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All questions of Central Banking for B Com Exam
What is the role of the Reserve Bank of India (RBI) in managing foreign exchange?- a)Facilitating external trade and payment
- b)Promoting foreign investment in India
- c)Regulating the exchange rate of the Indian Rupee
- d)All of the above
Correct answer is option 'D'. Can you explain this answer?
a)
Facilitating external trade and payment
b)
Promoting foreign investment in India
c)
Regulating the exchange rate of the Indian Rupee
d)
All of the above
|
Universal Academy answered |
The Reserve Bank of India (RBI) plays a crucial role in managing foreign exchange. It facilitates external trade and payment by ensuring the smooth flow of foreign exchange for imports and exports. The RBI also promotes foreign investment in India by creating a conducive environment for foreign investors and regulating their transactions. Additionally, the RBI is responsible for regulating the exchange rate of the Indian Rupee in the foreign exchange market. Overall, the RBI acts as a manager of foreign exchange to support the country's international trade and investment activities.
Which instrument of monetary policy is used by the RBI to control inflation by making borrowing expensive for commercial banks?- a)Bank rate
- b)Repo rate
- c)Reverse repo rate
- d)Cash Reserve Ratio (CRR)
Correct answer is option 'B'. Can you explain this answer?
a)
Bank rate
b)
Repo rate
c)
Reverse repo rate
d)
Cash Reserve Ratio (CRR)
|
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Universal Academy answered |
The RBI uses the repo rate as an instrument of monetary policy to control inflation. When the RBI increases the repo rate, it makes borrowing expensive for commercial banks. This encourages banks to lend at higher interest rates, which reduces the availability of money in the economy. By restricting the availability of money, the RBI aims to control inflation. The reverse repo rate, on the other hand, is the rate at which the RBI borrows from commercial banks and can be used to control liquidity in the banking system.
Which credit rating agency is a subsidiary of the Fitch Group, a major financial information service provider and rating agency?- a)CRISIL
- b)CARE
- c)ICRA
- d)Fitch India
Correct answer is option 'D'. Can you explain this answer?
a)
CRISIL
b)
CARE
c)
ICRA
d)
Fitch India
|
Bank Exams India answered |
Fitch India, also known as India Ratings and Research (Ind-Ra), is a subsidiary of the Fitch Group, a major financial information service provider and rating agency. The Fitch Group operates in over 30 countries and is known for its expertise in credit ratings and research. Ind-Ra, as a subsidiary of the Fitch Group, benefits from its global network and resources. Ind-Ra provides credit opinions, research, and ratings for various entities, including corporate issuers, financial institutions, banks, insurance companies, urban local bodies, structured finance, and project finance. Ind-Ra is recognized by regulatory authorities such as the Securities and Exchange Board of India, the National Housing Bank, and the Reserve Bank of India. Its affiliation with the Fitch Group enhances its credibility and global reach.
Which instrument of monetary policy is used by the RBI to absorb excess liquidity from the banking system?- a)Repo rate
- b)Reverse repo rate
- c)Marginal Standing Facility (MSF)
- d)Statutory Liquidity Ratio (SLR)
Correct answer is option 'B'. Can you explain this answer?
a)
Repo rate
b)
Reverse repo rate
c)
Marginal Standing Facility (MSF)
d)
Statutory Liquidity Ratio (SLR)
|
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Bank Exams India answered |
The reverse repo rate is the instrument used by the RBI to absorb excess liquidity from the banking system. In a reverse repo transaction, banks purchase government securities from the RBI and lend money to the central bank. This helps in draining excess liquidity from the banking system. By increasing the reverse repo rate, the RBI makes it more attractive for banks to park their excess funds with the central bank, reducing the availability of money in the economy. This tool is used to control liquidity and manage inflationary pressures.
Which instrument of monetary policy is used by the RBI to control the availability of money in the economy?- a)Bank rate
- b)Repo rate
- c)Reverse repo rate
- d)Cash Reserve Ratio (CRR)
Correct answer is option 'D'. Can you explain this answer?
a)
Bank rate
b)
Repo rate
c)
Reverse repo rate
d)
Cash Reserve Ratio (CRR)
|
|
Universal Academy answered |
The Cash Reserve Ratio (CRR) is the instrument used by the RBI to control the availability of money in the economy. Commercial banks are required to maintain a certain proportion of their deposits in the form of cash with the RBI. By increasing or decreasing the CRR, the RBI can regulate the amount of money available for lending by commercial banks. When the CRR is increased, banks have to keep a higher proportion of their deposits with the RBI, reducing the amount of money available for lending. On the other hand, a decrease in the CRR increases the availability of money for lending.
Which credit rating agency is recognized by the Securities and Exchange Board of India, the National Housing Bank, and the Reserve Bank of India?- a)CRISIL
- b)CARE
- c)ICRA
- d)Fitch India
Correct answer is option 'C'. Can you explain this answer?
a)
CRISIL
b)
CARE
c)
ICRA
d)
Fitch India
|
|
Universal Academy answered |
ICRA, which stands for Investment Information and Credit Rating Agency, is recognized by the Securities and Exchange Board of India (SEBI), the National Housing Bank, and the Reserve Bank of India. ICRA is an independent professional corporate investment information and credit rating and advisory agency. It provides credit ratings, performance ratings, and grading services for various entities, including corporate issuers, financial institutions, banks, insurance companies, urban local bodies, structured finance, and project finance. ICRA is headquartered in Gurugram, Haryana, and is listed on the Bombay Stock Exchange and the National Stock Exchange. Its recognition by regulatory authorities in India reflects its credibility and adherence to industry standards.
What is the purpose of the Statutory Liquidity Ratio (SLR) set by the RBI?- a)To maintain price stability
- b)To control inflation
- c)To regulate the expansion of bank credit
- d)To manage foreign exchange
Correct answer is option 'C'. Can you explain this answer?
a)
To maintain price stability
b)
To control inflation
c)
To regulate the expansion of bank credit
d)
To manage foreign exchange
|
|
Bank Exams India answered |
The Statutory Liquidity Ratio (SLR) is set by the RBI to regulate the expansion of bank credit. SLR is the minimum percentage of assets, such as gold or government-approved securities, that commercial banks are required to maintain before providing credit to customers. By increasing the SLR, the RBI reduces the flow of credit in the economy as banks have to keep a larger proportion of their deposits in non-cash form. This helps in controlling inflation and ensuring the stability of the financial system.
What is the purpose of open market operations (OMOs) conducted by the RBI?- a)To regulate the availability of money in the economy
- b)To control inflation and stimulate economic growth
- c)To manage the foreign exchange reserves
- d)To regulate interest rates in the banking system
Correct answer is option 'A'. Can you explain this answer?
a)
To regulate the availability of money in the economy
b)
To control inflation and stimulate economic growth
c)
To manage the foreign exchange reserves
d)
To regulate interest rates in the banking system
|
|
Bank Exams India answered |
Open market operations (OMOs) conducted by the RBI have the purpose of regulating the availability of money in the economy. OMOs involve the purchase and sale of government securities by the RBI in the open market. When the RBI buys government securities, it injects money into the economy, increasing the availability of money. On the other hand, when the RBI sells government securities, it absorbs money from the economy, reducing the availability of money. By conducting OMOs, the RBI can manage liquidity in the banking system and influence interest rates.
Which of the following credit rating agencies was the first to be set up in India?- a)CRISIL
- b)CARE
- c)ICRA
- d)SMERA
Correct answer is option 'A'. Can you explain this answer?
a)
CRISIL
b)
CARE
c)
ICRA
d)
SMERA
|
|
Bank Exams India answered |
CRISIL, which stands for Credit Rating Information Services of India Limited, was the first credit rating agency to be set up in India. It was established in 1987 and began operations in 1988. CRISIL was promoted by ICICI Limited, UTI, and other financial institutions. Over the years, CRISIL has grown to become a global analytical company that provides credit ratings, research, and risk and policy advisory services to its clients. It is headquartered in Mumbai and has expanded its operations to several countries. CRISIL has played a significant role in the development of credit rating services in India and has a strong track record of growth and innovation.
What is a credit rating agency?- a)An agency that provides loans to individuals and organizations
- b)An agency that rates the creditworthiness of debt issuers
- c)An agency that analyzes the profitability of businesses
- d)An agency that offers financial advisory services to investors
Correct answer is option 'B'. Can you explain this answer?
a)
An agency that provides loans to individuals and organizations
b)
An agency that rates the creditworthiness of debt issuers
c)
An agency that analyzes the profitability of businesses
d)
An agency that offers financial advisory services to investors
|
|
Universal Academy answered |
A credit rating agency is an agency that rates the creditworthiness of debt issuers. These agencies assess the ability of debtors to pay back their interests and loan amounts on time and determine the probability of default. Credit rating agencies provide credit ratings to organizations such as companies, special purpose entities, state governments, local governmental bodies, non-profit organizations, and even countries. They do not provide credit ratings to individual consumers, as that is typically the role of credit bureaus. The ratings provided by credit rating agencies help investors and lenders evaluate the creditworthiness and risk associated with investing in debt securities issued by various entities.
What is the function of the Marginal Standing Facility (MSF) introduced by the RBI?- a)To absorb excess liquidity from the banking system
- b)To provide short-term funds to banks against securities
- c)To regulate the benchmark policy interest rate
- d)To stimulate economic growth through credit expansion
Correct answer is option 'B'. Can you explain this answer?
a)
To absorb excess liquidity from the banking system
b)
To provide short-term funds to banks against securities
c)
To regulate the benchmark policy interest rate
d)
To stimulate economic growth through credit expansion
|
|
Bank Exams India answered |
The Marginal Standing Facility (MSF) introduced by the RBI provides a facility for banks to borrow short-term funds against securities. It serves as a mechanism for banks to meet their liquidity mismatches and obtain funds from the RBI. Banks can pledge government securities within the limits of the statutory liquidity ratio (SLR) to avail funds through the MSF. This facility helps in managing liquidity in the banking system and provides a source of short-term funds for banks.
Which of the following traits is necessary for venture capital investment?- a)Low-risk ongoing projects
- b)Short-term investment period
- c)Investment in shares of established businesses
- d)Moderate level of profit potential
Correct answer is option 'C'. Can you explain this answer?
a)
Low-risk ongoing projects
b)
Short-term investment period
c)
Investment in shares of established businesses
d)
Moderate level of profit potential
|
|
Universal Academy answered |
For venture capital investment, it is necessary for the business firm to have invested in shares of established business enterprises that have a strong history of profits. This indicates that the business has made strategic investments and has a track record of success. Venture capital is not typically provided for low-risk ongoing projects. The investment period for venture capital is usually long-term, ranging from two to ten years. Additionally, venture capital is focused on financing businesses with high growth potential and a high level of risk, which also ensures the potential for high profits. Once the funding is provided, the investor must remain active in the business to support its growth and success.
Which credit rating agency focuses on assessing the credit risk in India and does not cater to international companies and organizations?- a)CRISIL
- b)CARE
- c)ICRA
- d)Fitch India
Correct answer is option 'C'. Can you explain this answer?
a)
CRISIL
b)
CARE
c)
ICRA
d)
Fitch India
|
|
Universal Academy answered |
ICRA primarily focuses on assessing the credit risk in India and does not cater to international companies and organizations. ICRA is an independent professional corporate investment information and credit rating and advisory agency headquartered in Gurugram, Haryana. It provides credit ratings, performance ratings, and grading services for various entities in India, including corporate issuers, financial institutions, banks, insurance companies, urban local bodies, structured finance, and project finance. ICRA's focus on the Indian market allows it to specialize in analyzing the creditworthiness and risk associated with Indian entities. Its ratings and research are widely used by investors and lenders to evaluate investment opportunities and make informed decisions in the Indian market.
What is the main function of the Reserve Bank of India?- a)Formulating and implementing monetary policy
- b)Regulating and supervising the financial system
- c)Managing foreign exchange
- d)All of the above
Correct answer is option 'D'. Can you explain this answer?
a)
Formulating and implementing monetary policy
b)
Regulating and supervising the financial system
c)
Managing foreign exchange
d)
All of the above
|
|
Bank Exams India answered |
The main function of the Reserve Bank of India (RBI) is to formulate and implement monetary policy, regulate and supervise the financial system, and manage foreign exchange. The RBI plays a crucial role in maintaining price stability, ensuring adequate flow of credit, protecting depositors' interests, and promoting the development of the financial system. It acts as the banker to the government and provides various banking services to commercial banks. Overall, the RBI plays a vital role in the Indian economy.
Which credit rating agency is a subsidiary of Standard & Poor's, one of the largest credit rating agencies in the world?- a)CRISIL
- b)CARE
- c)ICRA
- d)SMERA
Correct answer is option 'A'. Can you explain this answer?
a)
CRISIL
b)
CARE
c)
ICRA
d)
SMERA
|
|
Bank Exams India answered |
CRISIL is a subsidiary of Standard & Poor's, one of the largest credit rating agencies in the world. Standard & Poor's is a major financial information service provider and rating agency with operations in over 30 countries. It has a significant presence in the global credit rating industry. CRISIL, as a subsidiary of Standard & Poor's, benefits from its expertise, resources, and global network. The association with Standard & Poor's adds credibility and enhances the global reach of CRISIL's credit ratings and other services. CRISIL's affiliation with Standard & Poor's contributes to its strong track record of growth and innovation in the credit rating industry.
Which credit rating agency is primarily focused on rating Micro, Small, and Medium Enterprises (MSMEs) in India?- a)CRISIL
- b)CARE
- c)ICRA
- d)SMERA
Correct answer is option 'D'. Can you explain this answer?
a)
CRISIL
b)
CARE
c)
ICRA
d)
SMERA
|
|
Bank Exams India answered |
SMERA, which stands for Small and Medium Enterprises Rating Agency of India, is primarily focused on rating Micro, Small, and Medium Enterprises (MSMEs) in India. It was established in 2005 by Small Industries Development Bank of India (SIDBI), Dun and Bradstreet Information Services India Private Limited (D&B), and various public, private sector, and multinational banks in India. SMERA is registered with SEBI as a credit rating agency and accredited by the Reserve Bank of India. It provides credit ratings and grading services for various instruments and plays a key role in assessing the financial health and creditworthiness of MSMEs in India. SMERA has rated over 38,000 enterprises to date and is highly considered by financial institutions when approving or lending funds to MSMEs.
What is venture capital investment?- a)A loan provided to business firms by financial institutions
- b)Financing provided to risky projects with promising future prospects
- c)Investment in government bonds and securities
- d)Funding provided to established business enterprises
Correct answer is option 'B'. Can you explain this answer?
a)
A loan provided to business firms by financial institutions
b)
Financing provided to risky projects with promising future prospects
c)
Investment in government bonds and securities
d)
Funding provided to established business enterprises
|
|
Bank Exams India answered |
Venture capital investment refers to the financing provided to business firms that are considered risky but have a promising future prospect. It is a form of funding that focuses on technology-based or innovative business enterprises. Unlike traditional loans, venture capital is invested as equity shares rather than as a loan, making it a form of risk capital. This type of investment is suited for businesses that have the potential to grow in the near future and are willing to take on high-risk projects. The investment is typically held for a long period of time, ranging from two to ten years. Once the funding is provided, the investor remains actively involved in the business. Venture capital has emerged as a popular financing alternative in many countries, including the United States and India.
What is the role of the Reserve Bank of India (RBI) as a regulator and supervisor of the financial system?- a)Ensuring stability and confidence in the banking system
- b)Protecting the interests of depositors
- c)Providing cost-effective banking services to the public
- d)All of the above
Correct answer is option 'D'. Can you explain this answer?
a)
Ensuring stability and confidence in the banking system
b)
Protecting the interests of depositors
c)
Providing cost-effective banking services to the public
d)
All of the above
|
|
Bank Exams India answered |
The Reserve Bank of India (RBI) acts as a regulator and supervisor of the financial system to ensure stability and confidence in the banking system. It lays out parameters for banking operations, sets standards for risk management, and monitors compliance to protect the interests of depositors. The RBI also aims to provide cost-effective banking services to the public by promoting competition, innovation, and efficiency in the banking sector. Overall, the RBI plays a crucial role in maintaining public confidence in the financial system and safeguarding the interests of depositors.
What is the purpose of the Cash Reserve Ratio (CRR) set by the RBI?- a)To maintain price stability
- b)To control inflation
- c)To regulate the expansion of bank credit
- d)To encourage economic growth
Correct answer is option 'C'. Can you explain this answer?
a)
To maintain price stability
b)
To control inflation
c)
To regulate the expansion of bank credit
d)
To encourage economic growth
|
|
Universal Academy answered |
The Cash Reserve Ratio (CRR) is set by the RBI to regulate the expansion of bank credit. Commercial banks are required to maintain a certain proportion of their deposits in the form of cash with the RBI. By increasing or decreasing the CRR, the RBI can control the amount of money available for lending by commercial banks. When the CRR is increased, banks have to keep a higher proportion of their deposits with the RBI, reducing the amount of money available for lending and restricting credit expansion. On the other hand, a decrease in the CRR increases the availability of money for lending and stimulates credit growth.
Which of the following examples represents a venture capital investment?- a)A manufacturing company producing high-quality hand tools in China
- b)A national store chain in India with a strong history of profits
- c)An exporter of horticultural products in Africa
- d)A software development company entering the telecommunication switch market in Israel
Correct answer is option 'D'. Can you explain this answer?
a)
A manufacturing company producing high-quality hand tools in China
b)
A national store chain in India with a strong history of profits
c)
An exporter of horticultural products in Africa
d)
A software development company entering the telecommunication switch market in Israel
|
|
Universal Academy answered |
A software development company stepping into the telecommunication switch market in Israel represents a venture capital investment. This example aligns with the concept of venture capital, as it involves investing in a risky project with a promising future prospect. The company is entering a new market with its software development expertise, which indicates potential for growth and profitability. Venture capital investments are typically made in businesses that have the potential to disrupt existing industries or create new opportunities. In this case, the software development company's entry into the telecommunication switch market in Israel demonstrates the potential for innovation and success.
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Indian Financial System
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