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Test: Indian Economy and Indian Financial System - 2 - Bank Exams MCQ


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100 Questions MCQ Test Mock Test Series for JAIIB Exam 2025 - Test: Indian Economy and Indian Financial System - 2

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Test: Indian Economy and Indian Financial System - 2 - Question 1

If the consumption expenditure increases to Rs. 35,000, gross investment increases to Rs. 45,000, government spending remains at Rs. 20,000, exports remain at Rs. 68,000 and imports increase to Rs. 65,000, what would be the new GDP using the expenditure approach?

Detailed Solution for Test: Indian Economy and Indian Financial System - 2 - Question 1

GDP = C+I+G+(X-M) = 35000+45000+20000+(68000-65000) = 103,000

Test: Indian Economy and Indian Financial System - 2 - Question 2

What is the impact of determining GDP at the production stage, income generation stage, or final use stage on its valuation?

Detailed Solution for Test: Indian Economy and Indian Financial System - 2 - Question 2

The value of output, revenue flows, and final expenditure will be the same. GDP is the same regardless of whether it is measured at the point of production, income generation, or final utilization.

Test: Indian Economy and Indian Financial System - 2 - Question 3

What is the correlation between volatility and risk in the context of price discovery?

Detailed Solution for Test: Indian Economy and Indian Financial System - 2 - Question 3

Some traders actively seek out volatile markets as they offer the potential for larger profits, but they also carry a higher risk of loss.

Test: Indian Economy and Indian Financial System - 2 - Question 4

What does the "New Age 24×7 banking" theme of EASE 4.0 aspire to achieve?

Detailed Solution for Test: Indian Economy and Indian Financial System - 2 - Question 4

The "New Age 24×7 banking" theme of EASE 4.0 aims to ensure uninterrupted availability of banking services by ensuring 24×7 availability of select banking channels, improving the reliability of technology platforms, and aligning internal processes in the PSBs to deliver such services.

Test: Indian Economy and Indian Financial System - 2 - Question 5

Among the following options what was the primary concern of Adam Smith in his work "The Wealth of Nations"?

Detailed Solution for Test: Indian Economy and Indian Financial System - 2 - Question 5

In The Wealth of Nations, Adam Smith studied the determination of prices of land, labour and capital, and inquired into the strengths and weaknesses of the market mechanism.

Test: Indian Economy and Indian Financial System - 2 - Question 6

Which one of the following statements about the Special Drawing Facility (SDF) is inaccurate?

Detailed Solution for Test: Indian Economy and Indian Financial System - 2 - Question 6

The SDF is extended against the collateral of the government securities held by the State Government. To encourage the State's participation in the Consolidated Sinking Fund and Guarantee Redemption Fund, incremental investments in these funds are also eligible for availing SDF.

Test: Indian Economy and Indian Financial System - 2 - Question 7

Which regulatory authority is empowered to call for periodical returns and inspect books and accounts of a bank under the Banking Regulation Act, 1949?

Detailed Solution for Test: Indian Economy and Indian Financial System - 2 - Question 7

Reserve Bank of India The Reserve Bank of India is empowered under the Banking Regulation Act, 1949 to call for periodical returns and inspect books and accounts of a bank.

Test: Indian Economy and Indian Financial System - 2 - Question 8

What amount of funds were allocated to the first presidency bank of India, the Bank of Calcutta, during its inception?

Detailed Solution for Test: Indian Economy and Indian Financial System - 2 - Question 8

Rs 50,00,000 The first 'Presidency Bank'—the Bank of Calcutta was established in Calcutta on June 2, 1806 with a capital of Rs 50 lakhs.

Test: Indian Economy and Indian Financial System - 2 - Question 9

Which of the following is the purported role of the National Asset Reconstruction Company (NARCL)?

Detailed Solution for Test: Indian Economy and Indian Financial System - 2 - Question 9

NARCL has been set up by the government to aggregate and consolidate stressed assets for subsequent resolution.

Test: Indian Economy and Indian Financial System - 2 - Question 10

Which of the following are the primary methods of implementing protectionist policies?

Detailed Solution for Test: Indian Economy and Indian Financial System - 2 - Question 10

The main forms of protectionism are tariffs, import quotas, and non-tariff barriers. Protectionist measures attempt to protect home producers and workers from foreign competition, resulting in decline in trade, price rise, and subsidies for protected industries.

Test: Indian Economy and Indian Financial System - 2 - Question 11

In India, which legal statute is not-permissible for the registration of not-for-profit microfinance institutions (MFIs)?

Detailed Solution for Test: Indian Economy and Indian Financial System - 2 - Question 11

Companies Act, 1956. Not for profit MFIs can be registered under societies registration act or Indian Trust Act, but not under Companies Act.

Test: Indian Economy and Indian Financial System - 2 - Question 12

The Prime Minister dedicated Digital Banking Units (DBU) across districts to the nation. These DBU will further financial inclusion and enhance banking experience for citizens. The government aims to provide maximum services with minimum infrastructure, and all of this will happen digitally without involving any paperwork. It will also simplify the banking procedure while also providing a robust and secure banking system. Recently, the Reserve Bank of India (RBI) also issued guidelines on ‘Establishment of DBUs
How is the Digital Assistance Zone in a DBU serving as a novel approach to providing customer support and enhancing the overall banking experience?

Detailed Solution for Test: Indian Economy and Indian Financial System - 2 - Question 12

It assists customers in opening savings and current accounts. The Digital Assistance Zone is meant to assist customers in undertaking various services, including opening of savings account, current account, etc.

Test: Indian Economy and Indian Financial System - 2 - Question 13

The Prime Minister dedicated Digital Banking Units (DBU) across districts to the nation. These DBU will further financial inclusion and enhance banking experience for citizens. The government aims to provide maximum services with minimum infrastructure, and all of this will happen digitally without involving any paperwork. It will also simplify the banking procedure while also providing a robust and secure banking system. Recently, the Reserve Bank of India (RBI) also issued guidelines on ‘Establishment of DBUs
Which of the following entities are not eligible to set up a DBU as per the RBI guidelines?

Detailed Solution for Test: Indian Economy and Indian Financial System - 2 - Question 13

Only SCBs (excluding Regional Rural Banks, Payments Banks, and Local Area Banks) with past digital banking experience can set up DBUs.

Test: Indian Economy and Indian Financial System - 2 - Question 14

Which individual among the following choices is credited with characterizing Economics as a discipline that focuses on human welfare?

Detailed Solution for Test: Indian Economy and Indian Financial System - 2 - Question 14

According to Prof. Alfred Marshall, the ultimate purpose or objective of Economics is to promote well-being or welfare. Hence, his definition is known as welfare definition.

Test: Indian Economy and Indian Financial System - 2 - Question 15

Which of the following is not a factor limiting the role of the bank rate as an instrument of monetary policy in India?

Detailed Solution for Test: Indian Economy and Indian Financial System - 2 - Question 15

The role of the bank rate as an instrument of monetary policy is limited in India because of the structure of interest rates not being automatically linked to the bank rate, commercial banks enjoying specific refinance facilities, and the bill market being underdeveloped. 

Test: Indian Economy and Indian Financial System - 2 - Question 16

What is the most significant difference between a forward contract and a futures contract in the domain of derivatives?

Detailed Solution for Test: Indian Economy and Indian Financial System - 2 - Question 16

While both futures and forward contracts are agreements to buy or sell an asset at a specified price on a future date, futures contracts trade on exchanges and have standardised terms, while forward contracts are privately negotiated between two parties and are customised to meet their specific needs.

Test: Indian Economy and Indian Financial System - 2 - Question 17

Within the framework of the Indradhanush Plan, which sought to restructure public sector banks (PSBs), what does the fifth component "E" in the acronym ABCDEFG stand for?

Detailed Solution for Test: Indian Economy and Indian Financial System - 2 - Question 17

7 pronged plan includes appointments, Banks board bureau, capitalisation, de-stressing, empowerment, framework of accountability and governance reforms (ABCDEFG).

Test: Indian Economy and Indian Financial System - 2 - Question 18

Which of the following continue to remain the outstanding or emerging apprehensions related to non-performing assets (NPA)?

Detailed Solution for Test: Indian Economy and Indian Financial System - 2 - Question 18

Share of unsecured credit in total credit continues to remain the outstanding or emerging apprehensions related to non-performing assets (NPA).

Test: Indian Economy and Indian Financial System - 2 - Question 19

Which terminology is used to denote the rise and fall of the macroeconomic performance of a nation over the course of several months or years?

Detailed Solution for Test: Indian Economy and Indian Financial System - 2 - Question 19

Business cycles terminology is used to denote the rise and fall of the macroeconomic performance of a nation over the course of several months or years.

Test: Indian Economy and Indian Financial System - 2 - Question 20


If the price is $45, what is the quantity demanded in the market?

Detailed Solution for Test: Indian Economy and Indian Financial System - 2 - Question 20

At $45, the quantity demanded is 30, while the quantity supplied is 90.

Test: Indian Economy and Indian Financial System - 2 - Question 21


If the price is $50, what is the excess supply in the market?

Detailed Solution for Test: Indian Economy and Indian Financial System - 2 - Question 21

At $50, the quantity demanded is 20, while the quantity supplied is 100. The excess supply is 100 - 20 = 80 units.

Test: Indian Economy and Indian Financial System - 2 - Question 22

What was the recommendation of the Narasimhan Committee with regard to interest rates as per Narasimhan Committee-I?

Detailed Solution for Test: Indian Economy and Indian Financial System - 2 - Question 22

Interest rates should be determined by the market forces. The Narasimha Committee advocated that interest rates should be allowed to be determined by market forces, and since 1992, interest rates were freed, in stages, for deposits as well as for advances.

Test: Indian Economy and Indian Financial System - 2 - Question 23

What is the principal objective of reinsurance?

Detailed Solution for Test: Indian Economy and Indian Financial System - 2 - Question 23

To enable insurers to focus on their core business. Sol. Reinsurance allows insurers to transfer a portion of risk to reinsurers, freeing them to focus on their primary business.

Test: Indian Economy and Indian Financial System - 2 - Question 24

The Reserve Bank of India (RBI) has issued a note on Central Bank Digital Currency (CBDC). CBDC pilot launched by the RBI in retail segment has components based on blockchain technology. RBI has identified 9 banks for phase-wise participation in the retail pilot project. Like cash, the CBDC will not earn any interest and can be converted to other forms of money, like deposits with banks. Other steps being taken by RBI for full operationalisation of CBDC include expanding the scope of the pilots gradually to include more banks, users and locations based on feedback received during the pilots.
Among the following options, which country was the first or pioneer in launching a CBDC?

Detailed Solution for Test: Indian Economy and Indian Financial System - 2 - Question 24

Bahamian Sand Dollar is the first CBDC in the world.

Test: Indian Economy and Indian Financial System - 2 - Question 25

The Reserve Bank of India (RBI) has issued a note on Central Bank Digital Currency (CBDC). CBDC pilot launched by the RBI in retail segment has components based on blockchain technology. RBI has identified 9 banks for phase-wise participation in the retail pilot project. Like cash, the CBDC will not earn any interest and can be converted to other forms of money, like deposits with banks. Other steps being taken by RBI for full operationalisation of CBDC include expanding the scope of the pilots gradually to include more banks, users and locations based on feedback received during the pilots.
What constitutes a Central Bank Digital Currency (CBDC)?

Detailed Solution for Test: Indian Economy and Indian Financial System - 2 - Question 25

A digital form of a country's fiat currency, which is regulated by its central bank. CBDC is a digital representation of physical money that is issued by a central authority, rather than by a commercial bank or other private entity.

Test: Indian Economy and Indian Financial System - 2 - Question 26

Among the following options, which is the distinguishing feature between a tri-party repo and a market repo?

Detailed Solution for Test: Indian Economy and Indian Financial System - 2 - Question 26

The presence of a third party known as a tri-party agent. The differentiating factor between a tri-party repo and a market repo is the presence of a third party known as a tri-party agent, which acts as an intermediary between the borrower and lender to facilitate services such as collateral selection, payment and settlement, custody, and management during the life of the transaction.

Test: Indian Economy and Indian Financial System - 2 - Question 27

What are the activities that Merchant Banks extended their operations to, in addition to syndication of long-term/short-term finance?

Detailed Solution for Test: Indian Economy and Indian Financial System - 2 - Question 27

In addition to syndication of long-term/short-term finance, Merchant Banks extended their activities to negotiating agents for mergers and takeovers, among other things.

Test: Indian Economy and Indian Financial System - 2 - Question 28

The table below provides information on the economy of a country. Use the income approach to calculate the GDP for this country.

Detailed Solution for Test: Indian Economy and Indian Financial System - 2 - Question 28

GDP = Wages + Rent + Interest + Profit GDP = 100 + 50 + 20 + 30 = $200 Therefore, the GDP of the country is $200.

Test: Indian Economy and Indian Financial System - 2 - Question 29

Which of the following types of NBFCs are excluded under the Ombudsman Scheme?

Detailed Solution for Test: Indian Economy and Indian Financial System - 2 - Question 29

CIC, IDF-NBFC, and NBFC-IFC are excluded under the Ombudsman Scheme.

Test: Indian Economy and Indian Financial System - 2 - Question 30

Recently, World Bank postulated that Digital markets work differently than traditional physical markets. The winner-take-all markets of the digital economy prompt 'winners' to resort to certain actions that discourage competition, the Standing Committee on Finance, chaired by Jayant Sinha, said in its report. The committee interacted with Indian representatives of foreign big tech companies like Amazon, Apple, Facebook, Google, Netflix, Twitter, and Uber, as well as representatives of domestic companies like PayTM, MakeMyTrip, Zomato, Ola, Swiggy, Flipkart, etc., to identify competition concerns.
According to economic theory, Oligopolistic competition refers to a certain type of market structure. Which feature is not a defining characteristic of this structure?

Detailed Solution for Test: Indian Economy and Indian Financial System - 2 - Question 30

Oligopolistic competition refers to a market structure in which a few large firms dominate the market.

Test: Indian Economy and Indian Financial System - 2 - Question 31

Recently, World Bank postulated that Digital markets work differently than traditional physical markets. The winner-take-all markets of the digital economy prompt 'winners' to resort to certain actions that discourage competition, the Standing Committee on Finance, chaired by Jayant Sinha, said in its report. The committee interacted with Indian representatives of foreign big tech companies like Amazon, Apple, Facebook, Google, Netflix, Twitter, and Uber, as well as representatives of domestic companies like PayTM, MakeMyTrip, Zomato, Ola, Swiggy, Flipkart, etc., to identify competition concerns.
What is the name of the body that adjudicates and disposes appeals against directions from the Competition Commission of India (CCI)?

Detailed Solution for Test: Indian Economy and Indian Financial System - 2 - Question 31

National Company Law Appellate Tribunal (NCLAT) NCLAT is also the Appellate Tribunal to hear and dispose of appeals against order passed by the Competition Commission of India (CCI).

Test: Indian Economy and Indian Financial System - 2 - Question 32

Which of the following defines the methodology for calculating the return on T-Bills?

Detailed Solution for Test: Indian Economy and Indian Financial System - 2 - Question 32

The instrument is redeemed at par value with the difference between the issue price and par value, representing the return on the instrument.

Test: Indian Economy and Indian Financial System - 2 - Question 33

What is the non-competitive bidding mechanism that is available for retail investors in the financial markets?

Detailed Solution for Test: Indian Economy and Indian Financial System - 2 - Question 33

A scheme allowing retail investors to participate indirectly through an aggregator/facilitator Retail investors can participate in the auctions on 'non-competitive' basis, indirectly through an aggregator/facilitator as per the scheme of Non-competitive bidding facility announced by the RBI.

Test: Indian Economy and Indian Financial System - 2 - Question 34

Which of the following are influenced by the behaviour of commercial banks?

Detailed Solution for Test: Indian Economy and Indian Financial System - 2 - Question 34

The excess reserves maintained by banks with the central bank, as a percentage of total deposit liabilities depends on the behaviour of commercial banks.

Test: Indian Economy and Indian Financial System - 2 - Question 35

What is the fundamental distinction between lease financing and borrowing from multiple sources in the context of business finance?

Detailed Solution for Test: Indian Economy and Indian Financial System - 2 - Question 35

Lease financing and hire purchase are two important sources of finance, whereby, the entrepreneur resorts to neither equity nor borrowings to acquire the assets. In contrast, borrowings from various sources is done through equity and borrowings.

Test: Indian Economy and Indian Financial System - 2 - Question 36

How would you define the concept of soft infrastructure?

Detailed Solution for Test: Indian Economy and Indian Financial System - 2 - Question 36

Soft infrastructure refers to institutions that are essential to keep the economy running, such as financial, educational, healthcare, and law-enforcement organisations. It is also categorized as organizational structures.

Test: Indian Economy and Indian Financial System - 2 - Question 37

What are the measures that fiscal authorities have adopted to address the economic slowdown caused by the COVID-19 outbreak in India?

Detailed Solution for Test: Indian Economy and Indian Financial System - 2 - Question 37

Fiscal authorities have responded by implementing flexible fiscal policies, including greater support to vulnerable groups, in response to the economic slowdown caused by the COVID-19 pandemic in India.

Test: Indian Economy and Indian Financial System - 2 - Question 38

What deficiencies or gaps in the financial system were addressed by the establishment of Development Financial Institutions in India?

Detailed Solution for Test: Indian Economy and Indian Financial System - 2 - Question 38

Development Financial Institutions in India filled the gap of providing long-term finance for infrastructure projects and risky ventures in the post-independence financial system.

Test: Indian Economy and Indian Financial System - 2 - Question 39

Which of the following stands out as the main distinction between an Equity REIT and a Mortgage REIT?

Detailed Solution for Test: Indian Economy and Indian Financial System - 2 - Question 39

REITs are companies that own, operate, or finance income-producing properties. Equity REITs own and operate properties and generate revenue primarily through rental income. Mortgage REITs invest in mortgages, mortgage-backed securities.

Test: Indian Economy and Indian Financial System - 2 - Question 40

Which regulatory authority is responsible for overseeing and regulating the activities of Merchant Banks and Commercial Banks in India?

Detailed Solution for Test: Indian Economy and Indian Financial System - 2 - Question 40

Merchant Banks are financial institutions that conduct underwriting, loan services etc and are regulated by SEBI, whereas Commercial Banks are governed by RBI regulations.

Test: Indian Economy and Indian Financial System - 2 - Question 41

The Indian economy's Gross Domestic Product (GDP) witnessed growth at what rate during the first three decades post-independence, i.e. 1951-1980?

Detailed Solution for Test: Indian Economy and Indian Financial System - 2 - Question 41

3.5 per cent During the first three decades after independence (1951-1980), India's growth rate was slow and hovered around 3.5 per cent. 

Test: Indian Economy and Indian Financial System - 2 - Question 42

What is the name given to the type of foreign direct investment that involves acquiring or merging with an existing company?

Detailed Solution for Test: Indian Economy and Indian Financial System - 2 - Question 42

Brownfield investment in FDI refers to the acquisition of an existing foreign company, also referred to as a Merger or Acquisition, as opposed to establishing a new business venture or forming a joint venture.

Test: Indian Economy and Indian Financial System - 2 - Question 43

The RBI Act 1934 outlines the number of Local Boards that are formed within the RBI, as well as the number of members appointed to each of these boards - what are these numbers?

Detailed Solution for Test: Indian Economy and Indian Financial System - 2 - Question 43

As per the RBI Act, there are 4 Local Boards in the RBI, with each board consisting of 5 members appointed by the Central Government.

Test: Indian Economy and Indian Financial System - 2 - Question 44

Which methodology is employed for the calculation of quarterly GDP?

Detailed Solution for Test: Indian Economy and Indian Financial System - 2 - Question 44

By apportioning observed GVA data into different spender categories. Quarterly GDP is arrived at by apportioning observed GVA data into different spender categories.

Test: Indian Economy and Indian Financial System - 2 - Question 45

What is the interrelationship between the coupon rate and the market interest rate for a bond that is currently trading at par value in the financial market.

Detailed Solution for Test: Indian Economy and Indian Financial System - 2 - Question 45

When the market rate and the coupon rate for a given maturity are the same, the bond will trade at par.

Test: Indian Economy and Indian Financial System - 2 - Question 46

Which of the following is not a component of revenue receipts as defined in the Union Budget?

Detailed Solution for Test: Indian Economy and Indian Financial System - 2 - Question 46

Market borrowings The components of revenue receipts are tax revenue (including GST), interest receipts, dividend and profits, external grants, and other non-tax revenue. Market borrowings are a component of capital receipts.

Test: Indian Economy and Indian Financial System - 2 - Question 47

Within the confines of the Indian economy, to which specific sector does the Indian government allocate the majority of its spending?

Detailed Solution for Test: Indian Economy and Indian Financial System - 2 - Question 47

Some sectors like railways and nuclear power are government monopolies, while other sectors like telecommunications and power are dominated by private sector investment. The irrigation sector is largely dominated by government spending.

Test: Indian Economy and Indian Financial System - 2 - Question 48

The Centre has made changes to the Foreign Trade Policy to enable trade settlement in the Indian Rupee. With this amendment, invoicing, payment, and settlement of trade can now take place in the Indian currency. Accordingly, benefits/incentives/fulfilment under the Foreign Trade Policy will be extended for realisations in Indian Rupees as per the RBI guidelines. “Given the rise in interest in the internationalisation of the Indian Rupee, the given Policy amendments have been undertaken to facilitate and to bring ease in international trade transactions in Indian Rupees,”
What form of currency interchangeability is presently permissible in India's accounts?

Detailed Solution for Test: Indian Economy and Indian Financial System - 2 - Question 48

Currently, India allows partial Capital Account Convertibility and full current account convertibility.

Test: Indian Economy and Indian Financial System - 2 - Question 49

The Centre has made changes to the Foreign Trade Policy to enable trade settlement in the Indian Rupee. With this amendment, invoicing, payment, and settlement of trade can now take place in the Indian currency. Accordingly, benefits/incentives/fulfilment under the Foreign Trade Policy will be extended for realisations in Indian Rupees as per the RBI guidelines. “Given the rise in interest in the internationalisation of the Indian Rupee, the given Policy amendments have been undertaken to facilitate and to bring ease in international trade transactions in Indian Rupees,”
Which of the following options signifies the meaning of Interest Rate Differential (IRD)?

Detailed Solution for Test: Indian Economy and Indian Financial System - 2 - Question 49

The given statement defines Interest Rate Differential (IRD) as the change in interest rates between the currencies of two countries.

Test: Indian Economy and Indian Financial System - 2 - Question 50

The Centre has made changes to the Foreign Trade Policy to enable trade settlement in the Indian Rupee. With this amendment, invoicing, payment, and settlement of trade can now take place in the Indian currency. Accordingly, benefits/incentives/fulfilment under the Foreign Trade Policy will be extended for realisations in Indian Rupees as per the RBI guidelines. “Given the rise in interest in the internationalisation of the Indian Rupee, the given Policy amendments have been undertaken to facilitate and to bring ease in international trade transactions in Indian Rupees,”
Under which regulation is the broad framework for cross-border transactions in India governed?

Detailed Solution for Test: Indian Economy and Indian Financial System - 2 - Question 50

The broad framework for cross-border transactions is governed by the Foreign Exchange Management Act (FEMA), 1999.

Test: Indian Economy and Indian Financial System - 2 - Question 51

Which of the following statements is true about Perfect Competition?
(a) The products the companies manufacture are completely identical.
(b) All firms are motivated by welfare of the consumers.
(c) Companies can freely enter and exit the markets.

Detailed Solution for Test: Indian Economy and Indian Financial System - 2 - Question 51

In a perfect competition market structure, there are a large number of buyers and sellers.
Certain assumptions regarding Perfect Competition are as follows:
(a) The products on the market are homogeneous, i.e. they are completely identical.
(b) All firms only have the motive of profit maximization.
(c) There is free entry and exit from the market, i.e. there are no barriers.
(d) And there is no concept of consumer preference.

Test: Indian Economy and Indian Financial System - 2 - Question 52

What is one of the reasons for financial markets' heterogeneity that leads to the importance of requiring interconnectedness?
(i) Financial markets differ in terms of depth and liquidity.
(ii) Market participants in different financial markets could be different.
(iii) Some market segments are national, while others are international in nature.
(iv) Heterogeneous financial markets create barriers for foreign institutional investors.

Detailed Solution for Test: Indian Economy and Indian Financial System - 2 - Question 52

(i) Financial markets differ in terms of depth and liquidity. This is a valid reason for financial markets' heterogeneity as some market segments may have higher liquidity and depth compared to others.
(ii) Market participants in different financial markets could be different. While this statement is true, it is not explicitly mentioned as a reason for financial markets' heterogeneity.
(iii) Some market segments are national, whereas others are international in nature. This is indeed a reason for financial markets' heterogeneity, as the nature of market segments can vary based on whether transactions occur within a country's boundaries or across borders.
(iv) Heterogeneous financial markets create barriers for foreign institutional investors. Heterogeneity in financial markets refers to the differences in various market segments based on factors such as liquidity, risk profile, and the economic nature of instruments. It does not necessarily create barriers for foreign institutional investors.

Test: Indian Economy and Indian Financial System - 2 - Question 53

Variables used in economic analysis are classified as stock and flow. Which among the following are stock variables?
I. Foreign exchange reserves
II. National Income
III. Money supply
IV. Imports-export
V. Unemployment level

Detailed Solution for Test: Indian Economy and Indian Financial System - 2 - Question 53

Stock and Flow Variables
Variables used in economic analysis are classified as stock and flow. Both stock and flow variables may increase or decrease with time.

  • Stock refers to a quantity of a commodity measured at a point of time. In macroeconomics, money supply, unemployment level, foreign exchange reserves, capital etc are examples of stock variables.
  • Flow variables are measured over a period of time. National Income, imports, exports, consumption, production, investment etc are examples of flow variables.

Hence, option (b) is the correct answer.

Test: Indian Economy and Indian Financial System - 2 - Question 54

Assertion: The Foreign Exchange Management Act (FEMA), 1999, is a legislation that regulates foreign exchange transactions in India.

Reason: FEMA, 1999, replaced the Foreign Exchange Regulation Act (FERA), 1973, to align with the liberalized economic policies.

Detailed Solution for Test: Indian Economy and Indian Financial System - 2 - Question 54

The correct answer is (a) Both Assertion and Reason are true, and the Reason is a correct explanation of the Assertion. The Assertion accurately states that the Foreign Exchange Management Act (FEMA), 1999, is a legislation that regulates foreign exchange transactions in India. The Reason provided is also correct: FEMA, 1999, replaced the earlier Foreign Exchange Regulation Act (FERA), 1973, as part of India's move towards liberalized economic policies. FERA was deemed more restrictive and less in line with the changing global economic landscape, prompting the enactment of FEMA to accommodate a more open and market-oriented approach to foreign exchange management. Therefore, the Reason provided aptly explains how FEMA, 1999, was enacted to align with India's shift towards liberalization, making both the Assertion and Reason accurate and logically connected.

Test: Indian Economy and Indian Financial System - 2 - Question 55

Assertion: Certificates of Deposit (CDs) are commonly issued by non-banking financial institutions in India.
Reason: CDs are short-term money market instruments that offer higher interest rates compared to other financial instruments.

Detailed Solution for Test: Indian Economy and Indian Financial System - 2 - Question 55

The Assertion holds true as Certificates of Deposit (CDs) are issued not only by banks but also by non-banking financial institutions in India. However, the Reason, although true in part, does not provide an entirely accurate explanation. CDs are indeed short-term money market instruments that offer investors a means to secure short-term funds while earning interest. However, the statement that CDs offer higher interest rates compared to other financial instruments requires additional nuance. The interest rates on CDs are influenced by various factors, including prevailing market conditions, economic trends, and the issuing entity's creditworthiness. While CDs can provide competitive interest rates, their rates are not uniformly higher than those of other financial instruments. Thus, while both the Assertion and Reason are true, the Reason does not fully explain the nature of interest rates on CDs, making option (B) the correct choice.

Case Study: ABC Corporation is a manufacturing company that has been facing challenges in managing its short-term liquidity requirements. The company has a seasonal business cycle, with increased working capital needs during peak production months. To address this issue, ABC Corporation is exploring various money market instruments to raise funds on a short-term basis.

Test: Indian Economy and Indian Financial System - 2 - Question 56

Match the following Sustainable Development Goals (SDGs) with their respective descriptions:

Detailed Solution for Test: Indian Economy and Indian Financial System - 2 - Question 56
  • SDG 13 (Climate Action) focuses on addressing climate change, its impacts, and building resilience against them. This involves raising awareness, implementing strategies, and adapting to changes.
  • SDG 1 (No Poverty) aims to eradicate poverty globally in all its dimensions by implementing social protection systems, promoting economic growth, and ensuring equal access to resources.
  • SDG 7 (Affordable and Clean Energy) aims to provide affordable, reliable, sustainable, and modern energy for all, which is crucial for economic development and well-being.
  • SDG 9 (Industry, Innovation, and Infrastructure) emphasizes the importance of building resilient infrastructure, fostering sustainable industrialization, and promoting innovation to support sustainable development.
Test: Indian Economy and Indian Financial System - 2 - Question 57

Which among the following is not a key policy requirement as per SEBI regulations for a Merchant Banker?

Detailed Solution for Test: Indian Economy and Indian Financial System - 2 - Question 57

Key Policy Requirements as per Sebi Regulations

  • Every merchant bank should maintain copies of the balance sheet, profit and loss account, statement of financial position
  • Half-yearly unaudited results should be submitted to SEBI
  • Merchant Banks (including their directors and employees) are prohibited from buying/selling securities, based on the unpublished price-sensitive information of their clients, during the tenor of the assignment
  • Merchant Banks should not associate with any business other than that of the securities market. The exception is granted to Banks and Financial Institutions.
  • Lead Merchant Bank should not associate with a merchant banker, without registration
  • Merchant Banks should not act as such for an associate.
Test: Indian Economy and Indian Financial System - 2 - Question 58

The contagion effect in the domestic market can happen if _______.

Detailed Solution for Test: Indian Economy and Indian Financial System - 2 - Question 58

Contagion Effect measures the interconnectedness of financial markets in different countries and regions. In domestic markets, contagion can happen if one large bank sells most of its assets, causing confidence in other large banks to drop. International markets can also experience contagion due to cross-border investment and trade, leading to closely correlated regional currency collapses, as seen in the 1997 South East Asian Crisis.

Test: Indian Economy and Indian Financial System - 2 - Question 59

The main reason to establish ACU by ESCAP was:

Detailed Solution for Test: Indian Economy and Indian Financial System - 2 - Question 59

The ACU was established in December 1974 by the United Nations Economic and Social Commission for Asia and the Pacific (ESCAP) to address settlement difficulties faced by countries in the region. The ACU is a payment arrangement where participating central banks settle payments for intra-regional transactions on a net multilateral basis.

Test: Indian Economy and Indian Financial System - 2 - Question 60

The FX-Retail Platform offers trading in CASH, TOM, SPOT, and FORWARD instruments for a period up to ____ in the USD/INR currency pair.

Detailed Solution for Test: Indian Economy and Indian Financial System - 2 - Question 60

FX-Retail platform is an electronic trading platform for buying or selling foreign exchange is a web-based bid/offer from Retail clients and Authorised Dealer banks that can be matched anonymously and automatically. which includes Individuals, Sole proprietors, Partnership Firms, Corporates, Small and Medium Enterprises (SMEs), etc. The platform offers trading in CASH, TOM, SPOT, and FORWARD instruments for up to a period of 13 months in the USD/INR currency pair.

Test: Indian Economy and Indian Financial System - 2 - Question 61

Operation Flood is related to

Detailed Solution for Test: Indian Economy and Indian Financial System - 2 - Question 61

Milk production in the country has increased by more than four times between 1960-2002. This can be attributed mainly to the successful implementation of 'Operation Flood' from 1966 onwards; it is a system whereby all the farmers can pool their milk produce according to different grading (based on quality) and the same is processed and marketed to urban centers through cooperatives.

Test: Indian Economy and Indian Financial System - 2 - Question 62

What is the primary purpose of Exim Bank's Lines of Credit (LOC) program?

Detailed Solution for Test: Indian Economy and Indian Financial System - 2 - Question 62

Exim Bank's Lines of Credit (LOC) program is primarily designed to assist Indian exporters in entering new markets abroad. The LOC program provides a financial mechanism that enables Indian exporters to expand their business reach by entering new geographies or markets without facing the risk of payment defaults from overseas importers. It acts as a tool for market entry and diversification for Indian exporters, allowing them to explore and tap into new international markets with reduced financial risks. This program helps facilitate the growth of Indian exports by providing exporters with the necessary financial support and confidence to explore and establish their presence in foreign markets.

Test: Indian Economy and Indian Financial System - 2 - Question 63

DEF Corporation is conducting a Qualified Institutional Placement (QIP) to raise funds. The company plans to issue 1.5 million shares to institutional investors at a discount of 15% from the market price of ₹ 200 per share. Calculate the total funds that DEF Corporation expects to raise through this QIP.

Detailed Solution for Test: Indian Economy and Indian Financial System - 2 - Question 63

[The market price per share is ₹200. The discount is 15%, which is calculated as (15/100) * ₹200 = ₹30. The effective issue price per share is ₹200 - ₹30 = ₹170.]
Total Funds = Number of Shares X Issue Price per Share
[Total Funds = 1,500,000 X ₹170 = ₹255,000,000 = ₹255 million]

Test: Indian Economy and Indian Financial System - 2 - Question 64

What are the financial and developmental objectives of the National Bank for Financing Infrastructure and Development (NaBFID)?
(I) Extending loans and advances for infrastructure projects
(II) taking over or refinancing such existing loans
(III) attracting investment from private sector investors and institutional investors for infrastructure projects
(lV) organising and facilitating foreign participation in infrastructure projects

Detailed Solution for Test: Indian Economy and Indian Financial System - 2 - Question 64

The National Bank for Financing Infrastructure and Development (NaBFID) has both financial and developmental objectives as outlined in the provided options:

(I) Extending loans and advances for infrastructure projects: NaBFID aims to provide financial support by offering loans and advances to fund various infrastructure projects.

(II) Taking over or refinancing such existing loans: This objective implies that NaBFID may assume the responsibility of existing loans related to infrastructure projects, either by taking them over or by providing refinancing options to enhance the financial sustainability of these projects.

(III) Attracting investment from private sector investors and institutional investors for infrastructure projects: NaBFID seeks to draw investments from both private sector investors and institutional investors to fund infrastructure projects. This includes mobilizing capital from diverse sources to support development initiatives.

(IV) Organising and facilitating foreign participation in infrastructure projects: NaBFID aims to facilitate foreign involvement and participation in infrastructure projects, potentially by offering assistance in coordinating, organizing, and streamlining foreign investments.

In summary, the National Bank for Financing Infrastructure and Development (NaBFID) has financial objectives related to funding and investing in infrastructure projects, as well as developmental objectives that involve attracting investments and fostering foreign participation to contribute to the overall development of infrastructure in the country

Test: Indian Economy and Indian Financial System - 2 - Question 65

According to the World Economic Outlook report published by the International Monetary Fund has revised the growth forecast of India's gross domestic product (GDP) to _______for the current fiscal (FY2024).

Detailed Solution for Test: Indian Economy and Indian Financial System - 2 - Question 65

The International Monetary Fund has revised the growth forecast of India's gross domestic product to 6.1% for the current fiscal (FY 24). The 0.2 percentage point upward revision as compared with the April projection reflects momentum from stronger domestic investments last year, according to the latest edition of the IMF's World Economic Outlook. Pierre-Olivier Gourinchas, chief economist and director of the research department at the IMF.

Test: Indian Economy and Indian Financial System - 2 - Question 66

The rural, urban and the combined Consumer price index (CPI) is constructed under which ministry?

Detailed Solution for Test: Indian Economy and Indian Financial System - 2 - Question 66
  • Consumer price index (CPI), also known as the cost of living index, measures the average change in retail prices.
  • Two Ministries i.e., Ministry of Statistics and Programme Implementation (MOSPI) and Ministry of Labour and Employment (MOLE) are engaged in the construction of different CPIs for different groups/sectors.
  • CPI inflation is also called retail inflation as the prices are quoted from retailers.
  • The Central Statistics Office (CSO), which comes under MOSPI, constructs the rural, urban and the combined CPIs.
  • They are published from 2011 onwards. This index is being prepared with base 2012 = 100.
  • Hence, option (a) is the correct answer.
Test: Indian Economy and Indian Financial System - 2 - Question 67

Which of the following cannot be used as a Qualitative or Selective Method of Credit Control?

Detailed Solution for Test: Indian Economy and Indian Financial System - 2 - Question 67

Qualitative or Selective Method of Credit Control:
The qualitative or the selective methods are directed towards the diversion of credit into particular uses or channels in the economy. Their objective is mainly to control and regulate the flow of credit into particular industries or businesses.
The following are the frequent methods of credit control under selective method:

  • Rationing of Credit
  • Direct Action
  • Moral Persuasion
  • Method of Publicity
  • Regulation of Consumer's Credit
  • Regulating the Marginal Requirements on Security Loans

Note: Open Market Operation is a Quantitative method of credit control.
Hence, option (c) is the correct answer.

Test: Indian Economy and Indian Financial System - 2 - Question 68

What do we call an organisation which holds securities of investors in electronic form at the request of the investors?

Detailed Solution for Test: Indian Economy and Indian Financial System - 2 - Question 68

A depository is an organisation which holds securities (like shares, debentures, bonds, government securities, mutual fund units etc.) of investors in electronic form at the request of the investors through a registered depository participant. It also provides services related to transactions in securities.

Test: Indian Economy and Indian Financial System - 2 - Question 69

Export Preparedness Index aims to propel India toward achieving the target of merchandise exports valued over US$ 1 Trillion by harnessing its diverse strengths, fostering regional competitiveness, and positioning itself as a key player in the global south export market, is released by which of the following organization?

Detailed Solution for Test: Indian Economy and Indian Financial System - 2 - Question 69
  • NITI Aayog released the third edition of the report titled 'Export Preparedness Index (EPI) 2022' for States/UTs of India today. The report was released by Vice Chairman, NITI Aayog, Shri. Suman Bery.
  • The report presents a comprehensive analysis of India's export performance in FY22, along with its sector-specific and district-level merchandise export trends. The EPI 2022 Report evaluates the performance of the states across four pillars - Policy, Business Ecosystem, Export Ecosystem, and Export Performance. The index uses 56 indicators which holistically capture the export preparedness of States and UTs in terms of exports at both the state and district-level.
Test: Indian Economy and Indian Financial System - 2 - Question 70

Match the following Investors' proportions in case of 100% of the net offer to the public through the voluntary book-built issue?

Detailed Solution for Test: Indian Economy and Indian Financial System - 2 - Question 70

In the case of 100% of the net offer to the public through voluntary book-built issue investors are divided into the following proportions:
(a) Retail Individual Investors (RIIs): Not less than 35% of the net offer to the public
(b) Non-Institutional Investors (NIIs): Not less than 15% of the net offer to the public
(c) Qualified Institutional Buyers (QIBs): Not more than 50% of the net offer to the public (5% of which should go to Mutual funds)

Test: Indian Economy and Indian Financial System - 2 - Question 71

Identify the false statement regarding NBFC (Non-banking financial company) from the following options?

Detailed Solution for Test: Indian Economy and Indian Financial System - 2 - Question 71

Non-banking financial companies (NBFCs) are financial institutions that offer various banking services but do not have a banking license. Generally, these institutions are not allowed to take traditional demand deposits. NBFCs can offer banking services such as loans and credit facilities, currency exchange, retirement planning, money markets, underwriting, and merger activities. Investment banks, mortgage lenders, money market funds, insurance companies, hedge funds, private equity funds, and P2P lenders are all examples of institutions that can become NBFCs.

Test: Indian Economy and Indian Financial System - 2 - Question 72

What is the primary objective of RBI's Fair Practice Code for NBFC-MFIs?

Detailed Solution for Test: Indian Economy and Indian Financial System - 2 - Question 72

The primary objective of RBI's Fair Practice Code (FPC) for NBFC-MFIs is to ensure transparency, fairness, and ethical business practices in dealing with customers. The FPC is designed to establish guidelines and principles that NBFC-MFIs must follow to prioritize customer satisfaction, provide transparent and ethical services, and maintain fair lending practices. The FPC aims to foster a trustworthy and positive relationship between NBFC-MFIs and their customers by upholding these principles in all interactions and operations

Test: Indian Economy and Indian Financial System - 2 - Question 73

Banking activities that are carried out by the bank which are apart from its normal day-to-day activities are called as_________.

Detailed Solution for Test: Indian Economy and Indian Financial System - 2 - Question 73

Banks can undertake certain eligible financial services or activities either departmentally or by setting up subsidiaries is called Para Banking. Para banking activities can also be defined as the activities which are done by a Bank apart from its normal day to day activities (like deposit, withdrawal etc.). The Para Banking activities which can be performed by bank have been permitted by RBI. Banks can do these activities either departmentally or by setting up subsidiaries to undertake the type of business.

Test: Indian Economy and Indian Financial System - 2 - Question 74

Which among the following is NOT correctly matched w.r.t. Balance of payments?

Detailed Solution for Test: Indian Economy and Indian Financial System - 2 - Question 74

The transactions in BOP are categorised in:
(a) Current account showing export and import of visibles (also called merchandise) and invisibles (also called non-merchandise). Invisibles take into account services, transfers and income.
(b) Capital account showing a capital expenditure and income for a country. It gives a summary of the net flow of both private and public investment into an economy. External commercial borrowing (ECB), foreign direct investment, foreign portfolio investment, etc form a part of the capital account.
(c) Errors and omissions: Sometimes the balance of payment does not balance. This imbalance is shown in the BOP as errors and omissions. BOP is compiled using the double entry book keeping system consisting of assets and liabilities.

Test: Indian Economy and Indian Financial System - 2 - Question 75

Which of the following statements regarding taxation of REIT in case of capital Gains is correct?
I. Short-term capital gain is applicable on REIT if the holding period of units is two years or less from the date of unit allocation and The STCG tax rate is 15% of capital gains obtained from the sale of units.
II. Long-term capital gain tax is applicable if the holding period exceeds one year from the date of unit allocation.
III. The LTCG tax rate is 10% of gains, in excess of Rs. 1 lakh with no indexation benefit.

Detailed Solution for Test: Indian Economy and Indian Financial System - 2 - Question 75
  • Capital Gains from the sale of REITs units are covered by Short-Term Capital Gains (STCG) and Long-Term Capital Gains (LTCG), applicable to equity investments.
  • STCG is applicable, if the holding period of units is one year or less from the date of unit allocation. The STCG tax rate is 15% of capital gains obtained from the sale of units.
  • If the holding period exceeds one year from the date of unit allocation, LTCG taxation rules are applicable. The LTCG tax rate is 10% of gains, in excess of Rs. 1 lakh (across all equity investments for the applicable FY), with no indexation benefit.
Test: Indian Economy and Indian Financial System - 2 - Question 76

Which of the following statements accurately describes the role of Credit Rating Agencies (CRAs) in the primary market for securities?
Statement I: CRAs assign credit ratings to securities, indicating their creditworthiness and risk level.
Statement II: CRAs facilitate the allotment of shares in Initial Public Offerings (IPOs).
Statement III: CRAs are responsible for regulating the issuance of corporate bonds.
Statement IV: CRAs act as intermediaries to facilitate foreign exchange transactions.

Detailed Solution for Test: Indian Economy and Indian Financial System - 2 - Question 76
  • The accurate statement is (A) Statement I. Credit Rating Agencies (CRAs) have a pivotal role in the primary market for securities. Statement I correctly depicts that CRAs assign credit ratings to securities, reflecting their creditworthiness and level of risk. These ratings serve as valuable indicators for investors, helping them assess the risk associated with investing in a particular security. Credit ratings are particularly crucial for debt instruments, such as bonds, as they provide insight into the issuer's ability to meet their financial obligations.
  • In contrast, Statement II, which suggests that CRAs facilitate the allotment of shares in Initial Public Offerings (IPOs), is not accurate. The role of CRAs primarily pertains to assessing credit risk, and they are not directly involved in the IPO allotment process.
  • Similarly, Statement III, which implies that CRAs regulate the issuance of corporate bonds, is not accurate either. CRAs do not regulate the issuance; rather, they provide an independent assessment of credit risk.
  • Statement IV, which states that CRAs act as intermediaries to facilitate foreign exchange transactions, is also not accurate. CRAs do not have a role in facilitating foreign exchange transactions. Thus, the correct understanding is that CRAs are primarily responsible for assigning credit ratings to securities, helping investors evaluate their creditworthiness and risk.
Test: Indian Economy and Indian Financial System - 2 - Question 77

Under which of the following monetary policy, the central bank 'requests' banks to lend more or not to lend in some sectors?

Detailed Solution for Test: Indian Economy and Indian Financial System - 2 - Question 77

Moral suasion is a qualitative technique.

  • The central bank 'requests' banks to lend more or not to lend in some sectors.
  • There is no legal compulsion behind their acceptance.
  • Generally if a request is not carried out by the number bank, the guardian of the banking system may take such steps as banks are forced to accept.
  • The central bank is often empowered to issue directives to member banks.
  • Such direct orders are in the form of directional control, prohibiting loans of particular type of giving advice to grant loan to priority sectors
Test: Indian Economy and Indian Financial System - 2 - Question 78

How can fiscal policy reduce inequality in income and wealth?
l. By increasing government expenditure on education and healthcare
II. By increasing taxes on the wealthy
lll. By increasing public benefits for the poor

Detailed Solution for Test: Indian Economy and Indian Financial System - 2 - Question 78

Fiscal policy can reduce inequality in income and wealth:

  • Increasing government expenditure on education and healthcare: One way to reduce inequality in income and wealth is to increase government expenditure on education and healthcare. Education and healthcare are essential components of human capital, and they play a critical role in reducing poverty and increasing economic growth. By investing in education and healthcare, governments can provide citizens with the skills and knowledge they need to compete in the job market and earn higher wages. This, in turn, can help reduce income inequality
  • Increasing public benefits for the poor: One of the most effective ways to reduce inequality in income and wealth is to increase public benefits for the poor. Public benefits such as welfare, food assistance programs, and affordable housing can help provide a safety net for those who are struggling financially. By ensuring that everyone has access to necessities, governments can help reduce the gap between the rich and the poor.
  • Another way is by increasing taxes on the wealthy, which can help to redistribute income and wealth from the rich to the poor.
Test: Indian Economy and Indian Financial System - 2 - Question 79

Two goods are produced, say wine and wheat, using only one input, i.e. labour. Suppose Nation A requires 10 and 5 units of labour to produce one unit of wine and wheat, respectively, whereas Nation B requires 10 units of labour each.

Which of the following statements are valid as per given scenario?
I. In such a scenario, Nation B will have to forego 1 unit of wine for production of an additional unit of wheat whereas Nation A will have to forego only half a unit of wine for the same.
II. Since Nation B can produce wheat at a lower opportunity cost, therefore its best for it to produce and export it, i.e. specialize in the production of wheat.
III. Nation A has to forego only one unit of wheat for production of additional unit of wine as opposed to a loss of two units of wheat in case of Nation A. Therefore, Nation B must specialize in the production of wine.

Detailed Solution for Test: Indian Economy and Indian Financial System - 2 - Question 79
  • The principle of comparative advantage is fundamental to determination of the pattern of trade among nations. David Ricardo was the economist who coined this term. Opportunity cost, stated briefly, is the benefit foregone for undertaking an activity. So, if a country has a lesser value for its resources in the alternative use, it can most efficiently employ resources in this activity. This is what comparative advantage means.
  • Two goods are produced, say wine and wheat, using only one input, i.e. labour. Suppose Nation A requires 10 and 5 units of labour to produce one unit of wine and wheat, respectively, whereas Nation B requires 10 units of labour each. In such a scenario, while Nation B will have to forego 1 unit of wine for production of an additional unit of wheat, Nation A will have to forego only half a unit of wine for the same.
  • Since Nation A can produce wheat at a lower opportunity cost, therefore its best for it to produce and export it, i.e. specialize in the production of wheat. On the other hand, Nation B has to forego only one unit of wheat for production of additional units of wine as opposed to a loss of two units of wheat in case of Nation A. Therefore, Nation B must specialize in the production of wine.
Test: Indian Economy and Indian Financial System - 2 - Question 80

What is the main purpose of the Applications Supported by Blocked Amount (ASBA) mechanism used in the primary market for Initial Public Offerings (IPOs)?