Money can be defined as a currency that has become the generally accepted medium of exchange within a market. It acts as a measure, a store of value and a standard of deferred payment within an economy. Banking is defined as a business activity that involves accepting and safeguarding money owned by other parties and lending it to conduct economic activities with the intention of making a profit and covering operating expenses.
We have compiled a list of multiple-choice questions on Money and Banking to help students understand the topic better.
- Which of the following is a step that the central bank will take to encourage greater investment in the economy?
- It will look to increase the cash reserve ratio
- It will look to reduce the cash reserve ratio
- It will look to increase the bank rate
- It will look to sell the government securities in the open market
- Which of the following is a step that the central bank will take to increase the overall availability of credit?
- It will sell the government securities in the market
- It will buy more government securities from the market
- It will raise the reverse repo rate
- It will raise the repo rate
- Which of the following statements is true about the Indian monetary system?
- The Indian monetary system is based on the gold standard
- The Indian monetary system is based on the credit money standard
- The Indian monetary system is based on the paper standard
- The Indian monetary system is based on the metallic standard
- Which of the following statements represents the main function of the central bank in a country?
- It is responsible for the regulation over the supply of money in the market
- It is responsible for the issuance of notes within the country
- It acts as a banker both to the government and to other banks in the country
- All of the above
- Which of the following statements is true about demand deposits?
- It includes both fixed deposits and current account deposits
- It includes both savings account deposits and fixed deposits
- It includes both current account deposits and savings account deposits
- It includes fixed deposits, current account deposits and savings account deposits
- Which of the following statements is true about the central bank?
- It regulates the entire banking system in the country
- It is under the ownership of the central government of a country
- It is the apex bank of a country
- All of the above
- Which of the following statements about the bank rate is true?
- Bank rate is different from interest rate
- Bank rate is the discount rate provided by the central bank of a country
- Bank rate is defined as the rate at which the central bank of a country gives credit to the commercial banks
- All of the above
- Which of the statements gives a true picture of the effect of the central bank selling securities in the market?
- The credit creation capacity of commercial banks will fall
- The credit creation capacity of commercial banks will rise
- The credit creation capacity of commercial banks may rise or fall
- There is no effect on the credit creation capacity of commercial banks
- Which of the statements gives a true picture of the effect of lowering the cash reserve ratio by the central bank of a country?
- The lending capacity of commercial banks will increase
- The lending capacity of commercial banks will decrease
- The lending capacity of commercial banks may increase or decrease
- There is no effect on the lending capacity of commercial banks
- Which of the statements gives an accurate picture of the effect of the rise of the reverse repo rate by the central bank of a country?
- The demand for goods and services in the country will decrease
- The demand for goods and services in the country will increase
- The demand for goods and services in the country may increase or decrease
- There is no effect on the demand for goods and services in the country
- Which of the statements gives an accurate picture of the effect of the increase in the repo rate?
- The money supply in the country will decrease
- The money supply in the country will increase
- The money supply in the country will increase initially and then decrease
- There is no effect on the money supply in the country
- Which of the following statements is true about credit creation by banks?
- Banks create credit on the basis of their total assets
- Banks create credit on the basis of their total deposits
- Banks create credit on the basis of their total securities
- Banks create credit out of nothing
- Which of the following is not the function of the central bank of a country?
- Being the custodian of foreign exchange reserves
- Accepting deposits from the general public
- Both a and b are correct
- Both a and b are incorrect
- Which agency regulates the money supply in India?
- The Government of India
- Commercial banks
- Reserve Bank of India
- None of the above
- Which of the following statements is true about the money supply?
- It is the total volume of money that is held by the government of a country
- It is the total volume of money that is held by the general public of a country over a time period
- It is the total volume of money that is held by the general public of a country at a particular point in time
- All of the above
Answer: b
Answer: a
Answer: c
Answer: d
Answer: c
Answer: d
Answer: d
Answer: a
Answer: a
Answer: a
Answer: a
Answer: b
Answer: b
Answer: c
Answer: c
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