Monetary Policy and the RBI — GK Questions with Answers

1. On whose recommendation was the RBI set up
   1. The Rangarajan Commission
   2. The Hilton Young Commission
   3. The Narasimham committee
   4. The Urjit Patel committee
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   Answer: (B) The Hilton Young Commission

   The Hilton Young Commission recommended it in 1926; the Act came in 1934 and the founding on 1 April 1935.

2. When was the RBI nationalised
   1. 1 April 1935
   2. 1 January 1949
   3. 15 August 1947
   4. 1 July 1955
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   Answer: (B) 1 January 1949

   Nationalisation came on 1 January 1949 and ownership passed to the Government of India.

3. Under which section of the RBI Act may the government direct it in the public interest
   1. Section 3
   2. Section 7
   3. Section 17
   4. Section 42
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   Answer: (B) Section 7

   Section 7 marks the limit of the autonomy of the RBI.

4. Who manages India's external debt
   1. The RBI
   2. The government itself
   3. SEBI
   4. NITI Aayog
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   Answer: (B) The government itself

   The RBI manages internal debt; external debt is handled by the government itself.

5. Which of these is not a part of the foreign exchange reserves
   1. Gold
   2. Special Drawing Rights
   3. The reserve tranche
   4. Government securities
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   Answer: (D) Government securities

   The four parts are foreign currency assets, gold, SDR and the reserve tranche.

6. On which do banks earn interest
   1. CRR
   2. SLR
   3. On both
   4. On neither
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   Answer: (B) SLR

   Banks earn interest on SLR; on CRR the RBI pays nothing.

7. What is SLR at present
   1. 4%
   2. 12%
   3. 18%
   4. 25%
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   Answer: (C) 18%

   SLR is 18% and a bank may hold it in gold, cash and government securities.

8. What are CRR and SLR called together
   1. The policy rate
   2. The statutory reserve requirement
   3. The Liquidity Adjustment Facility
   4. The penal rate
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   Answer: (B) The statutory reserve requirement

   Together they are the statutory reserve requirement, and both keep deposits safe.

9. The rate at which the RBI lends long-term to banks is
   1. The repo rate
   2. The reverse repo rate
   3. The Bank Rate
   4. MSF
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   Answer: (C) The Bank Rate

   The Bank Rate is also called the penal rate and is charged when CRR or SLR is not kept.

10. In which year did the Liquidity Adjustment Facility begin
    1. 1991
    2. 2000
    3. 2011
    4. 2016
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    Answer: (B) 2000

    In the year 2000, and the REPO market was developed under it.

11. Which rate is called the policy or benchmark rate
    1. The Bank Rate
    2. The repo rate
    3. The reverse repo rate
    4. MSF
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    Answer: (B) The repo rate

    The repo rate is the most important of all and it is the one called the policy rate.

12. Which securities may a bank not pledge under repo
    1. Government securities held for SLR
    2. Corporate bonds
    3. Gold
    4. Foreign currency
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    Answer: (A) Government securities held for SLR

    That is the main difference between repo and MSF — SLR securities may be pledged under MSF.

13. In which year was MSF begun
    1. 2000
    2. 2011
    3. 2016
    4. 2022
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    Answer: (B) 2011

    In 2011; under it the RBI lends to banks for one day and the rate stays equal to the Bank Rate.

14. When did the Standing Deposit Facility begin
    1. April 2020
    2. April 2022
    3. November 2016
    4. January 2019
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    Answer: (B) April 2022

    In April 2022; under it the RBI need not pledge any government security.

15. What is the formula for SDF
    1. Repo rate + 0.25%
    2. Repo rate − 0.25%
    3. Repo rate + 0.50%
    4. Bank Rate − 0.25%
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    Answer: (B) Repo rate − 0.25%

    MSF and the Bank Rate are repo + 0.25%, and SDF is repo − 0.25%.

16. What does the RBI do in the open market when inflation is high
    1. Buys government securities
    2. Sells government securities
    3. Lowers CRR
    4. Lowers the repo rate
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    Answer: (B) Sells government securities

    Selling brings the market's money to the RBI and liquidity falls.

17. In which year did LTRO begin
    1. 2016
    2. 2019
    3. 2020
    4. 2022
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    Answer: (C) 2020

    In 2020, during the Covid crisis; the rate of interest was kept equal to the repo rate.

18. Which of these is not a qualitative tool
    1. Margin requirement
    2. Moral suasion
    3. Credit rationing
    4. Open market operations
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    Answer: (D) Open market operations

    Open market operations are a quantitative tool; the other three are qualitative.

19. An asset worth one crore is pledged and the margin requirement is 20%; how much loan may be given
    1. ₹20 lakh
    2. ₹50 lakh
    3. ₹80 lakh
    4. ₹1 crore
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    Answer: (C) ₹80 lakh

    With a margin of 20 per cent, a loan of 80 per cent, that is ₹80 lakh, may be given.

20. What inflation target did the Urjit Patel committee suggest
    1. 2% ± 2%
    2. 4% ± 2%
    3. 5% ± 1%
    4. 6% ± 2%
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    Answer: (B) 4% ± 2%

    The committee suggested a target of 4% ± 2% on the CPI, with a review every 60 days.

21. How many members does the Monetary Policy Committee have
    1. 4
    2. 5
    3. 6
    4. 8
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    Answer: (C) 6

    Six members — three from the RBI and three from the government; the RBI Governor chairs it.

22. What power does the RBI Governor hold when the votes are equal
    1. A veto
    2. A casting vote
    3. The power to dissolve the committee
    4. No power at all
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    Answer: (B) A casting vote

    The Governor may cast one additional, deciding vote, but holds no veto power.

23. How long is notice money for
    1. One day
    2. 2 to 14 days
    3. 15 to 364 days
    4. More than a year
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    Answer: (B) 2 to 14 days

    Call money is for one day, notice money for 2 to 14 days and term money for 15 to 364 days.

24. In which year did the External Benchmark Lending Rate come into force
    1. 2004
    2. 2010
    3. 2016
    4. 2019
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    Answer: (D) 2019

    BPLR in 2004, the Base Rate in 2010, MCLR in 2016 and EBLR in 2019.

25. What is the PSL target for a Regional Rural Bank
    1. 40 per cent
    2. 60 per cent
    3. 75 per cent
    4. 18 per cent
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    Answer: (C) 75 per cent

    Both RRBs and small finance banks are at 75 per cent; an ordinary commercial bank is at 40 per cent.

26. When is a loan declared an NPA
    1. When unpaid for 30 days
    2. When unpaid for 60 days
    3. When unpaid for 90 days
    4. When unpaid for 180 days
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    Answer: (C) When unpaid for 90 days

    When principal and interest go unpaid for 90 days; before that come the warnings of SMA-0, SMA-1 and SMA-2.

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