SSC CGL Exam > SSC CGL Notes > SSC CGL Tier 2 - Study Material, Online Tests, Previous Year > Frequently Asked Questions - Money and Banking
Frequently Asked Questions - Money and Banking | SSC CGL Tier 2 - Study Material, Online Tests, Previous Year PDF Download
FREQUENTLY ASKED CBSE BOARD QUESTIONS
One Mark Questions (1M)
- Define money.
- M1 = ……………………………………………
- What is meant by barter system?
- Write two drawbacks of barter exchange.
- List out two main functions of money.
- Define commercial bank.
- Give the meaning of central bank.
- What do you mean by credit creation by commercial banks.
- Define bank rate.
- Define cash reserve ratio.
- Give the meaning of statutory liquidity ratio.
- What is meant by open market operations (OMO)?
- Define money supply.
- Write one difference between commercial bank and central bank.
- Mention two important functions of central bank.
Three Marks Questions (3M)
- Explain briefly any two main functions of money.
- How does the central bank apply bank rate as a measure of credit control?
- What are the components of M1?
- State any THREE functions of central bank. Explain any one.
- Explain the “lender of last resort” function of central bank.
- What is money multiplier?
- Explain briefly any three drawbacks of barter system
- Explain the open market operations method of credit control used by a central bank.
Four Marks Questions (4 M)
- Distinguish between commercial banks and central bank.
- Explain how money solves the drawbacks of barter exchange.
- What is money multiplier? How will you determine its value?
- Briefly explain any TWO quantitative measures of credit control by the central bank.
- Explain briefly the credit creation by commercial banks with the help of an example.
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FAQs on Frequently Asked Questions - Money and Banking - SSC CGL Tier 2 - Study Material, Online Tests, Previous Year
| 1. What is the difference between a commercial bank and an investment bank? |  |
Ans. A commercial bank primarily focuses on providing financial services to individuals and businesses, such as accepting deposits, granting loans, and offering basic banking services. On the other hand, an investment bank specializes in assisting companies and governments in raising capital through securities issuance, mergers and acquisitions, and other financial advisory services.
| 2. How does the Federal Reserve control the money supply? | |
Ans. The Federal Reserve controls the money supply through various tools, such as open market operations, reserve requirements, and discount rates. Open market operations involve the buying and selling of government securities to influence the amount of money in the economy. Reserve requirements refer to the amount of funds that banks must hold in reserve against their deposits. Lastly, the discount rate is the interest rate at which banks can borrow from the Federal Reserve.
| 3. What is the purpose of fractional reserve banking? | |
Ans. Fractional reserve banking is a system where banks are required to keep only a fraction of their deposits as reserves and can lend out the rest. The purpose of this system is to increase the availability of credit and stimulate economic growth. By lending out a portion of their deposits, banks can effectively create new money in the economy.
| 4. How does inflation affect the purchasing power of money? | |
Ans. Inflation erodes the purchasing power of money over time. As the general price level rises, each unit of currency can buy fewer goods and services. This means that the value of money decreases, and individuals need more money to maintain the same standard of living. Inflation can be caused by various factors, such as an increase in the money supply or higher production costs.
| 5. What is the role of the central bank in a country's economy? | |
Ans. The central bank plays a crucial role in a country's economy. It is responsible for formulating and implementing monetary policy, regulating the banking system, and maintaining financial stability. The central bank controls the money supply, sets interest rates, and acts as a lender of last resort to banks. It also oversees the payment system, manages foreign exchange reserves, and often acts as the government's banker.
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