Challenge Prelims V1.0 – Day 63 – GS Paper (Indian Economy)

1. Which of the following committees was constituted to review the implementation of the FRBM (Fiscal Responsibility and Budget Management) Act and give its recommendations on the way forward?

2. Consider the following statements with reference to the Fiscal Responsibility and Budget Management (FRBM) Act, 2003:

1. The Act binds the present and future governments to adhere to fiscal consolidation.
2. There is no escape clause available to the government within the Act.
3. The Act mandates the government to table fiscal policy statements in each financial year before the Parliament.

How many of the statements given above is/are correct?

3. With reference to the Marginal Standing Facility (MSF) and Statutory Liquidity Ratio (SLR), consider the following statements:

1. MSF refers to the rate at which the scheduled banks can borrow funds overnight from RBI against government securities.
2. SLR is a tool for controlling liquidity in the domestic market via manipulating bank credit.
3. MSF is always fixed above the repo rate.

How many of the statements given above is/are correct?

4. Consider the following statements regarding the Market Stabilisation Scheme (MSS):

1. It aids in liquidity absorption in case of significant capital inflows in the economy.
2. MSS securities are included under the country’s ‘internal Central Government debt’.

Which of the statements given above are correct?

5. Consider the following statements regarding the open market operations done by the Reserve Bank of India (RBI):

1. It refers to buying and selling of the bonds issued by the Government in the open market.
2. Purchase of government securities from the bond market by the RBI, increases the high powered money in the economy.
3. Outright OMO, for managing overnight liquidity mismatches, are conducted without any promise to buy/sell the securities at a later stage.

How many of the statements given above is/are correct?

6. With reference to Reserve Ratio in the banking sector, consider the following statements:

1. It is the percentage of deposits that a bank is mandated to keep with the RBI.
2. Higher reserve ratio tends to lower the credit supply in an economy.
3. Non-Bank Financial Corporations (NBFCs) are outside the purview of this reserve requirement.

How many of the statements given above is/are correct?

7. If the Reserve Bank of India (RBI) increases the bank rate, what effects it could possibly have on the Indian economy?

1. Loan taken by the commercial banks becomes cheaper.
2. It decreases the money supply in the economy.

Select the correct answer using the code given below.

8. Consider the following statements regarding Currency Deposit Ratio (CDR):

1. It is the ratio of money held by the public in currency to that they hold in bank deposits.
2. It reflects people’s preference for liquidity.

Which of the statements given above is/are correct?

9. Consider the following statements regarding banking system liquidity:

1. If the banking system is a net lender to the RBI, the system liquidity can be said to be in surplus.
2. A festival season can create a liquidity deficit in the banking system.
3. A widening liquidity deficit can lead to higher interest rates for depositors.

How many of the statements given above is/are correct?

10. In the context of India, consider the following statements regarding the Financial Stability Report:

1. It is released by the Reserve Bank of India.
2. It is released annually and presents an assessment of the health of the financial system.

Which of the statements given above is/are correct?

11. If the US federal reserve increases the interest rates, what impact could it have on the Indian economy?

1. Depreciation of Indian Rupee
2. More foreign investment in Indian market
3. Imports will be costlier

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12. How many of the following can be regarded as the quantitative tools of the Reserve Bank of India, to control money supply in the economy?

1. Changing the cash reserve ratio
2. Open Market Operations
3. Moral suasion
4. Changing the Bank Rate

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13. With reference to the Monetary Policy Committee (MPC), consider the following statements:

1. The committee was set up with the responsibility for price stability and inflation targeting.
2. Its meetings are chaired by the Finance Minister.
3. The committee is constituted under the Reserve Bank of India Act, 1934.

How many of the statements given above is/are correct?

14. In the context of monetary policy, how many of the following are qualitative tools used by the Reserve Bank of India?

1. Margin requirements
2. Moral suasion
3. Changing the SLR (Statutory Liquidity Ratio)

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15. How many of the following financial institutions in India are required to maintain the Statutory Liquidity Ratio (SLR) norms?

1. Regional Rural Banks
2. Local Area Banks
3. Co-operative Banks
4. Small Finance Banks

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