Indian Banking and Financial System Questions and Answers

Answer: A

Sales tax is not a direct tax.

Its burden is passed on to the buyer in the price, which is what makes a tax indirect. Wealth tax, corporation tax and estate duty all fall on the person assessed and cannot be shifted.

Answer: C

Correct answer: Mixed

India adopted a mixed economy, in which a public sector holding the commanding heights operates alongside private enterprise. The Industrial Policy Resolutions of 1948 and 1956 gave it form, reserving defined industries to the State while leaving others to private capital.

It is therefore neither capitalist nor socialist in the pure sense, though the balance has shifted markedly towards the private sector since the liberalisation of 1991. "Federal" is not an answer to this question at all: it describes the constitutional distribution of power between the Union and the states, not the ownership structure of the economy.

Answer: D

Correct answer: All of the above

All three operate at the state level and complement one another. State Financial Corporations, set up under the SFCs Act 1951, lend to small and medium industrial concerns within a state.

State Industrial Development Corporations promote and develop industry, often by building infrastructure and taking equity in new ventures, and State Industrial Investment Corporations perform a similar investment and promotional role. Their common feature is a state-level charter, which distinguishes them from IDBI, IFCI, ICICI and UTI - the all-India institutions that operate across the country.

Answer: D

Correct answer: (i), (ii), (iii) and (iv)

All four are IFCI functions. As India's first development finance institution, established in 1948, its mandate was deliberately broad.

It grants loans for establishment, expansion, diversification and modernisation in the corporate and co-operative sectors; guarantees loans raised in the capital market in rupees or foreign currency; subscribes to or underwrites issues of shares and debentures, holding such investment up to seven years; and guarantees deferred payments for capital goods bought at home or imported. Note the pattern: two lending powers and two guarantee powers, the guarantees letting IFCI support a concern without committing its own funds.

Answer: B

Correct answer: Textiles

Textiles is the largest employer among industries, and after agriculture the largest source of employment in the country, taking in some tens of millions of people across spinning, weaving, processing and garment-making.

Two features explain it. The industry is labour-intensive at almost every stage, and much of it is decentralised into handloom, powerloom and small units rather than concentrated in large mills. Chemicals, iron and steel are capital-intensive and employ far fewer for their output, and jute, though labour-intensive, is confined largely to eastern India and much smaller in total.

Answer: C

Indian oil is not only the largest commercial enterprise in the country. It is the flagship corporate of the Indian Nation. Indian oil’s world class R and D center, established in 1972, has state of the art facilities and has delivered pioneering results in lubricants technology, refining process, pipeline transportation, bio fuels and fuel efficient appliances. As on 1st April 2009, India had 402 total oil and gas fields, out of which 16 are only oil fields, 125 are only gas fields and 261 are both.

Answer: D

Correct answer: April 1957

The decimal system took effect on 1 April 1957, replacing the old division of the rupee into 16 annas, each of 12 pies, with 100 naye paise to the rupee.

The change was authorised by the Indian Coinage (Amendment) Act 1955, which is why 1955 appears among the options - but the Act's enabling and the currency's actual introduction are two years apart, and the question asks for the latter. The word naya was dropped in 1964, once the public had grown used to the new coins.

Answer: C

Correct answer: Both (a) and (b)

ICICI was set up in 1955 with both purposes, and they were complementary. Assisting the formation, expansion and modernisation of private-sector industrial units was the direct lending objective.

Stimulating the participation of private capital, Indian and foreign, was the catalytic one: ICICI was promoted with World Bank involvement precisely so that private and foreign capital would follow it into Indian industry. Its underwriting and equity participation served that second aim rather than the first. This private-sector and foreign-capital orientation is what distinguished ICICI from IFCI and IDBI at the time.

Answer: B

Correct answer: (i), (ii) and (iii)

The keyed set gathers the three things a bank itself must get right for electronic banking to work. A multi-layer security system - encryption in transit, two-factor authentication, session controls - is what keeps customer credentials and transactions safe, and a single layer is not enough because each layer is there to catch what the one before it misses. A risk and surveillance system monitors transactions as they happen, so unusual patterns are caught before money leaves rather than after. Updated, flawless software matters because unpatched code is the commonest way in; an e-banking platform is only as sound as its last update. The fourth item, a stringent legal framework, is genuinely important to electronic banking - India’s Information Technology Act 2000 gave digital records and signatures legal standing, without which online transactions would be hard to enforce - but it is part of the environment a bank operates in rather than something the bank builds. That is the distinction the key draws, and it is worth knowing that some sources answer this item with all four.

Answer: A

Correct answer: contraction in volume of money or credit that results in a decline of price level

Deflation is the monetary condition opposite to inflation: the volume of money or credit contracts and the general price level falls.

It is not a budget position. A deficit budget is expansionary, adding to demand, and would ordinarily work against deflation rather than constitute it; reduced taxation and increased public expenditure are expansionary for the same reason, so all three of the other options describe fiscal measures pointing the wrong way. Deflation is damaging in practice because falling prices raise the real burden of debt and encourage buyers to postpone purchases, which deepens the contraction.