Money and Banking, Macroeconomics

Question 1

Barter System

Answer 1

A system of exchange in which participants in a transaction directly exchange goods or services for other goods or services

Trading good or services between two or more parties without money

Question 2

DIsadvantages of Barter System

Answer 2

Lack of coincidence of wants
Lack of common measure of value
Lack of store of value
Lack of standard of deferred payments

Question 3

Money

Answer 3

Money is any item or medium of exchange that is accepted by people for the payment of goods and services

Question 4

Primary requirements of Money

Answer 4

Being accepted as :
Measure of value
Medium of exchange

Question 5

Secondary requirements of Money

Answer 5

Being accepted as :
Store of value
and Standard of deferred payments

Question 6

Money Supply

Answer 6

Total volume of money held by the public at a particular point of time

It’s a Stock concept

Question 7

Measure of Money Supply

Answer 7

The RBI uses four measures of money supply denoted as M1,M2,M3,M4. M1

Question 8

M1

Answer 8

Currency held by the public
Demand deposits of Commercial Banks
Other deposits with RBI

Question 9

M2

Answer 9

M1 + Saving deposits with the Post Office

Question 10

M3

Answer 10

M1 + Fixed Deposits

Question 11

M4

Answer 11

M3 + All Saving deposits with Post Office (Not the currency held by the public)

Question 12

Commercial Bank

Answer 12

An institution which performs the function of Accepting Funds, Lending Funds and making investments with the main aim of earning profits

Question 13

Primary Functions of a Commercial Bank

Answer 13

Accepting and lending money

Question 14

Secondary Functions of a Commercial Bank

Answer 14

Overdraft Facility
Discounting bills of exchange
Agency Functions
General utility functions

Question 15

Types of Deposits

Answer 15

Demand Deposit, Fixed Deposit, Saving Deposit

Question 16

Demand Deposit

Answer 16

Is for Current Account; A bank account from which deposited funds can be withdrawn at any time, without advance notice

Are commonly used by Business Firms
Has Check facility available

Question 17

Fixed Deposit

Answer 17

An investment instrument offered by bank for Savings with a higher rate of interest than a regular savings account

Long Term Deposits

Question 18

Saving Deposit

Answer 18

A limited number of Withdrawals, a lack of Cheque and linked Debit Card facilities

Combined features of both
Interest is also provided (but less than FDs)

Question 19

Types of Loans

Answer 19

Cash Credit
Demand Loans
Short Term Loans

Question 20

Cash Credit

Answer 20

Short-term source of financing given against assets for a company

Interest is charged monthly and only on the money withdrawn

Question 21

Demand Loans

Answer 21

A loan that a lender can require to be repaid in full at any time

Interest is charged

Genreally short term
Interest is charged on the money withdrawn

Question 22

Short Term Loan

Answer 22

Loans with little to no collateral that are to be repaid in a year or less,

Are offered to salaried employees of reputed companies in form of CC

Question 23

Overdraft Facility

Answer 23

Overdraft Facility is a credit facility through which you can withdraw money from your savings or current account

Interest is charged at month end and delaying payment effects Credit Score

Question 24

Discounting BIlls of Exchange

Answer 24

Encashment of a bill before its maturity date is referred to as discounting bills of exchange

Question 25

Agency Functions of a Commercial Bank

Answer 25

Transfer of Funds Collection and Payment of items Purchase and Sale of Securties Income Tax Consultancy

Question 26

General Utility Functions

Answer 26

Locker Facility Traveller's Cheque Letter of credit

Question 27

Assumptions

Answer 27

Entire bommercial banking systen is one unit, termed as 'Bank' All the Reciepts & Payments are routed through Bank

Question 28

Formula of Money Multiplier

Answer 28

1/LRR

Question 29

LRR

Answer 29

Legal Reserve Ratio

Question 30

Money Multiplier

Answer 30

A bank loans or invests its excess reserves to earn more interest

Question 31

Central Bank

Answer 31

'Apex Body' that controls, regulates and directs the entire Banking & Money structure of the country | Such as : RBI, Federal Reserve, Bank of England

Question 32

Currency Authority/Bank of Issue

Answer 32

RBI issues Currency except one rupee notes or coins

Question 33

Bank to the Govt

Answer 33

Maintains a current a/c Responsible for managing Public Debt Advises the Government on various monetary matters

Question 34

Banker's Bank and Superviser

Answer 34

Custodian of cash reserves Lender of last resort Clearing house

Question 35

Cutodian of Foreign Exchange

Answer 35

Acc. to Regulations of Foreing Exchange, transactions must be routed through RBI

Question 36

Controller of Money Supply

Answer 36

Due to economic fluctuations, RBI controls money supply and credit

Question 37

Repo Rate

Answer 37

Rate at which the RBI lends money to Commercial Bank. ST

Question 38

Bank Rate

Answer 38

ate at which the RBI lends money to Commercial Bank. LT

Question 39

Legal Reserve Requirement

Answer 39

Cash Reserve Ratio Staturay Liquid Ratio

Question 40

CRR

Answer 40

Money reserved by Commercial Banks in Central Bank

Question 41

SLR

Answer 41

Money reserved by commercial banks in the form of cash or assets

Question 42

Margin Requirement

Answer 42

The difference between the current value of the security offfered for loan