial Banks (SCBs) and Regional Rural Banks (RRBs).
2. One of the most important functions of DCCBs is to provide funds to the Primary Agricultural Credit Societies.
Which of the statement(s) given above is/are correct?
(a) Only 1
(b) Only 2
(c) Both 1 and 2
(d) Neither 1 nor 2
Ans. (c )
Both statements (1) and (2) are accurate.
Regarding the provision of short-term credit to the agricultural sector, District Central Cooperative Banks (DCCBs) extend more credit compared to Scheduled Commercial Banks (SCBs) and Regional Rural Banks (RRBs).
A District Central Cooperative Bank (DCCB) is a cooperative bank operating at the district level across various regions of the country.
Its establishment aimed to furnish banking services to rural areas, particularly catering to the agriculture sector.
Contrary to popular belief, District Cooperative Central Banks provide a lesser amount of short-term credit compared to Scheduled Commercial Banks and Regional Rural Banks.
A pivotal role of DCCBs is to allocate funds to Primary Agricultural Credit Societies.
A Primary Agricultural Credit Society represents the smallest cooperative credit institution in India, receiving funds from District Central Cooperative Banks.
Q33. In India, under cyber insurance for individuals, which of the following benefits are generally covered, in addition to payment for the loss of funds and other benefits? (2020)
1. Cost of restoration of the computer system in case of malware disrupting access to one’s computer.
2. Cost of a new computer if some miscreant wilfully damages it, if proved so.
3. Cost of hiring a specialised consultant to minimise the loss in case of cyber extortion.
4. Cost of defence in the Court of Law if any third party files a suit.
Select the correct answer using the code given below.
(a) 1,2 and 4
(b) 1, 3 and 4
(c) 2 and 3
(d) 1, 2, 3 and 4
Ans. (b)
Statement (1), (3), and (4) are accurate concerning cyber insurance for individuals, as the majority of cybersecurity policies not only provide extensive coverage against cyber threats and fraud but also reimburse legal expenses.
Furthermore, this insurance extends to covering the costs associated with counselling sessions with psychologists due to any traumatic stress resulting from cyberbullying or harassment.
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