Mock Test – Money and Banking

1. “Reserve Bank of India (RBI) imposes  25 lakh penalty on Axis Bank for violating KYC rules.” —September 1, 2020 A person read this headline and wondered which of the following functions, RBI has performed while doing this?

2. If the reserve ratio is 20%, what will be the amount of total reserves after an initial deposit of  200?

3. The part of LRR kept by the banks themselves is called:

4. Assertion (A): Central bank as a banker to the government, works as a custodian of cash reserves.

Reason (R): The central bank acts as a clearing house for transfer and settlement of mutual claims of commercial banks.

5. The central bank can increase availability of credit by:

6. Suppose money created by the banking system is  1,000 and the primary deposits is  250. The respective values of deposit multiplier and reserve ratio would be __________ and _________.

7. Suppose in an economy, the initial deposits of  400 crores lead to the creation of total deposits worth  4000 crores.

Under the given situation, the value of reserve requirements would be ___________.

8. Number of times the total deposits would be of the initial deposit is determined by __________.

9. The monetary policy generally targets to ensure:

10. Assertion (A): Credit creation is inversely related to legal reserve ratio.

Reason (R): If more money is kept with banks themselves and with RBI, then lending capacity of banks decreases.

11. Which of the following is not the function of the central bank?

12. ____________ is responsible for issuing  1 currency note in India.

13. Which of the following institution(s) performs the activity of credit creation?

14. Money supply in India is:

15. __________ is an institution that accept deposits for lending purpose

16. Read the given image carefully and choose the correct pair from the alternatives given below:

17. Credit cards are excluded from all measures of the quantity of money, because they are not really a method of payment, but a method of deferring payment. When you buy a meal with a credit card, the bank that issued the card pays the restaurant the amount that is due. At a later date, you will have to repay the bank, perhaps with interest. For this, you might use the money in your demand deposits, and that money is included in the economy’s stock of money. Which of the following can happen with an increased use of credit cards in an economy?

18. Mr. Kishan, an economics teacher, was explaining the concept of ‘sometimes commercial banks are in need of funds in emergency and this happens in times when banks suffer the ‘crisis of confidence’ of its depositors’. From the following, choose the correct alternative which specifies the function of central bank explained by him.

19. ‘Money is an asset which can be stored for use in future.’ In the light of given statement, identify the function of money.

20. Read the given image carefully and choose the correct pair from the alternatives given below:

21. Which of the following is correct with reference to Ministry of Finance?

22. ‘Money enables people to save.’ Which function of money is indicated here?

23. Assertion (A): Money supply in India include demand deposits with commercial banks.

Reason (R): Demand deposits with commercial banks means fixed deposits.

24. Money supply is a __________ concept.

25. The ‘lender of last resort’ means:

26. The Reserve Bank of India can increase the money supply in the economy by:

27. The term _________ refers to the act of stripping a currency unit of its status as legal tender.

28. The value of money multiplier is:

29. Assertion (A): The monetary policy is a policy formulated by the central bank.

Reason (R): The policy involves measures taken to regulate the supply of money, availability, and cost of credit in the economy.

30. ________ is the primary function of money.