Money and Banking quiz

The main drawback of barter exchange is the lack of:

If the LRR is 25%, the money multiplier is:

M1 includes:

Which is the sole authority to issue currency notes in India, except one-rupee notes?

To control inflation, the RBI should:

Repo rate is the rate at which:

Open market operations mean buying and selling of:

Money serving as a common measure of value of all goods is its function as:

An increase in legal reserve ratio will:

Moral suasion is a:

Explain the role of money as a medium of exchange. (2 marks)

What is meant by legal tender money? (2 marks)

Why is the RBI called the banker to the government? (2 marks)

Explain how open market operations influence money supply. (2 marks)

What is meant by margin requirement? How is it used? (2 marks)

Distinguish between M1 and M3. (2 marks)

Why do commercial banks keep only a fraction of deposits as reserves? (2 marks)

How does a reduction in bank rate help in a recession? (2 marks)

What is meant by the lender of last resort? (2 marks)

Why are demand deposits treated as money? (2 marks)

Banks create total deposits of Rs 8,000 crore from an initial deposit of Rs 2,000 crore. Calculate the money multiplier and the legal reserve ratio. (3 marks)

An initial deposit is Rs 500 crore and the LRR is 0.2. Calculate total deposits and total credit created. (3 marks)

Currency held by the public is Rs 25,000 crore, demand deposits Rs 40,000 crore and other deposits with RBI Rs 1,000 crore. Calculate M1. (3 marks)

Currency held by the public is Rs 300 crore and bank reserves are Rs 100 crore. If the total money supply is Rs 1,600 crore, calculate high powered money and the money multiplier. (3 marks)

An initial deposit is Rs 1,000 crore. Calculate the fall in total deposits if the LRR is raised from 10% to 12.5%. (3 marks)

Read the passage and answer the questions. In 2022, with inflation above 7%, the RBI raised the repo rate in steps from 4% to 6.5%. Banks soon increased interest rates on home and car loans. (i) Why did the RBI raise the repo rate? (ii) How does it reduce inflation? (iii) Name one other tool the RBI could use. (5 marks)

Read the passage and answer the questions. A bank receives a deposit of Rs 10 lakh. It keeps 10% as reserves and lends the rest. The borrower deposits the loan in another bank, which does the same. (i) Calculate the money multiplier. (ii) Calculate the total deposits created. (iii) What will be the effect if people hold more cash instead of depositing loans? (5 marks)

Read the passage and answer the questions. During the COVID-19 pandemic, the RBI cut the CRR from 4% to 3% and bought government securities worth thousands of crores. (i) Why were these steps taken? (ii) How does the cut in CRR affect bank lending? (iii) Name the policy of buying securities. (5 marks)

Read the passage and answer the questions. When a cooperative bank faced a run by depositors, the RBI stepped in, restricted withdrawals for a while and arranged funds so that depositors would be protected. (i) Which function of the RBI is shown? (ii) Why is this important? (iii) Name two other functions of the RBI. (5 marks)

Read the passage and answer the questions. In a village, a weaver wants rice, but the rice farmer wants shoes, not cloth. The weaver cannot find a farmer who wants cloth. (i) Identify the problem. (ii) How does money solve it? (iii) State two other difficulties of barter. (5 marks)

Explain the functions of money in detail. (6 marks)

Explain the process of credit creation by commercial banks with a numerical example and flowchart. (6 marks)

Explain the functions of the RBI as a central bank. (6 marks)

Explain the quantitative and qualitative instruments of credit control used by the RBI, with a chart. (6 marks)

Explain the measures of money supply in India (M1 and M3) and the concept of high powered money, with a chart showing the components. (6 marks)