RBI grade b question set 1 for 2016 prelims and mains (10 questions)

1)       Which of the following is not an effect of inflation?

a)     Reduction in savings

b)     High interest rates

c)      Leads to depreciation of currency

d)     Makes export costlier

e)     Reduces investment

Explanation—inflation leads to depreciation of currency hence import becomes costlier and export becomes cheaper. Inflation also reduces purchasing power of money.

2)      According to the Fourth Annual Employment-Unemployment Survey conducted by the Labour Bureau during the period January 2014 to July 2014 the Unemployment Rate is …… in rural areas and …….. in urban areas.

a)     4.7% , 5.5%

b)     4.5%, 5.6%

c)      4.7%, 5.6%

d)     4.5%, 5.5%

e)     4.5%, 5.5%

3)     ……………… involves trading a financial instrument involving high risk, in expectation of significant returns. The motive is to take maximum advantage from fluctuations in the market.

a)     Speculation

b)     Hedging

c)      Arbitrage

d)     Hoarding

Explanation—

a) Speculation is trying to make money by the price of something increasing or decreasing in the short term.
Example--I buy a stock at $10. I think that it will increase to $12 tomorrow and thus I will make a $2 profit. I am speculating. 

b) Hedging- Hedging is essentially risk management. Your goal is to reduce risk. 

For example, if you buy house insurance, you are hedging yourself against fires, break-ins or other unforeseen disasters.

c) Arbitrage is the process of simultaneous buying and selling of an asset from different platforms, exchanges or locations to cash in on the price difference (usually small in percentage terms).

Ex- suppose there are two shops selling eggs located at different places. The cost of 1 dozen egg in market A is rs30 and in market B is rs35. You can sell egg from market A to market B to gain profit. This is called arbitrage.

d) Hoarding —it is the practice of obtaining and holding scarce resources, possibly so that they can be sold to customers for profit.

4)     “Too much money chasing too few goods” is a situation which corresponds to which type of inflation.

a)     Demand pull inflation

b)     Cost push inflation

c)      Structural inflation

d)     Disinflation

Explanation-

a)     Demand pull inflation- inflation caused by increase in demand due to increased private and government spending etc.

b)     Cost push inflation- caused by reduced supplies due to increased prices of inputs which means higher cost of production and so higher prices.

c)      Structural inflation- inflation relating to a government’s monetary policy rather than to supply of and demand for goods and services.

d)     Disinflation- it is reduction of the rate of inflation

5)     According to economic survey The eight core infrastructure supportive industries, coal, crude oil, natural gas, refinery products, fertilizers, steel, cement and electricity that have a total weight of nearly ………… per cent in the IIP, registered a cumulative growth of ………….. Per cent during April-December 2015-16.

a)     38, 1.9

b)     40, 1.9

c)      38, 2.1

d)     40, 2.1

e)     39, 1.9

         Self-explanatory

6)     Which of the following is true with respect to NBFC?

a)     It can accept demand deposits

b)     It can issue cheques

c)      Registered under the companies act, 1956

d)     Deposit insurance policy of DICGC is not available to depositors of NBFC.

e)     Registered under banking regulations act, 1949.

                                I.            c, d

                              II.            c, e

                           III.            e, d

                            IV.            c

                              V.            d

Explanation— NBFCs or Non-Banking Financial Companies is a company in India, which is registered under the Companies Act, 1956, and which provides banking services without meeting the legal definition of a bank (not registered under banking regulations act, 1949).

i. NBFC cannot accept demand deposits;

ii. NBFCs do not form part of the payment and settlement system and cannot issue cheques drawn on itself;

iii. Deposit insurance facility of Deposit Insurance and Credit Guarantee Corporation is not available to depositors of NBFCs, unlike in case of banks.

iv. NBFCs whose asset size is of ₹ 500 cr or more as per last audited balance sheet are considered as systemically important NBFCs.

7)      Which of the following is not true with respect to money market in India?

a)     It is a market for short term funds with maturity ranging from overnight to one year.

b)     T-bills are short-term money market instruments.

c)      Call, term and notice money are money market instruments.

d)     Certificate of deposit (CD) is a money market instrument whose maturity not less than 15 days and not more than 1 year.

e)     All are true

Explanation—

a)     Money market is a market for short term funds.

b)     T-bills are short-term money market instruments, which are issued by RBI on behalf of government of India. At present RBI issues 3 types of T-bills, namely, 91-day, 182-day and 364-day. They are issued at discount to face value.  Minimum amount is Rs25000 and multiple thereof.

c)      Call money- borrowed for less than 1 day.

Notice money- more than 1 day and up to 14 days

Term money- term money refers to borrowing and lending of funds for a period of more than 14 days.

d)     True. Minimum amount of CD should be 1lakh. Can be issued by SCBs and FIs and not by RRBs and local area banks.

8)     Which of the following is/are correctly matched

a)     Laffer curve - relationship between rates of taxation and the resulting levels of government revenue.

b)     Philips’s curve- inverse relationship between rate of inflation and rate of unemployment.

c)      IS-LM curve- relationship between interest rates and real output.

                                I.            All

                              II.            a and b only

                           III.            a and c only

                            IV.            A only

                              V.            B only

9)     According to new Basel-III norms, Indian banks need to maintain a minimum CRAR of …………per cent.

a)     9

b)     10

c)      8

d)     8.5

e)     9.5

Self-explanatory

10)  Mission Indradhanush is aimed at revamp the functioning of public sector banks.  Which of the following is not among the seven elements that comprise INDRADHANUSH mission.

a)     Bank Board Bureau

b)     Appointments

c)      De-stressing PSBs.

d)     Empowerment

e)     Partnership

 Explanation-

INDRADHANUSH mission is a brainchild of PJ Nayak committee  for the revival of PSBs. It is launched by Ministry of Finance under the Department of Financial Services. 

The mission includes the seven key reforms as follows:

1) Appointments

2)  Bank Board Bureau

3)   Capitalization

4)   De-stressing PSBs

5)  Empowerment

6)  Framework of Accountability

7)  Governance Reforms

Not to be confused with mission Indradhanush for immunization of kids 

Government has launched Mission Indradhanush to immunise kids against 7 vaccine-preventable diseases. Mission Indradhanush depicts 7 colours of the rainbow which aims to cover all those children by 2020 who are either unvaccinated, or are partially vaccinated against 7 vaccine preventable diseases.

7 preventable diseases: diphtheria, whooping cough, tetanus, polio, tuberculosis, measles and hepatitis B.