Ramesh Singh Test : Indian Financial Market - UPSC MCQ

- Statement 1: The Discount and Finance House of India Limited (DFHI) was indeed set up in April 1988 by the RBI jointly with public sector banks and financial investment institutions (such as LIC, GIC, and UTI). This statement is correct.
- Statement 2: NBFCs were actually put under the regulatory control of the RBI in 1997, not in the mid-1980s. Hence, this statement is incorrect.
- Statement 3: Mutual funds in India are regulated by both the RBI and SEBI, with SEBI being the primary regulator. This statement is incorrect.
Thus, only statement 1 is correct. Therefore, the correct answer is Option A: 1 Only.

1. Correct: The Ministry of Finance (MoF) does indeed have representatives on the Boards of SEBI, IRDA, and RBI, reflecting its prominent role in financial policy-making.

2. Correct: The Forward Markets Commission (FMC) was merged with the SEBI by late 2015, consolidating regulatory oversight for commodity-based exchange-traded futures under SEBI.

3. Incorrect: The Financial Sector Development Council (FSDC) does not have statutory authority. It is structured as a council of regulators, with the Finance Minister as the chairman, but it operates without statutory power.

Thus, statements 1 and 2 are correct, making Option B the correct answer.

The All India Financial Institutions (AIFIs) were established with the primary objective of providing venture capital funding for risk and innovation in the area of industrial expansion. This initiative aimed to support and finance projects that involved significant risk and required capital for innovation, contributing to the growth and diversification of the industrial sector in India.

1. IFCI Venture Capital Funds Ltd - 2000: Correct. - IFCI Venture Capital Funds Ltd was set up in 2000 to promote venture capital funding in India.

2. Tourism Finance Corporation of India Ltd (TFCI) - 1990: Incorrect. - TFCI was actually set up in 1989, not 1990.

3. Life Insurance Corporation of India (LIC) - 1956: Correct. - LIC was established in 1956 when the life insurance business in India was nationalized.

4. Securities and Exchange Board of India (SEBI) - 1992: Correct. - SEBI was set up in 1988 but was given statutory powers in 1992 to regulate the securities market in India.

Thus, three pairs are correctly matched.

1. Chakravarthy Committee: 1985 - Correct. The Chakravarthy Committee was indeed established in 1985 to review the functioning of the Indian monetary system.

2. Vaghul Committee: 1987 - Correct. The Vaghul Committee was set up in 1987 to develop the money market in India.

3. Repo Rate: Determined by individual banks - Incorrect. The Repo Rate is determined by the Reserve Bank of India (RBI), not by individual banks. It is the rate at which the RBI lends money to commercial banks.

4. Short-term period in Money Market: Up to 364 days - Correct. In the money market, the short-term period is defined as up to 364 days.

Pairs 1, 2, and 4 are correctly matched, while pair 3 is not. Thus, the correct answer is Option C: Only three pairs.

1. Correct: By April 2020, there were indeed 18 public sector banks (PSBs) operating in India.

2. Incorrect: The Tourism Finance Corporation of India Ltd (TFCI) was established in 1989, not 2000.

3. Incorrect: The Life Insurance Corporation of India (LIC) was established in 1956, not 1971.

Therefore, the correct statement is 1 Only.

The primary function of the money market in an economy is to facilitate income generation and growth. It plays a vital role in providing the necessary liquidity for individuals and entities who are cash-surplus or cash-scarce. By trading in the money market, entities can meet their short-term financial needs and ensure smooth operations. This market is essential for maintaining the flow of funds and ensuring that working capital requirements are met in a timely manner.

1. The repo rate announced by the RBI guides the current discount rate in the Indian money market. - This statement is correct. The repo rate, which is the rate at which the RBI lends money to commercial banks, acts as a guiding rate for the discount rate in the money market.

2. The organised money market in India has been operational for over five decades. - This statement is incorrect. The organised money market in India is close to three decades old, as indicated by the text, which refers to developments starting from recommendations by the Chakravarthy Committee in 1985 and the Vaghul Committee in 1987.

3. The Vaghul Committee laid the blueprint for the development of the organised money market in India. - This statement is correct. The Vaghul Committee, formed in 1987, indeed laid the blueprint for the development of the organised money market in India.

Hence, the correct statements are 1 and 3. Therefore, the correct answer is Option C: 1 and 3 Only.

1. Call Money Market (CMM) - Short-term borrowing and lending market
This is correctly matched. The Call Money Market involves short-term funds, typically for a period of one day, where banks and other institutions lend and borrow money.

2. Commercial Paper (CP) - Long-term debt instrument issued by companies
This is incorrectly matched. Commercial Paper is a short-term debt instrument issued by companies to meet their immediate needs for liquidity, typically with maturities ranging from a few days to under a year.

3. Treasury Bills (TBs) - Short-term government securities
This is correctly matched. Treasury Bills are indeed short-term government securities issued by the government to meet its short-term financial needs, with maturities typically of 91 days, 182 days, or 364 days.

4. Exchange-Traded Funds (ETFs) - Mutual funds traded on stock exchanges
This is correctly matched. Exchange-Traded Funds (ETFs) are mutual funds that are traded on stock exchanges, and their prices usually track the Net Asset Value (NAV) of the underlying assets.

Thus, pairs 1, 3, and 4 are correctly matched, while pair 2 is not.

Answer: Option C

Statement-I is accurate as it correctly describes the regulatory framework in India where different agencies oversee specific financial products. The Reserve Bank of India (RBI) regulates credit products, savings, and remittances; the Securities and Exchange Board of India (SEBI) regulates investment products; the Insurance Regulatory and Development Authority (IRDA) handles insurance products; and the Pension Fund Regulatory and Development Authority (PFRDA) regulates pension products. This statement aligns with the information provided in the source material.
However, Statement-II is incorrect. The Financial Sector Development Council (FSDC) in India does not have statutory authority; it is structured as a council of regulators with the Finance Minister as the chairman. The FSDC was established as an important addition to the regulatory architecture, replacing the High Level Committee on Capital Markets. The statement wrongly suggests that the FSDC has statutory authority, which is not the case based on the information provided.