CBSE Class 12 Economics Money and Banking Revision Notes

Money :-

Money occupies a unique position in modern economy. In its absence the whole prosperous economic life would collapse like a pack of cards.

Barter system of exchange :-

Barter system of exchange is the system in which commodities are exchanged for commodities. This is also called commodity for commodity exchange economy.

Difficulties of Barter System of Exchange :-

1. It lacks double coincidence of wants.
2. It lacks a common unit of exchange.
3. It lacks the system of future payments or deferred payments.
4. It lacks the system of store of value.

Definition of Money :-

Legal Definition :- Money is anything declared by law as money Functional Definition :- Money is anything that acts as a medium of exchange, measure of value, store of value and standard for deferred payments.

Classification of Money :- It is classified on the basis of value of money as money and value of money as commodity as following :-

1. Full bodied money.
2. Representative full bodied money.
3. Credit money.

Functions of Money :-

‘ Money is matter of functions four, a medium, A measure, A standard and a store, as this does not complete the picture, we may add transferability more’ Functions of money are classified into following three categories:-

1)   Primary or main function.

2)   Secondary or subsidiary functions.

3)   Contingent functions.

1)  Primary or main functions:-

1. Medium of exchange:- It means that money acts as an intermediary  for the goods and services in an exchange transaction.
2. Measure of value or unit of value:- Money serves as a measure of value in terms of unit of account. Unit of account means that the value of each good or service is measured in the monetary unit.

2)  Secondary or subsidiary functions:-

     A. Standard of deferred payments:- Money is functioning as  deferred    

         Payments  because its price remains relatively stable.

1. Store of value:- It is convenient to store value in terms of money because storage of money does not need much spaceIndian Monetary System:- It is based on paper currency standard. Currency is issued in India by RBI based on minimum reserve system. Currency issued in India is inconvertible. The issuing authority will not convert it into bullion – gold or silver.

Money Supply:- The supply of money means the total stock of all the forms of money       (Paper money, Coins and Bank deposits). Which are held by the public at any particular point of time. In India RBI uses four alternative measures of money supply called as M₁, M₂, M₃, M₄.

BANKING

Commercial Banks :- Banking is defined as the accepting for the purpose of landing or investment of deposits money from the public, repayable on demand or otherwise.

Functions of commercial Banks:-

i) Primary functions

A) Acceptance of deposits :- The bank accepts three types of deposits from the public 1) Current account deposits 2) Fixed/term deposit 3) Saving account deposits.

B) Advancing Loans :- The different types of loans and advances made by banks are as follows – cash credit, demand loans, and short term loans and over draft.

C) Credit Creation :- Banks create credit by giving more loan than their cash reserves.

ii) Secondary function:-

A)    Agency functions :-

1)     Transfer of funds

2)     Collection of funds

3)     Purchase and sale of securities.

4)     Collection of dividends

5)     Payment of bills & insurance

6)     Acting as executors and trustees of wills.

7)     Acceptance of income tax payment

8)     Acting as correspondent and agent of customers.

B)    General utility services:-

1)     Locker facilities

2)     Travellers cheque and letters of credit

3)     Business information and statistics

4)     Help in transportation of goods

i)  Social functions :- 1) Capital formation

                                  2) Inducement to innovations

                                  3)  Development of rural sector

                                  4) Increasing market demand  

                                  5) Implementation of monetary policy.

Central Bank :- The central bank is the apex institution of a country’s monetary system. The design and control of the country’s monetary policy is its main responsibility.India’s central bank is the Reserve Bank ofIndia.

Functions of Central Bank :-

1) Currency Authority :- The central Bank is the sole authority for the issue of currency in the country. All the currency issued by the central bank is its monetary liability. This means that the central bank is obliged to back the currency with assets of equal value.

2) Banker to the government :- The central bank acts as a banker to the government both central as well as state governments. It carries out all the banking business of the government and the government keeps its cash balances on current account with the central bank.

3) Bankers Bank and supervisor :- As the banker to banks , the Central Bank holds a part of the cash reserves of banks, lends them short term funds and provides them with centralized clearing and remittance facilities.

4) Controller of Money Supply and Credit :- The Central Bank controls the money supply and credit in the best interests of the economy by various instruments as quantitative and qualitative instruments.

I) Quantitative Instrument :- A. Bank Rate Policy:- The bank rate is the rate at which the Central Bank lends funds as a lender of last resort to banks against approved securities or eligible bills of exchange.

B. Open Market Operations:- Open market operations is the buying and selling of government securities by the central bank from/to the public and banks on its own account. The sale of government securities to banks will have the effect of reducing their reserves.

C. Varying Reserve Requirements :- Banks are obliged to maintain reserves with the central bank on two accounts. One is the cash reserve ratio and the other is Statutory Liquidity Ratio. Varing CRR and SLR are tools of monetary and credit control.

 II) qualitative Credit Control :- A) Imposing margin requirement on secured loans:- A margin is the difference between the amount of the loan and market value of the security offered by the borrower against the loan. The advantages of this instrument are manifold.

B) Moral Suasion :- This is a combination of persuasion and pressure that the Central Bank applies on the other banks in order to get them to fall in line with its policy.

C) Selective credit controls :- These can be applied in both a positive as well as a negative manner.

Question. ________ are financial markets for the buying and selling of long-term debt or equity-backed securities.
A. Bullion Market
B. Capital Market
C. Money Market
D. All of the Above
E. None of the Above

Answer : B. Capital Market
Explanation: Capital market is a market where buyers and sellers engage in trade of financial securities like bonds, stocks, etc

Question. A market established for the buying and selling of precious metals such as Gold and Silver is termed as ________
A. Bullion Market
B. Capital Market
C. Money Market
D. All of the Above
E. None of the Above

Answer : A. Bullion Market
Explanation: A market established for the buying and selling of precious metals such as Gold and Silver is termed as Bullion Market.

Question. Which of the following is a currency established as money by government regulation or law but it is not backed by any commodity, such as gold, silver etc., but only by the faith of the bearer?
A. Commodity Money
B. Representative Money
C. Fiat Money
D. fiduciary currency
E. None of the Above

Answer : C. Fiat Money
Explanation: Fiat money is currency that a government has declared to be legal tender, but it is not backed by a physical commodity.

Question. Which of the following is a form of money that has an intrinsic value, like gold coins?
A. Commodity Money
B. Representative Money
C. Fiat Money
D. fiduciary currency
E. None of the Above

Answer : A. Commodity Money
Explanation: Commodity Money is a form of currency in which the value of the currency comes from the material of which it is made.

Question. Paper Money issued on the credit of a bank or government is called ______
A. Commodity Money
B. Representative Money
C. Fiat Money
D. Fiduciary currency
E. None of the Above

Answer : D. Fiduciary currency
Explanation: Fiduciary Money that depends for its value on confidence that it is an accepted medium of exchange. It originated as a paper certificate that was a promise to pay a certain amount of gold or silver to the bearer.

Question. Which of the following does not guarantee the repayment of deposits accepted by NBFCs?
A. RBI
B. GOI
C. SEBI
D. NABARD
E. None of the Above

Answer : A. RBI
Explanation: RBI does not guarantee the repayment of deposits accepted by NBFCs.

Question. Any type of money that has face value greater than its value as material substance is known as _______
A. Commodity Money
B. Representative Money
C. Fiat Money
D. fiduciary currency
E. None of the Above

Answer : B. Representative Money
Explanation: A claim on a commodity, for example gold certificates or silver certificates. Any type of money that has face value greater than its value as material substance is called
Representative Money.

Question. NABARD was established on the recommendations of the ______________
A. Public Accounts Committee
B. Shivaraman Committee
C. Narasimham Committee
D. All of the Above
E. None of the Above

Answer : B. Shivaraman Committee
Explanation: NABARD was established on the recommendations of Shivaraman Committee, (by Act 61, 1981 of Parliament) on 12 July 1982 to implement the National Bank for Agriculture and Rural Development Act 1981.

Question. RBI sold its stake in NABARD to the Government of India, which now holds _____ stake
A. 65%
B. 70%
C. 95%
D. 99%
E. None of the Above

Answer : D. 99%
Explanation: RBI sold its stake in NABARD to the Government of India, which now holds 99% stake.

Question. ________ is a temporary pass through account held by a third party during the process of a transaction between two parties.
A. Savings Bank Account
B. Current Account
C. Deposit Account
D. Escrow Account
E. None of the Above

Answer : D. Escrow Account
Explanation: Escrow Account: Account in which funds are accumulated for specific disbursements.It is a temporary pass through account held by a third party during the process of a transaction between two parties.

Question. Which of the following can become ACCs?
A. Scheduled Banks
B. Insurance Majors
C. Post Offices
D. Both (A) and (B)
E. Both (A) and (C)

Answer : E. Both (A) and (C)
Explanation: Scheduled Banks and Post Offices can become ACCs.

Question. Which of the following is not available to depositors of NBFCs?
A. Deposit Insurance facility
B. Acquisition of shares
C. Loans and Advances
D. All of the Above
E. None of the Above

Answer : A. Deposit Insurance facility
Explanation: Deposit insurance facility of Deposit Insurance and Credit Guarantee Corporation is not available to depositors of NBFCs, unlike in case of banks.

Question. NBFCs include ______
A. loan company
B. investment company
C. asset finance company
D. All of the Above
E. None of the Above

Answer : D. All of the Above
Explanation: NBFCs include a loan company, an investment company, asset finance company (i.e. a company conducting the business of equipment leasing or hire purchase finance) and Residuary Non-Banking Companies.

Question. Infrastructure Finance Company (IFC) is a non-banking finance company has a minimum Net Owned Funds of _______
A. Rs.100 Crore
B. Rs.200 Crore
C. Rs.500 Crore
D. Rs.300 Crore
E. None of the Above

Answer : D. Rs.300 Crore
Explanation: Infrastructure Finance Company (IFC) is a non-banking finance company has a minimum Net Owned Funds of Rs.300 Crore.

Question. QSAM service can be availed by dialling ________
A. *999#
B. *99*99#
C. *99#
D. 1*99#
E. None of the Above

Answer : B. *99*99#
Explanation: This service can be availed by dialling *99*99#. User will know whether his/her AADHAAR number is seeded/linked to any bank account number or not. If yes, then with which bank and when it was last updated.

Question. How many digits are there in Mobile Money Identifier(MMID)?
A. 7 digits
B. 9 digits
C. 10 digits
D. 11 digits
E. None of the Above

Answer : A. 7 digits
Explanation: Mobile Money Identifier is a 7 digit number, issued by banks. MMID is one of the input which when clubbed with mobile number facilitates fund transfer. Combination of Mobile no. & MMID is uniquely linked with an Account number and helps in identifying the beneficiary details. Different MMID‘s can be linked to same Mobile Number.

Question. NBFCs whose asset size is of _____ or more as per last audited balance sheet are considered as systemically important NBFCs.
A. Rs.100 Crore
B. Rs.200 Crore
C. Rs.500 Crore
D. All of the Above
E. None of the Above

Answer : C. Rs.500 Crore
Explanation: NBFCs whose asset size is of Rs.500 Crore or more as per last audited balance sheet are considered as systemically important NBFCs.

Question. RNBC stands for _______
A. Residuary Non Banking Companies
B. Reserve Non Banking Companies
C. Reserve New Banking Companies
D. Residuary New Banking Companies
E. None of the Above

Answer : A. Residuary Non Banking Companies
Explanation: RNBC – Residuary non banking companies. Residuary Non-Banking Company is a class of NBFC which is a company and has as its principal business the receiving of deposits,under any scheme or arrangement or in any other manner and not being investment, asset financing, loan company.

Question. IFC is a non-banking finance company with Capital to Risk (Weighted) Assets Ratio (CRAR) of _____
A. 15%
B. 20%
C. 25%
D. 30%
E. None of the Above

Answer : A. 15%
Explanation: IFC is a non-banking finance company with Capital to Risk (Weighted) Assets Ratio (CRAR) of 15%.

Question. A fund that tracks an index but can be traded like a stock is known as _______
A. Exchange Traded Funds(ETF)
B. Mutual Funds
C. Energy Funds
D. Investment Fund
E. None of the Above

Answer : A. Exchange Traded Funds(ETF)
Explanation: An ETF(Exchange Traded Fund) is a marketable security that tracks an index, a commodity, bonds, or a basket of assets like an index fund. Unlike mutual funds, an ETF trades like a common stock on a stock exchange.

Question. Which of the following is the mode of settlement of securities wherein the transfer of securities and funds happen simultaneously?
A. Delivery versus Payment (DvP)
B. Duration
C. Convexity
D. All of the Above
E. None of the Above

Answer : A. Delivery versus Payment (DvP)
Explanation: Delivery versus Payment (DvP) is the mode of settlement of securities wherein the transfer of securities and funds happen simultaneously. This ensures that unless the funds are paid, the securities are not delivered and vice versa. DvP settlement eliminates the settlement risk in transactions.

Question. _______ is a Chinese renminbi-denominated bond issued by a non-China entity in the People‟s Republic of China market
A. Yankee bond
B. Dim sum bond
C. Kangaroo bond
D. Husao bond
E. Panda bond

Answer : E. Panda bond
Explanation: A Panda bond is a Chinese renminbi-denominated bond from a non-Chinese issuer, sold in the People‘s Republic of China.

Question. An EEFC account can be held only in the form of a ________
A. Current Account
B. Savings Bank Account
C. loan Account
D. All of the Above
E. None of the Above

Answer : A. Current Account
Explanation: An EEFC(Exchange Earners‘ Foreign Currency Account) account can be held only in the form of a current account. No interest is payable on EEFC accounts.

Question. To become BBPOUs, Banks and non-bank entities are mandatorily required to apply for approval / authorisation to Reserve Bank of India under ________
A. Payment and Settlement Systems (PSS) Act 2007.
B. Foreign Exchange Management Act, 1999
C. Banking Regulation Act, 1949
D. SARFAESI Act, 2002
E. None of the Above

Answer : A. Payment and Settlement Systems (PSS) Act 2007.
Explanation: To become BBPOUs, Banks and non-bank entities are mandatorily required to apply for approval / authorisation to Reserve Bank of India under Payment and Settlement Systems (PSS) Act 2007. Bharat Bill Payment Operating Units (BBPOUs) will be the authorised operational units.

Question. In Which of the following countries “Shogun bond” is issued?
A. USA
B. Japan
C. China
D. Canada
E. Korea

Answer : B. Japan
Explanation: A type of foreign-currency denominated bond that is issued in Japan by foreign entities.

Question. The monetary ceiling of amount for settlement through Lok Adalat is _________
A. 5 lakh
B. 10 lakh
C. 15 lakh
D. 20 lakh
E. None of the Above

Answer : D. 20 lakh
Explanation: The monetary ceiling of amount for settlement through Lok Adalat is INR 20 Lakh

Question. Reserve Bank of India has made it mandatory on the banks to discontinue the practice of stapling the currency note packets under _______ of the Banking Regulation Act, 1949
A. Section 35A
B. Section 25A
C. Section 15A
D. Section 30A
E. None of the Above

Answer : A. Section 35A
Explanation: The Reserve Bank of India has made it mandatory on the banks to discontinue the practice of stapling the currency note packets. It has issued a directive to banks under Section 35A of the Banking Regulation Act, 1949.

Question. “Islamic Banking” the term used for _______
A. Covering Banking to Islamic nation
B. prohibition of the collection and payment of interest
C. Sharing of Profit and loss
D. Both (A) and (B)
E. Both (B) and (C)

Answer : E. Both (B) and (C)
Explanation: Two basic principles behind Islamic banking are the sharing of profit and loss and, significantly, the prohibition of the collection and payment of interest by lenders and investors. Collecting interest is not permitted under Islamic law.

Question. Government of India closed ______ and established National Company Law
Tribunal and National Company Law Appellate Tribunal.
A. IIFCL
B. BIFR
C. SICA
D. Both (A) and (C)
E. None of the Above

Answer : B. BIFR
Explanation: The Sick Industrial Companies (Special Provisions) Repeal Act, 2003 replaced SICA and sought to dissolve the BIFR and the Appellate Authority for Industrial and Financial Reconstruction (AAIFR), replacing them by the NCLT and NCLAT. The Board for Industrial and Financial Reconstruction(BIFR), an agency of GOI was established under
The Sick Industrial Companies (Special Provisions) Act, 1985 (SICA).

Question. RBI can inspect the branches of Banks under _______ of the Banking Regulation Act, 1949
A. Section 35
B. Section 25
C. Section 15
D. Section 30
E. None of the Above

Answer : A. Section 35
Explanation: RBI can inspect the branches of Banks under section 35 of the Banking Regulation Act, 1949

Question. Which allows banks and other financial institution to auction residential or commercial properties to recover loans?
A. Industrial Disputes Act 1947
B. Foreign Exchange Management Act, 1999
C. Banking Regulation Act, 1949
D. SARFAESI Act, 2002
E. None of the Above

Answer : D. SARFAESI Act, 2002
Explanation: The Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (also known as the SARFAESI Act) is an Indian law. It allows banks and other financial institution to auction residential or commercial properties to recover loans.

Question. _______ is an integrated bill payment system which will offer inter operable bill payment service to customers online as well as through a network of agents on the ground.
A. BBPS
B. IMPS
C. AEPS
D. APBS
E. None of the Above

Answer : A. BBPS
Explanation: The Bharat Bill Payment System (BBPS) is a RBI mandated system which will offer integrated and interoperable bill payment services to customers across geographies with certainty, reliability and safety of transactions.

Question. Which of the following will function as the Bharat Bill Payment Central Unit (BBPCU), single authorized entity operating the BBPS?
A. RBI
B. NPCI
C. GOI
D. All of the Above
E. None of the Above

Answer : B. NPCI
Explanation: National Payments Corporation of India (NPCI) will function as the authorized Bharat Bill Payment Central Unit (BBPCU), which will be responsible for setting business standards, rules and procedures for technical and business requirements for all the participants. NPCI, as the BBPCU, will also undertake clearing and settlement activities related to transactions routed through BBPS.

Question. In which of the following mode, BBPOU will confirm the bill payment basis the bill information dump provided by the respective biller?
A. Online Mode
B. Offline Mode (A)
C. Offline Mode (B)
D. All of the Above
E. None of the Above

Answer : B. Offline Mode (A).
Explanation: In Offline Mode (A) BBPOU will confirm the bill payment basis the bill information dump provided by the respective biller.

Question. Which of the following is the clearing agency for Government securities?
A. RBI
B. GOI
C. CCIL
D. SEBI
E. None of the Above

Answer : C. CCIL
Explanation: The CCIL is the clearing agency for Government securities. It acts as a Central Counter Party (CCP) for all transactions in Government securities by interposing itself between two counter parties.

Question. _______ is used for electronic dealing and reporting of transactions in government securities
A. Delivery versus Payment (DvP)
B. Negotiated Dealing System (NDS)
C. Risk Mitigation
D. All of the Above
E. None of the Above

Answer : B. Negotiated Dealing System (NDS)
Explanation: The Negotiated Dealing System (NDS) for electronic dealing and reporting of transactions in government securities was introduced in February 2002.It facilitates the members to submit electronically, bids or applications for primary issuance of Government Securities when auctions are conducted.

Question. In which of the following mode, the BBPOU receives all the bill payment requests for that particular biller without any validation?
A. Online Mode
B. Offline Mode (A)
C. Offline Mode (B)
D. All of the Above
E. None of the Above

Answer : C. Offline Mode (B)
Explanation: In Offline Mode (B) receives all the bill payment requests for that particular biller without any validation.

Question. In which of the following conversion the investors enjoy the same status as ordinary shareholders of the company?
A. Secured Debentures
B. Partly Convertible Debentures (PCD)
C. Fully convertible Debentures (FCD)
D. Optionally Convertible Debentures (OCD)
E. Unsecured Debentures

Answer : C. Fully convertible Debentures (FCD)
Explanation: These are fully convertible into Equity shares at the issuer‘s notice. The ratio of conversion is decided by the issuer. Upon conversion the investors enjoy the same status as ordinary shareholders of the company.

Question. Under ______ debentures, if the issuer fails on payment of either the principal or interest amount, his assets can be sold to repay the liability to the investors
A. Secured Debentures
B. Partly Convertible Debentures (PCD)
C. Fully convertible Debentures (FCD)
D. Optionally Convertible Debentures (OCD)
E. Unsecured Debentures

Answer : A. Secured Debentures
Explanation: These instruments are secured by a charge on the fixed assets of the issuer company. So if the issuer fails on payment of either the principal or interest amount, his assets can be sold to repay the liability to the investors.

Question. As per the Reserve Bank of India, BBPS will initially accept utility bill payments such as _________
A. Telephone Bill
B. Electricity Bill
C. DTH services
D. All of the Above
E. None of the Above

Answer : D. All of the Above
Explanation: As per the Reserve Bank of India, BBPS will initially accept utility bill payments such as electricity, water, gas, telephone and direct-to-home services and will later include other repetitive payments including school and university fees and municipal taxes.

Question. ________ have been awarded the license by the Central Bank to operate Bharat Bill Payment System (BBPS) recently.
A. Common Service Centres (CSC)
B. Financial Institutions
C. Only (A)
D. Both (A) and (B)
E. None of the Above

Answer : A. Common Service Centres (CSC)
Explanation: over 1.5 Lakh common service centres (CSC) or Digital Seva Kendres have been awarded the license by the Central Bank to operate Bharat Bill Payment System (BBPS).

Question. A trad-able form of loan is normally termed as ________
A. Certificate of Deposit (CD)
B. Inter Bank term Money
C. Bill Re-discounting
D. Debt Instrument
E. None of the Above

Answer : D. Debt Instrument
Explanation: A trad-able form of loan is normally termed as a Debt Instrument. They are usually obligations of issuer of such instrument as regards certain future cash flow representing Interest & Principal, which the issuer would pay to the legal owner of the Instrument.

Question. Which of the following is not a type of Debt Instrument?
A. Issuer class
B. Security
C. Coupon bearing
D. All of the Above
E. None of the Above

Answer : E. None of the Above
Explanation: Debt Instruments are of various types.The distinguishing factors of the Debt Instruments are as follows:
Issuer class
Coupon bearing / Discounted
Interest Terms
Repayment Terms
Security / Collateral / Guarantee

Question. Debentures are divided into different categories on the basis of which of the following?
A. Convertibility
B. Security
C. Term
D. Both (A) and (B)
E. None of the Above

Answer : D. Both (A) and (B)
Explanation: Debentures are divided into different categories on the basis of: convertibility of the instrument and Security.
Debentures can be classified on the basis of convertibility into:
Non Convertible Debentures (NCD)
Partly Convertible Debentures (PCD)
Fully convertible Debentures (FCD)
Optionally Convertible Debentures (OCD)
Debentures can be classified on the basis of security into:
Secured Debentures
Unsecured Debentures

Question. Which of the following instruments retain the debt character and can not be converted in to equity shares?
A. Non Convertible Debentures (NCD)
B. Partly Convertible Debentures (PCD)
C. Fully convertible Debentures (FCD)
D. Optionally Convertible Debentures (OCD)
E. None of the Above

Answer : A. Non Convertible Debentures (NCD)
Explanation: Non Convertible Debentures instruments retain the debt character and can not be converted in to equity shares.

Question. In which of the following instruments the investor has the option to either convert these debentures into shares at price decided by the issuer/agreed upon at the time of issue.
A. Non Convertible Debentures (NCD)
B. Partly Convertible Debentures (PCD)
C. Fully convertible Debentures (FCD)
D. Optionally Convertible Debentures (OCD)
E. None of the Above

Answer : D. Optionally Convertible Debentures (OCD)
Explanation: The investor has the option to either convert these debentures into shares at price decided by the issuer/agreed upon at the time of issue.

Question. A part of debt instruments that are converted into Equity shares in the future at notice of the issuer is called _________
A. Secured Debentures
B. Partly Convertible Debentures (PCD)
C. Fully convertible Debentures (FCD)
D. Optionally Convertible Debentures (OCD)
E. Unsecured Debentures

Answer : B. Partly Convertible Debentures (PCD)
Explanation: A part of these instruments are converted into Equity shares in the future at notice of the issuer. The issuer decides the ratio for conversion. This is normally decided at the time of subscription.

Question. Who among the following appoints the “Authorized Dealers” for foreign exchange transactions?
A. GOI
B. RBI
C. PSBs
D. FEDAI
E. FIMMDA

Answer : D. FEDAI
Explanation: Foreign Exchange Dealer‘s Association of India (FEDAI) was set up in 1958 as an Association of banks dealing in foreign exchange in India (typically called Authorised Dealers – ADs) as a self regulatory body and is incorporated under Section 25 of The Companies Act, 1956. It‘s major activities include framing of rules governing the conduct of inter-bank foreign exchange business among banks vis-à-vis public and liaison with RBI for reforms and development of forex market.

Question. Which of the following is an Association of Commercial Banks, Financial Institutions and Primary Dealers?
A. GOI
B. RBI
C. PSBs
D. FEDAI
E. FIMMDA

Answer : E. FIMMDA
Explanation: FIMMDA stands for The Fixed Income Money Market and Derivatives Association of India (FIMMDA). It is an Association of Commercial Banks, Financial Institutions and Primary Dealers. FIMMDA is a voluntary market body for the bond, Money And Derivatives Markets.

Question. Banking services provided to Special Economic Zones(SEZ) units have been exempted from _________
A. Sales Tax
B. Securities Transaction Tax – STT.
C. Central Excise Duty
D. Service Tax
E. None of the Above

Answer : D. Service Tax
Explanation: Banking services offered to units set up in special economic zones have been exempted from paying service tax.

Question. The first Indian RRB that has achieved Core Banking Solution(CBS) is ________
A. Rushikulya Gramya Bank (RGB)
B. Pallavan Bank
C. Bangiya Gramin Vikash Bank
D. Allahabad UP Gramin Bank
E. None of the Above

Answer : A. Rushikulya Gramya Bank (RGB)
Explanation: The Rushikulya Gramya Bank (RGB), a regional rural bank (RRB) operating in south Orissa, has become the first RRB in the state to have placed all its branches on the Core Banking Solutions (CBS) platform.

Question. The relationship between maturity and interest rates is known as ________
A. Yield Curve
B. Zero Coupon Yield Curve
C. Negative Yield Curve
D. Neutral Yield Curve
E. None of the Above

Answer : B. Zero Coupon Yield Curve
Explanation: The Zero Coupon Yield Curve aka the Spot Curve is a relationship between maturity and interest rates which differs from a normal yield curve

Question. An Indian rupee denominated bond issued outside India is called ________
A. Yankee bond
B. Bulldog bond
C. Uridashi bond
D. Samurai bond
E. Masala bond

Answer : E. Masala bond
Explanation: Masala bonds an Indian rupee denominated bond issued outside India.

Question. A Japanese yen-denominated bond issued by a non-Japanese entity in the Japanese market is known as _______
A. Yankee bond
B. Bulldog bond
C. Uridashi bond
D. Samurai bond
E. Maple bond

Answer : D. Samurai bond
Explanation: Samurai bond, a Japanese yen-denominated bond issued by a non-Japanese entity in the Japanese market.

Question. The relationship between time and yield on a homogenous risk class of securities is called ________
A. Yield Curve
B. Zero Coupon Yield Curve
C. Spot Curve
D. Both (A) and (B)
E. None of the Above

Answer : A. Yield Curve
Explanation: The relationship between time and yield on a homogeneous risk class of securities is called the Yield Curve.

Question. Long-term debt securities issued by the GOI or any of the State Government‟s or undertakings owned by them or by development financial institutions are called as ________
A. Shares
B. Debentures
C. Bonds
D. Both (A) and (C)
E. None of the Above

Answer : C. Bonds
Explanation: Long-term debt securities issued by the Government of India or any of the State Government‘s or undertakings owned by them or by development financial institutions are called as bonds.

Question. Which of the following is not a type of Billers?
A. Online Mode
B. Offline Mode (A)
C. Offline Mode (B)
D. All of the Above
E. None of the Above

Answer : D. All of the Above
Explanation:
Type of Billers:
Online Mode
Offline Mode (A)
Offline Mode (B)

Question. Which of the following will be the authorised operational units?
A. BBPCU
B. BBPOU
C. Biller
D. All of the Above
E. None of the Above

Answer : B. BBPOU
Explanation: Bharat Bill Payment Operating Units (BBPOUs) will be the authorised operational units.

Question. A long-term security yielding a fixed rate of interest, issued by a company is called________
A. Shares
B. Debentures
C. Bonds
D. Both (A) and (C)
E. None of the Above

Answer : B. Debentures
Explanation: A debenture is a type of debt instrument that is not secured by physical assets or collateral. Instruments issued by companies are called debentures. The difference between the two is actually a function of where they are registered and pay stamp duty and how they trade.

Question. Issuance of stamp duty on bonds is under ________
A. The Companies Act, 1956
B. The Public Debt Act 1944.
C. Indian Stamp Act 1899 (Central Act)
D. Reserve Bank of India Act, 1934
E. Both (A) and (C)

Answer : C. Indian Stamp Act 1899 (Central Act)
Explanation: Issuance of stamp duty on bonds is under Indian Stamp Act 1899 (Central Act). A bond is transferable by endorsement and delivery without payment of any transfer stamp duty.

Question. Which of the following is subject to payment of Stamp Duty under Indian Stamp Act, 1899 (Central Act)?
A. Commercial Paper
B. Treasury Bills
C. Certificate of Deposit
D. Both (A) and (C)
E. None of the Above

Answer : C. Certificate of Deposit
Explanation: CD is subject to payment of Stamp Duty under Indian Stamp Act, 1899 (Central Act).

Question. Which of the following is/are not eligible to issue Certificates of deposit(CD)?
A. RRBs
B. Co-operative banks
C. Scheduled banks
D. Both (A) and (B)
E. None of the Above

Answer : D. Both (A) and (B)
Explanation: All scheduled banks (except RRBs and Co-operative banks) are eligible to issue CDs

Question. “Maple bond” issued by which of the following countries?
A. USA
B. Japan
C. China
D. Canada
E. Korea

Answer : D. Canada
Explanation: Maple bond, a Canadian dollar-denominated bond issued by a non-Canadian entity in the Canadian market.

Question. A foreign currency denominated bond issued by foreign company in Singapore is known as ______
A. Yankee bond
B. Bulldog bond
C. Uridashi bond
D. Husao bond
E. Lion City bond

Answer : E. Lion City bond
Explanation: Lion City bond foreign currency denominated bond issued by foreign company in Singapore.

Question. A non-yen-denominated bond sold to Japanese retail investors is called _________
A. Yankee bond
B. Bulldog bond
C. Uridashi bond
D. Husao bond
E. Lion City bond

Answer : C. Uridashi bond
Explanation: Uridashi bond, a non-yen-denominated bond sold to Japanese retail investors.

Question. _______ is an Australian dollar-denominated bond issued by a non-Australian entity in the Australian market.
A. Yankee bond
B. Bulldog bond
C. Kangaroo bond
D. Husao bond
E. Panda bond

Answer : C. Kangaroo bond
Explanation: Kangaroo bond is an Australian dollar-denominated bond issued by a non-Australian entity in the Australian market.

Question. A Chinese renminbi-denominated bond issued by a Chinese entity in Hong Kong is called ________
A. Yankee bond
B. Dim sum bond
C. Kangaroo bond
D. Husao bond
E. Panda bond

Answer : B. Dim sum bond
Explanation: A Chinese renminbi-denominated bond issued by a Chinese entity in Hong Kong is called Dim sum bond.

Question. “Matryoshka bond” is issued by?
A. USA
B. Japan
C. Russia
D. Canada
E. Korea

Answer : C. Russia
Explanation: A Russian rouble-denominated bond issued in the Russian Federation by non-Russian entities. The name derives from the famous Russian wooden dolls, Matrioshka, popular among foreign visitors to Russia.

Question. Who among the following are institutional investors in the Indian Debt Market?
A. Banks
B. Mutual funds
C. Foreign investors (FIIs)
D. Trusts
E. All of the Above

Answer : E. All of the Above
Explanation: Institutional investors operating in the Indian Debt Market are :
Banks
Insurance companies
Provident funds
Mutual funds
Trusts
Corporate treasuries

Question. Who among the following regulates the Indian Corporate Debt Market?
A. RBI
B. NABARD
C. SIDBI
D. SEBI
E. None of the Above

Answer : D. SEBI
Explanation: Regulator for the Indian Corporate Debt Market is the Securities and Exchange Board of India (SEBI). SEBI controls bond market and corporate debt market in cases where entities raise money from public through public issues.

Very Short Question /Answer

Q1.  Define a Bank

Ans. Bank is an institution which borrows and lends money.

Q2. Write the one main function of bank in an economy.

Ans. One main function of bank in an economy is – Acceptance of  deposits :- The bank accepts three types of deposits from the public  1) Current account deposits 2) Fixed/term deposit 3) Saving account deposits.

Q3.  Define Central Bank. Write the name of Central Bank of India.

Ans. Central Bank designs and controls the monetary policy of the country. The name of Central Bank is Reserve Bank ofIndia.

Q4.  Why are all financial institutions not commercial bank?

Ans. A financial institution becomes a commercial bank only when it performs both the activities of a) Accepting deposits from the people and b) Making loan to the people.

Q5. Which institution is responsible for the monetary policy of the country?

Ans. The Central bank is responsible for the monetary policy of the Country.

Q6.  Write two Social functions of the Commercial bank.

Ans. 1) Capital formation 2) Development of rural sector.

Q7.  Name the institution which issued the currency notes of the country.

Ans. The Central Bank(Reserve Bank of India) issues the currency notes of the country.

Short Question Answer

Q1  Write the main functions of the Commercial Bank.

Ans. The main functions of the Commercial bank are:-

 A) Acceptance of deposits :- The bank accepts three types of  deposits from the public 1) Current account deposits 2) Fixed/term  deposit 3) Saving account deposits.

 B) Advancing Loans :- The different types of loans and advances  made by banks are as follows – cash credit, demand loans, and short  term loans and over draft.

(C)Credit Creation :- Banks create credit by giving more loan than  their cash reserves.

Q2.  Write the functions of Central Bank.

Ans. 1) Currency Authority 2) Banker to the government

        3) Bankers Bank and supervisor

        4) Controller of Money Supply and Credit

Q3.  What is the meaning of Banking?

Ans. Banking is defined as the accepting for the purpose of landing or investment of deposits.

Q4. Write the six agency function of the Commercial Bank.

Ans.

 Agency functions :-

1)  Transfer of funds

2)  Collection of funds

3)  Purchase and sale of securities.

4)  Collection of dividends

5)  Payment of bills & insurance

6)     Acting as executors and trustees of wills.

Q5.  How the Bank rate control the credit?

Ans. Bank rate is the rate of interest at which Central bank lends to Commercial  banks. By raising the bank rate central bank raises the  cost of borrowing. This forces the Commercial banks to raise in turn the rate of interest from the public. As lending rate rises demand for loan for investment and other purposes falls.

Long Question Answer:-

Q1.  Which are the Quantitative instrument to control the money supply and credit in the economy?

Ans.  The Quantitative instrument to control the money supply and credit in the economy are

1) Bank Rate policy – the bank rate is the rate at   which the control bank lends funds as a lender of last resort to banks against approved securities.

 2) Open market operation :- Open market operation is the buying and selling of government securities by the Central Bank from/to the public and bank on its own account.

 3) Varying Reserve Requirements :- Banks are obliged to maintain reserves with the Central bank on two account. One is the cash reserve ratio and the other is  Statutory Liquidity Ratio. Varing  CRR and SLR are tools of monetary and credit control.

Q2. Write the Qualitative instruments to control the credit of the  Central Bank.

Ans. The Qualitative instruments to control the credit of the Central Banks are :-

  A) Imposing margin requirement on secured loans:- A margin is the difference between the amount of the loan and market value of the security offered by the borrower against the loan.

 B) Moral Suasion :- This is a combination of persuasion and pressure that the Central Bank applies on the other banks in order to get them to fall in line with its policy.

C) Selective credit controls :- These can be applied in both a positive as well as a negative manner.

Q3.  Write the two function of each Central Bank and Commercial Bank.

Ans. Function of Central Bank :-      

 1) Currency Authority :- The central Bank is the sole authority for  the issue of currency in the country. All the currency issued by the central bank is its monetary liability. This means that the central bank is obliged to back the currency with assets of equal value.           

2) Banker to the government :- The central bank acts as a banker to  the government both central as well as state governments. It  carries out all the banking business of the government and the government keeps its cash balances on current account with the central bank.

Functions of the Commercial Bank:-

A) Acceptance of deposits :- The bank accepts three types of deposits from the public 1) Current account deposits 2) Fixed/term   deposit 3) Saving account deposits.

 B) Advancing Loans :- The different types of loans and advances made by banks are as follows – cash credit, demand loans, and short term loans and over draft.