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This section includes InterviewSolutions, each offering curated multiple-choice questions to sharpen your knowledge and support exam preparation. Choose a topic below to get started.
| 51. |
Calculate the legal reserve requriement if initial deposit of ₹ 200 crores lead to creation of total deposite of ₹ 1,600 crores. |
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Answer» Total deposit = ₹ 1,600 crores, Initial deposit = ₹ 200 crores `"Money Multiplier"=("Total Deposits")/("Initial Deposits")= (1,600)/(200) = 8` We also know: Money Multiplier `=(1)/(LR R)` It means. `8 = (1)/(LR R)` Or, LRR = 0.125 or 12.5% |
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| 52. |
The central bank can increase availability of credit by: (Choose the correct alternative)A. Raising repo rateB. Raising reverse repo alternativeC. Buying government securitiesD. Selling government securities |
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Answer» Correct Answer - c C. The central bank can increase availability of credit by Buying government securities. |
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| 53. |
If the total deposits created by commercial banks is ₹ 1200 crores and legal reserve requirements is 25%, then calculate the amount of intital deposits . |
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Answer» Given , Legal Reserve Requirements (LR R) is 25% or 0.25 `"Money Multiplier"=(1)/(LR R)=(1)/(0.25)=4` It the total deposits created is of ₹ 12,000 crores, then: `"Initial Deposits" = ("Total Deposits")/("Money Multiplier") = (12,000)/(4)` = ₹ 3,000 crores |
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| 54. |
What is the value of money multiplier when initial deposits ₹500crores and LRR is 10%?A. 0.1B. 0.2C. 10D. 20 |
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Answer» Correct Answer - c C. |
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| 55. |
Loans offered by commercial banks are equal to deposits recevied by them . |
| Answer» False : Through the function of money creation, commercial banks are able to offer loans (or create credit) which are in far excess of deposits received. | |
| 56. |
What happen where there is an increase in the margine reuirements ?A. It reduces the borrowing capacity and money supplyB. Encourages people to borrow more and money supply rises.C. No change in money supplyD. None of these |
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Answer» Correct Answer - a A. When there is an increase in the margin requirements, it It reduces the borrowing capacity and money supply . |
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| 57. |
Which bank controls the banking and monatry structure of India ?A. Reserve bank of indiaB. State Bank of India C. World BankD. Axis Bank |
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Answer» Correct Answer - a A. Reserve bank of India controls the banking and monetary structure of India. |
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| 58. |
Explain the "varying reserve requirements " method of credit conrtal by the central bank. |
| Answer» When it is sought to restrict credit, the Central Bank may raise the reserve ratio. In 1960, for instance, the Reserve Bank of India required the scheduled banks to maintain with it additional reserve equivalent to 25% of the increase in their bank deposits (later raised to 50%).The Reserve Bank has also the power to vary the cash reserve ratio (CRR) which the banks have to maintain with it from the minimum requirement of 3% up-to 15% of the aggregate liabilities (7% since June 1982) raised in stages to 8.5% effective from August 27, 1983.Variations of reserve requirements affect the liquidity position of the banks and hence their ability to lend. The raising of reserve requirements is an anti-inflationary measure inasmuch as it reduces the excess reserves of member-banks for potential credit expansion. The lowering of the reserve ratios has the opposite effect. | |
| 59. |
Explain any two methods of credit control used by central bank. OR Discuss the meaning of any two methods of controlling credit which may be adopted by the central bank |
| Answer» (i) Margin Requirement: A margin refers to the difference between market value of the security offered for loan and the amount loan offered by the Commercial Banks. During inflation, supply of credit is reduced by raising the requirement of margin. During deflation supply of credit is increased by lowering the requirement of ‘margin’. This measure is often used to discourage the flow of credit into speculative business activities. (ii) Moral suasion: It refers to moral pressure exercised by the Central Bank on the Commercial Bank to be restricted and selective in lending during inflation, and to be liberal in lending during deflation. Generally, this measure is used as a selective credit control instrument to channelize the flow of credit to priority areas. | |
| 60. |
Discuss the differences between a central bank and a commercial bank.A.B.C.D. |
| Answer» The following are the differences between central bank and commercial bankThe bank, which monitors, regulates and controls the financial system of the economy is known as Central Bank. The financial institution which receives the deposits from people and advances them money is known as Commercial Bank.Central Bank is the banker to banks, government, and financial institution, whereas Commercial Bank is the banker to the citizens.The Central Bank is the supreme monetary authority of the country. As against this, the commercial bank does not have such authority and powers.The Central Bank of India i.e. the Reserve Bank of India is governed by RBI Act, 1934. Conversely, the Commercial Bank are regulated by the Banking Regulation Act, 1949.The Central Bank is a publicly owned institution while the Commercial Bank can be publicly or privately owned institution.The Central Bank does not exist for making a profit, whereas commercial bank operates for making a profit for its owners.The Central Bank is the fundamental source of money supply in the economy. On the contrary, the commercial bank does not perform such function.The Central Bank does not deal with the general public, but Commercial Bank does.The Central Bank has got the authority to print and issue the notes. On the other hand, the commercial bank does not have such authority.The main purpose of Central Bank is public welfare and economic development. In contrast Commercial Bank, which runs for-profit motive.There is only one Central Bank in every country, but the Commercial Banks are many which serve the whole country. | |
| 61. |
Purchase of securities in the open market by the commercial banks reduces their credit crediting power . |
| Answer» TRUE : The Purchase of securities decreases the reserves of commercial banks, which reduces their credit crediting power. | |
| 62. |
Which of the following instrument cannot be used by Central Bank to control money supply ?A. Open market operationB. Bank rateC. Repo RateD. Government spending |
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Answer» Correct Answer - d D. Government spending cannot be used by Central Bank to control money supply. |
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| 63. |
To increase the money supply in the economy, central bank reduces the margine requirements. |
| Answer» TRUE : Fall in margin requirements enhances the borrowing capacity of public, which raise the money supply in the economy. | |
| 64. |
Explain the working of money multipler with help of a numberical example. |
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Answer» Money multiplier refers to the process of creation of credit by the commercial banks, with the help of initial deposit made by the public and legal reserve ratio. It is calculated as : `"Money Multiplier"=("1")/("Legal Reserve Ratio(LR R)")` Suppose there is an initial deposit of ₹ 1,000 crores and the legal reserve ratio is 10 %, then `"Money Multiplier"=("1")/("LR R")=(1)/(0.1)=10` Total Deposit = Initial Deposit `xx` Money Multiplier `= 1,000 xx 10= ₹ 10,000` crores |
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| 65. |
This function of Central Bank involves buying and selling of government securities from or to the public and commercial banks.A. Selective Credit ControlB. Legal Reserve RequirementsC. Open Market operationsD. None of the |
| Answer» Correct Answer - c | |
| 66. |
Through the process of _ commerical banks are able to create credit, which is in far excess of the initial deposits.A. Advancing of loansB. Mona Creation C. Accepting DepositsD. None of the |
| Answer» Correct Answer - b | |
| 67. |
The ratio of total deposits that a commercial bank has to keep with Reserve Bank of India is called:A. Statutory liquidity ratioB. Deposite ratioC. Cash reserve ratioD. Legal reserve ratio |
| Answer» Correct Answer - c | |
| 68. |
This bank operates in public interest without any profit motive.A. Reserve bank of indiaB. State Bank of India C. Canara BankD. Allahabad Bank |
| Answer» Correct Answer - a | |
| 69. |
Banks create credit :A. Out of nothingB. On the basis of their securitiesC. On the basis of their total assestD. On the basis of deposits |
| Answer» Correct Answer - d | |
| 70. |
Name the institiution which perfroms the function of accepting deposits, granting loans and making investments, with the aim of earning profits .A. Commercial BankB. Central BankC. Neither(a) nor(b)D. Both (a) and (b) |
| Answer» Correct Answer - a | |
| 71. |
Primary functions of the commercial bank is …………(a) Accepting deposits from the public (b) Making loans and advances to public (c) Discounting bills of exchange (d) Inter bank borrowing |
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Answer» (a) Accepting deposits from the public |
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| 72. |
Mohan saves Rs. 25 per month from his pocket allowance and puts this saving every month in a bank recurring deposit scheme for a period of 72 months at 5.25%. What amount does he get on maturity? |
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Answer» See the table of Recurring deposit scheme. Here the month by instalment is Rs. 25 and the number of instalments is 72. So the maturity value is the amount given in the table against the row marked 72 and the column marked 25. This amount is 2,721.90. Hence, on maturity, Mohan gets Rs. 2,721.90. |
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| 73. |
Using R.D., table calculate the values of a R.D., account of Rs. 80 for period of 9 months @ 11.5% p. a. |
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Answer» In the row of 80 we will locate the value under the column of 9 months which is 755. So, maturity values of RD., account of 80 for 9 months @ 11.5% p.a Rs. 755.00. |
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| 74. |
Veena deposits Rs. 100 per month in a bank cumulative time deposit scheme for a period of 5 years. What amount does she get on maturity if the rate of interest is 16%? |
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Answer» See the table of RD. scheme. For a monthly installment of Rs. 100 per month the maturity values after 5 years is Rs. 8,447.80. |
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| 75. |
Susheel has a cumulative time deposit account of Rs.800 per month at `6%` per annum. If he receives Rs.1,300 as interest, then find out the total time for which the account was held. (in months)A. 26B. 25C. 24D. 28 |
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Answer» Correct Answer - B (i) Use, `SI(Pxxn(n+1))/(2)xx(R)/(1200)` (ii) Use, Given `P=Rs.800, I=1300,R=6%` (iii) Use, `I=(Pxxn(n+1))/(2)xx(R)/(1200)` to find n. |
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| 76. |
Identify qualitative instrument to check money supplyA. CRRB. SLRC. open market operationD. Mural suasion |
| Answer» Correct Answer - d | |
| 77. |
Identify an instrument of monetary policy:A. Govt.revenueB. Govet expenditureC. Bank depositsD. Bank rate |
| Answer» Correct Answer - d | |
| 78. |
_______refers to minimum percentage of deposits of commerical banks to be kept with RBIA. SLRB. CRRC. Repo rateD. Reverse repo rate |
| Answer» Correct Answer - b | |
| 79. |
Explain the function of a commercial bank. Hint : Discuss Function of a Commerical Bank. |
| Answer» Commercial Banks performs various primary functions some of them are given belowAccepting Deposits : Commercial bank accepts various types of deposits from public especially from its clients. It includes saving account deposits, recurring account deposits, fixed deposits, etc. These deposits are payable after a certain time period.Making Advances : The commercial banks provide loans and advances of various forms. It includes an over draft facility, cash credit, bill discounting, etc. They also give demand and demand and term loans to all types of clients against proper security.Credit creation : It is most significant function of the commercial banks. While sanctioning a loan to a customer, a bank does not provide cash to the borrower Instead it opens a deposit account from where the borrower can withdraw. In other words while sanctioning a loan a bank automatically creates deposits. This is known as a credit creation from commercial bank. | |
| 80. |
Who regulates money supply?A. Government of IndiaB. Reseve Bank of IndiaC. Commerical BanksD. Planning commission |
| Answer» Correct Answer - b | |
| 81. |
Higher the lega reserve ratio _____will be the credit creation:A. higherB. lowerC. constantD. none of these |
| Answer» Correct Answer - b | |
| 82. |
_________issue 1 currency notes in india:A. Ministry of govt and consumer servicesB. Ministry of financeC. RBID. commercial banks |
| Answer» Correct Answer - b | |
| 83. |
Identify a commercial bank from the followingA. LICB. UTIC. SBID. None of these |
| Answer» Correct Answer - c | |
| 84. |
What do you mean by ‘bank of issue’? |
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Answer» Bank of issue means a bank which has the legal right to issue currency notes. |
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| 85. |
What are the two essential conditions for a financial institute to become a bank? |
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Answer» The two essential conditions for a financial institute to become a bank are.
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| 86. |
What is a central bank? |
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Answer» A central bank is an apex body that control, operates, regulates, and directs the entire banking and monetary structure of the country. |
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| 87. |
Mention any one-factor affecting credit creation by banks. |
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Answer» Initial Cash Deposits |
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| 88. |
What is meant by margin requirement? |
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Answer» The difference between the market value of security offered and the value of amount lent is called a margin requirement. |
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| 89. |
Distinguish between cash reserve ratio and statutory ratio. |
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Answer» Cash reserve ratio refers to the minimum percentage of net demand and time liabilities, to be kept by commercial banks with the central bank. On the other hand, statutory liquidity ratio refers to a minimum percentage of net demand and time liabilities in the form of designated liquid assets which commercial banks are required to maintain with themselves. |
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| 90. |
NABARD was set up in ……………(a) July 1962 (b) July 1972 (c) July 1982 (d) July 1992 |
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Answer» (c) July 1982 |
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| 91. |
what is the meant by a central banks ? Why is the know as the apex body ? |
| Answer» The Central Bank, also known as National Bank or Reserve Bank in some countries, is an apex monetary authority in a country. It regulates the commercial banking system and acts as watchdog and regulator of other banks of a country. A Central Bank of a country acts as a banker and financial adviser to the government. | |
| 92. |
ARDC started functioning from …………(a) June 3, 1963 (b) July 3, 1963 (c) June 1, 1963 (d) July 1, 1963 |
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Answer» (d) July 1, 1963 |
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| 93. |
Moral suasion refers ………(a) Optimization (b) Maximization (c) Persuasion (d) Minimization |
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Answer» (c) Persuasion |
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| 94. |
Repo Rate means …………(a) Rate at which the Commercial Banks are willing to lend to RBI (b) Rate at which the RBI is willing to lend to commercial banks (c) Exchange rate of the foreign bank (d) Growth rate of the economy |
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Answer» (b) Rate at which the RBI is willing to lend to commercial banks |
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| 95. |
If the bank paid Charan interest at `9%` per annum, then find the interest he would have received on closing his account if he is having 27,000Rs as sum.(in Rs.)A. 202.5B. 216C. 229.5D. 243 |
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Answer» Correct Answer - A Interest receiced by him (in Rs.) `=9/100 (27,000)((1)/(12))=(2430)/(12)=202.50.` |
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| 96. |
Charan opened a cumulative time deposit account with a bank. For `1(1)/(2)` years, he deposited Rs. 800 per month. He received in interest of Rs. 1140. find the rate of interest . (in `%` per annum)A. 10B. 9C. 8D. 12 |
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Answer» Correct Answer - A Let the rate of interest be `R%` per annum time period `=1(1)/(2)years=18` months. Interest received by him (in Rs.) =800 `((18)(19))/(2)((1)/(12))((R)/(100))=R[(8)((9xx19)/(12))]=R((72xx19)/(12))=114implies114R=1140` (given) R = 10. |
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| 97. |
Under a recurring deposit, a depositor is paid a lump sum payment after the period for which the deposit is made. This lump sum payment is called `"_______"` value. |
| Answer» Correct Answer - Maturity | |
| 98. |
(a) Manu opened a savings bank account in the state bank of India on 3rd sept, 12 with Rs. 2,700. He withdrew Rs. 1,200 from the bank on 8th sept, 12 and deposited Rs. 500 on 17th sept, 12. If he did not make any further deposits or withdrawals during this month; find the amount on which he would receive interest for sept, 12.(b) Geeta opened a savings bank account in a bank on 7th Nov., 08 and deposited Rs. 750. She withdrew Rs. 200 on 30th Nov., 08. If no other withdrawal or deposit was made by her during this month; find the amount on which she would receive interest for the month of Nov., 08. |
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Answer» a) Balance on 3rd Sept. = Rs. 2,700 Balance on 8th Sept. = Rs. 2,700 – Rs. 1,200 = Rs. 1,500 Balance on 17th Sept. = Rs. 1,500 + Rs. 500 = Rs. 2,000 Then minimum balance for the month of sept = Rs. 1,500 Ans b) Balance on 7th Nov. = Rs. 750 Balance on 30th Nov. = Rs750 – Rs. 200 = Rs. 550 Then minimum balance for the month of Nov. = Rs. 550 Ans. |
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| 99. |
Bring out the methods of credit control? |
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Answer» Methods of Credit Control: I. Quantitative or General Methods: 1. Bank Rate Policy: The bank rate is the rate at which the Central Bank of a country is prepared to re – discount the first class securities. 2. Open Market Operations: 1. In narrow sense, the Central Bank starts the purchase and sale of Government securities in the money market. 2. In Broad Sense, the Central Bank purchases and sells not only Government securities but also other proper eligible securities like bills and securities of private concerns. 3. Variable Reserve Ratio: (I) Cash Reserves Ratio: 1. Under this system the Central Bank controls credit by changing the Cash Reserves Ratio. 2. For example, if the Commercial Banks have excessive cash reserves on the basis of which they are creating too much of credit,this will be harmful for the larger interest of the economy. 3. So it will raise the cash reserve ratio which the Commercial Banks are required to maintain with the Central Bank. (II) Statutory Liquidity Ratio: 1. Statutory Liquidity Ratio (SLR) is the amount which a bank has to maintain securities. 2. The quantum is specified as some percentage of the total demand and time liabilities (i.e the abilities of the bank which are payable on demand anytime, and those liabilities which are accruing in one month’s time due to maturity) of a bank. |
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| 100. |
The frequent methods of credit control under Selective method is called …………. (a) Rationing of credit (b) Direct Action of Industries (c) Method of publicity (d) Moral persuasion |
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Answer» (b) Direct Action of Industries |
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