Test-4

Question 1

— measures the growth of industrial production in India. This index classifies industries into—- and measures growth in production in each industry. In addition, use-based classification i.e. —-are also available. Released by —– on —- with base year-

Answer 1

IIP- Mining, Manufacturing and Electricity sectors-basic goods, intermediate goods and capital goods- CSO- monthly basis- 2011-12

Question 2

The Reserve Bank of India calculates the —components of money supply in India.

• M1:
• M2:
• M3:
• M4:

The money supply is the entire stock of currency and other liquid instruments circulating in a country’s economy as of a particular time.
- The money supply can include cash, coins, and balances held in checking and savings accounts, and other near money substitutes.

Answer 2

Four-
M1: This is Currency with the public as mentioned above + Demand Deposits of the public as mentioned above. It is called Narrow Money.
M2: This is Narrow Money i.e. M1 + Post office Savings Deposits.
- M3: M3 is broad Money i.e. M1 + Aggregate Deposits of the Public which is made up of Demand Deposits and Time Deposits.
- M4: M4 refers to M3 and Post Office Deposits

Narrow money= M1 is a category of money supply that includes all physical money such as coins and currency, demand deposits and other liquid assets held by the central bank.

Question 3

Doubt- Centre has announced a recapitalization plan for the Public-Sector Banks (PSBs) through issuance of recapitalization bonds. Consider the benefits of recap bonds.
1. There will be less burden on taxpayer.
2. Government can avoid crowding out private borrowings.
3. The method is potential solution for the structural problems in the banking system.
Which of the above statements is/are correct?

A 1, 2 and 3
B 1 and 3 only
C 2 and 3 only
D 1 and 2 only

Answer 3

Correct answer- D

• The Centre announced that it was working on a ₹2.11 lakh crore recapitalisation package for PSBs.
  Recapitalization Bonds approach
  a) It refers to using equity money in order to restructure an institution’s debt.
  b) The bonds can be issued either directly by the government or through a holding company.
  c) The government will issue bonds to the banks for a share of the bank’s Equity.
  d) The annual interest on these bonds and the principal on redemption will be paid by the central government.
  e) These bonds can be sold off by the banks in the market when in need of capita

Benefits of Recapitalization Bonds

a) The government need not to raise immediate tax revenues to fund the mounting bill on bank recapitalization, which means less burden on the taxpayer.
b) Borrowing directly from the banking system instead of the markets, the government can avoid crowding out private borrowings or distorting market yields.
c) Recapitalization Bonds does not strain the banking finances, because lending to the government is safest for their loan funds. In any case, public sector banks tend to invest well in excess of their Statutory Liquidity Ratio requirements in government securities.

Question 4

Quantitative measures of Monetary policy are designed to regulate the — created by the banking system. They are-

NOTE- Read more about qualitative measures.

Answer 4

Volume of credit

Margin requirements , Consumer Credit Regulation , RBI Guidelines , Rationing of credit Moral Suasion , Direct Action

Question 5

—– is an—- paper money made legal tender by a government decree.

Answer 5

Fiat money- inconvertible

Question 6

True or False-

1. RBI carries out OMO by directly dealing with public.
2. Sterilization is a day to day phenomenon.

Answer 6

In RBI carries out the OMO through commercial banks and does not directly deal with the public.

• To prevent or sterilize the economy from such external shocks RBI buys or sells government securities to keep the money supply unchanged.This is called sterilization (it is a market stabilization scheme) and it is not a day to day phenomenon but rather used less frequently.

Question 7

In case of —–

1. Customers withdraw their deposits fearing that banks will run out of reserves
2. Banks are in risk of default
3. Central Bank acts as lender of last resort

In case of bank failure which means —-, —- has the power to close national banks and —- has powers to close state- chartered banks.
When a bank fails, the —- covers the insured portion of a depositor’s balance, including money market accounts.

Answer 7

Bank Run- Closing of an insolvent bank- The comptroller of currency- Banking commissioners of respective states- Federal Deposit Insurance Corporation (FDIC)

Question 8

SAMPADA (Scheme for Agro-Marine Processing and Development of Agro-processing clusters) is a —-with an allocation of — for the period —.
- The objective of the scheme is to supplement agriculture, — processing (of marine and agri-produce) and decrease —–.
SAMPADA is an —– incorporating schemes of the government like-

Side note- Increase government procurement will not have an increasing effect on the market price if the MSP is fixed at the level where market price will never reach.

Answer 8

Central Sector scheme- Rs. 6000 crore- 2016-20- modernize- agri-waste- umbrella scheme- Mega Food Parks Integrated Cold Chain and Value Addition Infrastructure, Food Safety and Quality Assurance Infrastructure, and also new schemes like Infrastructure for Agroprocessing Clusters,Creation of Backward and Forward Linkages, Creation of Food Processing & Preservation Capacities.

Question 9

True or false-
-In repo, only govt securities are used.

-There is only one type of repo.

Answer 9

-False
“Repo” is “an instrument with RBI for borrowing funds by selling securities of the Central Government or a State Government or corporate sector. Moreover, Central Government may specify other such securities for this purchase such as securities of a local authority or foreign securities.

• False.
  There are four types of repos depending on maturity period - overnight repos, term repos, open maturity and flexible repos.

Question 10

With respect to the powers of RBI in controlling inflation, which of the following statements is/are not correct?

1. Tighter monetary policy can be used to control only demand-pull inflation but not cost-push inflation.
2. To control inflation RBI increases Cash Reserve Ratio of banks.
3. Tighter monetary policy helps in controlling rise in prices of items of everyday use like salt, onion, wheat, etc.

Answer 10

Answer- Only 2 is correct.
- Tighter monetary policy can be used to control both demand pull and cost push inflation. Tighter monetary policy cant help in cases of everyday commodities because, everyday items are not bought through bank money, however it can still help in controlling inflation of steel, cement, iron, etc.

Question 11

—–= M0

It is the total liability of the monetary authority of the RBI. It is also called —-. It includes —–+—–.

Answer 11

• High powered money- Monetary base- Currency (notes and coins in circulation with the public and vault cash of commercial banks) + deposits held by the Government of India and commercial banks with RBI.

M1 It is also called narrow money. It includes currency with public, demand deposit in all banks (e.g. current account, savingsaccount) and Other deposits with RBI
M2 = M1 + Post office bank savings
M3 = M1 + Time deposits with commercial banks (Fixed deposits, Recurring deposits).
M4= M3 + total post office deposits

Question 12

KUSUM- 1.4 lakh crore scheme- for —– to help —.
Scheme includes building —– on barren lands and providing sops to DISCOMS- —- subsidy for —- to be shared between —–. The scheme would also promote energy efficiency and water conservation and provide —– to farmers.

Answer 12

About KUSUM scheme:
- It is a 1.4 lakh-crore scheme for promoting decentralised solar power production of up to 28,250 MW to help farmers. It would help in de-dieselising the sector as also the DISCOMS.
- 10,000 MW solar plants on barren lands- 60% subsidy on solar pumps will be shared betw Centre and states(30%) and remaining 30% to be provided through the bank loans.
- Water security
Expected positive outcomes of the scheme include promotion of decentralised solar power production, reduction of transmission losses as well as providing support to the financial health of DISCOMs by reducing the subsidy burden to the agriculture sector.

Question 13

Granting infrastructure status to affordable housing by the Government of India will-

1. It will enable these projects to avail lower borrowing rates and tax concessions.
2. It will increase the flow of foreign capital and private capital into real estate sector.
3. It will further simplify approval process for affordable projects

Answer 13

Benefits- Lower borrowing rates, tax concessions, profit-linked income tax deduction and relaxations on tax for vacant/unsold units for 1 year.
According infrastructure status will further simplify approval process for affordable projects, create clear guidelines and increase transparency in the segment. Such a market, which will further be made accountable through the Real Estate Regulatory Authority (RERA), could attract debt and pension funds to invest in the affordable housing segment.

Question 14

The Model Agricultural Produce and Livestock Marketing (Promotion and Facilitation) Act, 2017 released by the —- seeks to facilitate free flow of agricultural produce including livestock, provide a direct interface of farmers with the buyers and consumers, and create a —- in the country. Agri market transactions within state with a —– fee. It also caps —. Seeks to est a regulated wholesale agri-market at a distance of every —.

Answer 14

Ministry of Agriculture and Farmers Welfare- barrier-free single market- Unified single fee- market fee (including developmental and other charges) at not more than 1% for fruit and vegetables, and 2% for food grains- 80 km.

And to enable this, it has proposed to issue licenses. It provides for setting up of Market Committee which will manage market yards in a specified area and will be responsible for auction and for providing facilities for marketing of agricultural produce.

• It allows to set up private market yards to facilitate operations of traders, and commission agents.
• The Market Committee shall levy a market fee from a buyer on sale of notified agricultural produce and livestock.
• This fee cannot exceed 2% ad valorem on transacted produce in case of non-perishable agricultural produce and 1% ad valorem in case of perishable agricultural produce and livestock.

Question 15

Current account of country shows its profile in goods and services trade. Technically, the current
account of the balance of payments explains the money value of goods and service (services is contained
under invisibles) exported and imported by the country during an accounting period.
Therefore it consists of- Visible-
Invisible- —-,—-,—-
- Factor income and financial transfers like income earned by MNCs in India.
Loans from foreign institutes falls under capital account of Balance of Payments(BoP).

Answer 15

Visible- Merchandise trade- only goods.
Invisibles- Services, Transfers, net income.
Services refers to trade in services like transportation, tourism etc.
- Transfers are receipts or payments without any intention of receiving anything in return like workers’ remittances, donations, aids and grants etc.
- Net Income refers to income paid or received on investments like dividends, rents, interest etc.

Question 16

RBI moved to floating exchange rate in 1992-93- It follows its own method i.e. —-. In this, currency has fixed——– and a separate floating rate aka ——-applied to specified goods, sectors or trading conditions. This managed exchange rate regime is aka—-.

Answer 16

Dual exchange rate- official exchange rate - market rate- Dirty float

Sidenote- Examples of Invisible exports and imports:

• Money spent on travel by tourists
• Tuition paid to universities by international students
• Banking, Insurance, Consulting services in foreign land
• Royalties and license fee paid for use of copyright or patent
• Outsourcing is basically getting service from abroad i.e. Import

Question 17

• —- - US Dollar- rare- most —– - high exports- diversified exports, most of the times they are compulsive- always —-.
• —– - Indian Rupee- easily available.
• – currency - temporary name of the Hard currency. For eg, in SE Asian crisis, dollar was a— currency.
• —- - for the troubled times (depreciation) for currency.

If a government starts re-purchasing its bonds before their maturities (at full-maturity prices) the money which flows into the economy is known as the —–, also called ——.

Answer 17

Hard currency- most liquid and that is why the strongest-  scarce.
Soft currency.
Hot currency- hot currency.
Heated currency
Cheap currency and cheap money.

Question 18

Forex reserves are managed by —-. They rose by —– to a fresh high of —– in November showing an upward trend. With inflow of Foreign currency and gold, the money supply in market — as RBI has to —-.

Answer 18

RBI- $441 million- $448.249 billion- Increases- print more money.

Question 19

— the weighted average of a country’s currency in relation to an index or basket of other major currencies.
The weights are determined by comparing the——against each country within the index.
Countries with the —- trading relationships would have the largest weightings in the index.
—- is an unadjusted weighted average rate at which one country’s currency exchanges for a basket of multiple foreign currencies.

Answer 19

REER- relative trade balance of a country’s currency -largest- NEER

Question 20

—- is the indicator of country’s intn competitiveness in forex market. It is aka —-. In simple terms it is the amount of —- required to purchase foreign currency.

Answer 20

NEER- tradeweighted currency index- domestic currency.

The Nominal Effective Exchange Rate (NEER) of the rupee is a weighted average of exchange rates before the currencies of India’s major trading partners.

Question 21

Capital account of BoP records all those transactions which —–. Its components are- 1)—–
2)—-

Answer 21

• which cause a change in the assets or liabilities of the residents of the country or its government. It is related to claims and liabilities of financial nature.
• 1)Borrowings and landings from abroad abroad, this includes the External Commercial Borrowings. 2)Investments to and from abroad: this includes investments in securities and real estate.

Question 22

—– in a currency can only take place if the economy follows the floating exchange rate system. —- improves the current account BoP.

Answer 22

Depreciation- Devaluation

Question 23

• — are-
  1. Rise in the value of inventories of a firm over a year. It is treated as —- by the firm.
  2. Addition to the machinery, factory building and equipment employed by the firms aka —–.
  3. Addition of housing facilities aka —-.

Answer 23

Investments- done in three main categories- Investment expenditure- Fixed business investment- Residential investment.

Question 24

The —– is the ratio of money held by the public in currency to that they hold in bank deposits.
It reflects people’s preference for —-. Thus, it shows the amount of currency that people hold as a proportion of aggregate deposits. An increase in cash deposit ratio leads to a —– in money multiplier. It has —- relationship with the money multiplier.

Answer 24

Currency Deposit Ratio (CDR) -liquidity- decrease- Inverse.

Question 25

—– - A share given to the existing shareholders without any charge—also known as —–.
—– - A share given to the employees of the company without any charge.
Kerb Dealings- The transactions of stocks which take place —–.
—– - A trading allowed in shares where a future price is quoted for the shares and the payment and delivery takes place on the pre-determined dates.
Authorized capital
The limits upto —– —also known as the —-. This is fixed in the Memorandum of Association (MoA) and the article of association(AoA) of a company as required by the —–.
Paid up capital- ——–. A difference may arise because all shares authorised might not be issued or issued shares are only partly paid-up.
——– - The amount actually paid by the shareholders or have been committed by them for contribution.

Answer 25

• Scrip share- bonus share- sweet share.
• These Kerb dealings take place outside the stock exchanges—unofficially and take place after the normal trading hours.
• Futures
• Limit upto which shares can be issued by a company- nominal or registered capital- Companies Act (Law).
• The part of the authorised capital of a company that has actually been paid by shareholders.
• Subscribed capital