Explore topic-wise InterviewSolutions in .

Correct option: (a) IFCI

Correct option: (a) mobilization and allocation

1. Demand

2. Co-operative Banks

3. Credit Creation

4. Banker’s Bank

5. Secondary Level

6. Discount and Finance House of India

1. Saving A/c 

2. Current A/c 

3. Indigenous bankers 

4. Certificates of deposits 

5. Government Securities 

6. Secondary Market 

7. Financial intermediaries 

8. Industrial Securities Market 

9. Capital Market 

10. IEPF

1. Vaghul committee 

2. Quantitative method 

3. Demand deposits 

4. RBI 

5. 1992

(c) Commercial Bill Market

The purchase of one security against the sale of another security carried out by the RBI in the secondary market as part of its open market operations is described as ‘Switching’.

A method of trading whereby merchants bid against one another and where the securities are sold to the highest bidder is known as‘auctioning’.

Current Deposits: 

1. It is a kind of demand deposit which is mostly held by companies, institutions, government and individual for the sake of business transactions. 

2. It is suitable for business firms for the purpose of transactions. 

3. There are no restrictions on withdrawals. 

4. There is no interest paid.

Recurring Deposits:

1. These are deposits under which people pay a specified amount at a regular interval of time for a given period of time. 

2. It is suitable for the salaried, poor and lower middle class who can save a certain amount of money regularly every month.

3. The amount can be withdrawn after a specific period of time. 

4. The interest rate is higher.

Fixed Deposits: 

1. Fixed Deposits are time bound deposits, where money is deposited for a specific period of time. 

2. The main objective is to earn high interest and to get lumpsum amount on maturity.

3. It cannot be withdrawn before maturity but one can close the account before maturity with loss of interest. 

4. The rate of interest is high. It can be 6% to 10% depending upon the period of deposit.

Saving Deposits: 

1. Saving deposits are a kind of demand deposits, which is held by households or individuals for the purpose of savings. 

2. Safety is the major objective of saving accounts. 

3. Withdrawals are allowed subject to certain restrictions. 

4. The saving account earns nominal rate of interest. At present it is about 4 to 4.5% per annum.

Current Deposits: 

1. It is a kind of demand deposit which is usually held by companies, institutions, government and individuals for the sake of business transactions. 

2. There are no restriction on withdrawals. 

3. No interest is paid to current account or deposits. 

4. The main purpose of current account is to facilitate regular transactions.

Fixed Deposits:

1. Fixed deposits are a kind of time deposits which is deposited for a specific period.

2. The amount deposited cannot be withdrawn before maturity period. 

3. The rate of interest paid is high. 

4. The main purpose is to get a lumpsum amount on the maturity of the deposit.

Quantitative Credit Control:

1. This method aims at controlling credit by expanding or contracting the volume of credit in the banking system.

2. The important quantitative measures to control credit are: 

(1) Bank Rate 

(2) Open Market Operation 

(3) Varying Cash Reserve ratio.

3. During inflation quantitative measures adopt the strategy of contracting the volume of credit so as to reduce money supply. During inflation such methods are applied to encourage expansion of credit and expand money supply. 

4. They are macro economic in nature and influence the whole economy.

Qualitative Credit Control:

1. It aims at controlling credit by checking the purpose or use of the credit. 

2. Selective control measures include the following:

(1) Changing the market. 

(2) Regulation of consumer credit 

(3) Issue of directives

(4) Rationing of credit 

(5) Moral suasion.

3. The main strategy of selective credit control measures is to ensure that credit money does not reach undesirable and non – productive channels.

4. They are micro in nature and do not influence the whole economy.

Correct option: (a) quantitative

Correct option: (b) monopoly

Correct option: (c) Money lenders

Central Bank:

1. The central bank is the apex banking institution whose main function is to control, regulate and stabilise the monetary system of the country in the national interest.

2. The main function of central bank is to control, regulate and stabilise the banking and monetary system of the country.

3. It does not deal with public directly. It acts as the banker to government and bankers bank. 

4. It enjoys the monopoly right to print and issue currency notes. 

5. Central Bank controls the credit. 

6. There is only one Central Bank in India. R.B.I. is owned by Government.

Commercial Bank:

1. A commercial bank is a business organisation which basically accepts deposits from public and lends to others who need fund and create credit.

2. The main function commercial bank is to accept deposits and lend loans and advances.

3. It deals with the public directly. They are banker to general public. 

4. Commercial banks do not possess such rights. 

5. Commercial banks create credit. 

6. Owned by private or government. There are several commercial banks like State Bank of India, ICICI Bank, Canara Bank, etc.

Correct option: (b) Central Bank

It is not a single homogeneous market. It comprises of several sub-markets each specialising in a particular type of financing. E.g, Call Money Market, Acceptance Market, Bill Market.

(b) Money market

b) Money market

1. Treasury Bills Market 

2. Inland bills

(c) (i) and (iv)

1. Document of title to time deposit 

2. It is unsecured negotiable instruments 

3. It is freely transferable by endorsement and delivery 

4. It is issued at discount to face value 

5. It is repayable on a fixed date without grace days

Certificate of deposits are subscribed by individuals, corporations, trusts, associations and NRIs. It is a document of title to a time deposit. .

(d) Commercial Banks and Discount Houses

The Commercial Bill is an instrument drawn by a seller of goods on a buyer of goods. A bill of exchange issued by a commercial organization to raise money for short-term needs. These bills are of 30 days, 60 days and 90 days maturity.

(b) Money market

(a) Commercial Bank

1. Issuer 

2. Finance Bills 

3. Liquidity 

4. Vital Source 

5. Monetary Management

1. Short-term Funds: It is a market purely for short-term funds or financial assets called near money. 

2. Maturity Period: It deals with financial assets having a maturity period upto one year only. 

3. Conversion of Cash: It deals with only those assets which can be converted into cash readily without loss and with minimum transaction cost. 

4. No Formal Place: Generally, transactions take place through phone, i.e., oral communication. Relevant documents and written communications can be exchanged subsequently. 

5. Sub-markets: It is not a single homogeneous market. It comprises of several sub-markets each specialising in a particular type of financing.

6. Role of Market: The components of a money market are the Central Bank, Commercial Banks. Commercial banks generally play a dominant role in this market. 

7. Highly Organized Banking System: The Commercial Banks are the nerve centre of the whole money market. They are the principal suppliers of short-term funds. 

8. Existence of Secondary Market: There should be an active secondary market for these instruments. 

9. Demand and Supply of Funds: There should be a large demand and supply of short-term funds. 

10. Wholesale Market: It is a wholesale market and the volume of funds or financial assets traded in the market is very large. 

11. Flexibility: Due to greater flexibility in the regulatory framework, there are constant endeavours for introducing new instruments. 

12. Presence of a Central Bank: The central bank keeps their cash reserves and provides them financial accommodation in difficulties by discounting their eligible securities

(a) Low Profitability

(a) Money market

1. Drawer 

2. Acceptor 

3. Payee 

4. Discounter 

5. Endorser 

6. Assessment 

7. Maturity 

8. Credit Rating

Types:

1. Demand and Usance Bills: A demand bill is one wherein no specific time of payment is mentioned. So, demand bills are payable immediately when they are presented to the drawee.

2. Clean Bills and Documentary Bills: Bills that are accompanied by documents of title to goods are called documentary bills. Clean bills are drawn without accompanying any document. 

3. Inland Bills and Foreign Bills: Bills that are drawn and payable in India on a person who is resident in India are called inland bills. 

4. Indigeneous Bills: The drawing and acceptance of indigenous bills are governed by native custom or usage of trade. 

5. Accommodation and Supply Bills: Accommodation bills are those wrhich do not arise out of genuine trade of transactions.

(a) High Liquidity

(d) All of the above

Acquisition of securities nearing maturity through the stock exchanges by the RBI in order to facilitate redemption is described as ‘grooming’.

The liquidity profile of gilt-edged securities varies. Accordingly liquidity profile of securities issued by Central Government is high.

The drawing and acceptance of indigenous bills are governed by native custom or usage of trade.

It is a wholesale market and the volume of funds or financial assets traded in the market is very large.

The participants in Government securities market include the Government sector comprising Central and State Governments whose holdings represent governmental transfer of resources.

Option : (3) Both (A) and (R) are True and (R) is the correct explanation of (A).

Option : (4) Both (A) and (R) are True and (R) is not the correct explanation of (A)

No, I do not agree with this statement. Money market consist organized as well as unorganized sector in India.

The organized sector of money market consist of the RBI, Commercial Banks Co-operative Banks, Development Financial Institutions (DFIs) and Discount and Finance House of India (DFHI) and the unorganized sector of money market consist of Indigenous Bankers.

Money lenders and Unregulated Non-Bank Financial Intermediaries.

(iv) Both (A) and (R) are true and (R) is the correct explanation

Reforms introduced in the Capital Market are as follows :

• SEBI was established in 1988 and given statutory power in 1992 to protect interest of investors.
• SEBI was established in 1988 and given statutory power in 1992 to protect interest of investors.
• Introduction of Compute rised Screen Based Trading System (SBTS).
• Introduction of Demat A/c in 1996 to facilitate easy purchase and sale of securities.
• Increased access to global funds, Indian companies was permitted through ADRs and GDRs.
• Investors Education and Protection Fund (IEPF) was created in 2001 to promote awareness among investors and protecting the interest of the investors.

Following are the reforms introduced in the Money Market:

• Introduction of New Money Market Instruments : In order to widen and diversify the Indian money market, RBI has introduced many new money market instruments such as 182 Days treasury bills, 364 day treasury bills, CDs and CPs. Through these instruments, the government, commercial banks, financial institutions and corporates can raise funds through the money market.
• Liquidity Adjustment Facility (LAF) : RBI has introduced LAF for adjusting liquidity through repos and reverse repos to stabilise the short-term interest rates or call rates.
• Deregulation of Interest Rates : Ceiling on interest rates on the call money and inter bank short term deposits was removed and the rates were permitted to be determined by the market forces.
• National Electronic Fund Transfer (NEFT) and Real Time Gross Settlement (RTGS) were introduced as an improved payment infrastructure.
• Electronic dealing system was introduced.

Concept: Financial Scams 

Explanation : Financial scams are the frauds and manipulations done by the stock brokers for their personal benefits. Increasing number of financial frauds have resulted in irreparable loss for the capital market.

It also leads to public distrust and loss of confidence among the individual investors.

Concept: Providing loans and advances by Commercial Bank

Explanation : Commercial Bank mobilize savings and lend these funds to institutions and individuals for various purposes. Based on tenures, loans include call loans, short term, medium term and long term loans. Longer the duration of the loans, greater will be the rate of interest.

Beside this bank also provide cash credit, overdraft facility as well as discounting of bills of exchange.

Correct option: (c) rural