Money & Capital Markets — UPSC Prelims practice questions

Q: How many Money & Capital Markets MCQs are available for UPSC Prelims practice?

PrelimsAI currently has 80+ Money & Capital Markets MCQs under Indian Economy. This page shows 12 sample questions in full.

Q: How many Money & Capital Markets previous year questions are included?

19+ questions in this chapter are tagged as UPSC Prelims PYQs. PYQs are prioritised in the visible sample set when available.

Q: Do these Money & Capital Markets questions include explanations?

Yes. The 12 visible sample questions show the correct option and explanation on this page.

Q: Where should I go after practising Money & Capital Markets?

Continue with Poverty & Unemployment or Public Finance & Taxation, or return to the Indian Economy subject page for more chapter-wise practice.

Question 1

Consider the following statements about the International Bank for Reconstruction and Development (IBRD):
1. It provides loans and guarantees primarily to middle-income countries.
2. It works single-handedly as the only multilateral institution for poverty reduction.
3. It was originally established to help Europe rebuild after the Second World War.
Which of the statements given above are correct? (A) 1 and 2 only (B) 2 and 3 only (C) 1 and 3 only (D) 1, 2 and 3

Accepted Answer

(C) 1 and 3 only — Correct. The IBRD lends mainly to middle-income and creditworthy lower-middle-income countries, and it was created in 1944 to support post-war reconstruction in Europe.

Question 2

With reference to the digital rupee or e-rupee, consider the following statements:
1. It is a sovereign currency issued by the Reserve Bank of India.
2. It appears as a liability on the balance sheet of the RBI.
3. It is designed to provide automatic protection against inflation.
4. It is freely convertible into bank deposits and cash.
Which of the statements given above are correct? (A) 1 and 2 only (B) 1 and 3 only (C) 2 and 4 only (D) 1, 2 and 4

Accepted Answer

(D) 1, 2 and 4 — Correct. The e-rupee is an RBI-issued sovereign liability, and it is designed to be convertible with bank money and physical cash. It is not an inflation-indexed asset.

Question 3

Which one of the following best describes 'Collateral Borrowing and Lending Obligation (CBLO)'? (A) A capital market instrument for long-term equity finance (B) A money market instrument for short-term borrowing against government securities as collateral (C) A foreign exchange hedging contract (D) A credit guarantee scheme for exporters

Accepted Answer

(B) A money market instrument for short-term borrowing against government securities as collateral — Correct. CBLO was a money market instrument operated by the CCIL where participants could borrow and lend short-term funds against the collateral of government securities. It has since been replaced by TREPS.

Question 4

Consider the following markets:
1. Government bond market
2. Call money market
3. Treasury bill market
4. Stock market
How many of the above are generally included in the capital market? (A) Only one (B) Only two (C) Only three (D) All four

Accepted Answer

(B) Only two — Correct. The capital market deals with medium- and long-term funds; government bond market and stock market fall in this category, while call money and treasury bills belong to the money market.

Question 5

Inflation-Indexed Bonds are considered attractive to investors mainly because they: (A) Protect the real value of savings against inflation (B) Guarantee a fixed equity-like return (C) Eliminate default risk of all corporate issuers (D) Can be issued only in foreign currency

Accepted Answer

(A) Protect the real value of savings against inflation — Correct. Inflation-indexed bonds link returns or principal to inflation, helping preserve the investor's purchasing power.

Question 6

In the context of Indian government securities, which one of the following correctly describes the 'Retail Direct' facility? (A) It enables retail investors to open gilt accounts directly with the RBI (B) It allows only banks to buy newly issued government securities (C) It is a platform meant only for foreign portfolio investors (D) It replaces the need for primary dealers in G-Sec auctions

Accepted Answer

(A) It enables retail investors to open gilt accounts directly with the RBI — Correct. Retail Direct allows individual investors to maintain gilt accounts with the RBI and invest in government securities directly.

Question 7

Which of the following factors generally leads to a fall in the yield of an already issued bond? (A) A rise in market interest rates (B) A decline in the creditworthiness of the issuer (C) An increase in demand for that bond (D) An increase in inflation expectations

Accepted Answer

(C) An increase in demand for that bond — Correct. When demand for an existing bond rises, its price rises; since yield moves inversely with price, the yield falls.

Question 8

Which of the following is a money market instrument? (A) Equity share (B) Preference share (C) Treasury bill (D) Convertible debenture with long maturity

Accepted Answer

(C) Treasury bill — Correct. Treasury bills are short-term government securities and are classic money market instruments.

Question 9

Consider the following statements about Indian Government Bond Yields:
1. They are influenced by the actions of the US Federal Reserve.
2. They are influenced by the actions of the Reserve Bank of India.
3. They are influenced by inflation and short-term interest rates.
Which of the statements given above are correct? (A) 1 and 2 only (B) 2 only (C) 3 only (D) 1, 2 and 3

Accepted Answer

(D) 1, 2 and 3 — Correct. Indian government bond yields are influenced by global factors such as US Fed policy, domestic monetary policy actions by the RBI, and prevailing inflation and interest rate conditions.

Question 10

Consider the following statements:
1. Retail investors through a demat account can invest in Treasury Bills and Government Debt Bonds in the primary market.
2. The Negotiated Dealing System-Order Matching (NDS-OM) is a government securities trading platform of the RBI.
3. The Central Depository Services Limited (CDSL) is jointly promoted by the RBI and BSE.
Which of the statements given above are correct? (A) 1 only (B) 1 and 2 only (C) 3 only (D) 2 and 3 only

Accepted Answer

(B) 1 and 2 only — Correct. Retail investors can participate in T-bill and G-Sec auctions through their demat accounts, and the NDS-OM is the RBI's order-matching platform for government securities. CDSL was promoted by BSE along with certain banks, not by the RBI.

Question 11

Consider the following statements:
1. Commercial Paper is a short-term unsecured promissory note.
2. Certificate of Deposit is a long-term instrument issued by the RBI to corporates.
3. Call money is short-term finance used for interbank transactions.
4. Zero-coupon bonds are issued at a discount.
Which of the statements given above are correct? (A) 1 and 2 only (B) 4 only (C) 1 and 3 only (D) 2, 3 and 4 only

Accepted Answer

(C) 1 and 3 only — Correct. Commercial Paper is indeed a short-term unsecured promissory note, and call money is the ultra-short-term interbank borrowing market. Statement 2 wrongly describes CDs, and statement 4 describes bonds rather than pure money market instruments.

Question 12

Recapitalization of public sector banks by the Government increases the banks' ability mainly because it: (A) Strengthens their capital adequacy and lending capacity (B) Eliminates the need for prudential regulation (C) Converts all non-performing assets into profits (D) Allows banks to stop maintaining statutory reserves

Accepted Answer

(A) Strengthens their capital adequacy and lending capacity — Correct. Additional capital improves the capital adequacy position of banks and supports further lending.

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