Economic Organisations and Regulatory Bodies in India Questions and Answers

Answer: A

Correct answer: Bank for International Settlements

The BIS, founded in 1930 and based in Basel, provides banking services to central banks and hosts the committees that set international standards. The Basel norms on bank capital take their name from it.

Answer: B

Correct answer: Does not wish its ADR to be listed on an exchange.

An American Depositary Receipt is a certificate issued by a US bank representing shares in a foreign company, so that the shares can be traded in dollars under US settlement rules. They come in three levels, and the level records how far the issuer is willing to go in meeting US requirements.

Level 1 is the most basic. The receipts trade over the counter rather than being listed on an exchange, and because of that the company escapes full registration with the SEC and does not have to restate its accounts to US GAAP. It is the cheapest and quickest way for a foreign company to give US investors access to its shares, and it is often set up without the company’s active involvement at all - a bank can create an unsponsored Level 1 programme on its own.

Level 2 requires an exchange listing, full SEC registration and reporting on Form 20-F. Level 3 goes further still and allows the company to raise fresh capital by issuing new shares to US investors, which Levels 1 and 2 do not.

The wording of the options is loose - a Level 1 ADR is unlisted anywhere, and so it is also true that it is not listed on a US exchange - but the keyed option is the standard formulation of the definition.

Answer: B

Correct answer: Government taxes, expenditure and borrowings

Fiscal policy is the Government's use of its budget - what it taxes, what it spends and what it borrows to bridge the gap - to influence the level of activity in the economy.

The first option describes open market operations, which belong to monetary policy and to the Reserve Bank. External borrowing is one component of government borrowing rather than the whole of fiscal policy, and revenue sharing with the states is fiscal federalism - the distribution of what has been raised, not the decision to raise or spend it.

Answer: B

Correct answer: A depositary receipt

A depositary receipt is a negotiable instrument issued by a depositary bank, representing shares of a foreign issuer that are held by a custodian in the issuer's home market.

It lets an investor hold a foreign company's equity through the familiar machinery of the local market - local currency, local settlement, local dividends - without opening an account abroad. ADRs are those trading in the United States and GDRs those trading in other international markets. The other options are not terms used in securities markets.

Answer: A

The Indian millennium deposit scheme, operated by SBI got under way on Oct.21. Indian millennium deposit represent foreign currency deposit in India and are denominated in US dollar, Pound sterling and Euro. This plan is only for non resident plan.

Answer: B

Correct answer: Monetary

Monetary policy is the set of measures by which the central bank controls the supply of money and the cost and availability of credit - the repo rate, the reserve ratios, open market operations and the liquidity adjustment facility.

Fiscal policy is the Government's province and works through taxation, expenditure and borrowing, which is the distinction the third option offers. Credit policy is a term sometimes used for the selective half of monetary policy rather than for the whole, and "financial policy" is not a term of art at all.

Answer: D

Correct answer: Zero %

No interest is paid on cash reserve ratio balances. The Reserve Bank paid interest on them until 2007, when the RBI Act was amended to remove the provision.

The consequence is that CRR is a genuine cost to a bank, not merely a reallocation of its assets - deposits it has paid for sit idle at the central bank. That is exactly what distinguishes it from the statutory liquidity ratio, which may be held in government securities that earn a return. It is also why a change in CRR bites harder on bank margins than a change of the same size in SLR.

Answer: A

Correct answer: Present regulation limit of number of anchor investors at 15 if public size issue is below INR 250 crore, can be increased to 25 if issue size is over 250 crore

SEBI removed the ceiling on the maximum number of anchor investors for large issues. The rule had capped the number at 15 for an issue below Rs 250 crore, rising to 25 above that threshold.

The limit had become a constraint on the very issues it least suited: a large offering has a substantial anchor portion, and a small number of participants means each must take a very large ticket, narrowing the field to a handful of the biggest institutions. Allowing more of them spreads the allocation and widens participation.

Answer: A

Correct answer: Those borrowers who do not have a good credit history

Subprime lending means lending to borrowers who do not meet prime credit standards - a poor repayment record, thin credit history, low income relative to the loan, or high existing debt.

Such loans carry higher interest rates to compensate for the greater risk of default. The term became familiar through the United States housing crisis of 2007–08, where subprime mortgages were packaged into securities whose ratings assumed a diversification of risk that did not survive a nationwide fall in house prices. "Debit history" is not a term in credit assessment at all.

Answer: A

Correct answer: Global depositary receipts

A Global Depositary Receipt is a depositary receipt traded in international markets outside the United States, most commonly on the London or Luxembourg exchanges.

The distinction from an ADR is the market rather than the instrument: both represent shares of a foreign issuer held with a custodian, and both let an investor buy that equity in a local currency under local settlement. Indian companies raised substantial sums through GDRs in the 1990s and 2000s, when accessing foreign capital directly was harder than issuing receipts against domestic shares.