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Banking Awareness Practice Questions-Structure & Functions of RBI-Part-3

1.

Reserve Bank of India would like to increase the cash reserves of the commercial Banks. Which among the following would be most appropriate action of the RBI to achieve this aim?
[A]RBI would release gold from its reserves
[B]RBI would raise the reserve ratio
[C]RBI would buy the bonds in the open market
[D]RBI will stop the transactions which involve the bills of exchange

RBI would buy the securities in the open market
RBI buys securities from the market, it releases liquidity and banks have more money with them in the form of Cash reserves.

2.

If the Cash Reserve Ratio (CRR) is increased by the RBI, its impact on the expansion of credit creation will be to__:
[A]decrease it
[B]increase it
[C]no impact
[D]Cant’ say

decrease it
If the Cash Reserve Ratio (CRR) is increased by the RBI, its impact on the expansion of credit creation will be to decrease it. In short, credit creation is the reciprocal of the CRR.

3.

To combat raising inflation, RBI has to do which of the following activities?
[A]increase bank rate
[B]sell government securities
[C]increase reserve ratios
[D]All of above

All of above
To combat from inflation, RBI has to sell government securities, increase bank rate, increase policy rate, etc , so that banks have left less money to lend then people borrow less, demand goes down and the result of it is the prices of goods and services also goes down. This is how, RBI decreases the inflation rate.

4.

Under which qualitative tool, RBI fixes maximum limit to loans and advances that can be made above which the commercial banks cannot exceed?
[A]Rationing of credit
[B]Margin Requirement
[C]Loan to Value ratio
[D]Moral suasion

Rationing of credit
Rationing of credit : Under this method, RBI fixes a maximum limit of loans and advances that can be made above which the commercial banks cannot exceed.

5.

When RBI provides Ways and Means Advances (WMA) to the state governments against collateral Government Securities; it is called?
[A]Normal WMA
[B]Special WMA
[C]Statutory WMA
[D]None of them

Special WMA
If there is a temporary mismatch in the cash flow of the receipts & payments of the State Government then Ways and means advances (WMA) facility is used by RBI to handle the mismatch for a period of 90 days. There are two types of WMA – normal and special. If the state government takes WMA against the collateral Government securities then it is called Special WMA. If they are not against the security, then they are provided WMA based upon the 3-year average of actual revenue and capital expenditure of the state then it is called normal WMA.

6.

7.

Which among the following is NOT a function of RBI?
[A]To work as monetary authority and implement its Monetary Policy
[B]To serve as issuer of bank notes
[C]Serve as banker to central and state governments
[D]Serve as debt manager to other banks

Serve as debt manager to other banks

8.

What is the maximum number of Official Directors in RBI’s Central Board of Directors?
[A]One
[B]Two
[C]Four
[D]Five

Five
The Governor and Deputy Governors are the official directors. There is on Governor and maximum 4 Deputy Governors; so maximum number of Official Directors in RBI’s Central Board of Directors is five.

9.

Who appoints the governor of Reserve Bank of India?
[A]President of India
[B]Prime Minister of India
[C]Central Government
[D]Vice President of India

Central Government
RBI Governor and Deputy Governors are appointed by the Central Government. Their names are cleared by Cabinet Committee on appointments.

10.

What is the retirement age of RBI Governor?
[A]58 Years
[B]60 Years
[C]62 Years
[D]65 Years

62 Years
For both Governors and Deputy Governors, the tenure of service is maximum of 5 years or till the age of 62 whichever is earlier.

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