Indian Banking and Financial System Questions and Answers

Answer: B

Correct answer: 1963

The Unit Trust of India was established in 1963 under the Unit Trust of India Act 1963, and began operations with the Unit Scheme 1964.

It was India's first mutual fund, created to give the small saver access to a diversified portfolio and professional management, and for nearly three decades it held a statutory monopoly - the mutual fund industry opened to public-sector banks only in 1987 and to private sponsors in 1993. Placing it in sequence: IFCI 1948, ICICI 1955, UTI 1963, IDBI 1964.

Answer: A

Correct answer: 1992

SEBI was constituted as a non-statutory body in 1988 and given statutory powers by the Securities and Exchange Board of India Act 1992, which is the year conventionally given for its establishment.

The timing is not coincidental: the securities scam of 1992 and the liberalisation begun in 1991 together made a regulator with real enforcement powers unavoidable. Its mandate is threefold - to protect investors, to develop the securities market and to regulate it - and the 1992 Act replaced the Controller of Capital Issues, whose consent-based system had governed issues until then.

Answer: C

We need to turn to the lesser known Bennet’s law for an explanations of food inflation. Bennet’s law suggests that as income increase, the proposition of starchy staples in the food basket declines relating to the share of more expensive source of calories. Recent NSSO data showing a significant increase in the share of protein rich items in total find expenditure, both in rural and urban areas confirm this hypothesis.

Answer: A

Correct answer: Wholly-owned Government of India undertaking

IDBI was established in 1964 as a wholly-owned subsidiary of the Reserve Bank of India, but it did not remain one. In 1976 it was delinked from the RBI and its ownership transferred to the Government of India.

Its apex role over the other financial institutions was the reason: supervising bodies in which the RBI itself had an interest sat awkwardly with the central bank's own functions, and direct government ownership resolved that. The second option therefore describes only the position between 1964 and 1976, and the description of it as a public limited company belongs to the much later conversion of 2004.

Answer: C

Correct answer: Both (a) and (b)

IDBI could extend both. A line of credit is a sanctioned limit the borrowing institution draws on as its own lending requires; a loan or advance is a specific sum for a specific purpose.

Both were used because the other institutions' needs varied - a state finance corporation with a steady flow of small loans is better served by a standing limit than by repeated applications. This is the same apex logic as refinance: IDBI supplied resources to the institutions that lent to industry, rather than lending to every industrial concern itself.

Answer: B

Correct answer: rise in the price of the commodity

Take the options against the law of demand and against what shifts the demand curve. A rise in the commodity's own price reduces the amount buyers take, which is the only decrease among the four.

A fall in its price does the opposite, raising the quantity demanded. A rise in the price of a substitute pushes buyers towards this good and increases demand for it. A rise in consumer income increases demand for any normal good. Note that the own-price change moves along a given demand curve while the other two shift the curve itself - a distinction worth keeping, though either way only one option reduces the amount bought.

Answer: B

Correct answer: Rs 50 crore

The ordinance of 19 July 1969 nationalised the fourteen largest commercial banks, the qualifying threshold being deposits of not less than Rs 50 crore.

The purpose was to redirect credit towards agriculture, small industry and the neglected regions, which private banks had largely bypassed in favour of large commercial borrowers. A second round in 1980 took six more banks, that time at a threshold of Rs 200 crore. The two thresholds are often confused, so it is worth attaching each to its year: Rs 50 crore in 1969, Rs 200 crore in 1980.

Answer: A

Correct answer: 1991

Economic liberalisation was introduced in 1991, when a balance-of-payments crisis left India with reserves sufficient for only a few weeks of imports and forced a reappraisal of policy.

The response combined devaluation, the New Industrial Policy of July 1991 - which abolished industrial licensing for most sectors and opened areas previously reserved to the public sector - trade liberalisation and the opening of the economy to foreign investment. The reforms are associated with Prime Minister P. V. Narasimha Rao and Finance Minister Manmohan Singh, and 1991 is the standard date for the change of direction.

Answer: A

Correct answer: Mumbai

The National Stock Exchange is at Mumbai, incorporated in 1992 and beginning trading in 1994.

Its significance was the method rather than the place: it introduced screen-based electronic trading with nationwide terminals, ending the floor-based open outcry that had confined access to members physically present. That change forced the older exchanges to modernise and made trading possible from anywhere in the country. Mumbai's position as the financial centre also explains the Bombay Stock Exchange, the Reserve Bank and SEBI all being located there.

Answer: A

Correct answer: Prime Minister

The Prime Minister was the ex-officio Chairman of the Planning Commission, with a Deputy Chairman of cabinet rank running it day to day. The arrangement reflected the Commission's standing: it was created by a Cabinet resolution in 1950 rather than by statute, and its authority came from the Prime Minister's own.

The pattern survived the institution. The Planning Commission was replaced by NITI Aayog in January 2015, and the Prime Minister is likewise its ex-officio Chairperson, with a Vice-Chairperson in the executive role.