CBSE Class 12 Economics Money And Banking VBQs Set 02

Question. ...................... banks were first nationalised.
(a) 12
(b) 24
(c) 14
(d) 15
Answer: (c) 14

Question. To reduce credit availability in the economy, the Central Bank may ........................... .
(a) buy securities in the open market.
(b) sell securities in the open market.
(c) reduce reserve ratio.
(d) reduce repo rate.
Answer: (b) sell securities in the open market.

Question. ........................ is anything that serves as a medium of exchange.
(a) Goods
(b) Money
(c) Services
(d) None of the options
Answer: (b) Money

Question. Lower interest rates are likely to ........................ .
(a) decrease consumption
(b) increase cost of borrowing
(c) encourage saving
(d) increase borrowing and spending
Answer: (d) increase borrowing and spending

Question. ...................... increases money supply in the market.
(a) Cash deposit in banks
(b) Cash withdrawl from the banks
(c) Both (a) and (b)
(d) None of the options
Answer: (b) Cash withdrawl from the banks

Question. Narrow concept of money supply is .................... .
(a) M1
(b) M2
(c) M3
(d) M4
Answer: (a) M1

Question. The main aim of monetary policy is .................
(a) to bring price stability in the economy.
(b) employment generation in the country.
(c) to increase trade surplus.
(d) to generate greater tax revenue.
Answer: (a) to bring price stability in the economy.

Question. In order to encourage investment in the economy, the Central Bank may ................... .
(a) Reduce Cash Reserve Ratio
(b) Increase Cash Reserve Ratio
(c) Sell Government securities in open market
(d) Increase Bank Rate
Answer: (a) Reduce Cash Reserve Ratio

Question. To control excess demand, CRR is ................. .
(a) decreased
(b) increased
(c) does not change
(d) none of the options
Answer: (b) increased

Question. ............... bank nurtures the market for govt. securities in India.
(a) commercial bank
(b) central bank
(c) world bank
(d) none of the options
Answer: (b) central bank

Question. Identify the correct pair from the column I and II.
Column I
A Open market operations
B Margin Requirement
C Banker’s bank
D Reserve Requirement
Column II
(i) Qualitative Measure
(ii) Minimum ratio of total bank deposits which they have to keep with themselves
(iii) Function of Central Bank
(iv) Sale and Purchase of Securities
Alternatives:
(a) A-i
(b) B-ii
(c) C-iii
(d) D-iv
Answer: (c) C-iii

Question. Match the following:
Column I
A Repo rate
B Reverse repo rate
C Cash reserve ratio
D Statutory liquidity ratio
E Bank rate
Column II
(i) Percentage of total deposits of commercial banks
(ii) Rate at which central bank borrows from commercial banks
(iii) Rate at which central bank offers loans to commercial banks
(iv) Rate at which commercial banks can borrow money from RBI
(v) Commercial banks maintaining a fixed percentage of assets in cash form or other liquid assets.
Options :
(a) A - (iii), B - (ii), C - (i), D - (v), E - (iv)
(b) A - (i), B - (ii), C - (iii), D - (iv), E - (v)
(c) A - (ii), B - (i), C - (iii), D - (v), E - (iv)
(d) A - (iv), B - (iii), C - (ii), D - (v), E - (i)
Answer: (a) A - (iii), B - (ii), C - (i), D - (v), E - (iv)

Question. Match the columns:
Column I
A Bill of exchange
B M2
C M1 = ........ + deposits with public
D Broad Money
Column II
(i) M3
(ii) M1 + saving deposit with post office
(iii) Near money
(iv) Currency
Options :
(a) A - (i), B - (ii), C - (iii), D - (iv)
(b) A - (iii), B - (ii), C - (iv), D - (i)
(c) A - (i), B - (iii), C - (iv), D - (ii)
(d) A - (ii), B - (iii), C - (iv), D - (i)
Answer: (b) A - (iii), B - (ii), C - (iv), D - (i)

Question. Identify the correct sequence of alternatives given in Column II by matching them with respective terms in Column I.
Column I
A Basis of credit
B Exchange of goods for goods
C Accepting deposits
D Standard of deferred payment
Column II
(i) Contingent function
(ii) Secondary function
(iii) Barter system
(iv) Primary fuction
Choose the correct alternative:
(a) A - (ii), B - (iii), C - (iv), D - (i)
(b) A - (iii), B - (ii), C - (i), D - (iv)
(c) A - (i), B - (ii), C - (iii), D - (iv)
(d) A - (i), B - (iii), C - (iv), D - (ii)
Answer: (d) A - (i), B - (iii), C - (iv), D - (ii)

The RBI cut its reverse repo rate by 25 basis points (bps) to 3.75% with immediate effect. Governor Shaktikanta Das told a video conference. The rate had already been cut by 90 bps on Mach 27. The surplus liquidity in the banking system has risen significantly in the wake of government spending and the various liquidity enhancing measures undertaken by the RBI, he added. In order to encourage banks to deploy these surplus funds in investments and loans in productive sectors of the economy, it has been decided to reduce the fixed-rate reverse repo rate", RBI's measure of reduction in reverse repo rate is done to enable commercial banks

Question. RBI's measure of reduction in reverse repo rate is done to enable commercial banks
(a) to use the surplus funds for investment
(b) to grant loans for productive purposes
(c) to widen economic and financial land space
(d) all of the options
Answer: (d) all of the options

Question. The Reserve Bank of India unexpectedly cut its key deposit rate, for the second time in three weeks to discourage banks from parking idle funds with it and spur lending instead, to revive a flagging economy amid the corona virus lockdown. When reverse repo rate is reduced, it………
(a) discourages the commercial banks to park their surplus funds with RBI
(b) encourages the commercial banks to park their surplus funds with RBI
(c) both (a) and (b)
(d) neither (a) nor (b)
Answer: (a) discourages the commercial banks to park their surplus funds with RBI

Banking and banks are very important for the functioning of the modern world. Without banks the way we use money would not work. Banks enable people to save money, borrow money and to pay for things with ease and security. Each country in the world has its own well known banks that have branches in nearly every city so that they are convenient for people to use. People often have to visit the local branch of the bank when they want certain services. There are also some very big multinational banks that have branches in most countries in the world. As well as the local branches that are in most cities, each bank will also have a head office. This is where all central tasks are performed that let the local braches function. The people that work in the branches will be the bank manager, the person in charge, and various tellers who work behind the bank counter and help the customers. There will also likely be security guards to protect the money, workers and customers. Most customers will just need to see the tellers when they go to the bank if they are paying money into their account as either cash or a check. Also if they want to borrow money and get a loan the person will need to see the bank manager who will have to approve it. As well as being able to use cash or checks to pay for things, banks also offer their customers the more convenient methods of using either a debit card or credit card. These methods are very convenient as you just need to carry a small plastic card to be able to pay for anything. When paying with plastic you will need to either sign a receipt or enter a PIN number to conform the purchase and that you are authorized to use the card.

Question. According to the text, what do banks enable people to do?
(a) Buy products
(b) Save money for the future
(c) Get money now that they have to pay back later
(d) All of the options
Answer: (d) All of the options

Question. What is the purpose of the head office of a bank?
(a) To support the local branches to work properly.
(b) To offer services to local customers.
(c) To work with other banks.
(d) To look impressive.
Answer: (a) To support the local branches to work properly.

Question. What do bank tellers do?
(a) They protect the money.
(b) They help the customers.
(c) They arrange loans for customers.
(d) They are in charge of the bank branch.
Answer: (b) They help the customers.

Question. What happens when a bank customer spend more money than they have in their account?
(a) They will need to see the security guard.
(b) They will have to go to the police station.
(c) They will have to have a meeting with the bank manager.
(d) They will have to borrow money from the bank.
Answer: (c) They will have to have a meeting with the bank manager.

The mid-term Monetary and Credit Policy for 2020-21 has maintained status quo over the objectives and instruments of monetary policy. The overall stance continues to focus on ensuring adequate credit growth and supporting investment demand while keeping a vigil on movements in the price level. However, the two crucial policy parameters — Bank Rate and Cash Reserve Ratio (CRR) — are left untouched to rule at their current levels of 6 and 4.5 per cent respectively while the repo rate too is not disturbed. The Reserve Bank of India, in its recent Report on Trends and Progress of Banking in India, has hinted at raising the CRR in the coming months. First, this policy framework begs the central question of how to provide a soft rate regime by manipulating indirect policy instruments when the stock of government securities — the weapon — has already depleted substantially and is expected to decline further with continuous sterilisation of capital inflows. A few leading private sector banks have already expressed their unwillingness to reduce lending rates even if the official rates are reduced. Further, reduction in lending rate may not ensure larger credit offtake as demand for credit now is influenced by factors beyond interest rates. The issue calls for a thorough study so that the present policy can help achieve the objectives. One can observe multiple rates in the Indian market, reflecting the existence of a number of financial instruments with a continuum of maturity and risk profiles. Broadly, the structure of interest rates can be classified as the floor rate, the rates which prevail in the government securities market (sovereign rate) and the commercial lending rates. In recent times, there has been a steady decline in the yield on government securities due to a comfortable liquidity position in the market. Indeed, the yield and short term rates in the government security market are less than the Bank Rate. The irony is that the soft rate policy failed to bring down the prime lending rates (PLR) of commercial banks. The median lending rates on demand and term loans charged by public sector banks remained unchanged in a range of 11.5-14 per cent between March and June 2003. The prime lending rates of these banks ranged between 9 and 12.25 per cent during the same period. Concurrently, there has been a significant change in the mode of financing of the fiscal deficit. In recent years, it has been made mandatory that the Government must not issue fresh securities to the RBI.

Question. What are the parameters that were left untouched in the current policy?
(a) Bank rate
(b) Cash Reserve Rate
(c) Repo rate
(d) All (a) (b) and (c)
Answer: (d) All (a) (b) and (c)

Question. Why does the policy framework seek the question of how to provide a soft rate regime?
(a) The manipulation of indirect money market instruments cannot provide soft rate regime
(b) Since, the depletion in stock of government securities is expected to continue
(c) The securities will not be issued by the central bank as of now
(d) Both (b) and (c)
Answer: (d) Both (b) and (c)

Question. Why does the author say that there should be thorough study of the current policy ?
I. Demand for credit is only influenced by change in interest rates.
II. Reduction in lending rates can ensure larger credit offtakes.
III. Reduction in interest rate alone is not sufficient to boost credit offtake.
(a) Both I and II
(b) Only I
(c) II and III
(d) Only III
Answer: (d) Only III

Question. How does the author come to a conclusion that the interest rates are misaligned?
(a) Since the median lending rates on demand and term loans remains unchanged
(b) Because the prime lending rates ranged between 9 and 12.25 per cent
(c) Since there is wider gap between the PLR and the Bank rate
(d) Both (a) and (b)
Answer: (c) Since there is wider gap between the PLR and the Bank rate

The Reserve Bank of India unexpectedly cut its key deposit rate, for the second time in three weeks to discourage banks from parking idle funds with it and spur lending instead, to revive a flagging economy amid the corona virus lockdown. This week, Prime Minister Narendra Modi extended until May 3 a lockdown of the population of 13 billion as India's tally of infections exceeded 10,000, despite the three-week shutdown ordered from March 24, The RBI cut its reverse repo rate by 25 basis points (bps) to 3.75% with immediate effect. Governor Shaktikanta Das told a video conference. The rate had already been cut by 90 bps on Mach 27. The surplus liquidity in the banking system has risen significantly in the wake of government spending and the various liquidity enhancing measures undertaken by the RBI, he added. In order to encourage banks to deploy these surplus funds in investments and loans in productive sectors of the economy, it has been decided to reduce the fixed-rate reverse repo rate",

Question. The Reserve bank of India lowered reverse repo rate to discourage banks from parking idle funds with ........................ .
(a) RBI
(b) Commercial Banks
(c) Private Bank
(d) None of the options
Answer: (a) RBI

Question. RBI's measure of reduction in reverse repo rate is done to enable commercial banks
(a) to use the surplus funds for investment
(b) to grant loans for productive purposes
(c) to widen economic and financial land space
(d) all of the options
Answer: (d) all of the options

Question. Reverse Repo rate is .................. to correct excess demand.
(a) increased
(b) decreased
(c) not changed
(d) none of the options
Answer: (a) increased

Question. When reverse repo rate is reduced, it .............. .
(a) discourages the commercial banks to park their surplus funds with RBI
(b) encourages the commercial banks to park their surplus funds with RBI
(c) both (a) and (b)
(d) neither (a) nor (b)
Answer: (a) discourages the commercial banks to park their surplus funds with RBI

Directions: In the following questions, a statement of assertion is followed by a statement of reason. Mark the correct choice as:

(a) Both Assertion (A) and Reason (R) are true and Reason (R) is the correct explanation of Assertion (A).

(b) Both Assertion (A) and Reason (R) are true and Reason (R) is not the correct explanation of Assertion (A).

(c) Assertion (A) is true but Reason (R) is false.

(d) Assertion (A) is false but Reason (R) is true.

Question. Assertion (A): A rupee in India is money.
Reason (R): It is commonly accepted as medium of exchange in India.
(a) A
(b) B
(c) C
(d) D
Answer: (a) Both Assertion (A) and Reason (R) are true and Reason (R) is the correct explanation of Assertion (A).

Question. Assertion (A): Double coincidence of wants means that, the two individuals are in possession of such goods which they are willing to exchange for the satisfaction of their wants.
Reason (R): Double coincidence of wants is an important feature of the barter system of exchange.
(a) A
(b) B
(c) C
(d) D
Answer: (b) Both Assertion (A) and Reason (R) are true and Reason (R) is not the correct explanation of Assertion (A).

Question. Assertion (A): Cheques are fiduciary money.
Reason (R): These are accepted as a means of payment on the basis of trust, not on the basis of any order of the government.
(a) A
(b) B
(c) C
(d) D
Answer: (a) Both Assertion (A) and Reason (R) are true and Reason (R) is the correct explanation of Assertion (A).

Question. Assertion (A): Full bodied money refers to that money of which money value is more than commodity value.
Reason (R): A rupee coin during the British period in India was made of silver.
(a) A
(b) B
(c) C
(d) D
Answer: (d) Assertion (A) is false but Reason (R) is true.

Question. Assertion (A): Supply of money is a stock concept.
Reason (R): Supply of money does not include stock of money held by the government.
(a) A
(b) B
(c) C
(d) D
Answer: (b) Both Assertion (A) and Reason (R) are true and Reason (R) is not the correct explanation of Assertion (A).

Question. Assertion (A): Money has separated the acts of sale and purchase.
Reason (R): An individual can buy or sell a thing without selling or buying anything in return.
(a) A
(b) B
(c) C
(d) D
Answer: (b) Both Assertion (A) and Reason (R) are true and Reason (R) is not the correct explanation of Assertion (A).

Question. Assertion (A): High CRR implies higher capacity to create credit.
Reason (R): Credit multiplier is the reciprocal of CRR.
(a) A
(b) B
(c) C
(d) D
Answer: (d) Assertion (A) is false but Reason (R) is true.

Question. Assertion (A): The central bank is a lender of last resort.
Reason (R): A central bank advances loan to a commercial bank when they are failed to get financial help from anywhere.
(a) A
(b) B
(c) C
(d) D
Answer: (a) Both Assertion (A) and Reason (R) are true and Reason (R) is the correct explanation of Assertion (A).

Question. Assertion (A): In India, CRR and SLR are fixed by the commercial banks.
Reason (R): In India, CRR and SLR are fixed by the RBI.
(a) A
(b) B
(c) C
(d) D
Answer: (d) Assertion (A) is false but Reason (R) is true.

Question. Assertion (A): Market rate of interest tends to be positively related to the bank rate.
Reason (R): Change in bank rate is followed by change in market rate of interest.
(a) A
(b) B
(c) C
(d) D
Answer: (b) Both Assertion (A) and Reason (R) are true and Reason (R) is not the correct explanation of Assertion (A).