Monetary Policy Instruments MCQ for RBI Grade B (Finance)

Dear aspirants,
We are presenting you the Monetary Policy Instruments MCQ for RBI Grade B Finance Section of the exam. These questions cover the topics like CRR, SLR, Repo Rate, MSF, LAF etc.

Let’s read the Monetary Policy Instruments MCQ for RBI Grade B and do check answers are given at the end of the quiz.

1. Which out of the following is/are included in second schedule of Reserve Bank of India
   a) Nationalised Banks.
   b) Regional Rural Banks
   c) State co-operative banks
   d) Village level Primary Co-operative Societies
   Select the correct answer from following options:
   1. Only a, b and c
   2. Only b, c and d
   3. Only a, d and c
   4. All are correct
2. Which out of the following is/are correct regarding Cash Reserve Ratio (CRR)?
   a) Section 42 of RBI Act, 1934 lays foundation for maintaining CRR by scheduled commercial bank with RBI.
   b) Section 24 of the Banking Regulations Act, 1949 provide powers to RBI to levy CRR on banks
   c) At present CRR is 4 per cent of NDTL
   d) Banks have to maintain minimum 95 per cent of the required CRR on a daily basis and 100 per cent on an average basis during the fortnight
   Select the correct answer from following options:
   1. Only a, b and c
   2. Only b, c and d
   3. Only a, c and d
   4. All are correct
3. Which out of the following is/are correct regarding Statutory Liquidity Ratio (SLR)?
   a) Section 42 of RBI Act, 1934 lays foundation for maintaining SLR by scheduled commercial bank with RBI.
   b) Section 24 of the Banking Regulations Act, 1949 provide powers to RBI to specify SLR on banks
   c) At present SLR is 19.50 per cent of NDTL
   d) Qualified liquid assets for purpose of SLR are: unencumbered government and other approved securities, gold, cash and excess CRR balance
   Select the correct answer from following options:
   1. Only a, b and c
   2. Only b, c and d
   3. Only a, c and d
   4. All are correct
4. Which among the following defines Repo Rate?
   1. The rate at which banks place their surplus funds with the RBI
   2. The rate at which banks can borrow against their excess SLR securities to meet additional liquidity requirements
   3. The rate at which the Reserve Bank is prepared to buy or re-discount bills of exchange or other commercial paper eligible for purchase
   4. The rate at which banks borrow funds from the Reserve Bank against eligible collaterals
5. Which among the following defines Reverse Repo Rate?
   1. The rate at which banks place their surplus funds with the RBI
   2. The rate at which banks can borrow against their excess SLR securities to meet additional liquidity requirements
   3. The rate at which the Reserve Bank is prepared to buy or re-discount bills of exchange or other commercial paper eligible for purchase
   4. The rate at which banks borrow funds from the Reserve Bank against eligible collaterals
6. Which among the following defines Marginal Standing Facility Rate?
   1. The rate at which banks place their surplus funds with the RBI
   2. The rate at which banks can borrow against their excess SLR securities to meet additional liquidity requirements
   3. The rate at which the Reserve Bank is prepared to buy or re-discount bills of exchange or other commercial paper eligible for purchase
   4. The rate at which banks borrow funds from the Reserve Bank against eligible collaterals
7. Which among the following defines Bank Rate?
   1. The rate at which banks place their surplus funds with the RBI
   2. The rate at which banks can borrow against their excess SLR securities to meet additional liquidity requirements
   3. The rate at which the Reserve Bank is prepared to buy or re-discount bills of exchange or other commercial paper eligible for purchase
   4. The rate at which banks borrow funds from the Reserve Bank against eligible collaterals
8. Which among the following is also known as ‘base money’ or ‘high-powered money or Reserve Money?
   1. M0
   2. M1
   3. M2
   4. M3
9. Which among the following is not a part of Liquidity Adjustment Facility (LAF)?
   1. Repo Rate
   2. Reverse Repo Rate
   3. Marginal Standing Facility (MSF)
   4. Open Market Operations (OMO)
10. In which year Liquidity Adjustment Facility (LAF) was introduced by Reserve Bank of India?
    1. 1998
    2. 2000
    3. 2002
    4. 2004

Answers

1. 1
2. 3
   According to Section 42 of the Reserve Bank of India Act, 1934, each scheduled commercial bank has to maintain a minimum cash balance with the Reserve Bank as cash reserve ratio (CRR) which is prescribed by the Reserve Bank from time to time as certain percentage of its net demand and time liabilities (NDTL) relating to the second preceding fortnight. As of now, the CRR is 4 per cent of NDTL. Banks have to maintain minimum 95 per cent of the required CRR on a daily basis and 100 per cent on an average basis during the fortnight
3. 2
   In terms of Section 24 of the Banking Regulations Act, 1949, scheduled commercial banks have to invest in unencumbered government and approved securities certain minimum amount as statutory liquidity ratio (SLR) on a daily basis. At present, SLR is 23 per cent of the NDTL. In addition to investment in unencumbered government and other approved securities, gold, cash and excess CRR balance are also treated as liquid assets for the purpose of SLR
4. 4
   Repo rate is the rate at which banks borrow funds from the Reserve Bank against eligible collaterals under the liquidity adjustment facility (LAF).
5. 1
   The reverse repo rate is the rate at which banks place their surplus funds with the RBI under the liquidity adjustment facility (LAF)
6. 2
   To meet additional liquidity requirements, banks can borrow overnight funds from the Reserve Bank under the Marginal Standing Facility (MSF) at a higher rate of interest. Banks can borrow against their excess SLR securities and are also permitted to dip down up to two percentage points below the prescribed SLR to avail funds under the MSF
7. 3
8. 1
9. 4
10. 2
    As part of the financial sector reforms in 1998 the Committee on Banking Sector Reforms (Narasimham Committee II), Liquidity Adjustment Facility (LAF) was introduced under which the Reserve Bank would conduct auctions periodically.

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