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INDIAN ECONOMY > 5.Banking and Finance > Flashcards

5.Banking and Finance Flashcards

1
Q

What is a bank?

A

A bank is a financial institution that issues credit and accepts public deposits.

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2
Q

How can a bank translate savings into investments?

A

A bank can translate savings into investments by providing loans and funding various investment projects.

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3
Q

What is the money multiplier effect exhibited by commercial banks?

A

The money multiplier effect is when commercial banks accept deposits, hold a certain amount as reserves, and disperse the remaining funds as loans to add liquidity to the economy.

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4
Q

What is the role of a central bank in a country?

A

The role of a central bank in a country is to oversee and regulate all other banks, protect the interest of depositors, and serve as the government’s bank.

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5
Q

What is the name of the central bank in our country?

A

The central bank in our country is the Reserve Bank of India.

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6
Q

What are the primary duties of a central bank?

A

The primary duties of a central bank include guiding the banks, issuing currency, implementing monetary policies, and supervising the financial system.

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7
Q

What does a central bank do to guide the banks?

A

A central bank provides guidance and direction to other banks operating in the country.

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8
Q

What is the responsibility of a central bank in issuing currency?

A

The central bank is responsible for issuing and regulating the currency of the country.

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9
Q

What is the purpose of implementing monetary policies?

A

The purpose of implementing monetary policies is to regulate the money supply, interest rates, and credit availability in the economy.

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10
Q

What is the role of a central bank as a supervisor of the financial system?

A

The central bank acts as a supervisor, ensuring the stability and integrity of the financial system and overseeing the operations of financial institutions.

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11
Q

What is the difference between a savings account and a current account?

A

A savings account allows limited transactions and is suitable for individuals with regular income, while a current account is meant for frequent daily transactions with no or less restriction on transaction limits and is suitable for traders and entrepreneurs.

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12
Q

Who is a savings account most suitable for?

A

A savings account is most suitable for salaried employees or individuals with a monthly income.

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13
Q

Who are current accounts best suited for?

A

Current accounts are best suited for traders and entrepreneurs who need frequent access to their accounts.

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14
Q

Do savings accounts earn interest?

A

Yes, savings accounts earn interest on the deposited amount.

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15
Q

Is there any earning from a current account?

A

No, a current account is a no-interest-bearing deposit account, so there is no earning from it.

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16
Q

What are demand deposits?

A

Demand deposits are deposits that banks have to pay on demand. They include current bank account deposits, savings bank account deposits, and margins held against letters of credit/guarantees.

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17
Q

What are time deposits?

A

Time deposits are deposits that banks have to pay after a specific time period. They include fixed deposits, cash certificates, and cumulative and recurring deposits.

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18
Q

What are demand and time deposits collectively referred to as?

A

Demand and time deposits together are called total deposits.

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19
Q

What are the assets of a bank?

A

The assets of a bank include loans, securities, and reserves.

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20
Q

What are the liabilities of a bank?

A

The liabilities of a bank include deposits and bank borrowing from other institutions.

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21
Q

How do conventional banks work?

A

Conventional banks work by accepting deposits from depositors and providing interest to them based on the type of deposit. They also lend money to borrowers and charge interest on the loans.

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22
Q

What is the difference between conventional banking and Islamic banking?

A

Islamic banking differs from conventional banking in that it operates based on principles that avoid pre-specified interest rates. Instead, Islamic banks use contracts such as profit-sharing, leasing, and fee-based services to generate returns.

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23
Q

How are Islamic banks funded?

A

Islamic banks are funded through current accounts that do not attract interest or through Profit-Sharing Investment Accounts (PSIA) where the account holder receives returns based on the profitability of the banks.

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24
Q

What are some of the contracts used by Islamic banks on the asset side?

A

Islamic banks use contracts such as sales at a profit margin (Murabahah), lease (Ijarah), profit-sharing (Musharakah and Mudarabah), and fee-based services (e.g., Wakalah) on the asset side of their operations.

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25
Q

When was the Reserve Bank of India established?

A

The Reserve Bank of India was established on April 1, 1935.

26
Q

Is the Reserve Bank of India a statutory or constitutional body?

A

The Reserve Bank of India is a statutory body, not a constitutional body.

27
Q

Where was the Central Office of the Reserve Bank of India initially established?

A

The Central Office of the Reserve Bank of India was initially established in Kolkata.

28
Q

Where is the Central Office of the Reserve Bank of India permanently located now?

A

The Central Office of the Reserve Bank of India is permanently located in Mumbai.

29
Q

Who owns the Reserve Bank of India since nationalization in 1949?

A

The Reserve Bank of India is fully owned by the Government of India.

30
Q

How many regional offices does the Reserve Bank of India have?

A

The Reserve Bank of India has 27 regional offices.

31
Q

Who is the current Governor of the Reserve Bank of India?

A

The current Governor of the Reserve Bank of India is Shaktikanta Das.

32
Q

How many deputy governors assist the Governor of the RBI?

A

The Governor of the RBI is assisted by four deputy governors.

33
Q

Who was the first Governor of the Reserve Bank of India in 1935?

A

The first Governor of the Reserve Bank of India in 1935 was Sir Osborne Smith.

34
Q

Who was the first Governor of the Reserve Bank of India in independent India?

A

The first Governor of the Reserve Bank of India in independent India was C.D. Deshmukh.

35
Q

Is the Reserve Bank of India (RBI) an autonomous body?

A

No, the RBI is not an autonomous body. The government can interfere in its working as stated in section 7 and section 58 of the RBI Act.

36
Q

What does Section 7 of the RBI Act state?

A

Section 7 of the RBI Act allows the Central Government to give directions to the RBI in consultation with the Governor of the Bank, if deemed necessary in the public interest.

37
Q

What does Section 58 of the RBI Act allow?

A

Section 58 of the RBI Act empowers the Central Board to make regulations consistent with the Act to provide for all necessary or convenient matters related to its provisions.

38
Q

How is the Reserve Bank of India governed?

A

The affairs of the Reserve Bank of India are governed by a central board of directors appointed by the Government of India, as per the Reserve Bank of India Act.

39
Q

What is the term of appointment for the members of the Central Board of RBI?

A

The members of the Central Board of RBI are appointed or nominated for a period of four years.

40
Q

Who are the official directors in the Central Board of RBI?

A

The official directors in the Central Board of RBI include the Governor and not more than four Deputy Governors, who serve as full-time directors.

41
Q

Who are the non-official directors in the Central Board of RBI?

A

The non-official directors in the Central Board of RBI are nominated by the government. They consist of ten directors from various fields and two government officials.

42
Q

How many directors from the local boards are included in the Central Board of RBI?

A

The Central Board of RBI includes four directors, one from each of the four local boards.

43
Q

What is the function of the Reserve Bank of India (RBI) in relation to the bank’s affairs?

A

The RBI has the general superintendence and direction of the Bank’s affairs. It plays a role in controlling inflation by adjusting interest rates and managing the money supply in the economy.

44
Q

How does the RBI control inflation through interest rates?

A

During periods of high inflation, the RBI increases interest rates to reduce borrowing and decrease the money supply in the economy, thereby controlling inflation.

45
Q

Can conflicts arise between the RBI and the Government regarding interest rates?

A

Yes, conflicts can arise between the RBI and the Government if the Government wants a lower interest rate for promoting growth, while the RBI may prioritize controlling inflation.

46
Q

What was the amendment made in 2016 regarding the RBI’s monetary policy?

A

In 2016, the Government of India passed the RBI Amendment Act 2016 to establish a Monetary Policy Committee (MPC). The committee consists of six members, with three members from the RBI and three members nominated by the Government of India.

47
Q

What is the role of the Monetary Policy Committee (MPC)?

A

The MPC determines the policy repo rate, which is required to achieve the inflation target. It convenes regularly and discusses monetary policy decisions.

48
Q

How many times does the MPC need to meet in a year?

A

The MPC is required to meet at least four times in a year.

49
Q

How many members are required for the quorum in the MPC meeting?

A

The quorum for the MPC meeting is four members.

50
Q

How is voting conducted in the MPC?

A

Each member of the MPC has one vote, and in the event of an equality of votes, the Governor has a second or casting vote.

51
Q

What is the requirement for MPC members to provide their statements?

A

Each member of the Monetary Policy Committee writes a statement specifying the reasons for voting in favor of or against the proposed resolution.

52
Q

What is the role of the Reserve Bank of India (RBI) as a banker to the government?

A

The RBI acts as a banking agent and financial advisor to the Central and State Governments. It manages government accounts and treasuries, provides short-term loans to governments without interest, buys and sells government securities, and offers monetary and financial advice.

53
Q

What is the currency issuance authority of the RBI?

A

The RBI enjoys the monopoly of issuing currency notes, except for the 1 rupee note. Coins of all denominations and the 1 rupee note are minted and issued by the Government of India (GOI), but they are circulated through the RBI.

54
Q

What system does the RBI follow for note issuance?

A

The RBI adopted the minimum reserve system for note issuance in 1957. It maintains gold and foreign currency reserves worth 200 crore, with a minimum of 115 crore in gold.

55
Q

What role does the RBI play as the bankers’ bank?

A

The RBI serves as the bankers’ bank for all other banks in the country. Scheduled Commercial Banks keep part of their cash balances with themselves and the remaining part as deposits with the RBI, which can be used to meet liabilities in times of crisis.

56
Q

How do banks maintain their cash balances with the RBI?

A

Banks maintain their cash balances with the RBI by keeping a portion of their cash balance with themselves and depositing the remaining part with the RBI.

57
Q

What role does the RBI play as the lender of last resort?

A

The RBI acts as a lender of last resort, providing financial assistance to Scheduled Commercial Banks in times of crisis. This enables the RBI to exercise control over the banking system of the country.

58
Q

What is the responsibility of the RBI as the custodian of foreign exchange reserves?

A

The RBI functions as the custodian of the nation’s foreign exchange reserves. It maintains reserves of foreign currencies to stabilize the rupee’s external value, promote international trade, and stabilize the exchange rate.

59
Q

How does the RBI control the credit or money supply in the economy?

A

The RBI controls the increase or decrease in the volume of money supply to manage inflation and deflation. By regulating the money supply, the RBI stabilizes the general price level and influences output in the economy.

60
Q

What regulatory powers does the RBI have over banks?

A

The RBI is empowered with regulatory powers under the RBI Act, 1934, and the Banking Regulation Act, 1949. These regulations include licensing of banks, monitoring the expansion of commercial banks in terms of branches, setting requirements for paid-up capital and reserves, and more.

INDIAN ECONOMY (35 decks)

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