Critical Thinking Questions: Central Banking

Table of Contents
1. Type I
2. Type II
3. Type III
4. Type IV
5. Type V
6. Type VI
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Type I

Q1: A Central Bank is best defined as an institution that:
(a) Accepts deposits from the public and gives loans
(b) Issues currency and controls the banking system
(c) Finances industrial development directly
(d) Competes with commercial banks

Q2: Which of the following powers is exclusively enjoyed by the Central Bank?
(a) Advancing loans to traders
(b) Accepting public deposits
(c) Issuing currency notes
(d) Opening savings accounts

Q3: The primary objective of a Central Bank is to:
(a) Maximise profit
(b) Promote individual savings
(c) Ensure economic stability and welfare
(d) Compete with private banks

Type II

Q4: Which of the following correctly distinguish a Central Bank from a Commercial Bank?
A. Central Bank does not accept public deposits
B. Central Bank issues currency
C. Commercial Banks advise the government
D. Commercial Banks aim at profit maximisation
(a) A, B and D
(b) B and C
(c) A and C
(d) C and D

Q5: Identify the correct statements regarding the Reserve Bank of India (RBI):
A. Established in 1935
B. Nationalised in 1949
C. Acts as banker to the government
D. Accepts deposits from the public
(a) A, B and C
(b) B, C and D
(c) A and D
(d) C and D

Q6: Which of the following are functions of the RBI?
A. Issuing currency notes
B. Acting as lender of last resort
C. Maintaining foreign exchange reserves
D. Providing long-term industrial loans directly
(a) A, B and C
(b) B and D
(c) A and D
(d) C and D

Type III 

Analogy Based

Q7: Central Bank : Banker's Bank : : Commercial Bank :
(a) Issuer of currency
(b) Accepts public deposits
(c) Controller of credit
(d) Custodian of reserves

Q8: Bank Rate : Dear Money Policy : : CRR Increase :
(a) Expansion of credit
(b) Increase in lending
(c) Reduction in credit
(d) Increase in deposits

Q9: Open Market Sale of Securities : Inflation Control : : Purchase of Securities :
(a) Credit contraction
(b) Credit expansion
(c) Price rise
(d) Currency appreciation

Type IV

Assertion-Reason

Q10: (A) The Central Bank is known as the "bank of all banks."
(B) Commercial banks keep a part of their reserves with the Central Bank.
(a) (B) contradicts (A)
(b) (B) is the reason for (A)
(c) (A) is true but (B) is false
(d) (A) and (B) are independent

Q11: (A) The RBI acts as the lender of last resort.
(B) It provides financial assistance to banks during emergencies.
(a) (B) contradicts (A)
(b) (B) is the reason for (A)
(c) (A) is true but (B) is false
(d) (A) and (B) are independent

Q12: (A) Commercial banks are free to issue currency notes.
(B) Currency issuance is regulated by the RBI.
(a) (B) contradicts (A)
(b) (B) is the reason for (A)
(c) (A) is true but (B) is false
(d) (A) and (B) are independent

Type V 

Application-Based

Q13: To control inflation, the RBI increases the CRR. This will result in:
(a) Increase in bank lending
(b) Increase in money supply
(c) Reduction in credit creation
(d) Rise in consumer demand

Q14: When the RBI sells government securities in the open market, it aims to:
(a) Increase bank reserves
(b) Expand credit
(c) Reduce excess liquidity
(d) Encourage borrowing

Q15: Fixing credit limits for banks and charging higher interest beyond quotas refers to:
(a) Moral suasion
(b) Margin requirements
(c) Rationing of credit
(d) Bank rate policy

Type VI

Odd One Out / Incorrect Statement

Q16: Identify the odd one out related to quantitative credit control:
(a) Bank rate
(b) CRR
(c) SLR
(d) Moral suasion

Q17: Which of the following is not a qualitative credit control method?
(a) Margin money
(b) Credit authorisation scheme
(c) Open market operations
(d) Moral suasion

Q18: Identify the incorrect statement about the CRR:
(a) It is maintained with the Central Bank
(b) It affects lending capacity of banks
(c) It can be varied by the RBI
(d) It is kept by banks with the government

Q19: Which institution represents India in dealings with the IMF and World Bank?
(a) Ministry of Finance
(b) State Bank of India
(c) Reserve Bank of India
(d) Commercial Banks

Q20: The main purpose of credit control by the Central Bank is to:
(a) Increase profits of banks
(b) Eliminate private banks
(c) Ensure price and economic stability
(d) Promote speculative activities