Indian Economy Questions and Answers

Answer: D

The establishment and incorporation of the Reserve Bank are provided for in Section 3 of the Reserve Bank of India Act, 1934, which says that a bank to be called the Reserve Bank of India is constituted to take over the management of the currency from the Central Government and to carry on the business of banking under the Act. It is a body corporate with perpetual succession and a common seal.

Section 8 deals with the composition of the Central Board, Section 9 with the Local Boards, and Section 11 with disqualifications of directors. These sections follow the one that establishes the Bank.

Answer: C

Both A and B are correct, so the answer is both A and B. SEBI was set up in 1988 as a non-statutory body by a resolution of the Government of India, and it became a statutory body in 1992 when the Securities and Exchange Board of India Act, 1992 was passed, after the Ordinance of January 1992.

The options saying only A, only B, or none of these are wrong because both statements are correct and neither can be left out.

Answer: A

The right to issue bank notes is given by Section 22 of the Reserve Bank of India Act, 1934: the Bank has the sole right to issue bank notes in India, for a period fixed by the Central Government, and it may also issue currency notes of the Government of India.

The other sections are different provisions of the same Act, dealing with other aspects of the Issue Department and the Bank's functions, and not with the grant of the sole right to issue notes.

Answer: D

Indigenous bankers belong to the unorganised sector of Indian banking. They are private individuals and firms, such as shroffs and money-lenders, who receive deposits and lend money without being under the full regulatory control of the Reserve Bank. Commercial banks, co-operative banks and regional rural banks are all part of the organised sector, which is regulated by the Reserve Bank and the related laws.

Answer: D

All four are functions of financial markets. They help to create and allocate credit and liquidity in the economy, they serve as intermediaries by mobilising the savings of households and passing them to those who invest, they help the process of balanced economic growth by channelling funds to productive uses, and they provide financial convenience such as information and low transaction costs. As all four are listed in the key, an option with fewer items is incomplete.

Answer: C

The incorrect statement is that financial instruments cannot be pledged for getting loans. In fact many financial instruments, such as shares, bonds and fixed deposit receipts, can be pledged or offered as security for loans. The other statements are correct: financial instruments give liquidity because they can be converted to cash quickly, they can be traded easily because there is a ready market, and they can be transferred from one person to another.

Answer: B

IRDA stands for the Insurance Regulatory and Development Authority. It is the statutory body that regulates and promotes the insurance industry in India, set up under the IRDA Act, 1999 (the present name is IRDAI, with India added). The other options use the wrong words, Registration instead of Regulatory, or Depository instead of Development.

Answer: A

The Reserve Bank of India is known as the banker to all banks, because commercial banks keep their reserves with it and borrow from it as a last resort. The SBI is the largest commercial bank but does not hold the other banks' reserves, the Ministry of Finance is a government department, and the Central Bank of India is only a commercial bank. So the RBI is the answer.

Answer: C

The Reserve Bank of India was established on 1 April 1935 under the Reserve Bank of India Act, 1934, following the recommendations of the Hilton Young Commission, and it began work in Calcutta before moving to Mumbai. It was nationalised in 1949. The years 1933, 1936 and 1931 are not the year of its start, although the Act itself was passed in 1934. The answer is 1935, option C.

Answer: A

The new economic policy of liberalisation, privatisation and globalisation (LPG) was begun in India in 1991, in the time of Prime Minister P. V. Narasimha Rao and Finance Minister Manmohan Singh, in response to a balance of payments crisis. It dismantled much of the licence raj, reduced import duties and opened many sectors to private and foreign investment. The years 1993, 1994 and 1996 are later years of the reform process, and they are not the start. The answer is 1991, option A.