Monetary Policy & Banking MCQs

Which of the following are sources of income for the Reserve Bank of India? 1. Buying and selling government securities 2. Buying and selling foreign currency 3. Printing and distributing currency notes Select the correct answer using the code given below:

• A1 and 2 onlyCorrect
• B2 and 3 only
• C1 and 3 only
• D1, 2 and 3

Which activity of the Reserve Bank of India is considered part of 'sterilization'?

• AConducting Open Market OperationsCorrect
• BOversight of settlement and payment systems
• CDebt and cash management for Central and State Governments
• DRegulating non-banking financial institutions

In the post-pandemic period, many central banks carried out interest rate hikes. Which of the following best explains this? Statement I: Central banks raised interest rates to combat rising consumer prices. Statement II: Central banks generally assume they can counteract rising consumer prices via monetary policy. Select the correct answer:

• ABoth Statement I and Statement II are correct and Statement II is the correct explanation of Statement ICorrect
• BBoth Statement I and Statement II are correct but Statement II is not the correct explanation of Statement I
• CStatement I is correct but Statement II is incorrect
• DStatement I is incorrect but Statement II is correct

Consider the following statements about the Digital Rupee (e-Rupee) issued by the RBI: 1. It is a sovereign currency aligned with the monetary policy objectives of the RBI. 2. It appears as a liability on the RBI's balance sheet. 3. It is insured against inflation by design. 4. It is freely convertible against commercial bank money and cash. How many of the above statements are correct?

• AOnly one
• BOnly two
• COnly threeCorrect
• DAll four

Consider the following statements about CBDC (Central Bank Digital Currency): 1. It is possible to make payments in a digital currency without using the US dollar or the SWIFT system. 2. A digital currency can be distributed with a programmed condition of usage such as a time frame for spending. Which of the statements given above is/are correct?

• A1 only
• B2 only
• CBoth 1 and 2Correct
• DNeither 1 nor 2

If inflation is rising and the rupee is under depreciation pressure, which one of the following combinations is most likely to be consistent with monetary tightening by the RBI?

• ALower policy rates and lower reserve requirements
• BHigher policy rates and tighter liquidity conditionsCorrect
• CHigher policy rates and larger monetization of deficit
• DHigher fiscal deficit and lower repo rate

In India, the institution primarily responsible for maintaining price stability while keeping in mind the objective of growth is the:

• AFinance Commission
• BSecurities and Exchange Board of India
• CNITI Aayog
• DReserve Bank of IndiaCorrect

Tight monetary policy by the U.S. Federal Reserve is likely to have which of the following effects on India? 1. Capital outflows from emerging markets may rise. 2. External commercial borrowing may become costlier. 3. Pressure on the domestic currency may increase. Select the correct answer using the code given below:

• A1 and 2 only
• B2 and 3 only
• C1 and 3 only
• D1, 2 and 3Correct

Consider the following RBI actions: 1. If inflation is too high, RBI is likely to buy government securities in open market. 2. If the rupee is rapidly depreciating, RBI is likely to sell dollars in the forex market. 3. If interest rates in the USA or Europe fall, that is likely to induce RBI to buy dollars. Which of the statements given above are correct?

• A1 and 2 only
• B2 and 3 onlyCorrect
• C1 and 3 only
• D1, 2 and 3

Which one of the following best describes the difference between NEER and REER?

• ANEER is adjusted for inflation, while REER is not
• BREER is a trade-weighted exchange rate adjusted for relative inflation, while NEER is not inflation-adjustedCorrect
• CNEER measures only current account transactions, while REER measures capital account transactions
• DThere is no difference between the two

Which one of the following is most likely to increase the money multiplier in an economy?

• AAn increase in the Cash Reserve Ratio
• BAn increase in the Statutory Liquidity Ratio
• CAn increase in banking habits of the peopleCorrect
• DA sharp rise in import duties

Among the following, the most inflationary method of financing a budget deficit is:

• AExternal commercial borrowing
• BHigher tax collection
• CDisinvestment
• DCreation of new moneyCorrect