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Directions: Read the following passages carefully and identify most appropriate answer to the questions given at the end of each passage.
As someone' said, this crisis was too valuable to waste. I, for one, learnt many lessons on crisis management and leadership. By far the most important lesson I learnt is that the primary focus of a central bank during a crisis has to be on restoring confidence in the markets, and what this requires is swift, bold and decisive action. This is not as obvious'as it sounds because central banks are typically given to agonizing over every move they make out of anxiety that failure of their actions to deliver the intended impact will hurt their creditability and their policy effectiveness down the line. There is a lot to be said for such deliberative action in normal times: In crisis times though, it is important for them to take more chances without being too mindful of whether all of their actions are going to be fully effective or even mildly successful. After all, crisis management is a percentage game, and you do what you think has the best chance of reversing the momentum. Often, it is a fact of the action rather than the precise nature of the action that bolsters confidence. Take the Reserve Bank's measure I wrote about earlier of instituting exclusive lines of credit for augmenting the liquidity of NBFCs and mutual funds (MFs) which came under redemption pressure. It is simply unthinkable that the Reserve Bank would have done anything like this in normal times. In the event of a liquidity constraint in normal times, the standard response of the Reserve Bank would be to ease liquidity in the overall system an_d leave it to the banks to determine how to use that additional liquidity.
But here, we were targeting monetary policy at a particular class of financial institutions-the MFs &NBFCs-a; decidedly unconventional action. This departure from standard protocol pushed some of our senior staff beyond their comfort zones. Their reservations ranged from: 'this is not bowing monetary policy is done' to 'this will make the Reserve Bank vulnerable to pressures to bail out other sectors'. After hearing them out, I made the call to go ahead: Market participants applauded the new facility and saw it as the Reserve Bank's willingness to embrace unorthodox measures to address Specific areas of pressure in the system. In the event, these facilities were not significantly tapped: In normal times, that would have been seen as a failure of policy. From the crisis perspective though, it was a success in as much as the very existence of the central bank backstop restored confidence in the NBFCs and MFs and smoothed pressures in the financial system. Similarly, the cut in the repo rate of one full percentage point that I effected in October 2008 was a non-standard action from the perspective of a central bank used to cutting the interest rate by a maximum of half a percentage point (50 basis points in the jargon) when it wanted to signal strong action. Of course, we deliberated the advisability of going into uncharted waters and how it might set expectations. For the future. For example, in the future, the market may discount a 50 basis-point cut as too tame. But considering the uncertain and unpredictable global environment and the imperative to improve the flow of credit in a stressed situation, I bit the bullet again and decided on a full percentage-point cut.
Managing the tension between short-term payoffs and longer-term consequences is a constant struggle in all central bank policy choices as indeed it is in all public policy decisions. This balance between horizons shifts in crisis times, as dousing the fires becomes an overriding priority even if some of the actions taken to do that may have·some longer-term costs. For example, in 2008, we saw a massive infusion of liquidity as the best bet for preserving the financial stability of our markets. Indeed, d in uncharted waters, erring on the side of caution meant providing the system with more liquidity than considered adequate. This strategy was effective in the short-term, but with hindsight, we know that excess liquidity may have reinforced inflation pressures down the line. But remember, we were making a judgement call in real time. Analysts who are criticising us are doing so with the benefit of hindsight. Another lesson we learnt is that even in a global crisis, central banks have to adapt their responses to domestic conditions. I am saying this because of all through the crisis months. Whenever another central bank, especially an advanced economy central bank, announced any measure, there was an immediate pressure that the Reserve Bank too should institute a similar measure. Such straightforward copying of measures of other central banks without first examining their appropriateness for the domestic situation can often do more harm than good: Let me illustrate. During th depth of the crisis, fearing a run on their banks, the UK authorities bad extended deposit insurance across board to all deposits in the UK banking system. Immediately, there were commentators asking that the Reserve Bank too must embrace such an all-out measure. If we had actually done that, the results would have been counterproductive if not outright harmful. First, the available premium would not have been able to support such a blanket insurance, and the markets were aware of that.
If we had glossed over that and announced a blanket cover anyway, that action would have clearly lacked credibility. Besides, any such move would be at odds with what we had been asserting that our banks and our financial systems were safe and sound: The inconsistency between our walk and talk would have confused the markets; instead of reassuring them, any blanket insurance of the UK type·would have scared the public and sown seeds of doubt about the safety of their bank deposits, potentially triggering a run on some vulnerable banks. Finally, an important lesson from the crisis relates to the imperative of the government and the regulators speaking and acting in unison. It is possible to argue that public disclosure of differences within closed doors of policymaking could actually be helpful in enhancing public understanding on how policy might evolve in the future. For example, a 6-6 vote conveys a different message from a 12-0 vote. During crisis times, though, sending mixed signals to fragile markets can do huge damage. On the other hand, the demonstration of unity of purpose would reassure markets and yield great synergies. The experience of the crisis from around the world and our own experience too showed that coordination could be managed without compromising regulatory autonomy. Merely synchronizing policy announcements for exploiting the synergistic impact need not necessarily imply that regulators were being forced into actions they did not own.
Q. With reference to theabove passage, what is the role of government and regulators in times of crisis? Select the most ppropriate response with reference to information provided in the passage.
  • a)
    In times of crisis the government and regulators play the role of check and balance to provide safety to financial systems of a country.
  • b)
    In times of crisis regulators have to become more strict with government to prevent misuse of power and compromising regulatory anatomy.
  • c)
    In times of crisis the government has to exercise control on the regulators so that they do not become too powerful and exploit the financial systems.
  • d)
    In times of crisis the government and the regulators have to work on common ground and avoid any conflicts to prevent instability and confusion.
Correct answer is option 'D'. Can you explain this answer?
Most Upvoted Answer
Directions: Read the following passages carefully and identify most a...
In the last paragraph, the author says, 'Finally, an important lesson............ would reassure markets and yield great synergies' from this we can conclude that In times of crisis the government and the regulators have to work on common ground and avoid any conflicts to prevent instability and confusion.
Hence, the correct option is (d).
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Directions: Read the following passages carefully and identify most appropriate answer to the questions given at the end of each passage.As someone' said, this crisis was too valuable to waste. I, for one, learnt many lessons on crisis management and leadership. By far the most important lesson I learnt is that the primary focus of a central bank during a crisis has to be on restoring confidence in the markets, and what this requires is swift, bold and decisive action. This is not as obvious'as it sounds because central banks are typically given to agonizing over every move they make out of anxiety that failure of their actions to deliver the intended impact will hurt their creditability and their policy effectiveness down the line. There is a lot to be said for such deliberative action in normal times: In crisis times though, it is important for them to take more chances without being too mindful of whether all of their actions are going to be fully effective or even mildly successful. After all, crisis management is a percentage game, and you do what you think has the best chance of reversing the momentum. Often, it is a fact of the action rather than the precise nature of the action that bolsters confidence. Take the Reserve Bank's measure I wrote about earlier of instituting exclusive lines of credit for augmenting the liquidity of NBFCs and mutual funds (MFs) which came under redemption pressure. It is simply unthinkable that the Reserve Bank would have done anything like this in normal times. In the event of a liquidity constraint in normal times, the standard response of the Reserve Bank would be to ease liquidity in the overall system an_d leave it to the banks to determine how to use that additional liquidity.But here, we were targeting monetary policy at a particular class of financial institutions-the MFs &NBFCs-a; decidedly unconventional action. This departure from standard protocol pushed some of our senior staff beyond their comfort zones. Their reservations ranged from: 'this is not bowing monetary policy is done' to 'this will make the Reserve Bank vulnerable to pressures to bail out other sectors'. After hearing them out, I made the call to go ahead: Market participants applauded the new facility and saw it as the Reserve Bank's willingness to embrace unorthodox measures to address Specific areas of pressure in the system. In the event, these facilities were not significantly tapped: In normal times, that would have been seen as a failure of policy. From the crisis perspective though, it was a success in as much as the very existence of the central bank backstop restored confidence in the NBFCs and MFs and smoothed pressures in the financial system. Similarly, the cut in the repo rate of one full percentage point that I effected in October 2008 was a non-standard action from the perspective of a central bank used to cutting the interest rate by a maximum of half a percentage point (50 basis points in the jargon) when it wanted to signal strong action. Of course, we deliberated the advisability of going into uncharted waters and how it might set expectations. For the future. For example, in the future, the market may discount a 50 basis-point cut as too tame. But considering the uncertain and unpredictable global environment and the imperative to improve the flow of credit in a stressed situation, I bit the bullet again and decided on a full percentage-point cut.Managing the tension between short-term payoffs and longer-term consequences is a constant struggle in all central bank policy choices as indeed it is in all public policy decisions. This balance between horizons shifts in crisis times, as dousing the fires becomes an overriding priority even if some of the actions taken to do that may have·some longer-term costs. For example, in 2008, we saw a massive infusion of liquidity as the best bet for preserving the financial stability of our markets. Indeed, d in uncharted waters, erring on the side of caution meant providing the system with more liquidity than considered adequate. This strategy was effective in the short-term, but with hindsight, we know that excess liquidity may have reinforced inflation pressures down the line. But remember, we were making a judgement call in real time. Analysts who are criticising us are doing so with the benefit of hindsight. Another lesson we learnt is that even in a global crisis, central banks have to adapt their responses to domestic conditions. I am saying this because of all through the crisis months. Whenever another central bank, especially an advanced economy central bank, announced any measure, there was an immediate pressure that the Reserve Bank too should institute a similar measure. Such straightforward copying of measures of other central banks without first examining their appropriateness for the domestic situation can often do more harm than good: Let me illustrate. During th depth of the crisis, fearing a run on their banks, the UK authorities bad extended deposit insurance across board to all deposits in the UK banking system. Immediately, there were commentators asking that the Reserve Bank too must embrace such an all-out measure. If we had actually done that, the results would have been counterproductive if not outright harmful. First, the available premium would not have been able to support such a blanket insurance, and the markets were aware of that.If we had glossed over that and announced a blanket cover anyway, that action would have clearly lacked credibility. Besides, any such move would be at odds with what we had been asserting that our banks and our financial systems were safe and sound: The inconsistency between our walk and talk would have confused the markets; instead of reassuring them, any blanket insurance of the UK type·would have scared the public and sown seeds of doubt about the safety of their bank deposits, potentially triggering a run on some vulnerable banks. Finally, an important lesson from the crisis relates to the imperative of the government and the regulators speaking and acting in unison. It is possible to argue that public disclosure of differences within closed doors of policymaking could actually be helpful in enhancing public understanding on how policy might evolve in the future. For example, a 6-6 vote conveys a different message from a 12-0 vote. During crisis times, though, sending mixed signals to fragile markets can do huge damage. On the other hand, the demonstration of unity of purpose would reassure markets and yield great synergies. The experience of the crisis from around the world and our own experience too showed that coordination could be managed without compromising regulatory autonomy. Merely synchronizing policy announcements for exploiting the synergistic impact need not necessarily imply that regulators were being forced into actions they did not own.Q. Why does the author say ".. .even in a global crisis, central banks have to adapt their responses to domestic conditions"? Answer with reference to passage.

Directions: Read the following passages carefully and identify most appropriate answer to the questions given at the end of each passage.As someone' said, this crisis was too valuable to waste. I, for one, learnt many lessons on crisis management and leadership. By far the most important lesson I learnt is that the primary focus of a central bank during a crisis has to be on restoring confidence in the markets, and what this requires is swift, bold and decisive action. This is not as obvious'as it sounds because central banks are typically given to agonizing over every move they make out of anxiety that failure of their actions to deliver the intended impact will hurt their creditability and their policy effectiveness down the line. There is a lot to be said for such deliberative action in normal times: In crisis times though, it is important for them to take more chances without being too mindful of whether all of their actions are going to be fully effective or even mildly successful. After all, crisis management is a percentage game, and you do what you think has the best chance of reversing the momentum. Often, it is a fact of the action rather than the precise nature of the action that bolsters confidence. Take the Reserve Bank's measure I wrote about earlier of instituting exclusive lines of credit for augmenting the liquidity of NBFCs and mutual funds (MFs) which came under redemption pressure. It is simply unthinkable that the Reserve Bank would have done anything like this in normal times. In the event of a liquidity constraint in normal times, the standard response of the Reserve Bank would be to ease liquidity in the overall system an_d leave it to the banks to determine how to use that additional liquidity.But here, we were targeting monetary policy at a particular class of financial institutions-the MFs &NBFCs-a; decidedly unconventional action. This departure from standard protocol pushed some of our senior staff beyond their comfort zones. Their reservations ranged from: 'this is not bowing monetary policy is done' to 'this will make the Reserve Bank vulnerable to pressures to bail out other sectors'. After hearing them out, I made the call to go ahead: Market participants applauded the new facility and saw it as the Reserve Bank's willingness to embrace unorthodox measures to address Specific areas of pressure in the system. In the event, these facilities were not significantly tapped: In normal times, that would have been seen as a failure of policy. From the crisis perspective though, it was a success in as much as the very existence of the central bank backstop restored confidence in the NBFCs and MFs and smoothed pressures in the financial system. Similarly, the cut in the repo rate of one full percentage point that I effected in October 2008 was a non-standard action from the perspective of a central bank used to cutting the interest rate by a maximum of half a percentage point (50 basis points in the jargon) when it wanted to signal strong action. Of course, we deliberated the advisability of going into uncharted waters and how it might set expectations. For the future. For example, in the future, the market may discount a 50 basis-point cut as too tame. But considering the uncertain and unpredictable global environment and the imperative to improve the flow of credit in a stressed situation, I bit the bullet again and decided on a full percentage-point cut.Managing the tension between short-term payoffs and longer-term consequences is a constant struggle in all central bank policy choices as indeed it is in all public policy decisions. This balance between horizons shifts in crisis times, as dousing the fires becomes an overriding priority even if some of the actions taken to do that may have·some longer-term costs. For example, in 2008, we saw a massive infusion of liquidity as the best bet for preserving the financial stability of our markets. Indeed, d in uncharted waters, erring on the side of caution meant providing the system with more liquidity than considered adequate. This strategy was effective in the short-term, but with hindsight, we know that excess liquidity may have reinforced inflation pressures down the line. But remember, we were making a judgement call in real time. Analysts who are criticising us are doing so with the benefit of hindsight. Another lesson we learnt is that even in a global crisis, central banks have to adapt their responses to domestic conditions. I am saying this because of all through the crisis months. Whenever another central bank, especially an advanced economy central bank, announced any measure, there was an immediate pressure that the Reserve Bank too should institute a similar measure. Such straightforward copying of measures of other central banks without first examining their appropriateness for the domestic situation can often do more harm than good: Let me illustrate. During th depth of the crisis, fearing a run on their banks, the UK authorities bad extended deposit insurance across board to all deposits in the UK banking system. Immediately, there were commentators asking that the Reserve Bank too must embrace such an all-out measure. If we had actually done that, the results would have been counterproductive if not outright harmful. First, the available premium would not have been able to support such a blanket insurance, and the markets were aware of that.If we had glossed over that and announced a blanket cover anyway, that action would have clearly lacked credibility. Besides, any such move would be at odds with what we had been asserting that our banks and our financial systems were safe and sound: The inconsistency between our walk and talk would have confused the markets; instead of reassuring them, any blanket insurance of the UK type·would have scared the public and sown seeds of doubt about the safety of their bank deposits, potentially triggering a run on some vulnerable banks. Finally, an important lesson from the crisis relates to the imperative of the government and the regulators speaking and acting in unison. It is possible to argue that public disclosure of differences within closed doors of policymaking could actually be helpful in enhancing public understanding on how policy might evolve in the future. For example, a 6-6 vote conveys a different message from a 12-0 vote. During crisis times, though, sending mixed signals to fragile markets can do huge damage. On the other hand, the demonstration of unity of purpose would reassure markets and yield great synergies. The experience of the crisis from around the world and our own experience too showed that coordination could be managed without compromising regulatory autonomy. Merely synchronizing policy announcements for exploiting the synergistic impact need not necessarily imply that regulators were being forced into actions they did not own.Q. According to the author, what is the typical response of central banks in times of crisis? Answer with reference to the passage.

Directions: Read the following passages carefully and identify most appropriate answer to the questions given at the end of each passage.As someone' said, this crisis was too valuable to waste. I, for one, learnt many lessons on crisis management and leadership. By far the most important lesson I learnt is that the primary focus of a central bank during a crisis has to be on restoring confidence in the markets, and what this requires is swift, bold and decisive action. This is not as obvious'as it sounds because central banks are typically given to agonizing over every move they make out of anxiety that failure of their actions to deliver the intended impact will hurt their creditability and their policy effectiveness down the line. There is a lot to be said for such deliberative action in normal times: In crisis times though, it is important for them to take more chances without being too mindful of whether all of their actions are going to be fully effective or even mildly successful. After all, crisis management is a percentage game, and you do what you think has the best chance of reversing the momentum. Often, it is a fact of the action rather than the precise nature of the action that bolsters confidence. Take the Reserve Bank's measure I wrote about earlier of instituting exclusive lines of credit for augmenting the liquidity of NBFCs and mutual funds (MFs) which came under redemption pressure. It is simply unthinkable that the Reserve Bank would have done anything like this in normal times. In the event of a liquidity constraint in normal times, the standard response of the Reserve Bank would be to ease liquidity in the overall system an_d leave it to the banks to determine how to use that additional liquidity.But here, we were targeting monetary policy at a particular class of financial institutions-the MFs &NBFCs-a; decidedly unconventional action. This departure from standard protocol pushed some of our senior staff beyond their comfort zones. Their reservations ranged from: 'this is not bowing monetary policy is done' to 'this will make the Reserve Bank vulnerable to pressures to bail out other sectors'. After hearing them out, I made the call to go ahead: Market participants applauded the new facility and saw it as the Reserve Bank's willingness to embrace unorthodox measures to address Specific areas of pressure in the system. In the event, these facilities were not significantly tapped: In normal times, that would have been seen as a failure of policy. From the crisis perspective though, it was a success in as much as the very existence of the central bank backstop restored confidence in the NBFCs and MFs and smoothed pressures in the financial system. Similarly, the cut in the repo rate of one full percentage point that I effected in October 2008 was a non-standard action from the perspective of a central bank used to cutting the interest rate by a maximum of half a percentage point (50 basis points in the jargon) when it wanted to signal strong action. Of course, we deliberated the advisability of going into uncharted waters and how it might set expectations. For the future. For example, in the future, the market may discount a 50 basis-point cut as too tame. But considering the uncertain and unpredictable global environment and the imperative to improve the flow of credit in a stressed situation, I bit the bullet again and decided on a full percentage-point cut.Managing the tension between short-term payoffs and longer-term consequences is a constant struggle in all central bank policy choices as indeed it is in all public policy decisions. This balance between horizons shifts in crisis times, as dousing the fires becomes an overriding priority even if some of the actions taken to do that may have·some longer-term costs. For example, in 2008, we saw a massive infusion of liquidity as the best bet for preserving the financial stability of our markets. Indeed, d in uncharted waters, erring on the side of caution meant providing the system with more liquidity than considered adequate. This strategy was effective in the short-term, but with hindsight, we know that excess liquidity may have reinforced inflation pressures down the line. But remember, we were making a judgement call in real time. Analysts who are criticising us are doing so with the benefit of hindsight. Another lesson we learnt is that even in a global crisis, central banks have to adapt their responses to domestic conditions. I am saying this because of all through the crisis months. Whenever another central bank, especially an advanced economy central bank, announced any measure, there was an immediate pressure that the Reserve Bank too should institute a similar measure. Such straightforward copying of measures of other central banks without first examining their appropriateness for the domestic situation can often do more harm than good: Let me illustrate. During th depth of the crisis, fearing a run on their banks, the UK authorities bad extended deposit insurance across board to all deposits in the UK banking system. Immediately, there were commentators asking that the Reserve Bank too must embrace such an all-out measure. If we had actually done that, the results would have been counterproductive if not outright harmful. First, the available premium would not have been able to support such a blanket insurance, and the markets were aware of that.If we had glossed over that and announced a blanket cover anyway, that action would have clearly lacked credibility. Besides, any such move would be at odds with what we had been asserting that our banks and our financial systems were safe and sound: The inconsistency between our walk and talk would have confused the markets; instead of reassuring them, any blanket insurance of the UK type·would have scared the public and sown seeds of doubt about the safety of their bank deposits, potentially triggering a run on some vulnerable banks. Finally, an important lesson from the crisis relates to the imperative of the government and the regulators speaking and acting in unison. It is possible to argue that public disclosure of differences within closed doors of policymaking could actually be helpful in enhancing public understanding on how policy might evolve in the future. For example, a 6-6 vote conveys a different message from a 12-0 vote. During crisis times, though, sending mixed signals to fragile markets can do huge damage. On the other hand, the demonstration of unity of purpose would reassure markets and yield great synergies. The experience of the crisis from around the world and our own experience too showed that coordination could be managed without compromising regulatory autonomy. Merely synchronizing policy announcements for exploiting the synergistic impact need not necessarily imply that regulators were being forced into actions they did not own.Q. What 'crisis' is the author referring to, in the above passage?

Read the following passages carefully and identify most appropriate answer to the questions given at the end of each passage:As someone said, this crisis was too valuable to waste. 1, for one, learnt many lessons on crisis management and leadership. By far the most important lesson I learnt is that the primary focus of a central bank during a crisis has to be on restoring condence in the markets, and what this requires is swift, bold and decisive action. This is not as obviousas it sounds because central banks are typically given to agonizing over every !hove they make out of anxiety that failure of their actions to deliver the intended impact will hurt their creditability and their policy effectiveness down the line.There is a lot to besaid forsuch deliberative action in normal rimes: In crisis times though, it is important for them to take more chances without being too mindful of whether all of their actions are going to be fully effective or even mildly successful. After all, crisis management is a percentage game and you do what you think bas the best chance of reversing the momentum. Oftentimes, it is the fact of the action rather than the precise nature of the action that bolsters condence. Take the R rve Banks measure I wrote about earlier of instituting exclusive lines of credit for augmenting the liquidity of NBFCs and mutual funds (MFs) which came under redemption pressure. lt is s imply unthinkable that the Reserve Bank would have done anything like this in normal times. In the event of a liquidity constraint in normal times, the standard responseof the Reserve Bank would be to ease liquidity in the overall system an_d leave it to the banks to determine bow 10 usethat additional liquidity.But here, we were targeting monetary policy at a particular class of nancial institutions-the MFs &Qd; NBFCs-a decidedly unconventional action. This departure from standard protocol pushed some of our senior staff beyond their comfort zones. Their reservations ranged from: this is not bow monetary policy is done to this will make the Reserve Bank vulnerable to pressures to bail out other sectors. After hearing them out, I made the call to go ahead: Market participants applauded the new facility and saw it as the Reserve Banks willingness to embrace unorthodox measures to address Specic areas of pressure in the system. In the event, these facilities were not signicantly tapped: In normal times, that would have been seen as a failure of policy. From the crisis perspective though, it was a success inasmuch as the very existence of the central bank backstop restored condence in the NBFCs and MFs, and smoothed pressures in the nancial system. Similarly, the cut in the repo rate of one full percentage point that I effected in October 2008 was a non-standard action from the perspective of a central bank used to cutting the interest rate by a maximum of half a percentage point (50 basis points in the jargon) when it wanted to signal strong action. Of course, we deliberated the advisability of going into uncharted waters and how it might set expectations. for the future. For example, in the future, the market may discount a 50 basis-point cut as too tame. But considering the uncertainand unpredictable globalenvironment and th. e imperativeto improve the owof credit in a stressed situation, I bit the bullet again and decided on a full percentage-point cut.Managing the tension between short-term pay-offs and longer-term consequences is a constant struggle in all central bank policychoices as indeed it is in all public policy decisions. This balance between horizons shifts in crisis times, as dousing the res becomes an overriding priority even if some of the actions taken to do that may have·some longer-term costs. For example, in 2008, we saw massive infusion of liquidity as the best bet for preserving the nancial stability of our markets. Indee, d in uncharted waters, erring on the sideof caution meant providing the system with more liquidity than considered adequate. This strategy was effective in the s hort-term, but with hindsight, we know that excess liquidity may have reinfQICed ination pressures down the line. But remember, we were making a judgement call in real time. Analysts wh.o are criticizing us are doing so with the benet of hindsight. Another lesson we learnt is that even in a global crisis, central banks have to adapt their responses to domestic conditions. I am saying this because all through rhc crisis months. whenever another central bank, especially an advanced economy central bank, announced any measure, there was immediate pressure that the Reserve Bank too should institute a similar measure. Such straightforward copying of measures of other central banks without rst e xamining their appropriateness for the domestic situation can often do more harm than good: Let me illustrate. During th depth of the crisis, fearing a run on their banks, the UK authorities bad extended deposit insurance across board to all deposits in the UK banking system. Immediately, there were commentators asking that the Reserve Bank too must embrace s uch an all-out measure. If we had actually done that, the results would have been counterproductive if not outright hannful. First, the available premium would not have been able to support such a blanket insurance, and the markets were aware of that.If we had glossed over that and announced a blanket cover anyway, that action would have clearly lacked credibility. Besides, any such move would be at odds with what we had been asserting-that our banks and our nancial systems were safe and sound: The inconsistency between our walk and talk would have confused the markets; instead of reassuring them, any blanket insurance of theUK type·would have scared the public and sown seeds of doubt about thesafety of their bank deposits, potentially triggering a run on some vulnerable banks. Finally, an importani lesson from thecrisis relates to the imperative of the government and the regulators speaking and acting in unisoo. It is possible to argue that public disclosure of differences within closed doors of policymaking could actually be helpful in enhancing public understanding on how policy might evolve in the future. For example, a 6-6 vote conveys a different message from a 12-0 vote. During crisis times, though, sending mixed signals to fragile markets can do huge damage. On the other hand, thedemonstration of unity of purpose would reassure markets and yield great synergies. The experience of the crisis from around the world, and our own experience too, showedthat coordination could be managed without compromising regulatory autonomy. Merely synchro nizing policy announcements for exploiting the synergistic impact need not necessarily imply that regulators were being forced into actions they did not own.Q.With reference to theabove passage, what is the role of government and regulators in times of crisis? Select the most ppropriate response with reference to information provided in the passage.

Directions: Read the passage and answer the question based on it.I have tried to introduce into the discussion a number of attributes of consumer behaviour and motivations, which I believe are important inputs into devising a strategy for commercially viable financial inclusion. These related broadly to the (i) the sources of livelihood of the potential consumer segment for financial inclusion (ii) how they spend their money, particularly on non-regular items (iii) their choices and motivations with respect to saving and (iv) their motivations for borrowing and their ability to access institutional sources of finance for their basic requirements. In discussing each of these sets of issues, I spent some time drawing implications for business strategies by financial service providers. In this section, I wilt briefly highlight, at the risk of some repetition, what I consider to be the key messages of the lecture.The first message emerges from the preliminary discussion on the current scenario on financial inclusion, both at the aggregate level and across income categories. The data suggest that even savings accounts, the most basic financial service, have low penetration amongst the lowest income households. I want to emphasize that we are not talking about Below Poverty Line households only; Rs. 50,000 per year in 2007, while perhaps not quite middle class, was certainly quite far above the official poverty line. The same concerns about lack of penetration amongst the lowest income group for loans also arise. To reiterate the question that arises from these data patterns: is this because people can't access banks or other service providers or because they don't see value in doing so? This question needs to be addressed if an effective inclusion strategy is to be developed.The second message is that the process of financial inclusion is going to be incomplete and inadequate if it is measured only in terms of new accounts being opened and operated. From the employment and earning patterns, there emerged a sense that better access to various kinds of financial services would help to increase the livelihood potential of a number of occupational categories, which in turn would help reduce the income differentials between these and more regular, salaried jobs. The fact that a huge proportion of the Indian workforce is either self-employed and in the casual labour segment suggests the need for products that will make access to credit easier to the former, while offering opportunities for risk mitigation and consumption smoothing to the latter.The third message emerges from the analysis of expenditure patterns is the significance of infrequent, but quantitatively significant expenditures like ceremonies and medical costs. Essentially, dealing with these kinds of expenditures requires either low-cost insurance options, supported by a correspondingly low-cost health care system or a low level systematic investment plan, which allows even poor households to create enough of a buffer to deal with these demands as and when they arise. As has already been pointed out, it is not as though such products are not being offered by domestic financial service providers. It is really a matter of extending them to make them accessible to a very large number of lower income households, with a low and possibly uncertain ability to maintain regular contributions.The fourth message comes strongly from the motivations to both save and borrow, which, as one might reasonably expect, significantly overlap with each other. It is striking that the need to deal with emergencies, both financial and medical, plays such an important role in both sets of motivations. The latter is, as has been said, amenable to a low-coat mass insurance scheme, with the attendant service provision. However, the former, which is a theme that recurs through the entire discussion on consumer characteristics, certainly suggests that the need for some kind of income and consumption smoothing product is a significant one in an effective financial inclusion agenda. This, of course, raises broader questions about the role of social safety nets, which offer at least some minimum income security and consumption smoothing. How extensive these mechanisms should be, how much security they should offer and for how long and how they should be financed are fundamental policy questions that go beyond the realm of the financial sector. However, to the extent that risk mitigation is a significant financial need, it must receive due attention of any meaningful financial inclusion strategy, in a way which provides practical answers to all these three questions.The fifth and final message is actually the point I began the lecture with. It is the critical importance of the principle of commercial viability. Every aspect of a financial inclusion strategy - whether it is the design of products and services or the delivery mechanism -needs to be viewed in terms of the business opportunity that it offers and not as a deliverable that has been imposed on the service provider. However, it is also important to emphasize that commercial viability need not necessarily be viewed in terms of immediate cost and profitability calculations. Like in many other products, financial services also offer the prospect of a life-cycle model of marketing. Establishing a relationship with first-time consumers of financial products and services offers the opportunity to leverage this relationship into a wider set of financial transactions as at least some of these consumers move steadily up the income ladder. In fact, in a high growth scenario, a high proportion of such households are likely to move quite quickly from very basic financial services to more and more sophisticated ones. In other words, the commercial viability and profitability of a financial inclusion strategy need not be viewed only from the perspective of immediacy. There is a viable investment dimension to it as well.Q. Which of the following statements is correct?

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Directions: Read the following passages carefully and identify most appropriate answer to the questions given at the end of each passage.As someone' said, this crisis was too valuable to waste. I, for one, learnt many lessons on crisis management and leadership. By far the most important lesson I learnt is that the primary focus of a central bank during a crisis has to be on restoring confidence in the markets, and what this requires is swift, bold and decisive action. This is not as obvious'as it sounds because central banks are typically given to agonizing over every move they make out of anxiety that failure of their actions to deliver the intended impact will hurt their creditability and their policy effectiveness down the line. There is a lot to be said for such deliberative action in normal times: In crisis times though, it is important for them to take more chances without being too mindful of whether all of their actions are going to be fully effective or even mildly successful. After all, crisis management is a percentage game, and you do what you think has the best chance of reversing the momentum. Often, it is a fact of the action rather than the precise nature of the action that bolsters confidence. Take the Reserve Bank's measure I wrote about earlier of instituting exclusive lines of credit for augmenting the liquidity of NBFCs and mutual funds (MFs) which came under redemption pressure. It is simply unthinkable that the Reserve Bank would have done anything like this in normal times. In the event of a liquidity constraint in normal times, the standard response of the Reserve Bank would be to ease liquidity in the overall system an_d leave it to the banks to determine how to use that additional liquidity.But here, we were targeting monetary policy at a particular class of financial institutions-the MFs &NBFCs-a; decidedly unconventional action. This departure from standard protocol pushed some of our senior staff beyond their comfort zones. Their reservations ranged from: 'this is not bowing monetary policy is done' to 'this will make the Reserve Bank vulnerable to pressures to bail out other sectors'. After hearing them out, I made the call to go ahead: Market participants applauded the new facility and saw it as the Reserve Bank's willingness to embrace unorthodox measures to address Specific areas of pressure in the system. In the event, these facilities were not significantly tapped: In normal times, that would have been seen as a failure of policy. From the crisis perspective though, it was a success in as much as the very existence of the central bank backstop restored confidence in the NBFCs and MFs and smoothed pressures in the financial system. Similarly, the cut in the repo rate of one full percentage point that I effected in October 2008 was a non-standard action from the perspective of a central bank used to cutting the interest rate by a maximum of half a percentage point (50 basis points in the jargon) when it wanted to signal strong action. Of course, we deliberated the advisability of going into uncharted waters and how it might set expectations. For the future. For example, in the future, the market may discount a 50 basis-point cut as too tame. But considering the uncertain and unpredictable global environment and the imperative to improve the flow of credit in a stressed situation, I bit the bullet again and decided on a full percentage-point cut.Managing the tension between short-term payoffs and longer-term consequences is a constant struggle in all central bank policy choices as indeed it is in all public policy decisions. This balance between horizons shifts in crisis times, as dousing the fires becomes an overriding priority even if some of the actions taken to do that may have·some longer-term costs. For example, in 2008, we saw a massive infusion of liquidity as the best bet for preserving the financial stability of our markets. Indeed, d in uncharted waters, erring on the side of caution meant providing the system with more liquidity than considered adequate. This strategy was effective in the short-term, but with hindsight, we know that excess liquidity may have reinforced inflation pressures down the line. But remember, we were making a judgement call in real time. Analysts who are criticising us are doing so with the benefit of hindsight. Another lesson we learnt is that even in a global crisis, central banks have to adapt their responses to domestic conditions. I am saying this because of all through the crisis months. Whenever another central bank, especially an advanced economy central bank, announced any measure, there was an immediate pressure that the Reserve Bank too should institute a similar measure. Such straightforward copying of measures of other central banks without first examining their appropriateness for the domestic situation can often do more harm than good: Let me illustrate. During th depth of the crisis, fearing a run on their banks, the UK authorities bad extended deposit insurance across board to all deposits in the UK banking system. Immediately, there were commentators asking that the Reserve Bank too must embrace such an all-out measure. If we had actually done that, the results would have been counterproductive if not outright harmful. First, the available premium would not have been able to support such a blanket insurance, and the markets were aware of that.If we had glossed over that and announced a blanket cover anyway, that action would have clearly lacked credibility. Besides, any such move would be at odds with what we had been asserting that our banks and our financial systems were safe and sound: The inconsistency between our walk and talk would have confused the markets; instead of reassuring them, any blanket insurance of the UK type·would have scared the public and sown seeds of doubt about the safety of their bank deposits, potentially triggering a run on some vulnerable banks. Finally, an important lesson from the crisis relates to the imperative of the government and the regulators speaking and acting in unison. It is possible to argue that public disclosure of differences within closed doors of policymaking could actually be helpful in enhancing public understanding on how policy might evolve in the future. For example, a 6-6 vote conveys a different message from a 12-0 vote. During crisis times, though, sending mixed signals to fragile markets can do huge damage. On the other hand, the demonstration of unity of purpose would reassure markets and yield great synergies. The experience of the crisis from around the world and our own experience too showed that coordination could be managed without compromising regulatory autonomy. Merely synchronizing policy announcements for exploiting the synergistic impact need not necessarily imply that regulators were being forced into actions they did not own.Q. With reference to theabove passage, what is the role of government and regulators in times of crisis? Select the most ppropriate response with reference to information provided in the passage.a)In times of crisis the government and regulators play the role of check and balance to provide safety to financial systems of a country.b)In times of crisis regulators have to become more strict with government to prevent misuse of power and compromising regulatory anatomy.c)In times of crisis the government has to exercise control on the regulators so that they do not become too powerful and exploit the financial systems.d)In times of crisis the government and the regulators have to work on common ground and avoid any conflicts to prevent instability and confusion.Correct answer is option 'D'. Can you explain this answer?
Question Description
Directions: Read the following passages carefully and identify most appropriate answer to the questions given at the end of each passage.As someone' said, this crisis was too valuable to waste. I, for one, learnt many lessons on crisis management and leadership. By far the most important lesson I learnt is that the primary focus of a central bank during a crisis has to be on restoring confidence in the markets, and what this requires is swift, bold and decisive action. This is not as obvious'as it sounds because central banks are typically given to agonizing over every move they make out of anxiety that failure of their actions to deliver the intended impact will hurt their creditability and their policy effectiveness down the line. There is a lot to be said for such deliberative action in normal times: In crisis times though, it is important for them to take more chances without being too mindful of whether all of their actions are going to be fully effective or even mildly successful. After all, crisis management is a percentage game, and you do what you think has the best chance of reversing the momentum. Often, it is a fact of the action rather than the precise nature of the action that bolsters confidence. Take the Reserve Bank's measure I wrote about earlier of instituting exclusive lines of credit for augmenting the liquidity of NBFCs and mutual funds (MFs) which came under redemption pressure. It is simply unthinkable that the Reserve Bank would have done anything like this in normal times. In the event of a liquidity constraint in normal times, the standard response of the Reserve Bank would be to ease liquidity in the overall system an_d leave it to the banks to determine how to use that additional liquidity.But here, we were targeting monetary policy at a particular class of financial institutions-the MFs &NBFCs-a; decidedly unconventional action. This departure from standard protocol pushed some of our senior staff beyond their comfort zones. Their reservations ranged from: 'this is not bowing monetary policy is done' to 'this will make the Reserve Bank vulnerable to pressures to bail out other sectors'. After hearing them out, I made the call to go ahead: Market participants applauded the new facility and saw it as the Reserve Bank's willingness to embrace unorthodox measures to address Specific areas of pressure in the system. In the event, these facilities were not significantly tapped: In normal times, that would have been seen as a failure of policy. From the crisis perspective though, it was a success in as much as the very existence of the central bank backstop restored confidence in the NBFCs and MFs and smoothed pressures in the financial system. Similarly, the cut in the repo rate of one full percentage point that I effected in October 2008 was a non-standard action from the perspective of a central bank used to cutting the interest rate by a maximum of half a percentage point (50 basis points in the jargon) when it wanted to signal strong action. Of course, we deliberated the advisability of going into uncharted waters and how it might set expectations. For the future. For example, in the future, the market may discount a 50 basis-point cut as too tame. But considering the uncertain and unpredictable global environment and the imperative to improve the flow of credit in a stressed situation, I bit the bullet again and decided on a full percentage-point cut.Managing the tension between short-term payoffs and longer-term consequences is a constant struggle in all central bank policy choices as indeed it is in all public policy decisions. This balance between horizons shifts in crisis times, as dousing the fires becomes an overriding priority even if some of the actions taken to do that may have·some longer-term costs. For example, in 2008, we saw a massive infusion of liquidity as the best bet for preserving the financial stability of our markets. Indeed, d in uncharted waters, erring on the side of caution meant providing the system with more liquidity than considered adequate. This strategy was effective in the short-term, but with hindsight, we know that excess liquidity may have reinforced inflation pressures down the line. But remember, we were making a judgement call in real time. Analysts who are criticising us are doing so with the benefit of hindsight. Another lesson we learnt is that even in a global crisis, central banks have to adapt their responses to domestic conditions. I am saying this because of all through the crisis months. Whenever another central bank, especially an advanced economy central bank, announced any measure, there was an immediate pressure that the Reserve Bank too should institute a similar measure. Such straightforward copying of measures of other central banks without first examining their appropriateness for the domestic situation can often do more harm than good: Let me illustrate. During th depth of the crisis, fearing a run on their banks, the UK authorities bad extended deposit insurance across board to all deposits in the UK banking system. Immediately, there were commentators asking that the Reserve Bank too must embrace such an all-out measure. If we had actually done that, the results would have been counterproductive if not outright harmful. First, the available premium would not have been able to support such a blanket insurance, and the markets were aware of that.If we had glossed over that and announced a blanket cover anyway, that action would have clearly lacked credibility. Besides, any such move would be at odds with what we had been asserting that our banks and our financial systems were safe and sound: The inconsistency between our walk and talk would have confused the markets; instead of reassuring them, any blanket insurance of the UK type·would have scared the public and sown seeds of doubt about the safety of their bank deposits, potentially triggering a run on some vulnerable banks. Finally, an important lesson from the crisis relates to the imperative of the government and the regulators speaking and acting in unison. It is possible to argue that public disclosure of differences within closed doors of policymaking could actually be helpful in enhancing public understanding on how policy might evolve in the future. For example, a 6-6 vote conveys a different message from a 12-0 vote. During crisis times, though, sending mixed signals to fragile markets can do huge damage. On the other hand, the demonstration of unity of purpose would reassure markets and yield great synergies. The experience of the crisis from around the world and our own experience too showed that coordination could be managed without compromising regulatory autonomy. Merely synchronizing policy announcements for exploiting the synergistic impact need not necessarily imply that regulators were being forced into actions they did not own.Q. With reference to theabove passage, what is the role of government and regulators in times of crisis? Select the most ppropriate response with reference to information provided in the passage.a)In times of crisis the government and regulators play the role of check and balance to provide safety to financial systems of a country.b)In times of crisis regulators have to become more strict with government to prevent misuse of power and compromising regulatory anatomy.c)In times of crisis the government has to exercise control on the regulators so that they do not become too powerful and exploit the financial systems.d)In times of crisis the government and the regulators have to work on common ground and avoid any conflicts to prevent instability and confusion.Correct answer is option 'D'. Can you explain this answer? for CAT 2024 is part of CAT preparation. The Question and answers have been prepared according to the CAT exam syllabus. Information about Directions: Read the following passages carefully and identify most appropriate answer to the questions given at the end of each passage.As someone' said, this crisis was too valuable to waste. I, for one, learnt many lessons on crisis management and leadership. By far the most important lesson I learnt is that the primary focus of a central bank during a crisis has to be on restoring confidence in the markets, and what this requires is swift, bold and decisive action. This is not as obvious'as it sounds because central banks are typically given to agonizing over every move they make out of anxiety that failure of their actions to deliver the intended impact will hurt their creditability and their policy effectiveness down the line. There is a lot to be said for such deliberative action in normal times: In crisis times though, it is important for them to take more chances without being too mindful of whether all of their actions are going to be fully effective or even mildly successful. After all, crisis management is a percentage game, and you do what you think has the best chance of reversing the momentum. Often, it is a fact of the action rather than the precise nature of the action that bolsters confidence. Take the Reserve Bank's measure I wrote about earlier of instituting exclusive lines of credit for augmenting the liquidity of NBFCs and mutual funds (MFs) which came under redemption pressure. It is simply unthinkable that the Reserve Bank would have done anything like this in normal times. In the event of a liquidity constraint in normal times, the standard response of the Reserve Bank would be to ease liquidity in the overall system an_d leave it to the banks to determine how to use that additional liquidity.But here, we were targeting monetary policy at a particular class of financial institutions-the MFs &NBFCs-a; decidedly unconventional action. This departure from standard protocol pushed some of our senior staff beyond their comfort zones. Their reservations ranged from: 'this is not bowing monetary policy is done' to 'this will make the Reserve Bank vulnerable to pressures to bail out other sectors'. After hearing them out, I made the call to go ahead: Market participants applauded the new facility and saw it as the Reserve Bank's willingness to embrace unorthodox measures to address Specific areas of pressure in the system. In the event, these facilities were not significantly tapped: In normal times, that would have been seen as a failure of policy. From the crisis perspective though, it was a success in as much as the very existence of the central bank backstop restored confidence in the NBFCs and MFs and smoothed pressures in the financial system. Similarly, the cut in the repo rate of one full percentage point that I effected in October 2008 was a non-standard action from the perspective of a central bank used to cutting the interest rate by a maximum of half a percentage point (50 basis points in the jargon) when it wanted to signal strong action. Of course, we deliberated the advisability of going into uncharted waters and how it might set expectations. For the future. For example, in the future, the market may discount a 50 basis-point cut as too tame. But considering the uncertain and unpredictable global environment and the imperative to improve the flow of credit in a stressed situation, I bit the bullet again and decided on a full percentage-point cut.Managing the tension between short-term payoffs and longer-term consequences is a constant struggle in all central bank policy choices as indeed it is in all public policy decisions. This balance between horizons shifts in crisis times, as dousing the fires becomes an overriding priority even if some of the actions taken to do that may have·some longer-term costs. For example, in 2008, we saw a massive infusion of liquidity as the best bet for preserving the financial stability of our markets. Indeed, d in uncharted waters, erring on the side of caution meant providing the system with more liquidity than considered adequate. This strategy was effective in the short-term, but with hindsight, we know that excess liquidity may have reinforced inflation pressures down the line. But remember, we were making a judgement call in real time. Analysts who are criticising us are doing so with the benefit of hindsight. Another lesson we learnt is that even in a global crisis, central banks have to adapt their responses to domestic conditions. I am saying this because of all through the crisis months. Whenever another central bank, especially an advanced economy central bank, announced any measure, there was an immediate pressure that the Reserve Bank too should institute a similar measure. Such straightforward copying of measures of other central banks without first examining their appropriateness for the domestic situation can often do more harm than good: Let me illustrate. During th depth of the crisis, fearing a run on their banks, the UK authorities bad extended deposit insurance across board to all deposits in the UK banking system. Immediately, there were commentators asking that the Reserve Bank too must embrace such an all-out measure. If we had actually done that, the results would have been counterproductive if not outright harmful. First, the available premium would not have been able to support such a blanket insurance, and the markets were aware of that.If we had glossed over that and announced a blanket cover anyway, that action would have clearly lacked credibility. Besides, any such move would be at odds with what we had been asserting that our banks and our financial systems were safe and sound: The inconsistency between our walk and talk would have confused the markets; instead of reassuring them, any blanket insurance of the UK type·would have scared the public and sown seeds of doubt about the safety of their bank deposits, potentially triggering a run on some vulnerable banks. Finally, an important lesson from the crisis relates to the imperative of the government and the regulators speaking and acting in unison. It is possible to argue that public disclosure of differences within closed doors of policymaking could actually be helpful in enhancing public understanding on how policy might evolve in the future. For example, a 6-6 vote conveys a different message from a 12-0 vote. During crisis times, though, sending mixed signals to fragile markets can do huge damage. On the other hand, the demonstration of unity of purpose would reassure markets and yield great synergies. The experience of the crisis from around the world and our own experience too showed that coordination could be managed without compromising regulatory autonomy. Merely synchronizing policy announcements for exploiting the synergistic impact need not necessarily imply that regulators were being forced into actions they did not own.Q. With reference to theabove passage, what is the role of government and regulators in times of crisis? Select the most ppropriate response with reference to information provided in the passage.a)In times of crisis the government and regulators play the role of check and balance to provide safety to financial systems of a country.b)In times of crisis regulators have to become more strict with government to prevent misuse of power and compromising regulatory anatomy.c)In times of crisis the government has to exercise control on the regulators so that they do not become too powerful and exploit the financial systems.d)In times of crisis the government and the regulators have to work on common ground and avoid any conflicts to prevent instability and confusion.Correct answer is option 'D'. Can you explain this answer? covers all topics & solutions for CAT 2024 Exam. Find important definitions, questions, meanings, examples, exercises and tests below for Directions: Read the following passages carefully and identify most appropriate answer to the questions given at the end of each passage.As someone' said, this crisis was too valuable to waste. I, for one, learnt many lessons on crisis management and leadership. By far the most important lesson I learnt is that the primary focus of a central bank during a crisis has to be on restoring confidence in the markets, and what this requires is swift, bold and decisive action. This is not as obvious'as it sounds because central banks are typically given to agonizing over every move they make out of anxiety that failure of their actions to deliver the intended impact will hurt their creditability and their policy effectiveness down the line. There is a lot to be said for such deliberative action in normal times: In crisis times though, it is important for them to take more chances without being too mindful of whether all of their actions are going to be fully effective or even mildly successful. After all, crisis management is a percentage game, and you do what you think has the best chance of reversing the momentum. Often, it is a fact of the action rather than the precise nature of the action that bolsters confidence. Take the Reserve Bank's measure I wrote about earlier of instituting exclusive lines of credit for augmenting the liquidity of NBFCs and mutual funds (MFs) which came under redemption pressure. It is simply unthinkable that the Reserve Bank would have done anything like this in normal times. In the event of a liquidity constraint in normal times, the standard response of the Reserve Bank would be to ease liquidity in the overall system an_d leave it to the banks to determine how to use that additional liquidity.But here, we were targeting monetary policy at a particular class of financial institutions-the MFs &NBFCs-a; decidedly unconventional action. This departure from standard protocol pushed some of our senior staff beyond their comfort zones. Their reservations ranged from: 'this is not bowing monetary policy is done' to 'this will make the Reserve Bank vulnerable to pressures to bail out other sectors'. After hearing them out, I made the call to go ahead: Market participants applauded the new facility and saw it as the Reserve Bank's willingness to embrace unorthodox measures to address Specific areas of pressure in the system. In the event, these facilities were not significantly tapped: In normal times, that would have been seen as a failure of policy. From the crisis perspective though, it was a success in as much as the very existence of the central bank backstop restored confidence in the NBFCs and MFs and smoothed pressures in the financial system. Similarly, the cut in the repo rate of one full percentage point that I effected in October 2008 was a non-standard action from the perspective of a central bank used to cutting the interest rate by a maximum of half a percentage point (50 basis points in the jargon) when it wanted to signal strong action. Of course, we deliberated the advisability of going into uncharted waters and how it might set expectations. For the future. For example, in the future, the market may discount a 50 basis-point cut as too tame. But considering the uncertain and unpredictable global environment and the imperative to improve the flow of credit in a stressed situation, I bit the bullet again and decided on a full percentage-point cut.Managing the tension between short-term payoffs and longer-term consequences is a constant struggle in all central bank policy choices as indeed it is in all public policy decisions. This balance between horizons shifts in crisis times, as dousing the fires becomes an overriding priority even if some of the actions taken to do that may have·some longer-term costs. For example, in 2008, we saw a massive infusion of liquidity as the best bet for preserving the financial stability of our markets. Indeed, d in uncharted waters, erring on the side of caution meant providing the system with more liquidity than considered adequate. This strategy was effective in the short-term, but with hindsight, we know that excess liquidity may have reinforced inflation pressures down the line. But remember, we were making a judgement call in real time. Analysts who are criticising us are doing so with the benefit of hindsight. Another lesson we learnt is that even in a global crisis, central banks have to adapt their responses to domestic conditions. I am saying this because of all through the crisis months. Whenever another central bank, especially an advanced economy central bank, announced any measure, there was an immediate pressure that the Reserve Bank too should institute a similar measure. Such straightforward copying of measures of other central banks without first examining their appropriateness for the domestic situation can often do more harm than good: Let me illustrate. During th depth of the crisis, fearing a run on their banks, the UK authorities bad extended deposit insurance across board to all deposits in the UK banking system. Immediately, there were commentators asking that the Reserve Bank too must embrace such an all-out measure. If we had actually done that, the results would have been counterproductive if not outright harmful. First, the available premium would not have been able to support such a blanket insurance, and the markets were aware of that.If we had glossed over that and announced a blanket cover anyway, that action would have clearly lacked credibility. Besides, any such move would be at odds with what we had been asserting that our banks and our financial systems were safe and sound: The inconsistency between our walk and talk would have confused the markets; instead of reassuring them, any blanket insurance of the UK type·would have scared the public and sown seeds of doubt about the safety of their bank deposits, potentially triggering a run on some vulnerable banks. Finally, an important lesson from the crisis relates to the imperative of the government and the regulators speaking and acting in unison. It is possible to argue that public disclosure of differences within closed doors of policymaking could actually be helpful in enhancing public understanding on how policy might evolve in the future. For example, a 6-6 vote conveys a different message from a 12-0 vote. During crisis times, though, sending mixed signals to fragile markets can do huge damage. On the other hand, the demonstration of unity of purpose would reassure markets and yield great synergies. The experience of the crisis from around the world and our own experience too showed that coordination could be managed without compromising regulatory autonomy. Merely synchronizing policy announcements for exploiting the synergistic impact need not necessarily imply that regulators were being forced into actions they did not own.Q. With reference to theabove passage, what is the role of government and regulators in times of crisis? Select the most ppropriate response with reference to information provided in the passage.a)In times of crisis the government and regulators play the role of check and balance to provide safety to financial systems of a country.b)In times of crisis regulators have to become more strict with government to prevent misuse of power and compromising regulatory anatomy.c)In times of crisis the government has to exercise control on the regulators so that they do not become too powerful and exploit the financial systems.d)In times of crisis the government and the regulators have to work on common ground and avoid any conflicts to prevent instability and confusion.Correct answer is option 'D'. Can you explain this answer?.
Solutions for Directions: Read the following passages carefully and identify most appropriate answer to the questions given at the end of each passage.As someone' said, this crisis was too valuable to waste. I, for one, learnt many lessons on crisis management and leadership. By far the most important lesson I learnt is that the primary focus of a central bank during a crisis has to be on restoring confidence in the markets, and what this requires is swift, bold and decisive action. This is not as obvious'as it sounds because central banks are typically given to agonizing over every move they make out of anxiety that failure of their actions to deliver the intended impact will hurt their creditability and their policy effectiveness down the line. There is a lot to be said for such deliberative action in normal times: In crisis times though, it is important for them to take more chances without being too mindful of whether all of their actions are going to be fully effective or even mildly successful. After all, crisis management is a percentage game, and you do what you think has the best chance of reversing the momentum. Often, it is a fact of the action rather than the precise nature of the action that bolsters confidence. Take the Reserve Bank's measure I wrote about earlier of instituting exclusive lines of credit for augmenting the liquidity of NBFCs and mutual funds (MFs) which came under redemption pressure. It is simply unthinkable that the Reserve Bank would have done anything like this in normal times. In the event of a liquidity constraint in normal times, the standard response of the Reserve Bank would be to ease liquidity in the overall system an_d leave it to the banks to determine how to use that additional liquidity.But here, we were targeting monetary policy at a particular class of financial institutions-the MFs &NBFCs-a; decidedly unconventional action. This departure from standard protocol pushed some of our senior staff beyond their comfort zones. Their reservations ranged from: 'this is not bowing monetary policy is done' to 'this will make the Reserve Bank vulnerable to pressures to bail out other sectors'. After hearing them out, I made the call to go ahead: Market participants applauded the new facility and saw it as the Reserve Bank's willingness to embrace unorthodox measures to address Specific areas of pressure in the system. In the event, these facilities were not significantly tapped: In normal times, that would have been seen as a failure of policy. From the crisis perspective though, it was a success in as much as the very existence of the central bank backstop restored confidence in the NBFCs and MFs and smoothed pressures in the financial system. Similarly, the cut in the repo rate of one full percentage point that I effected in October 2008 was a non-standard action from the perspective of a central bank used to cutting the interest rate by a maximum of half a percentage point (50 basis points in the jargon) when it wanted to signal strong action. Of course, we deliberated the advisability of going into uncharted waters and how it might set expectations. For the future. For example, in the future, the market may discount a 50 basis-point cut as too tame. But considering the uncertain and unpredictable global environment and the imperative to improve the flow of credit in a stressed situation, I bit the bullet again and decided on a full percentage-point cut.Managing the tension between short-term payoffs and longer-term consequences is a constant struggle in all central bank policy choices as indeed it is in all public policy decisions. This balance between horizons shifts in crisis times, as dousing the fires becomes an overriding priority even if some of the actions taken to do that may have·some longer-term costs. For example, in 2008, we saw a massive infusion of liquidity as the best bet for preserving the financial stability of our markets. Indeed, d in uncharted waters, erring on the side of caution meant providing the system with more liquidity than considered adequate. This strategy was effective in the short-term, but with hindsight, we know that excess liquidity may have reinforced inflation pressures down the line. But remember, we were making a judgement call in real time. Analysts who are criticising us are doing so with the benefit of hindsight. Another lesson we learnt is that even in a global crisis, central banks have to adapt their responses to domestic conditions. I am saying this because of all through the crisis months. Whenever another central bank, especially an advanced economy central bank, announced any measure, there was an immediate pressure that the Reserve Bank too should institute a similar measure. Such straightforward copying of measures of other central banks without first examining their appropriateness for the domestic situation can often do more harm than good: Let me illustrate. During th depth of the crisis, fearing a run on their banks, the UK authorities bad extended deposit insurance across board to all deposits in the UK banking system. Immediately, there were commentators asking that the Reserve Bank too must embrace such an all-out measure. If we had actually done that, the results would have been counterproductive if not outright harmful. First, the available premium would not have been able to support such a blanket insurance, and the markets were aware of that.If we had glossed over that and announced a blanket cover anyway, that action would have clearly lacked credibility. Besides, any such move would be at odds with what we had been asserting that our banks and our financial systems were safe and sound: The inconsistency between our walk and talk would have confused the markets; instead of reassuring them, any blanket insurance of the UK type·would have scared the public and sown seeds of doubt about the safety of their bank deposits, potentially triggering a run on some vulnerable banks. Finally, an important lesson from the crisis relates to the imperative of the government and the regulators speaking and acting in unison. It is possible to argue that public disclosure of differences within closed doors of policymaking could actually be helpful in enhancing public understanding on how policy might evolve in the future. For example, a 6-6 vote conveys a different message from a 12-0 vote. During crisis times, though, sending mixed signals to fragile markets can do huge damage. On the other hand, the demonstration of unity of purpose would reassure markets and yield great synergies. The experience of the crisis from around the world and our own experience too showed that coordination could be managed without compromising regulatory autonomy. Merely synchronizing policy announcements for exploiting the synergistic impact need not necessarily imply that regulators were being forced into actions they did not own.Q. With reference to theabove passage, what is the role of government and regulators in times of crisis? Select the most ppropriate response with reference to information provided in the passage.a)In times of crisis the government and regulators play the role of check and balance to provide safety to financial systems of a country.b)In times of crisis regulators have to become more strict with government to prevent misuse of power and compromising regulatory anatomy.c)In times of crisis the government has to exercise control on the regulators so that they do not become too powerful and exploit the financial systems.d)In times of crisis the government and the regulators have to work on common ground and avoid any conflicts to prevent instability and confusion.Correct answer is option 'D'. Can you explain this answer? in English & in Hindi are available as part of our courses for CAT. Download more important topics, notes, lectures and mock test series for CAT Exam by signing up for free.
Here you can find the meaning of Directions: Read the following passages carefully and identify most appropriate answer to the questions given at the end of each passage.As someone' said, this crisis was too valuable to waste. I, for one, learnt many lessons on crisis management and leadership. By far the most important lesson I learnt is that the primary focus of a central bank during a crisis has to be on restoring confidence in the markets, and what this requires is swift, bold and decisive action. This is not as obvious'as it sounds because central banks are typically given to agonizing over every move they make out of anxiety that failure of their actions to deliver the intended impact will hurt their creditability and their policy effectiveness down the line. There is a lot to be said for such deliberative action in normal times: In crisis times though, it is important for them to take more chances without being too mindful of whether all of their actions are going to be fully effective or even mildly successful. After all, crisis management is a percentage game, and you do what you think has the best chance of reversing the momentum. Often, it is a fact of the action rather than the precise nature of the action that bolsters confidence. Take the Reserve Bank's measure I wrote about earlier of instituting exclusive lines of credit for augmenting the liquidity of NBFCs and mutual funds (MFs) which came under redemption pressure. It is simply unthinkable that the Reserve Bank would have done anything like this in normal times. In the event of a liquidity constraint in normal times, the standard response of the Reserve Bank would be to ease liquidity in the overall system an_d leave it to the banks to determine how to use that additional liquidity.But here, we were targeting monetary policy at a particular class of financial institutions-the MFs &NBFCs-a; decidedly unconventional action. This departure from standard protocol pushed some of our senior staff beyond their comfort zones. Their reservations ranged from: 'this is not bowing monetary policy is done' to 'this will make the Reserve Bank vulnerable to pressures to bail out other sectors'. After hearing them out, I made the call to go ahead: Market participants applauded the new facility and saw it as the Reserve Bank's willingness to embrace unorthodox measures to address Specific areas of pressure in the system. In the event, these facilities were not significantly tapped: In normal times, that would have been seen as a failure of policy. From the crisis perspective though, it was a success in as much as the very existence of the central bank backstop restored confidence in the NBFCs and MFs and smoothed pressures in the financial system. Similarly, the cut in the repo rate of one full percentage point that I effected in October 2008 was a non-standard action from the perspective of a central bank used to cutting the interest rate by a maximum of half a percentage point (50 basis points in the jargon) when it wanted to signal strong action. Of course, we deliberated the advisability of going into uncharted waters and how it might set expectations. For the future. For example, in the future, the market may discount a 50 basis-point cut as too tame. But considering the uncertain and unpredictable global environment and the imperative to improve the flow of credit in a stressed situation, I bit the bullet again and decided on a full percentage-point cut.Managing the tension between short-term payoffs and longer-term consequences is a constant struggle in all central bank policy choices as indeed it is in all public policy decisions. This balance between horizons shifts in crisis times, as dousing the fires becomes an overriding priority even if some of the actions taken to do that may have·some longer-term costs. For example, in 2008, we saw a massive infusion of liquidity as the best bet for preserving the financial stability of our markets. Indeed, d in uncharted waters, erring on the side of caution meant providing the system with more liquidity than considered adequate. This strategy was effective in the short-term, but with hindsight, we know that excess liquidity may have reinforced inflation pressures down the line. But remember, we were making a judgement call in real time. Analysts who are criticising us are doing so with the benefit of hindsight. Another lesson we learnt is that even in a global crisis, central banks have to adapt their responses to domestic conditions. I am saying this because of all through the crisis months. Whenever another central bank, especially an advanced economy central bank, announced any measure, there was an immediate pressure that the Reserve Bank too should institute a similar measure. Such straightforward copying of measures of other central banks without first examining their appropriateness for the domestic situation can often do more harm than good: Let me illustrate. During th depth of the crisis, fearing a run on their banks, the UK authorities bad extended deposit insurance across board to all deposits in the UK banking system. Immediately, there were commentators asking that the Reserve Bank too must embrace such an all-out measure. If we had actually done that, the results would have been counterproductive if not outright harmful. First, the available premium would not have been able to support such a blanket insurance, and the markets were aware of that.If we had glossed over that and announced a blanket cover anyway, that action would have clearly lacked credibility. Besides, any such move would be at odds with what we had been asserting that our banks and our financial systems were safe and sound: The inconsistency between our walk and talk would have confused the markets; instead of reassuring them, any blanket insurance of the UK type·would have scared the public and sown seeds of doubt about the safety of their bank deposits, potentially triggering a run on some vulnerable banks. Finally, an important lesson from the crisis relates to the imperative of the government and the regulators speaking and acting in unison. It is possible to argue that public disclosure of differences within closed doors of policymaking could actually be helpful in enhancing public understanding on how policy might evolve in the future. For example, a 6-6 vote conveys a different message from a 12-0 vote. During crisis times, though, sending mixed signals to fragile markets can do huge damage. On the other hand, the demonstration of unity of purpose would reassure markets and yield great synergies. The experience of the crisis from around the world and our own experience too showed that coordination could be managed without compromising regulatory autonomy. Merely synchronizing policy announcements for exploiting the synergistic impact need not necessarily imply that regulators were being forced into actions they did not own.Q. With reference to theabove passage, what is the role of government and regulators in times of crisis? Select the most ppropriate response with reference to information provided in the passage.a)In times of crisis the government and regulators play the role of check and balance to provide safety to financial systems of a country.b)In times of crisis regulators have to become more strict with government to prevent misuse of power and compromising regulatory anatomy.c)In times of crisis the government has to exercise control on the regulators so that they do not become too powerful and exploit the financial systems.d)In times of crisis the government and the regulators have to work on common ground and avoid any conflicts to prevent instability and confusion.Correct answer is option 'D'. Can you explain this answer? defined & explained in the simplest way possible. Besides giving the explanation of Directions: Read the following passages carefully and identify most appropriate answer to the questions given at the end of each passage.As someone' said, this crisis was too valuable to waste. I, for one, learnt many lessons on crisis management and leadership. By far the most important lesson I learnt is that the primary focus of a central bank during a crisis has to be on restoring confidence in the markets, and what this requires is swift, bold and decisive action. This is not as obvious'as it sounds because central banks are typically given to agonizing over every move they make out of anxiety that failure of their actions to deliver the intended impact will hurt their creditability and their policy effectiveness down the line. There is a lot to be said for such deliberative action in normal times: In crisis times though, it is important for them to take more chances without being too mindful of whether all of their actions are going to be fully effective or even mildly successful. After all, crisis management is a percentage game, and you do what you think has the best chance of reversing the momentum. Often, it is a fact of the action rather than the precise nature of the action that bolsters confidence. Take the Reserve Bank's measure I wrote about earlier of instituting exclusive lines of credit for augmenting the liquidity of NBFCs and mutual funds (MFs) which came under redemption pressure. It is simply unthinkable that the Reserve Bank would have done anything like this in normal times. In the event of a liquidity constraint in normal times, the standard response of the Reserve Bank would be to ease liquidity in the overall system an_d leave it to the banks to determine how to use that additional liquidity.But here, we were targeting monetary policy at a particular class of financial institutions-the MFs &NBFCs-a; decidedly unconventional action. This departure from standard protocol pushed some of our senior staff beyond their comfort zones. Their reservations ranged from: 'this is not bowing monetary policy is done' to 'this will make the Reserve Bank vulnerable to pressures to bail out other sectors'. After hearing them out, I made the call to go ahead: Market participants applauded the new facility and saw it as the Reserve Bank's willingness to embrace unorthodox measures to address Specific areas of pressure in the system. In the event, these facilities were not significantly tapped: In normal times, that would have been seen as a failure of policy. From the crisis perspective though, it was a success in as much as the very existence of the central bank backstop restored confidence in the NBFCs and MFs and smoothed pressures in the financial system. Similarly, the cut in the repo rate of one full percentage point that I effected in October 2008 was a non-standard action from the perspective of a central bank used to cutting the interest rate by a maximum of half a percentage point (50 basis points in the jargon) when it wanted to signal strong action. Of course, we deliberated the advisability of going into uncharted waters and how it might set expectations. For the future. For example, in the future, the market may discount a 50 basis-point cut as too tame. But considering the uncertain and unpredictable global environment and the imperative to improve the flow of credit in a stressed situation, I bit the bullet again and decided on a full percentage-point cut.Managing the tension between short-term payoffs and longer-term consequences is a constant struggle in all central bank policy choices as indeed it is in all public policy decisions. This balance between horizons shifts in crisis times, as dousing the fires becomes an overriding priority even if some of the actions taken to do that may have·some longer-term costs. For example, in 2008, we saw a massive infusion of liquidity as the best bet for preserving the financial stability of our markets. Indeed, d in uncharted waters, erring on the side of caution meant providing the system with more liquidity than considered adequate. This strategy was effective in the short-term, but with hindsight, we know that excess liquidity may have reinforced inflation pressures down the line. But remember, we were making a judgement call in real time. Analysts who are criticising us are doing so with the benefit of hindsight. Another lesson we learnt is that even in a global crisis, central banks have to adapt their responses to domestic conditions. I am saying this because of all through the crisis months. Whenever another central bank, especially an advanced economy central bank, announced any measure, there was an immediate pressure that the Reserve Bank too should institute a similar measure. Such straightforward copying of measures of other central banks without first examining their appropriateness for the domestic situation can often do more harm than good: Let me illustrate. During th depth of the crisis, fearing a run on their banks, the UK authorities bad extended deposit insurance across board to all deposits in the UK banking system. Immediately, there were commentators asking that the Reserve Bank too must embrace such an all-out measure. If we had actually done that, the results would have been counterproductive if not outright harmful. First, the available premium would not have been able to support such a blanket insurance, and the markets were aware of that.If we had glossed over that and announced a blanket cover anyway, that action would have clearly lacked credibility. Besides, any such move would be at odds with what we had been asserting that our banks and our financial systems were safe and sound: The inconsistency between our walk and talk would have confused the markets; instead of reassuring them, any blanket insurance of the UK type·would have scared the public and sown seeds of doubt about the safety of their bank deposits, potentially triggering a run on some vulnerable banks. Finally, an important lesson from the crisis relates to the imperative of the government and the regulators speaking and acting in unison. It is possible to argue that public disclosure of differences within closed doors of policymaking could actually be helpful in enhancing public understanding on how policy might evolve in the future. For example, a 6-6 vote conveys a different message from a 12-0 vote. During crisis times, though, sending mixed signals to fragile markets can do huge damage. On the other hand, the demonstration of unity of purpose would reassure markets and yield great synergies. The experience of the crisis from around the world and our own experience too showed that coordination could be managed without compromising regulatory autonomy. Merely synchronizing policy announcements for exploiting the synergistic impact need not necessarily imply that regulators were being forced into actions they did not own.Q. With reference to theabove passage, what is the role of government and regulators in times of crisis? Select the most ppropriate response with reference to information provided in the passage.a)In times of crisis the government and regulators play the role of check and balance to provide safety to financial systems of a country.b)In times of crisis regulators have to become more strict with government to prevent misuse of power and compromising regulatory anatomy.c)In times of crisis the government has to exercise control on the regulators so that they do not become too powerful and exploit the financial systems.d)In times of crisis the government and the regulators have to work on common ground and avoid any conflicts to prevent instability and confusion.Correct answer is option 'D'. Can you explain this answer?, a detailed solution for Directions: Read the following passages carefully and identify most appropriate answer to the questions given at the end of each passage.As someone' said, this crisis was too valuable to waste. I, for one, learnt many lessons on crisis management and leadership. By far the most important lesson I learnt is that the primary focus of a central bank during a crisis has to be on restoring confidence in the markets, and what this requires is swift, bold and decisive action. This is not as obvious'as it sounds because central banks are typically given to agonizing over every move they make out of anxiety that failure of their actions to deliver the intended impact will hurt their creditability and their policy effectiveness down the line. There is a lot to be said for such deliberative action in normal times: In crisis times though, it is important for them to take more chances without being too mindful of whether all of their actions are going to be fully effective or even mildly successful. After all, crisis management is a percentage game, and you do what you think has the best chance of reversing the momentum. Often, it is a fact of the action rather than the precise nature of the action that bolsters confidence. Take the Reserve Bank's measure I wrote about earlier of instituting exclusive lines of credit for augmenting the liquidity of NBFCs and mutual funds (MFs) which came under redemption pressure. It is simply unthinkable that the Reserve Bank would have done anything like this in normal times. In the event of a liquidity constraint in normal times, the standard response of the Reserve Bank would be to ease liquidity in the overall system an_d leave it to the banks to determine how to use that additional liquidity.But here, we were targeting monetary policy at a particular class of financial institutions-the MFs &NBFCs-a; decidedly unconventional action. This departure from standard protocol pushed some of our senior staff beyond their comfort zones. Their reservations ranged from: 'this is not bowing monetary policy is done' to 'this will make the Reserve Bank vulnerable to pressures to bail out other sectors'. After hearing them out, I made the call to go ahead: Market participants applauded the new facility and saw it as the Reserve Bank's willingness to embrace unorthodox measures to address Specific areas of pressure in the system. In the event, these facilities were not significantly tapped: In normal times, that would have been seen as a failure of policy. From the crisis perspective though, it was a success in as much as the very existence of the central bank backstop restored confidence in the NBFCs and MFs and smoothed pressures in the financial system. Similarly, the cut in the repo rate of one full percentage point that I effected in October 2008 was a non-standard action from the perspective of a central bank used to cutting the interest rate by a maximum of half a percentage point (50 basis points in the jargon) when it wanted to signal strong action. Of course, we deliberated the advisability of going into uncharted waters and how it might set expectations. For the future. For example, in the future, the market may discount a 50 basis-point cut as too tame. But considering the uncertain and unpredictable global environment and the imperative to improve the flow of credit in a stressed situation, I bit the bullet again and decided on a full percentage-point cut.Managing the tension between short-term payoffs and longer-term consequences is a constant struggle in all central bank policy choices as indeed it is in all public policy decisions. This balance between horizons shifts in crisis times, as dousing the fires becomes an overriding priority even if some of the actions taken to do that may have·some longer-term costs. For example, in 2008, we saw a massive infusion of liquidity as the best bet for preserving the financial stability of our markets. Indeed, d in uncharted waters, erring on the side of caution meant providing the system with more liquidity than considered adequate. This strategy was effective in the short-term, but with hindsight, we know that excess liquidity may have reinforced inflation pressures down the line. But remember, we were making a judgement call in real time. Analysts who are criticising us are doing so with the benefit of hindsight. Another lesson we learnt is that even in a global crisis, central banks have to adapt their responses to domestic conditions. I am saying this because of all through the crisis months. Whenever another central bank, especially an advanced economy central bank, announced any measure, there was an immediate pressure that the Reserve Bank too should institute a similar measure. Such straightforward copying of measures of other central banks without first examining their appropriateness for the domestic situation can often do more harm than good: Let me illustrate. During th depth of the crisis, fearing a run on their banks, the UK authorities bad extended deposit insurance across board to all deposits in the UK banking system. Immediately, there were commentators asking that the Reserve Bank too must embrace such an all-out measure. If we had actually done that, the results would have been counterproductive if not outright harmful. First, the available premium would not have been able to support such a blanket insurance, and the markets were aware of that.If we had glossed over that and announced a blanket cover anyway, that action would have clearly lacked credibility. Besides, any such move would be at odds with what we had been asserting that our banks and our financial systems were safe and sound: The inconsistency between our walk and talk would have confused the markets; instead of reassuring them, any blanket insurance of the UK type·would have scared the public and sown seeds of doubt about the safety of their bank deposits, potentially triggering a run on some vulnerable banks. Finally, an important lesson from the crisis relates to the imperative of the government and the regulators speaking and acting in unison. It is possible to argue that public disclosure of differences within closed doors of policymaking could actually be helpful in enhancing public understanding on how policy might evolve in the future. For example, a 6-6 vote conveys a different message from a 12-0 vote. During crisis times, though, sending mixed signals to fragile markets can do huge damage. On the other hand, the demonstration of unity of purpose would reassure markets and yield great synergies. The experience of the crisis from around the world and our own experience too showed that coordination could be managed without compromising regulatory autonomy. Merely synchronizing policy announcements for exploiting the synergistic impact need not necessarily imply that regulators were being forced into actions they did not own.Q. With reference to theabove passage, what is the role of government and regulators in times of crisis? Select the most ppropriate response with reference to information provided in the passage.a)In times of crisis the government and regulators play the role of check and balance to provide safety to financial systems of a country.b)In times of crisis regulators have to become more strict with government to prevent misuse of power and compromising regulatory anatomy.c)In times of crisis the government has to exercise control on the regulators so that they do not become too powerful and exploit the financial systems.d)In times of crisis the government and the regulators have to work on common ground and avoid any conflicts to prevent instability and confusion.Correct answer is option 'D'. Can you explain this answer? has been provided alongside types of Directions: Read the following passages carefully and identify most appropriate answer to the questions given at the end of each passage.As someone' said, this crisis was too valuable to waste. I, for one, learnt many lessons on crisis management and leadership. By far the most important lesson I learnt is that the primary focus of a central bank during a crisis has to be on restoring confidence in the markets, and what this requires is swift, bold and decisive action. This is not as obvious'as it sounds because central banks are typically given to agonizing over every move they make out of anxiety that failure of their actions to deliver the intended impact will hurt their creditability and their policy effectiveness down the line. There is a lot to be said for such deliberative action in normal times: In crisis times though, it is important for them to take more chances without being too mindful of whether all of their actions are going to be fully effective or even mildly successful. After all, crisis management is a percentage game, and you do what you think has the best chance of reversing the momentum. Often, it is a fact of the action rather than the precise nature of the action that bolsters confidence. Take the Reserve Bank's measure I wrote about earlier of instituting exclusive lines of credit for augmenting the liquidity of NBFCs and mutual funds (MFs) which came under redemption pressure. It is simply unthinkable that the Reserve Bank would have done anything like this in normal times. In the event of a liquidity constraint in normal times, the standard response of the Reserve Bank would be to ease liquidity in the overall system an_d leave it to the banks to determine how to use that additional liquidity.But here, we were targeting monetary policy at a particular class of financial institutions-the MFs &NBFCs-a; decidedly unconventional action. This departure from standard protocol pushed some of our senior staff beyond their comfort zones. Their reservations ranged from: 'this is not bowing monetary policy is done' to 'this will make the Reserve Bank vulnerable to pressures to bail out other sectors'. After hearing them out, I made the call to go ahead: Market participants applauded the new facility and saw it as the Reserve Bank's willingness to embrace unorthodox measures to address Specific areas of pressure in the system. In the event, these facilities were not significantly tapped: In normal times, that would have been seen as a failure of policy. From the crisis perspective though, it was a success in as much as the very existence of the central bank backstop restored confidence in the NBFCs and MFs and smoothed pressures in the financial system. Similarly, the cut in the repo rate of one full percentage point that I effected in October 2008 was a non-standard action from the perspective of a central bank used to cutting the interest rate by a maximum of half a percentage point (50 basis points in the jargon) when it wanted to signal strong action. Of course, we deliberated the advisability of going into uncharted waters and how it might set expectations. For the future. For example, in the future, the market may discount a 50 basis-point cut as too tame. But considering the uncertain and unpredictable global environment and the imperative to improve the flow of credit in a stressed situation, I bit the bullet again and decided on a full percentage-point cut.Managing the tension between short-term payoffs and longer-term consequences is a constant struggle in all central bank policy choices as indeed it is in all public policy decisions. This balance between horizons shifts in crisis times, as dousing the fires becomes an overriding priority even if some of the actions taken to do that may have·some longer-term costs. For example, in 2008, we saw a massive infusion of liquidity as the best bet for preserving the financial stability of our markets. Indeed, d in uncharted waters, erring on the side of caution meant providing the system with more liquidity than considered adequate. This strategy was effective in the short-term, but with hindsight, we know that excess liquidity may have reinforced inflation pressures down the line. But remember, we were making a judgement call in real time. Analysts who are criticising us are doing so with the benefit of hindsight. Another lesson we learnt is that even in a global crisis, central banks have to adapt their responses to domestic conditions. I am saying this because of all through the crisis months. Whenever another central bank, especially an advanced economy central bank, announced any measure, there was an immediate pressure that the Reserve Bank too should institute a similar measure. Such straightforward copying of measures of other central banks without first examining their appropriateness for the domestic situation can often do more harm than good: Let me illustrate. During th depth of the crisis, fearing a run on their banks, the UK authorities bad extended deposit insurance across board to all deposits in the UK banking system. Immediately, there were commentators asking that the Reserve Bank too must embrace such an all-out measure. If we had actually done that, the results would have been counterproductive if not outright harmful. First, the available premium would not have been able to support such a blanket insurance, and the markets were aware of that.If we had glossed over that and announced a blanket cover anyway, that action would have clearly lacked credibility. Besides, any such move would be at odds with what we had been asserting that our banks and our financial systems were safe and sound: The inconsistency between our walk and talk would have confused the markets; instead of reassuring them, any blanket insurance of the UK type·would have scared the public and sown seeds of doubt about the safety of their bank deposits, potentially triggering a run on some vulnerable banks. Finally, an important lesson from the crisis relates to the imperative of the government and the regulators speaking and acting in unison. It is possible to argue that public disclosure of differences within closed doors of policymaking could actually be helpful in enhancing public understanding on how policy might evolve in the future. For example, a 6-6 vote conveys a different message from a 12-0 vote. During crisis times, though, sending mixed signals to fragile markets can do huge damage. On the other hand, the demonstration of unity of purpose would reassure markets and yield great synergies. The experience of the crisis from around the world and our own experience too showed that coordination could be managed without compromising regulatory autonomy. Merely synchronizing policy announcements for exploiting the synergistic impact need not necessarily imply that regulators were being forced into actions they did not own.Q. With reference to theabove passage, what is the role of government and regulators in times of crisis? Select the most ppropriate response with reference to information provided in the passage.a)In times of crisis the government and regulators play the role of check and balance to provide safety to financial systems of a country.b)In times of crisis regulators have to become more strict with government to prevent misuse of power and compromising regulatory anatomy.c)In times of crisis the government has to exercise control on the regulators so that they do not become too powerful and exploit the financial systems.d)In times of crisis the government and the regulators have to work on common ground and avoid any conflicts to prevent instability and confusion.Correct answer is option 'D'. Can you explain this answer? theory, EduRev gives you an ample number of questions to practice Directions: Read the following passages carefully and identify most appropriate answer to the questions given at the end of each passage.As someone' said, this crisis was too valuable to waste. I, for one, learnt many lessons on crisis management and leadership. By far the most important lesson I learnt is that the primary focus of a central bank during a crisis has to be on restoring confidence in the markets, and what this requires is swift, bold and decisive action. This is not as obvious'as it sounds because central banks are typically given to agonizing over every move they make out of anxiety that failure of their actions to deliver the intended impact will hurt their creditability and their policy effectiveness down the line. There is a lot to be said for such deliberative action in normal times: In crisis times though, it is important for them to take more chances without being too mindful of whether all of their actions are going to be fully effective or even mildly successful. After all, crisis management is a percentage game, and you do what you think has the best chance of reversing the momentum. Often, it is a fact of the action rather than the precise nature of the action that bolsters confidence. Take the Reserve Bank's measure I wrote about earlier of instituting exclusive lines of credit for augmenting the liquidity of NBFCs and mutual funds (MFs) which came under redemption pressure. It is simply unthinkable that the Reserve Bank would have done anything like this in normal times. In the event of a liquidity constraint in normal times, the standard response of the Reserve Bank would be to ease liquidity in the overall system an_d leave it to the banks to determine how to use that additional liquidity.But here, we were targeting monetary policy at a particular class of financial institutions-the MFs &NBFCs-a; decidedly unconventional action. This departure from standard protocol pushed some of our senior staff beyond their comfort zones. Their reservations ranged from: 'this is not bowing monetary policy is done' to 'this will make the Reserve Bank vulnerable to pressures to bail out other sectors'. After hearing them out, I made the call to go ahead: Market participants applauded the new facility and saw it as the Reserve Bank's willingness to embrace unorthodox measures to address Specific areas of pressure in the system. In the event, these facilities were not significantly tapped: In normal times, that would have been seen as a failure of policy. From the crisis perspective though, it was a success in as much as the very existence of the central bank backstop restored confidence in the NBFCs and MFs and smoothed pressures in the financial system. Similarly, the cut in the repo rate of one full percentage point that I effected in October 2008 was a non-standard action from the perspective of a central bank used to cutting the interest rate by a maximum of half a percentage point (50 basis points in the jargon) when it wanted to signal strong action. Of course, we deliberated the advisability of going into uncharted waters and how it might set expectations. For the future. For example, in the future, the market may discount a 50 basis-point cut as too tame. But considering the uncertain and unpredictable global environment and the imperative to improve the flow of credit in a stressed situation, I bit the bullet again and decided on a full percentage-point cut.Managing the tension between short-term payoffs and longer-term consequences is a constant struggle in all central bank policy choices as indeed it is in all public policy decisions. This balance between horizons shifts in crisis times, as dousing the fires becomes an overriding priority even if some of the actions taken to do that may have·some longer-term costs. For example, in 2008, we saw a massive infusion of liquidity as the best bet for preserving the financial stability of our markets. Indeed, d in uncharted waters, erring on the side of caution meant providing the system with more liquidity than considered adequate. This strategy was effective in the short-term, but with hindsight, we know that excess liquidity may have reinforced inflation pressures down the line. But remember, we were making a judgement call in real time. Analysts who are criticising us are doing so with the benefit of hindsight. Another lesson we learnt is that even in a global crisis, central banks have to adapt their responses to domestic conditions. I am saying this because of all through the crisis months. Whenever another central bank, especially an advanced economy central bank, announced any measure, there was an immediate pressure that the Reserve Bank too should institute a similar measure. Such straightforward copying of measures of other central banks without first examining their appropriateness for the domestic situation can often do more harm than good: Let me illustrate. During th depth of the crisis, fearing a run on their banks, the UK authorities bad extended deposit insurance across board to all deposits in the UK banking system. Immediately, there were commentators asking that the Reserve Bank too must embrace such an all-out measure. If we had actually done that, the results would have been counterproductive if not outright harmful. First, the available premium would not have been able to support such a blanket insurance, and the markets were aware of that.If we had glossed over that and announced a blanket cover anyway, that action would have clearly lacked credibility. Besides, any such move would be at odds with what we had been asserting that our banks and our financial systems were safe and sound: The inconsistency between our walk and talk would have confused the markets; instead of reassuring them, any blanket insurance of the UK type·would have scared the public and sown seeds of doubt about the safety of their bank deposits, potentially triggering a run on some vulnerable banks. Finally, an important lesson from the crisis relates to the imperative of the government and the regulators speaking and acting in unison. It is possible to argue that public disclosure of differences within closed doors of policymaking could actually be helpful in enhancing public understanding on how policy might evolve in the future. For example, a 6-6 vote conveys a different message from a 12-0 vote. During crisis times, though, sending mixed signals to fragile markets can do huge damage. On the other hand, the demonstration of unity of purpose would reassure markets and yield great synergies. The experience of the crisis from around the world and our own experience too showed that coordination could be managed without compromising regulatory autonomy. Merely synchronizing policy announcements for exploiting the synergistic impact need not necessarily imply that regulators were being forced into actions they did not own.Q. With reference to theabove passage, what is the role of government and regulators in times of crisis? Select the most ppropriate response with reference to information provided in the passage.a)In times of crisis the government and regulators play the role of check and balance to provide safety to financial systems of a country.b)In times of crisis regulators have to become more strict with government to prevent misuse of power and compromising regulatory anatomy.c)In times of crisis the government has to exercise control on the regulators so that they do not become too powerful and exploit the financial systems.d)In times of crisis the government and the regulators have to work on common ground and avoid any conflicts to prevent instability and confusion.Correct answer is option 'D'. Can you explain this answer? tests, examples and also practice CAT tests.
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