Q 16. What is a Monetary Policy?
Ans. Monetary policy is a type of macroeconomic policy by which Reserve Bank India (RBI) controls the interest rates, thereby effecting control over supply of money in the economy. The main aim of this policy is to maintain price stability & achieve high economic growth rate.
Q 17. What is Fiscal Policy?
Ans. Fiscal policy is a type of macroeconomic policy by which our government makes a strategic change to its spending and tax rates to influence a nation’s economy. Fiscal Policy is a method to determine public revenue and public expenditure
Q 18. What is LAF?
Ans. Liquidity adjustment facility (LAF) is a monetary policy tool which allows banks to borrow money, and adjust their daily liquidity mismatches, through repurchase agreements. LAF has two components:
- a) Repo (repurchase agreement); and
- b) Reverse repo
Q 19. What is Money Laundering?
Ans. Money laundering means presenting illegally obtained money as legitimate by creating a complex chain of sub processes. This convoluted chain makes it difficult to trace the source of the illegitimate money.
Q 20. What do you know about RBI?
Ans. The Reserve Bank of India is the central bank of India. On the recommendation of Young Hilton Committee, it was established on list April, 1935 in accordance with Reserve Bank of India Act, 1934
The Young Hilton Committee submitted its report in 1926, and it took nine years to take an action on this report and establish RBI.
Q 21. What are the functions of RBI?
Ans. 1. Regulate the issuance and circulation of Bank Notes
- Banker to the Government
- Banker to Banks
- Custodian to Foreign Reserve of the country
- Lender of last resort
- Controller of Credit
Q 22. What are Treasury Bills?
Ans. Treasury bills (T- Bills) are the short term money market instrument (bonds) issued by central government through auctions. T-Bills can be issued for 91 days, 182days, or 364 days. There are no T-bills issued by state government. From 1st April 1997 T-bills have been replaced with Ways & Means Advances
Q 23. What is Inflation?
Ans. Inflation is as an increase in the price of goods & services. This rise in prices means the demand for these goods and services more than their supply
Q 24. What is Deflation?
Ans. Deflation is the decrease in prices of goods and services. During Deflation, inflation rate becomes negative. It may be stayed for long time.
Q 25. What are Commercial Papers?
Ans. Commercial Papers (CP) are short term money market instrument (debts issued in the form of promissory note) by corporate, primary dealers, or financial institutions. It was introduced by RBI in 1991. The maturity period of commercial papers can range from 7 days to 1 year from the date of issuance. Only a scheduled bank can act as issuing and paying agent for issuance of Commercial Papers.
Q 26. What is the Banking Ombudsman Scheme?
Ans. The Banking Ombudsman Scheme offers an easy platform to bank customers for lodging their complaints against certain services offered by the Banks. The Ombudsman sees to it at the complaints of the customers are resolved in a particular time period.
Banking Ombudsman Scheme is introduced under Section 35 A of the Banking Regulation Act, 1949 by RBI, effective from 1995.
Q 27. What is a Derivative?
Ans. A derivative is a financial contract that derives its value from another financial product. This underlying product may be a stock foreign currency, a commodity etc.
Q 28. Why is deflation bad when there is a decrease in prices?
Ans. Both inflation and deflation are bad for the economy. But of the two, deflation is more dangerous. If prices of goods are coming down, business people will stop investment as there is the risk of loss. In this way, deflation discourages many desirable factors in the economy — production, investment, employment and thus economic growth.
The major side effect is that it is a disincentive for the producers. Gradually, deflation can worsen into a recession and depression. It is often said that among the two undesirables— inflation and deflation; deflation is more dangerous. Deflation discourages the business psychologically. It adversely affects business momentum.
Q 29. What is FDI?
Ans. FDI (Foreign Direct Investment) means injection of foreign funds in Indian Markets. It occurs with the purpose of “physical assests” or significant amount of ownership of a company in another country.
Q 30. What is GDP?
Ans. The Gross Domestic Product (GDP) is a measure of all of the services and goods produced in a country over a specific period; generally one year.