Class Room Daily Dose Booklet: DDB No: Economics Set 01 Answers and Explanations

MAGME SCHOOL OF BANKING 

Class Room - Daily Dose Booklet
 DDB NO: Economics 01

Answers & Explanations

1. (a) Developmental Expenditure - the expenditure which is incurred on activities directly related to economic development is called developmental expenditure. Expenditure occurred on education, health care, scientific research, infrastructure etc.

Non Developmental Expenditure - Expenditure incurred on general essential services required for normal running of the Govt. is non-developmental expenditure. Expenditure occurred on service relating to general administration, police, judiciary, defense is non-developmental expenditure.

2. (d) Coal mines is not an example of economic overheads. Economic overhead is capital investment into the infrastructure which should encourage new industrial growth and social well being.
The other three School, sanitary facilities and roads and railways are economic overheads.
Overheads are indirect cost which cannot be traced into any specified cost objects.

3. (a) All expenditures that promote economic growth and development are termed as development expenditure. Expenditure on infrastructure development, public enterprises or development of agriculture increase productive capacity in the economy and bring income to the government. Expenditures in the nature of consumption such as Defence, interest payments, expenditure on law and order, public administration, do not create any productive asset which can bring income or returns to the government are non-development expenditure.
Govt. grant is a financial award given by the federal State local Govt. to an eligible grantee.

4. (c)

5. (c) Zero-based budgeting is an approach to planning and decision making which reverses the working process of traditional budgeting. In zero-based budgeting, every line item of the budget must be approved, rather than only changes. During the review process, no reference is made to the previous level of expenditure.
Regarding zero Base Budgeting (ZBB) existing government programme can be discarded under ZBB if they are found to be outdated. Moreover ZBB is difficult to be applied to Human
Development programmes as the outcome of such programmes is intangible in nature.

6. (d) Austerity describes policies used by governments to reduce budget deficits during adverse economic conditions. These policies may include spending cuts, tax increases. This is done in economic crisis situation to improve the credit rating of the countries going through adverse economic condition.

7. (a) Government debt is the debt owed by central government.
Government usually borrows by issuing securities, government bonds, bills through Provident funds etc. However pension policies are not included in the list.

8. (b) Current account deficit is a measurement of a country’s trade in which the value of goods and services it imports exceeds the value of goods and services it exports. Increase in crude oil price and rise in import of services oil increase the current account deficit.
However increase in exports will reduce the deficit.

9. (d) All these statements are components of internal debt.

10. (a) Deficit financing is a pragmatic tool of economic development and has been used by Indian govt. to obtain necessary resources to finance the five year plans.

11. (d) The definition of deficit financing is likely to vary with the purpose for which such a definition is needed.
In one sense by deficit financing we mean the excess of government expenditure over its normal receipts raised by taxes, fees, and other sources. In this definition such expenditure whether obtained through borrowing or from the banking system measures the budget deficit. Deficit financing is said to have been used whenever government expenditure exceeds its receipts.
In under-developed countries deficit financing may be in two forms:
(i) Difference between overall revenue receipts and expenditure
(ii) Deficit financing may be equal to borrowing from the banking system of the country.

12. (a) Fiscal deficit - Excess of total expenditure over total receipts less borrowings.
Budget deficit - Excess of total expenditure over total receipts.
Revenue deficit-Excess of total expenditure over revenue receipts.
Primary deficit-Excess of total expenditure over total receipts less borrowings & Interest payments.

13. (c) Transfer payment is a payment of money to individuals by government without taking any goods or service.
Examples:
• Unemployment allowance
• Social security payments
• Old age pension
• Student grant
• Subsidies to farmers, exporters & manufacturer.

14. (a) A Sinking Fund is a fund created by the government and gradually accumulated every year by setting aside a part of current public revenue in such a way that it would be sufficient to pay off the funded debt at the time of maturity. Under this method, the aggregate burden of public debt is least felt, as the burden of taxing the people to repay the debt is spread evenly over the period of the accumulation of the fund. The preferable alternative for the government is to raise a new loan and credit the proceeds of sinking fund. It is a separate fund established by a government.

15. (b) Deficit Financing is an expansionist device of currency machine and is accompanied by inflation and has many adverse effects on the economy. It has also been compared to a drug market in red ‘Poison’ which is prescribed for a certain purpose and has to be administered in small regulated dose. When the outlay of a government exceeds its tax revenues, the government budget is said to be in deficit; government spending in excess of tax receipts is known as deficit spending. Governments usually issue bonds to match their deficit.

16. (b) Effective Revenue Deficit is basically revenue deficit excluding expenditure on capital generation form grants from the Centre to the states. It signifies the amount of capital receipts that are being used for actual consumption expenditure of the Government. It is a new term introduced in the Union Budget 2011-12. It has now become a new fiscal parameter.

17. (a) The Janta Party coalition government led by Morar Ji Desai demonetized the currency notes of Rs. 1,000, Rs. 5,000 and Rs. 10,000 on 16 January 1978 to curb counterfeit currency and black money. The Finance Minister was Haribhai M. Patel at the time.

18. (c) Finance Minister Vishwanath Pratap Singh’s Long Term Fiscal Policy (LTFP) unveiled in January, 1986.

19. (d) In recommending horizontal distribution, the 14th Finance Commission has used broad parameters of population (1971) and changes of population since, income distance, forest cover and area.

20. (d) Imposition of higher duty on exports is not likely to help in improving India’s balance of payments position.

21. (c) The Reserve Bank of India (RBI) uses the monetary policy to manage liquidity or money supply in a manner that balances inflation and at the same time aids growth. The tools RBI uses to manage monetary policy are:
1. Repo and Reverse Repo Rate.
2. Cash Reserve Ratio (CRR).
3. Open Market Operations.
4. Statutory Liquidity Ratio.
5. Bank Rate.
22. (b) The first phase of liberalization was initiated in India under the regime of P.V.Narsimha Rao as a PM and Manmohan Singh as Finance Minister in 1991.

23. (a) A regressive tax is generally a tax that is applied uniformly. This means that it hits lower income individuals harder. Regressive tax imposes a greater burden (relative to resources) on the poor than on the rich — there is an inverse relationship between the tax rate and the taxpayer’s ability to pay as measured by assets, consumption, or income.

24. (a) “Taxation over taxes” or “cascading-effect” of the taxes adds to the deadweight loss i.e. slump in total surplus of supply chain consisting of supplier, manufacturer, retailer and consumer. Due to cascading tax imposition leads to a disproportionate increase in prices by an extent more than the rise in the tax.

25. (c) Fiscal policy is the use of government revenue collection (taxation) and expenditure (spending) to influence the economy.
The two main instruments of fiscal policy are changes in the level and composition of taxation and government spending in various sectors.

26. (b) Fiscal drag is an economics term referring to a situation where a government’s net fiscal position (equal to its spending less any taxation) does not meet the net savings goals of the private economy. Fiscal drag is a concept where inflation and earnings growth may push more taxpayers into higher tax bracket.

27. (a) A Pigovian tax is applied to a market activity that is generating negative externalities (costs for somebody else) like cigarette consumption, burning of fossil fuel.

28. (d) Basel III is basically a regulatory accord designed specifically for the banking sector. It aims to improve the supervision, regulation and risk management within the sector. It also targets at strengthening the transparency of the banks.

29. (c) A progressive tax is a tax in which the tax rate increases as the taxable base amount increases Regarding progressive tax, marginal tax rate should be increasing and it should be more than average tax rate.

30. (a) The Goods and Services Tax (GST) is a Value Added Tax (VAT) replacing all indirect taxes levied on goods and services by the Indian Central and State governments. India is a federal republic, and the GST is thus implemented concurrently by the central and state governments as the Central GST and the State GST respectively. Exports will be zero-rated and imports will be levied the same taxes as domestic goods and services adhering to the destination principle.

31. (d) The Minimum Alternative Tax (MAT) was introduced for the first time in the Budget for the year 1996-97. Minimum alternate tax or MAT is a tax levied on firms/ companies or limited liability partnership (LLPs) making abundant profits as well as distributing dividend to its shareholders who leveraging on the features of the Indian Taxation system do not contribute towards the government’s taxation kitty. Thus, for such corporates a minimal tax amounting to some fixed percentage of book profits i.e. profits according to accounting records is charged as minimal alternative tax (MAT).

32. (b) Government of India is disinvesting its share from public sector undertakings. Most of government undertakings were incurring losses during the pre-liberalization period. Hence, after the introduction of new economic policy in 1991, government started downsizing its share in PSU. But the process of disinvestment is very slow due to host of legal and political hurdles.

33. (a) Permanent Account Number (PAN)card is unique alphanumeric combination. It is issued by the Indian Income Tax Department. It serves as an important ID proof, date of birth proof and proof of tax payer. However it can’t be used for the purpose of address proof, as address is not mentioned on PAN card.

34. (d) Agricultural income tax to states in India is assigned by the Constitution of India. The agency responsible for it is Finance Commission whose function is distribution of net proceeds of taxes between Centre and the States, to be divided as per their respective contributions to the taxes.
Finance commission: It is mainly to give its recommendation on distribution of tax revenues between the union & the states and amongst the states themselves.
Interstate council: It is established to facilitate co-ordination of policies and their implementation between the Union & the state govt.
IFC: It’s main objective is to faster a measurable increase in the availability of agriculture finance in IFC’s client portfolio globally.

35. (d) Bihar is the first state to impose agricultural income tax in India. Agricultural income tax is levied on the income from Agriculture. At present agriculture is subjected to two direct taxes and they are Agricultural Income tax and Land Tax.
Agricultural Income tax treatment: It is characterised as a valid source of income from sources that comprise Agriculture land, buildings on or related to Agricultural land card commercial produce from an Agriculture land.

36. (d) Agricultural income tax is levied on the income from Agriculture.
At present agriculture is subjected to – two direct taxes and they are Agricultural Income Tax and Land Tax. They are levied by the state governments. Not all states levy agricultural income tax.
37. (b) The Government of India earns maximum revenue from Union Excise Duty which is indirect tax levied and collected on the goods manufactured in India and consumed within the country.
Custom Duty: It is a variation of Indirect tax and is applicable on all goods imported and a few Goods exported out of the country.
Corporation tax: It is a direct tax imposed by jurisdiction on the income or capital of Income.

38. (a) Laffer curve is a representation of the relationship between possible rates of taxation and the resulting levels of government revenue. It illustrates the concept of taxable income elasticity-i.e., taxable income will change in response to changes in the rate of taxation.
Phillips Curve a supposed inverse relationship between the level of unemployment and the rate of inflation.

39. (a) Roughly 80% comes from the individual income tax and the payroll taxes that fund social insurance programme. Another 11% comes from corporate income tax and the rest is a form of a mix course.

40. (b) Income Tax (1860); Expenditure Tax (1956); Value Added Tax (1996-97) Fringe Benefits Tax (2005).

41. (c) A progressive tax receives a larger percentage from the income of higher earners than it acts from low income person.

42. (b) Corporation tax in India is the major source of Gross Tax Revenue (GTR) for the Government of India. It provides higher tax collection in comparison to income tax, custom duty and service tax.

43. (c) The Department of Economic Affairs (DEA) under Ministry of Finance is the nodal agency of the Union Government to formulate and monitor country’s economic policies and programmes having a bearing on domestic and international aspects of economic management.

44. (c) The government influences private sector expenditure by taxation, subsidies and macro-economic policies.

45. (a) Corporation Tax, Wealth Tax and Income Tax are in the category of direct tax.

46. (a) The sharp decline in crude oil price helped the government to deregulate the price of diesel and thus reduce a huge burden of subsidy on the exchequer. India if not a producing giant, is certainly a refining hub where it refines and markets around 220 metric million tonnes of petroleum products. Out of this around 160 mmt is used for domestic consumption while the rest is used for exports. Therefore, the drop in price of oil will be a blessing for the Indian refineries and the oil marketing companies.

47. (b) Corporation Tax is imposed by Central Government.

48. (d) Generally, the income of a company falls under any of the following 4 heads of income:
(1) Profits or gains from the business
(2) Income from property, whether it is housing, commercial, self-occupied or let-out. If the property is used in the company’s business operations, it does not fall under this head.
(3) Capital gains
(4) Income from other sources including winnings from lotteries, races and interest on securities.

49. (d) Motor Vehicle tax is not a source of tax revenue for the Central Government in India. It is type of revenue part of State tax.

50. (b) KK Surcharge is the additional percentage of tax which domestic tax players need to pay when declaring undisclosed income by paying tax at 30%. The KKS above the tax is 7.5%.

51. (b) Suggestion for the imposition of expenditure tax in India for the first time was given by Kaldor on 1956.

52. (b) MODVAT e.g. modified value added tax is related to Value added tax e.g. VAT.

53. (d) Toll Taxes is one the main Sources of revenue for State Governments. It is not levied by Govt. of India.

54. (d) The Income Tax department has launched a special electronic grievance redressal system called ‘e–nivaran’ in order to fast track taxpayer grievances and ensure early resolution of their complaints.

55. (a) As per union budget 2016-17, the share of taxes in one rupee.
Corporation tax: 19 Paise
Income tax: 14 Paise
Service tax: 9 Paise
Union Excise Duty: 12 Paise

56. (c) The price-elasticity of demand for a good also depends on the proportion of their income the buyers spend on the good. Therefore, if the sales tax on a commodity is raised, but the revenue earned through its sale decrease sharply, the price elasticity of demand for the commodity would be high.



57. (a) Customs duties-Export duty and import duty are levied by Central Government.

58. (a) As mention in article 268 of Indian Constitution, Stamp Duties are mentioned in the Union List shall be levied by the Government of India but collected and appropriated by the States.

59. (a) Exports will become ZERO RATED under GST, so statements 2 and 3 would have been correct If examiner had used moderate words “GST will help”. But he has used ‘extreme’ words. GST is unlikely to ‘drastically’ reduce CAD Because of crude oil import and OPEC cartel that manipulates its prices. Similarly, GST is unlikely to enormously increase size of our economy (IMF projection ~1-1.5% addition in growth rate.) and we can’t overtake China in near future, because unlike China we are keeping our currency undervalued against dollar. Hence statement 2 and 3 are wrong. We are left with Answer A.

60. (b) Act provides is an appellate tribunal, and they’re required to finish case within one year. So #3 is wrong, by elimination, we are left with A and B. So, B is most appropriate because IT dept (=therefore Government) can seize the benami properties.

61. (d) From the official Economic Survey 2014-15, we get following data If we go only by the strict interpretation of above graph then answer should be “D”

62. (b) The responsibility for coinage lies with central government on the basis of the Coinage Act, 1906. The designing and minting of coins in various denominations is decided by Central government.
Except one rupee note & coin all the currencies are minted by RBI. In one rupee note, RIB signature of RBI Governor of currency held in 4 places- Hydrabad, Mumbai, Kolkata & Noida.

63. (d) Devaluation leads to a country’s exports to become less expensive as the currency is deliberately adjusted down to other currencies, making imports more expensive, making domestic consumers less likely to purchase them thus the domestic companies are encouraged to substitute imports.

64. (d) All the above given terms are not a financial term. RTGS (Real Time Gross Settlement) is fund transfer system, core banking solutions like treasury and investment are all processes not financial term.

65. (d) Money laundering occurs in three steps: the first step involves introducing cash into the financial system by some means called as placement; the second involves carrying out complex financial transactions to camouflage the illegal source called layering; and the final step entails acquiring wealth generated from the transactions of the illicit funds called as integration.
Money Laundering - It is the process of transforming the profits of crime and corruption into obstensibliy Legitimate assets.

66. (c) India switched over to decimal currency in 1957 with the amendment of the Indian Coinage Act. The rupee remained unchanged in value and nomenclature. It, however, was now divided into 100 ‘Paisa’ instead of 16 Annas.

67. (b) In 1991, India faced a serious balance of payment crisis and was forced to sharply devalue its currency. The country was in the grip of high inflation, low growth and the foreign reserves were not even worth to meet three weeks of imports.
Under these situations, the currency was devalued to 17.90 against a dollar.
In July of 1991 the Indian Government devalued the rupees by between 18 and 19%. The Government also changed its trade policy higher restrictive to a system of tradable EXIM SCRIPS.

68. (a) The one rupee note is issued by Ministry of Finance and it bears the signature of Finance Secretary, while other notes bear the signature of Governor RBI. However, only RBI is the only source of legal tender money because distribution of one rupee notes and coins and small coins all over the country is undertaken by the Reserve Bank as agent of the Government.

69. (d) The rise in interest rates results in increasing cost of borrowing so lending decreases because businesses do not borrow at high cost.
Moreover it results in increase in cost of production as the cost for all suppliers of raw material increases due to increase in their borrowing cost. For individuals the savings increase as they start saving in lieu for higher return as interest. Higher rates of interest result in decrease in return on capital as cost of investment in capital increases.

70. (a) Higher interest rates in low inflation means higher real returns not just on money, but on all other assets too. These higher real returns increases the allocation of investment by people.

71. (b)

72. (a)

73. (b)

74. (b) Indira Vikas Patra was a small scale deposit scheme operated by the post offices all over the country to encourage the idea of investment in the minds of the lower-middle class people. NSC, National Saving Scheme and PPF all grant tax rebate.
75. (c) A reserve currency (or anchor currency) is a currency that is held in significant quantities by governments and institutions as part of their foreign exchange reserves, and that is commonly used in international transactions for commodities like oil and gold.
Persons who live in a country that issues a reserve currency can purchase imports and borrow across borders more cheaply than persons in other nations because they need not exchange their currency to do so.

76. (c) At present, index is being developed only for residential housing sector. However, at a later stage, the index could be expanded to develop separate indices for commercial property and land.
Primary data on housing prices is being collected from real estate agents by commissioning the services of private consultancy/research organisations of national repute. In addition, data on housing prices is also being collected from the housing finance companies and banks, which is based on housing loans contracted by these institutions.

77. (c) Financial inclusion or inclusive financing is the delivery of financial services at affordable costs to sections of disadvantaged and low-income segments of society. For financial inclusion ‘Know your customer’ (KYC) norms should be relaxed and no frills account should be opened for low income segments which are looking for basic banking only. Along with general purpose credit cards should be issued and bank branches should be opened in unbanked rural areas.

78. (c) Devaluation is a deliberate downward adjustment to the value of a country’s currency, relative to another currency, group of currencies. Since it is relative to other currency so internal price remains unchanged. It causes a country’s exports to become less expensive and imports more expensive.

79. (d) A liquidity trap is a situation in which injections of cash into the private banking system by a central bank fail to lower interest rates and hence fail to stimulate economic growth. A liquidity trap is caused when people hoard cash because they expect interest to rise in future, an adverse event such as deflation, insufficient aggregate demand, or war.

80. (d) Currency notes and coins are called fiat money. They don’t have intrinsic value like a gold or silver coin. The currency-deposit ratio measures the relationship between the cash people have on hand and what they have in their accounts.

81. (b) By buying the government securities from the banks and reducing SLR may inject money into the system. However Raising cash Reserve Ratio may take away liquidity from the market as the banks will have to deposit more money with the RBI and similarly entering the reverse repo operations may also take away liquidity from the market.
82. (a) Micro-credit extended by banks to individuals is reckoned as a part of their priority sector lending and no particular model has been prescribed for micro-finance and banks have been extended freedom to formulate their own models.

83. (a) Devaluation happens in countries with a fixed exchange rate. In a fixed-rate economy, the government decides what its currency should be worth compared with that of other countries. The exchange rate can change only when the government decides to change it. If a government decides to make its currency less valuable, the change is called devaluation. Depreciation happens in countries with a floating exchange rate. A floating exchange rate means that the global investment market determines the value of a country’s currency.

84. (a) Marginal Standing Facility (MSF) is the rate at which scheduled banks could borrow funds overnight from the Reserve Bank of India (RBI) against approved government securities. Banks can borrow funds through MSF during acute cash shortage (considerable shortfall of liquidity). This measure has been introduced by RBI to regulate short-term asset liability mismatch more effectively and the borrowing is within statutory liquidity requirements. The Marginal Standing Facility (MSF) is pegged 100bps or 1 % above the Repo Rate.

85. (d) Basel III is basically a regulatory accord designed specifically for the banking sector. It aims to improve the supervision, regulation and risk management within the sector. It also targets at strengthening the transparency of the banks.

86. (b) Financial inclusion is the delivery of financial services, at affordable costs, to sections of disadvantaged and low income segments of society.It includes opening educational centres, opening wealth management centres by Citibank etc. Khan commission had put forward its report on financial inclusion.

87. (c) Basis points: It is the increase in interest rates in percentage terms.
— Repo rate: Repo rate is the policy rate and is part of RBI’s Liquidity Adjustment Facility (LAF). It is the rate at which commercial banks borrow from the RBI by selling their securities or financial assets to the RBI for a short-period of time.
— Reverse repo rate: Reverse Repo Rate is also a part of LAF. It is the rate of interest at which the central bank borrows funds from commercial banks for a short duration.
— Cash reserve ratio: CRR is the minimum percentage of cash deposits that banks must keep with the central bank.

88. (c) NABARD doesn’t give “direct” credit assistance. It provides credit via intermediaries such as micro finance companies, cooperative society, RRB. Therefore, 2 is false.

89. (b) Open market operation: When RBI buys/sells securities in open market, in case of OMO, first party permanently sells the Government security to second party. Second party is free to do whatever it wants with that security.

90. (c) It will remain the same, because banks do not increase the national income. So it remains the same immaterial whether banks are there or not.

91. (d) Currency is most liquid, because you can use it as and when you want. Time deposit with bank (e.g. fixed deposit), are least liquid compared to savings/demand deposit with banks and currency.

92. (b) Because Reserve requirements are designed as “precautionary measures” and not to stop banks from “excessive” profit.

93. (c) Through assistance of Swiss agency for Development & cooperation, NABARD setup the rural innovation fund. RIDF is another noted scheme for the bank for rural development. Under the RIDF scheme ` 51,283 crore have been sanctioned for 2,44,651 projects covering irrigation, rural roads and bridges, health & education, soil conservation, water schemes etc.

94. (d) The head office of the National Bank for Agriculture and Rural Development (NABARD) is located in Mumbai. It helps farmer’s access timely and adequate credit.
Current Chairman - Dr. Harsh Kumar Bhanwala

95. (d) These all provide finance under various schemes run by central government and state governments to purchase seeds, fertilizer, pesticides etc.

96. (c) It was established on 12 July, 1982 in sixth five year plan by a special act by the parliament and its main focus was to uplift rural India by increasing the credit flow for elevation of agriculture & rural non-farm sector.

97. (a) In India, commercial banks have the highest share in the disbursement of credit to agriculture and allied activities. The commercial banks disburse around 60% credit followed by cooperative banks around 30%.

98. (a) Cooperative Banks operate on no profit no loss basis, and they operate in all sectors including agriculture sector. NABARD is not a Cooperative Bank. National Bank for Agriculture and Rural Development (NABARD) is an apex development bank in India.

99. (c) National Bank for Agriculture and Rural Development (NABARD) is an apex development bank in India. It was established on 12 July, 1982 in sixth five year plan and its main focus was to uplift rural India by increasing the credit flow for elevation of agriculture and rural non-farm sector and laying down policies and to oversee the operations of the RRBs.
Moreover Regional Rural Banks grant direct loans and advances to marginal farmers and rural artisans. So both statements are correct.

100. (b) In India, ‘Report on Currency and Finance’ is the annual publication of Reserve Bank of India. The report highlights the evaluation or devaluation of Rupee as a currency along with it other aspects and projects the financial condition of the economy.
SEBI: Regulator for the security market in India. Headquarters (Mumbai)
Finance commission: formed to define financial relation between the center and state.
Headquarters: New Delhi
Finance Ministry: An important ministry their Govt. of India concerned with the economy of India.

101. (d) The general superintendence and direction of the RBI is entrusted with the 21-member- Central Board of Directors—the Governor (currently Dr. Urjit R. Patel, four Deputy Governors, two Finance Ministry representatives, ten government-nominated directors to represent important elements from India’s economy, and four directors to represent local boards headquartered at Mumbai, Kolkata, Chennai and New Delhi.

102. (d) V.K. Sharma is the new Chairman of Life Insurance Corporation of India.
LIC: Largest insurance company in India,

103. (c) 1st July is celebrated as the establishment date of State Bank of India. On 1 July 1955, the Imperial Bank of India became the State Bank of India. SBI is a multinational banking and financial services company based in India. It is a government-owned corporation with its headquarters in Mumbai.
SBI : Indian Multinational public sector banking and financial services company.
Chairperson: Rajnish Kumar.

104. (a) IDBI Bank is an Indian government-owned financial service company, formerly known as Industrial Development Bank of India, headquartered in Mumbai, India.
IFCI: (Industrial Finance Corporation of India): It is an Indian government owned development bank to calter to the long term finance needs of industrial sectors.
ICICI: It is an Indian multinational banking & financial services company headquartered in Mumbai.

105. (c) 72% was British investment in India, when RBI first census of India’s foreign Assets & Liabilites as on 30 June 1948 revealed total business investment of Rs. 302 crore.
106. (b) Small Industries Development Bank of India is a non-independent financial institution aimed to aid the growth and development of micro, small and medium-scale enterprises. It was incorporated initially as a wholly owned subsidiary of Industrial Development Bank of India. SIDBI has taken over the responsibility of administering small industry development fund managed by the IDBI.

107. (a) Teaser loans are considered an aspect of subprime lending, as they are usually offered to low-income home buyers. Unfortunately, these borrowers with increased monthly payments, at times can’t afford.

108. (d) Near Money is a term used in economics to describe highly liquid assets that can easily be converted into cash.

109. (a) A flexible exchange rate system is a kind of a monetary system which allows the exchange rate to be regulated by supply and demand in relation to other currencies.

110. (b) Syndicate Bank. The symbol of dog implies that Bank is trustworthy and a friend. Its slogan is: Faithful Friendly.

111. (c) SLR used by bankers indicates the minimum percentage of deposits that the banks have to maintain in the form of gold, cash or other approved government securities.

112. (a) The main functioning of the banking system is to accept deposits and provide credit. The bank collects deposits from public. These are savings, fixed, current and recurring deposits. The bank advances loan to the business community and other members of the public. The types of bank loans and advances are overdraft, cash credits, loans and discounting of bill of exchange.

113. (d) The variation in the value of money is always accompanied by opposite variation in the price of commodities and services. In brief, the value of money varies inversely with the price level. It is reciprocal of price level.
Vm =1/p (where Vm denotes value of money and p stands for price level).

114. (b) The word ‘Actuaries’ is related to the profession of insurance. The determination of the accidents covered by Insurance policy and of the premium is done by actuaries.

115. (c) According to Indian Reserve Bank. Non-performing assets in commercial bank means the loans in which interest or principal amount is not recovered.

116. (c) Bank rate is that rate at which RBI gives credit to Commercial Banks.

117. (b) The Cash Reserve Ratio is the amount of funds that the banks are bound to keep with Reserve bank of India as a portion of their Net Demand and Time Liabilities (NDTL). When RBI increases the CRR, less funds are available with banks as they have to keep larger portions of their cash in hand with RBI. This means that banks will now have less money to play with. This resulted reduction in liquidity in the economy.

118. (a) Open Market Operations refer to the purchase and sale of the Government securities (trading of the securities) by RBI from / to market. The objective of Open Market Operations is to adjust the rupee liquidity conditions in the economy on a durable basis.

119. (d) A debenture is a type of debt instrument that is not secured by physical assets or collateral. Both corporations and governments frequently issue this type of bond to secure capital.

120. (a) The Self-Help Group-Bank Linkage Programme (SBLP), which was started as a pilot programme in 1992 on the basis of recommendation of S K Kalia Committee. Commercial banks, co-operative banks and the regional rural banks have been actively participating in the SBLP. NABARD does not implement the SBLP.

121. (d) Each depositor in a bank is insured up to a maximum of Rs. 1,00,000 (Rupees One Lakh) for both principal and interest amount held by him in the same capacity and same right as on the date on liquidation/cancellation of bank’s license or the date on which the scheme of amalgamation/merger/reconstruction comes into force.

122. (d) GIC of India (GIC) is the sole reinsurance company in the Indian insurance market with over four decades of experience.

123. (c) The Banking Ombudsman is a senior official appointed by the Reserve Bank of India to redress customer complaints against deficiency in certain banking services.

124. (d) RBI Gives power to Banks to decide saving banks deposit interest rates.

125. (c) State Bank of India became the first public sector lender to launch wealth management service, a space dominated by private and foreign players, to cater to fast-growing affluent segment of the country.