Central bank and its functions - money supply in India - One Line Questions
1.
What is a 'call money' market? —
A market where banks lend and borrow funds on a very short-term basis, often overnight
2.
The RBI's mandate includes maintaining financial stability. What does this entail? —
Ensuring the resilience of the financial system against shocks
3.
How does the RBI influence the lending capacity of commercial banks? —
By managing reserve requirements (CRR, SLR) and influencing their liquidity
4.
Which of the following is considered a component of 'currency with the public' in money supply calculations? —
Coins and banknotes in circulation
5.
The RBI acts as the banker to the government. What does this function entail? —
Managing the government's accounts, receipts, and payments
6.
What does M3 (Broad Money) in India primarily include? —
M1 plus time deposits with the banking system
7.
Which of the following is a component of 'time deposits'? —
Fixed deposits
8.
What is the primary impact of an increase in the money supply, assuming other factors remain constant? —
Inflation (rise in general price level)
9.
What are 'Demand Deposits' in the context of money supply? —
Deposits that can be withdrawn on demand without prior notice
10.
The RBI is responsible for the issue and management of currency. What does this include? —
Issuing and managing the circulation of currency notes and coins
11.
Which of the following is a tool used by central banks to control the money supply? —
Open market operations
12.
Which of the following is a key responsibility of the RBI in managing inflation? —
Controlling the money supply and interest rates through monetary policy
13.
When the RBI aims to stimulate economic growth during a slowdown, it typically adopts a policy of: —
Decreasing the Repo Rate and buying government securities
14.
When the RBI aims to curb inflation, it typically adopts a policy of: —
Increasing the Repo Rate and selling government securities
15.
What is the primary impact of a decrease in the money supply, assuming other factors remain constant? —
Deflation (fall in general price level)
16.
Which of the following is NOT a direct function of the RBI? —
Regulating the stock market (this is SEBI's role)
17.
When the RBI buys government securities, what is the typical impact on the money supply? —
It increases the money supply
18.
How does a change in the Bank Rate affect the overall cost of credit in the economy? —
It directly influences the lending rates of commercial banks, affecting the cost of credit
19.
When the RBI sells government securities, what is the typical impact on the money supply? —
It decreases the money supply
20.
How does a decrease in the Reverse Repo Rate typically affect the money supply? —
It increases the money supply as banks have less incentive to park funds with RBI
21.
How does an increase in the SLR affect the money supply? —
It decreases the money supply by reducing the funds available for lending
22.
How does an increase in the CRR affect the money supply? —
It decreases the money supply by reducing the funds available for lending
23.
How does an increase in the Repo Rate typically affect the money supply? —
It decreases the money supply by making borrowing more expensive
24.
What is the primary function of the RBI regarding the printing of currency? —
It authorizes and oversees the printing of currency notes by government-owned presses
25.
What does 'Open Market Operations' by the RBI involve? —
Buying and selling government securities in the open market
26.
Which measure of money supply includes currency with the public, demand deposits with the banking system, and 'other' deposits with the RBI? —
M1
27.
Which of the following is a 'credit control' function of the RBI? —
Using tools like CRR, SLR, Repo Rate, and Reverse Repo Rate
28.
The RBI's Monetary Policy Committee (MPC) is responsible for setting which key interest rate? —
Repo Rate
29.
Besides managing money supply, what is another crucial function of the RBI? —
Managing the country's foreign exchange reserves
30.
What is the RBI's role in promoting financial inclusion? —
Encouraging the expansion of banking services to all sections of society
31.
Which institution is the central bank of India? —
Reserve Bank of India (RBI)
32.
What is the 'Cash Reserve Ratio' (CRR)? —
The percentage of total deposits that commercial banks must keep as cash with the RBI
33.
What is the 'Statutory Liquidity Ratio' (SLR)? —
The percentage of total deposits that commercial banks must maintain in specified liquid assets, including government securities
34.
What is the 'Repo Rate'? —
The rate at which the RBI lends money to commercial banks against government securities
35.
What is the 'Bank Rate'? —
The rate at which the RBI lends to commercial banks for long-term needs, and it is usually higher than the repo rate
36.
What is the 'Reverse Repo Rate'? —
The rate at which the RBI borrows money from commercial banks
37.
What does the RBI's role as a 'Lender of Last Resort' mean? —
The RBI provides liquidity or financial accommodation to sound financial institutions that are facing temporary liquidity shortages
38.
What is 'Money Supply' in economics? —
The total amount of money in circulation or in existence in a country at a specific time
39.
Which of the following is a component of M1 money supply in India? —
Currency notes and coins with the public
40.
What is the role of the RBI in managing foreign exchange? —
To manage the country's foreign exchange reserves and maintain the stability of the rupee
41.
What is the primary objective of regulating the banking system by the RBI? —
To ensure the stability and soundness of the banking system and protect depositors' interests
42.
What is the primary purpose of the RBI's supervision of commercial banks? —
To ensure banks operate soundly, adhere to regulations, and protect depositors
43.
What is the significance of the RBI's 'developmental role'? —
To promote economic development and financial stability through various institutions and policies
44.
What is the main purpose of 'Moral Suasion' as a tool used by the RBI? —
To persuade banks to follow the monetary policy directives and guidelines
45.
What is the main purpose of a central bank maintaining adequate foreign exchange reserves? —
To manage the country's balance of payments and stabilize the exchange rate
46.
What is the RBI's role in the clearing and settlement of payments? —
To provide and operate payment and settlement systems, facilitating the smooth transfer of funds between banks
47.
What is the main objective of monetary policy as conducted by the central bank? —
To reduce unemployment and maintain price stability
48.
What is the primary role of a central bank in an economy? —
To manage the nation's currency, money supply, and interest rates