Ramesh Singh : Miscellaneous - 1


10 Questions MCQ Test | Ramesh Singh : Miscellaneous - 1


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QUESTION: 1

Consider the following statements.

1. Payment banks cannot set up subsidiaries to undertake NBFC business.

2. Banks cannot take equity in payment banks.

3. No credit lending is allowed for payments Bank.

Which of these statements is/are correct?

Solution:
  • Payments Banks can accept demand deposits (only current account and gs accounts). They would initially be restricted to holding a maximum balance of Rs 100,000 per customer.

  • Based on performance, the RBI could enhance this limit. The banks can offer payments and remittance services, issuance of prepaid payment instruments, internet banking, functioning as a business correspondent for other banks.

  • Payments Banks cannot set up subsidiaries to undertake NBFC business. As in the case of small banks, other financial and non-financial services activities of the promoters should be ring-fenced.

  • The Payments Banks would be required to use the word 'Payments' in its name to differentiate it from other banks. No credit lending is allowed for Payments Banks.

QUESTION: 2

Consider the following statement regarding Bad bank' :

1. It is a bank which buys the bad loans of the banks

2. The Government of India is presently considering setting up such a bank.

3. It will help India come out of the twin balance sheet problem.

Which of these statements is/are correct?

Solution:
  • The Economic Survey 2016-17 advised the government to set up such a body which is called 'public sector asset reconstruction agency (PARA)'.

  • It will serve twin purposes on one hand it will buy the “non-performing assets' (i.e., bad debts) of the government banks while on the other it will help the corporate sector of the country to come out of the 'red' (their balance sheet is unsustainable) this way helping India to come out of the 'twin balance sheet' (TBS) problem.

QUESTION: 3

Consider the following statements:

1. RBI takes recourse to open market operations (OMOs) to manage liquidity in the system.

2. In OMOs, RBI generally sells G-Sec in the open market, however, in rare cases it also buys back the same from the market.

3. A 'debt switch' is a method in which the RBI buys back G-Secs of short term maturity and replaces it with G-Secs with longer maturity periods.

Which of these statements is/are correct?

Solution:
  • OMOs are an effective quantitative tool in the armoury of the RBI by which it modulates the liquidity in the stem in the short-term. This is a two-way operation through sell or buys of the G-Secs.

  • The OMOs is constrained by the stock of the G-Secs available with the RBI - once it needs to siphon out money from the market.

QUESTION: 4

Which of the following redistributive' policies the government will not adopt if it wants to bridge economic inequality?

1. Rationalising subsidies

2. Progressive tax policies

3. Regressive expenditure

Which of these statements is/are correct?

Solution: Regressive expenditure will never serve the purpose. The government will need to tax the higher income bracket with a higher rate of taxes and rationalise the subsidies so that they go to the needy only and in an adequate amount. All these measures are already being operationalised by the Gol.

QUESTION: 5

Consider the following statements regarding the Marginal Standing Facility (MSF):

1. MSF functions as the last resort for banks to borrow short-term funds.

2. MSF is on the line of the existing LAF and is part of it.

3. Being a penal rate, MSF is a costlier route than the repo.

4. MSF is linked to the net demand and time liabilities of the banks.

Which of these statements is/are correct?

Solution: RBI announced this route in 2011-12 as a penal route for banks to borrow once they have exhausted all borrowing options, i.e., the repo route. MSF rate is regulated by the RBI above the current repo rate. This route can be used by banks for only overnight borrowings and is linked to their net demand and time liabilities (NDTL).

QUESTION: 6

Consider the following statements regarding 'angel investors'.

1. Investors who provide financial backing to entrepreneurs for starting their business.

2. They are investors with positive spillover effects.

3. They may provide finance as a loan or as share capital in the upcoming business.

4. They usually invest in person rather than the economic viability of the business.

5. They are usually from the entrepreneur's family and friends but maybe from outside, too.

6. Venture capital funds serve a similar purpose to the extent arrangement of investible capital is concerned.

Select the incorrect statements using the code given below:

Solution: All the statements are correct about angel investors-a term introduced in the Union Budget 2013-14. SEBI puts them in the Category I AIF (Alternative Investment Fund) with positive spillover effects'. The venture capital funds also come under this. A venture fund invests in business rather than the person (opposite to the angel investor).

QUESTION: 7

Consider the following statements about derivatives in India.

1. A security derived from a debt instrument, share, secured or unsecured loan.

2. A contract which derives its value from the prices or index of underlying assets.

3. A security derived from exchange rates and interest rates.

4. It may be derived from monsoon forecasting.

Select the correct statements using the code given below:

Solution: The derivatives in India have not been allowed to derive their value from the weather forecasting (it is allowed in many developed economies, for example, the USA).

QUESTION: 8

Which of the following items comes under Gross National Product?

1. Private remittances

2. Interest on external loans

3. External grants

Choose from the following options:

Solution:
  • Definition: Gross National Product (GNP) is the Gross Domestic Product (GDP) plus net factor income from abroad.

  • Description: GNP measures the monetary value of all the finished goods and services produced by the country’s factors of production irrespective of their location.

  • Only the finished or, final goods a, reconsidered as factoring intermediate goods used for manufacturing would amount to double counting. It includes taxes but does not include subsidies.

QUESTION: 9

Consider the following actions by the Government:

1. Cutting the tax rates

2. Increasing the government spending

2 Abolishing the subsidies in the context of economic recession

Which of the above actions can be considered a part of the "fiscal stimulus” package?

Solution: Abolishing the subsidies will lead to higher prices of goods and services which are subsidized. A reduction in the tax rate would be a stimulus. While an increase in government expenditure would increase the level of demand in the economy.

QUESTION: 10

Both Foreign Direct Investment (FDI) and Foreign Institutional Investor (FII) are related to investment in a country.

Which one of the following statements best represents an important difference between the two?

Solution:
  • Foreign Direct Investment only targets a specific enterprise. It aims to increase the enterprise's capacity or productivity or change its management control.

  • The FII investment flows only into the secondary market. It helps in increasing capital availability in general rather than enhancing the capital of a specific enterprise.

  • The Foreign Direct Investment is considered to be more stable than Foreign Institutional Investor. FDI not only brings in the capital but also helps in good governance practices and better management skills and even technology transfer.

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