Test 1st : Class 12th Marks 50
Topic: Money and Banking Time: 1 hr.
General Instruction:
i. It is natural to feel there are many better than me in this class. Do not validate that
feeling by looking in their answer sheets (SIMPLY- DO NOT COPY)
ii. Enjoy writing the paper from your heart as if you and the paper are one.
iii. This is your moment of truth and your answer sheet is the practical evidence.
iv. All the Best.
Descriptive Questions
Question:1 Explain the process of Credit creation by commercial bank through a numerical example. 6
marks
Question:2 Explain the following functions of central bank as a controller of money supply and credit:
(a) Open market operation 2 marks
(b) Margin requirement 2 marks
Multiple Choice Question 1 marks
each
1. To reduce credit availability in the economy, the 1
Central Bank may ______ (b)
SLR
(a) buy securities in the open market. 1
(c)
(b) sell securities in the open market. LRR
(c) reduce legal reserve ratio. (d) None of the given
(d) reduce repo rate.
5. The ratio of total deposits that a commercial bank
has to keep with Reserve Bank of India is called :
2. Which of the following is not the function of the
central bank? All India 2018 (a) Statutory Liquid Ratio
(а) Banking facilities to government (b) Deposit Ratio
(b) Banking facilities to public (c) Cash Reserve Ratio
(c) Lendings to government (d) Legal reserve ratio
(d) Lendings to commercial banks
6. Number of times the total deposits would be of the
initial deposit is determined by:
3. Which of the following agency is responsible for
issuing Rs. 1 currency note in India? (a) Cash Reserve Ratio
(a) Reserve Bank of India (b) Legal Reserve Ratio
(b) Ministry of Commerce (c) Statutory Liquidity Ratio
(c) Ministry of finance (d) Bank Rate
(d) Niti Aayog
7. The part of LRR kept by the banks themselves is
called:
4. The value of deposit/money multiplier is equal to:
(a) SLR
1
(a) (b) CRR
CRR
(c) Reverse Repo Rate
(d) None of the above (a) Raising repo rate
(b) Raising reverse repo rate
8. If an economy is to control recession like most of (c) Buying government securities
the Euro-Zone nations, which of the following can be
appropriate:
11. Which of the following instrument deals with the
(a) Reducing Repo Rate
qualitative credit control?
(b) Reducing CRR
(a) Open Market Operation
(c) Both (a) and (b)
(b) Moral Suasion
(d) None of (a) and (b)
(c) Bank Rate
(d) None
9. Credit creation by commercial banks is determined
by:
12. The Central Bank can increase availability of
(a) Cash Reserve Ratio (CRR)
credit by
(b) Statutory Liquidity Ratio (SLR)
(a) Raising repo rate
(c) Initial Deposits
(b) Raising reverse repo rate
(d) All the above
(c) Buying government securities
(d) Selling government securities
10. The central bank can increase availability of credit
by:
(d) Selling government securities
13. The ratio of total deposits that a commercial bank (b) Repo
has to keep with Reserve Bank of India is called
(c) SLR (Statutory Liquidity Ratio)
(a) Statutory liquidity ratio
(d) Both (a) and ©
(b) Deposit ratio
17. The process of credit/money creation in an
(c) Cash reserve ratio economy is affected by
(d) Legal reserve ratio (a) initial deposits amount
(b) LRR
14. Demand deposits include. (c) bank rate
(a) saving account deposits and fixed deposits (d) Both (a) and (b)
(b) saving account deposits and current account
deposits
18. Read the following dialogue between two people:
(c) current account deposits and fixed deposits Sita : I want 1 kg of potatoes
Rani : What will you give in exchange?
(d) All types of deposits
Sita : I can give you 2 litres of milk in return for the
potatoes.
15. The difference between lending rates and Rani : I don’t need milk. I want a pair of shoe
borrowing rates of a commercial bank, is called Which of the following problem is being faced by Sita
and Rani in their exchange process?
(a) capital (a) Lack of double coincidence of wants
(b) reserves (b) Absence of common units of value
(c) Lack of store of value
(c) spread(Profit) (d) Lack of standard of deferred payment
(d) All of the above
19. Who regulates money supply?
(a) Government of India
16. LRR (Legal Reserve Ratio) includes (b) Reserve Bank of India
(c) Commercial Banks
(a) CRR (Cash Reserve Ratio) (d) Planning Commission
20. Which of the following is not a problem of barter
system of exchange? 28. Which of the following will increase the money
(a) Store of Value supply?
(b) Double Coincidence of Wants (a) Fall in repo rate
(c) Unit of Account (b) Purchase of securities in open market
(d) Unemployment (c) Decrease in cash reserve ratio
(d) All of these
21. Name the institution which performs the functions 29. Which of these is not a function of central bank?
of accepting deposits, granting loans and making (a) Accepting deposits of general public
investments, with the aim of earning profits. (b) Custodian of Foreign Exchange Reserves
(a) Commercial Bank (c) Banker’s Bank
(b) Central Bank (d) Currency Authority
(c) Neither (a) nor (b)
(d) Both (a) and (b)
30. Which of the following is not the function of the
22. This function of Central Bank involves buying and Central Bank?
selling of government securities from or to the public (a) Banking facilities to government
and commercial banks. (b) Banking facilities to public
(a) Selective Credit Controls (c) Lending to government
(b) Legal Reserve Requirements (d) Lending to commercial banks
(c) Open Market operations
(d) None of these 31. ________ refer to those deposits in which amount
is deposited with bank for a fixed period of time.
23. Name the credit control method which refers to (a) Current Deposits
difference between the amount of loan and market (b) Time Deposits
value of the security offered by the borrower against (c) Demand Deposits
the loan. (d) Saving Deposits
(a) Selective Credit Controls
(b) Moral Suasion 32. Which of the following instrument cannot be used
(c) Margin Requirements by Central Bank to control money supply?
(d) Legal Reserve Requirements (a) Open market operation
(b) Bank rate
24. Through the process of _________ commercial (c) Repo Rate
banks are able to create credit, which is in far excess (d) Government spending
of the initial deposits.
(a) Advancing of loans 33. What is the value of money multiplier when initial
(b) Money Creation deposits are Rs.500 crores and LRR is 10%?
(c) Accepting Deposits (a) 0.1
(d) None of these (b) 0.2
(c) 10
25. What will be the effect of increase in the ‘Repo (d) 20
Rate’ on the money supply?
(a) Money supply will increase 34. What happens where there is an increase in the
(b) Money supply will decrease margin requirements?
(c) Money supply will remain same (a) It reduces the borrowing capacity and money
(d) Money supply will initially increase and then it will supply.
decrease (b) Encourages people to borrow more and money
supply rises.
26. The ratio of total deposits that a commercial bank (c) No change in money supply.
has to keep with Reserve Bank of India is called: (d) None of these.
(a) Statutory liquidity ratio
(b) Deposit ratio 35. Which of these conditions is needed for a financial
(c) Cash reserve ratio institution to become a bank?
(d) Legal reserve ratio (a) Accepting deposits
(b) Advancing Loans
27. If the total deposits created by commercial banks (c) Both (a) and (b)
is Rs.10,000 crores and legal reserve requirements is (d) Neither (a) nor (b)
40%, then amount of initial deposits will be .
(a) 2,000 crores 36.______refers to that portion of total deposits of a
(b) 3,000 crores commercial bank which it has to keep with itself in the
(c) 4,000 crores form of liquid assets.
(d) 14,000 crores (a) Cash Reserve Ratio
(b) Statutory Liquidity Ratio
(c) Bank Rate
(d) Repo Rate
37. Reverse Repo Rate is the rate at which Central
Bank:
(a) Lends money to Commercial Banks for short-term
(b) Lends money to Commercial Banks for long-term
(c) Borrow funds from the Commercial Banks
(d) None of these.
38. Repo rate is the rate at which:
(a) Commercial Banks purchase government
securities from the central bank
(b) Commercial Banks can take loans from the central
bank
(c) Commercial Banks can keep their deposits with
the central bank
(d) Short-term loans are given by commercial banks
39. Which of the following is not a Quantitative
Method of Credit Control?
(a) Open Market Operation
(b) Margin Requirements
(c) Variable/Legal Reserve Ratio
(d) Bank Rate Policy
40. Credit creation by commercial banks is
determined by:
(a) Cash Reserve Ratio (CRR)
(b) Statutory Liquidity Ratio (SLR)
(c) Initial Deposits
(d) All of the above
