S.Y B.COM
SEMESTER - 4
SEMESTER - 4
MACRO ECONOMIC ISSUES AND POLICIES
(MEIP)
MCQS
🎓 Introduction
Enhance your preparation for the S.Y. B.Com Semester 4 examination in Macro Economic Issues and Policies (MEIP) with comprehensive and clearly explained Multiple Choice Questions (MCQs).
1. Money includes
(a) Currencies and demand deposits
(b) Bonds, government securities
(c) Equity shares
(d) All of the above
Currency (notes and coins) and demand deposits (money in savings/current accounts that can be withdrawn anytime) are called money because they are directly accepted in transactions.
Why is Answer (a) Correct?
Currency is legal tender.
Demand deposits can be used through cheques, UPI, debit cards, etc.
Both are immediately available for payment.
Demand deposits can be used through cheques, UPI, debit cards, etc.
Both are immediately available for payment.
Exam Tip
M1 = C + DD
C = Currency
DD = Demand Deposits
Money = Currency + Demand Deposits
2. One of the following is perfect example of near money
M1 = C + DD
C = Currency
DD = Demand Deposits
Money = Currency + Demand Deposits
2. One of the following is perfect example of near money
(a) Bonds and debentures
(b) Equity shares of ITC Company
(c) Gold
(d) Bills of exchange
Explanation: Near money refers to financial assets that are not money themselves but can be converted into cash quickly with little loss in value.
Examples include: Bonds
Debentures
Treasury Bills
Fixed Deposits
Why is Answer (a) Correct?
Bonds and debentures can be sold in the financial market and converted into cash with relatively little difficulty.
Bonds and debentures can be sold in the financial market and converted into cash with relatively little difficulty.
Exam Tip
Near Money = BTFG
B → Bonds
T → Treasury Bills
F → Fixed Deposits
G → Government Securities
Remember: "BTFG = Near Money"
3. Which one of the following is not an example of near money?
(a) Bills of exchange
(b) Bonds and debentures
(c) Equity shares of a public limited company
(d) Treasury bills of the Government of India
Explanation: Near money consists of financial assets that are highly liquid and can be converted into cash easily.
Treasury Bills, Bonds, Debentures and Bills of Exchange are all considered near money.
Equity shares are not near money because their prices change frequently and they involve higher risk.
Why is Answer (c) Correct?
Shares do not have stable value and cannot be treated like cash.
Exam Tip
Near Money = BBTG
B → Bills of Exchange
B → Bonds & Debentures
T → Treasury Bills
G → Government Securities
Equity Shares = Investment, NOT Near Money
4. Which of the following statements is/are true?
(i) M1 = Currency with public + Demand deposits with banks
(ii) M2 = M1 + Post Office saving deposits
(iii) M3 = M1 + Time deposits with banks
(iv) M4 = M3 + All Post Office deposits
(a) Only (i) above
(b) Both (i) and (iv) are correct
(c) Both (ii) and (iii) are correct
(d) All of the above
Explanation:
These are the official measures of money supply in India:
M1 = Currency with Public + Demand Deposits + Other Deposits with RBI
M2 = M1 + Post Office Savings Deposits
M3 = M1 + Time Deposits with Banks
M4 = M3 + All Post Office Deposits
M2 = M1 + Post Office Savings Deposits
M3 = M1 + Time Deposits with Banks
M4 = M3 + All Post Office Deposits
Why is Answer (d) Correct?
Each statement correctly describes a standard money supply measure.
Exam Tip
Remember the order:
Each statement correctly describes a standard money supply measure.
Exam Tip
Remember the order:
- M1 → Narrow Money
- M2 → M1 + PO Savings
- M3 → M1 + Time Deposits
- M4 → M3 + All PO Deposits
5. M1 in the money stock in India refers to
(a) Post Office savings deposits
(b) Currency plus demand deposits plus other deposits with RBI
(c) Total Post Office Deposits
(d) Time deposits with banks
Explanation:
M1 is called Narrow Money because it includes the most liquid forms of money.
Formula:
M1 = Currency with Public + Demand Deposits with Banks + Other Deposits with RBI
Why is Answer (b) Correct?
It is the official definition of M1 used in India.
Exam Tip
M1 = Narrow Money (Most Liquid Money)
6. What is the basic difference between money stock measures M3 and M4?
(a) M3 is more than M4
(b) M3 is a part of M1 but M4 is not part of M1
(c) M4 includes all Post Office deposits but they are not included in M3
(d) M1 is a part of M1 and M1 is not part of M3
Explanation:
M3 (Broad Money) includes:
(a) Post Office savings deposits
(b) Currency plus demand deposits plus other deposits with RBI
(c) Total Post Office Deposits
(d) Time deposits with banks
Explanation:
M1 is called Narrow Money because it includes the most liquid forms of money.
Formula:
M1 = Currency with Public + Demand Deposits with Banks + Other Deposits with RBI
Why is Answer (b) Correct?
It is the official definition of M1 used in India.
Exam Tip
M1 = Narrow Money (Most Liquid Money)
6. What is the basic difference between money stock measures M3 and M4?
(a) M3 is more than M4
(b) M3 is a part of M1 but M4 is not part of M1
(c) M4 includes all Post Office deposits but they are not included in M3
(d) M1 is a part of M1 and M1 is not part of M3
Explanation:
M3 (Broad Money) includes:
- Currency with the public
- Demand deposits with banks
- Other deposits with RBI
- Time deposits with banks
M4 includes everything in M3 plus all Post Office deposits (except National Savings Certificates).
Therefore, the main difference is the inclusion of Post Office deposits in M4.
Why is Answer (c) Correct?
M4 is broader than M3 because it includes all eligible Post Office deposits.
Exam Tip
M4 = M3 + All Post Office Deposits
7. The basic point of distinction between narrow and broad money is the treatment of ______
(a) Post office deposits
(b) Time deposits with banks
(c) Savings deposits of bank
(d) Currency
Explanation:
Narrow Money (M1) contains only highly liquid money.
Broad Money (M3) adds time deposits with banks.
Therefore, time deposits are the main distinguishing feature.
Why is Answer (b) Correct?
Time deposits are included in Broad Money but excluded from Narrow Money.
Exam Tip
Broad Money = Narrow Money + Time Deposits
8. Time deposits with banks are included in ______ measure of money stock.
(a) M1
(b) M3
(c) M4
(d) Both in (b) and (c)
Explanation:
Time deposits are first included in M3.
Since M4 = M3 + Post Office Deposits, M4 also contains time deposits.
Why is Answer (d) Correct?
Both M3 and M4 include time deposits with banks.
Exam Tip
Remember:
Therefore, the main difference is the inclusion of Post Office deposits in M4.
Why is Answer (c) Correct?
M4 is broader than M3 because it includes all eligible Post Office deposits.
Exam Tip
M4 = M3 + All Post Office Deposits
7. The basic point of distinction between narrow and broad money is the treatment of ______
(a) Post office deposits
(b) Time deposits with banks
(c) Savings deposits of bank
(d) Currency
Explanation:
Narrow Money (M1) contains only highly liquid money.
Broad Money (M3) adds time deposits with banks.
Therefore, time deposits are the main distinguishing feature.
Why is Answer (b) Correct?
Time deposits are included in Broad Money but excluded from Narrow Money.
Exam Tip
Broad Money = Narrow Money + Time Deposits
8. Time deposits with banks are included in ______ measure of money stock.
(a) M1
(b) M3
(c) M4
(d) Both in (b) and (c)
Explanation:
Time deposits are first included in M3.
Since M4 = M3 + Post Office Deposits, M4 also contains time deposits.
Why is Answer (d) Correct?
Both M3 and M4 include time deposits with banks.
Exam Tip
Remember:
- M1 → No Time Deposits
- M3 → Yes
- M4 → Yes
9. Money is
(a) Constant in purchasing power
(b) Acceptable only when it has intrinsic value
(c) The most liquid of all assets
(d) All of the above
Explanation:
Liquidity means how quickly an asset can be used to make payments.
Money is perfectly liquid because it can immediately buy goods and services.
Why is Answer (c) Correct?
Money requires no conversion before use.
Exam Tip
Money = Highest Liquidity
10. According to ______ money is what money does.
(a) Crowther
(b) Walker
(c) Burstein
(d) Keynes
Explanation:
Economist Walker explained money by emphasizing its functions rather than its physical form.
His famous statement is:
"Money is what money does."
This means anything performing the functions of money can be considered money.
Why is Answer (b) Correct?
Walker focused on the functional definition of money.
Exam Tip
Walker = "Money is what money does."
11. Anything that serves as money possesses the essential characteristic that it must ______
(a) Be generally acceptable
(b) Be issued by the State Government
(c) Have inherited value
(d) Not be wholly fiduciary
Explanation:
The most important feature of money is general acceptability. People must be willing to accept it in exchange for goods and services. Without general acceptance, money cannot perform its basic functions.
Why is Answer (a) Correct?
Money is useful only when everyone accepts it as payment.
Exam Tip
The first quality of money = General Acceptability.
12. The chief function of money is that it acts as ______
(a) Providing liquidity
(b) A medium of exchange
(c) A resource for credit creation
(d) None of these
Explanation:
(a) Constant in purchasing power
(b) Acceptable only when it has intrinsic value
(c) The most liquid of all assets
(d) All of the above
Explanation:
Liquidity means how quickly an asset can be used to make payments.
Money is perfectly liquid because it can immediately buy goods and services.
Why is Answer (c) Correct?
Money requires no conversion before use.
Exam Tip
Money = Highest Liquidity
10. According to ______ money is what money does.
(a) Crowther
(b) Walker
(c) Burstein
(d) Keynes
Explanation:
Economist Walker explained money by emphasizing its functions rather than its physical form.
His famous statement is:
"Money is what money does."
This means anything performing the functions of money can be considered money.
Why is Answer (b) Correct?
Walker focused on the functional definition of money.
Exam Tip
Walker = "Money is what money does."
11. Anything that serves as money possesses the essential characteristic that it must ______
(a) Be generally acceptable
(b) Be issued by the State Government
(c) Have inherited value
(d) Not be wholly fiduciary
Explanation:
The most important feature of money is general acceptability. People must be willing to accept it in exchange for goods and services. Without general acceptance, money cannot perform its basic functions.
Why is Answer (a) Correct?
Money is useful only when everyone accepts it as payment.
Exam Tip
The first quality of money = General Acceptability.
12. The chief function of money is that it acts as ______
(a) Providing liquidity
(b) A medium of exchange
(c) A resource for credit creation
(d) None of these
Explanation:
- Money performs many functions: Medium of Exchange
- Measure of Value
- Store of Value
- Standard of Deferred Payments
Among these, the primary (chief) function is acting as a medium of exchange.
Why is Answer (b) Correct?
Money removes the problem of barter by making buying and selling easy.
Exam Tip
Chief Function = Medium of Exchange
13. Money in traditional sense serves as ______
(a) A medium of exchange
(b) A store of value
(c) Both medium of exchanged and store of value
(d) Neither medium of exchange or store of value
Explanation:
In the traditional sense, money was introduced mainly to facilitate the exchange of goods and services. Before money existed, people used the barter system, where goods were exchanged directly for other goods.
The barter system had many problems, such as:
Why is Answer (b) Correct?
Money removes the problem of barter by making buying and selling easy.
Exam Tip
Chief Function = Medium of Exchange
13. Money in traditional sense serves as ______
(a) A medium of exchange
(b) A store of value
(c) Both medium of exchanged and store of value
(d) Neither medium of exchange or store of value
Explanation:
In the traditional sense, money was introduced mainly to facilitate the exchange of goods and services. Before money existed, people used the barter system, where goods were exchanged directly for other goods.
The barter system had many problems, such as:
- Double coincidence of wants
- Difficulty in measuring value
- Difficulty in storing wealth
- Difficulty in making future payments
To solve these problems, money was introduced. Therefore, its original and primary purpose was to act as a medium of exchange.
Although money also performs the function of storing value, this is considered a secondary function, not its traditional or primary role.
Money was first created to make buying and selling easier. It replaced the barter system by serving as a medium of exchange.
Why is Option (a) Correct?
Money was originally created to make the exchange of goods and services easier. Hence, Medium of Exchange is the traditional function of money.
Exam Tip
Traditional Money = Trade = Medium of Exchange
Remember:
Barter System → Money → Medium of Exchange
14. In modern economy, the major primary function of money is that it serves as ______.
(a) A store of value
(b) A transfer of value
(c) A medium of exchange
(d) A speculation instrument
Explanation:
The primary function of money is to act as a medium of exchange. It eliminates the difficulties of the barter system by allowing people to buy and sell goods and services easily.
Example:
Instead of exchanging wheat for rice, you simply pay money to buy rice.
Why is (c) Correct?
Money is accepted by everyone for making payments, making trade faster and easier.
Exam Tip
Primary Function of Money = Medium of Exchange
15. When a debtor promises to pay the amount in future to the creditor, money serves as ______.
(a) A store of value
(b) A transfer of value
(c) A medium of exchange
(d) A standard for deferred payments
Explanation:
Money helps in making future payments. Loans, EMIs, salaries, rent, and insurance premiums are all examples where payments are made in the future.
Why is (d) Correct?
Money acts as a common standard for future obligations.
Exam Tip
Deferred = Future Payment
Remember:
Loan = Standard of Deferred Payment
16. Which is the most liquid measure of money supply?
(a) M1
(b) M2
(c) M3
(d) M4
Explanation:
Liquidity means how quickly money can be used.
M1 contains:
Although money also performs the function of storing value, this is considered a secondary function, not its traditional or primary role.
Money was first created to make buying and selling easier. It replaced the barter system by serving as a medium of exchange.
Why is Option (a) Correct?
Money was originally created to make the exchange of goods and services easier. Hence, Medium of Exchange is the traditional function of money.
Exam Tip
Traditional Money = Trade = Medium of Exchange
Remember:
Barter System → Money → Medium of Exchange
14. In modern economy, the major primary function of money is that it serves as ______.
(a) A store of value
(b) A transfer of value
(c) A medium of exchange
(d) A speculation instrument
Explanation:
The primary function of money is to act as a medium of exchange. It eliminates the difficulties of the barter system by allowing people to buy and sell goods and services easily.
Example:
Instead of exchanging wheat for rice, you simply pay money to buy rice.
Why is (c) Correct?
Money is accepted by everyone for making payments, making trade faster and easier.
Exam Tip
Primary Function of Money = Medium of Exchange
15. When a debtor promises to pay the amount in future to the creditor, money serves as ______.
(a) A store of value
(b) A transfer of value
(c) A medium of exchange
(d) A standard for deferred payments
Explanation:
Money helps in making future payments. Loans, EMIs, salaries, rent, and insurance premiums are all examples where payments are made in the future.
Why is (d) Correct?
Money acts as a common standard for future obligations.
Exam Tip
Deferred = Future Payment
Remember:
Loan = Standard of Deferred Payment
16. Which is the most liquid measure of money supply?
(a) M1
(b) M2
(c) M3
(d) M4
Explanation:
Liquidity means how quickly money can be used.
M1 contains:
- Currency
- Demand Deposits
- Other Deposits with RBI
These are immediately available.
Why is (a) Correct?
M1 is called Narrow Money and is the most liquid measure of money supply.
Exam Tip
Highest Liquidity = M1
17. The concept of narrow money refers to ______.
(a) M1
(b) M2
(c) M3
(d) M4
Explanation
Narrow Money includes only the most liquid forms of money.
Formula:
M1 = Currency + Demand Deposits + Other Deposits with RBI
Why is (a) Correct?
M1 contains money that is readily available for spending.
Exam Tip
Narrow Money = M1
18. The concept of broad money refers to ______.
(a) M1
(b) M2
(c) M3
(d) M4
Explanation:
Broad Money includes:
Why is (a) Correct?
M1 is called Narrow Money and is the most liquid measure of money supply.
Exam Tip
Highest Liquidity = M1
17. The concept of narrow money refers to ______.
(a) M1
(b) M2
(c) M3
(d) M4
Explanation
Narrow Money includes only the most liquid forms of money.
Formula:
M1 = Currency + Demand Deposits + Other Deposits with RBI
Why is (a) Correct?
M1 contains money that is readily available for spending.
Exam Tip
Narrow Money = M1
18. The concept of broad money refers to ______.
(a) M1
(b) M2
(c) M3
(d) M4
Explanation:
Broad Money includes:
- M1
- Time Deposits with Banks
Formula:
M3 = M1 + Time Deposits
It is the most commonly used measure of money supply in India.
Why is (c) Correct?
M3 measures a wider money supply than M1 by including time deposits.
Exam Tip
Remember:
M3 = M1 + Time Deposits
It is the most commonly used measure of money supply in India.
Why is (c) Correct?
M3 measures a wider money supply than M1 by including time deposits.
Exam Tip
Remember:
- M1 = Narrow Money
- M3 = Broad Money
- M4 = Broad Money + Post Office Deposits
19. What will cause interest rates to rise?
(a) The rise in general level of prices
(b) The rise in standard of living
(c) The increase in demand for money
(d) The increase in money supply
Explanation:
Interest rate is the price of borrowing money. When more people want to borrow money, the demand for money increases. If the supply of money remains the same, banks charge a higher interest rate.
Example:
Many people apply for home loans at the same time. Banks have limited funds, so loan interest rates may increase.
Why is (c) Correct?
More demand for money → Higher interest rate.
Exam Tip
Demand ↑ = Interest Rate ↑
Money Supply ↑ = Interest Rate ↓
20. The least profitable asset that the commercial banks possess is ______.
(a) Cash in hand
(b) Money at call
(c) Bills discounted
(d) Loans and advances
Explanation:
Banks earn profits mainly from loans and investments.
Cash kept in the bank's vault earns no interest, so it is the least profitable asset.
Why is (a) Correct?
Cash provides liquidity but does not generate income.
Exam Tip
Cash = Safest Asset + Least Profitable Asset
21. The most liquid asset, next to cash, possessed by the banks is ______.
(a) Advances to customers
(b) Money at call
(c) Treasury bills
(d) Inland bills
Explanation
Money at call (call money) can be recovered within 24 hours or on demand. Therefore, it is the most liquid asset after cash.
Why is (b) Correct?
Banks can quickly convert call money into cash whenever required.
Exam Tip
Liquidity Order:
Cash → Call Money → Treasury Bills → Loans
22. Maintaining a cash reserve ratio of 20% with primary deposits of Rs. 1,000, the total derivative deposits created by banks would be ______.
(a) Rs. 2,500
(b) Rs. 5,000
(c) Rs. 4,000
(d) Rs. 1,200
Explanation
Formula:
Credit Multiplier = 1 / CRR
CRR = 20% = 0.20
Credit Multiplier = 1 ÷ 0.20 = 5
Total Deposits = ₹1,000 × 5 = ₹5,000
Derivative (Secondary) Deposits = Total Deposits − Primary Deposit
= ₹5,000 − ₹1,000
= ₹4,000
Why is (c) Correct?
The question asks for derivative deposits, not total deposits.
Exam Tip
Remember:
(a) The rise in general level of prices
(b) The rise in standard of living
(c) The increase in demand for money
(d) The increase in money supply
Explanation:
Interest rate is the price of borrowing money. When more people want to borrow money, the demand for money increases. If the supply of money remains the same, banks charge a higher interest rate.
Example:
Many people apply for home loans at the same time. Banks have limited funds, so loan interest rates may increase.
Why is (c) Correct?
More demand for money → Higher interest rate.
Exam Tip
Demand ↑ = Interest Rate ↑
Money Supply ↑ = Interest Rate ↓
20. The least profitable asset that the commercial banks possess is ______.
(a) Cash in hand
(b) Money at call
(c) Bills discounted
(d) Loans and advances
Explanation:
Banks earn profits mainly from loans and investments.
Cash kept in the bank's vault earns no interest, so it is the least profitable asset.
Why is (a) Correct?
Cash provides liquidity but does not generate income.
Exam Tip
Cash = Safest Asset + Least Profitable Asset
21. The most liquid asset, next to cash, possessed by the banks is ______.
(a) Advances to customers
(b) Money at call
(c) Treasury bills
(d) Inland bills
Explanation
Money at call (call money) can be recovered within 24 hours or on demand. Therefore, it is the most liquid asset after cash.
Why is (b) Correct?
Banks can quickly convert call money into cash whenever required.
Exam Tip
Liquidity Order:
Cash → Call Money → Treasury Bills → Loans
22. Maintaining a cash reserve ratio of 20% with primary deposits of Rs. 1,000, the total derivative deposits created by banks would be ______.
(a) Rs. 2,500
(b) Rs. 5,000
(c) Rs. 4,000
(d) Rs. 1,200
Explanation
Formula:
Credit Multiplier = 1 / CRR
CRR = 20% = 0.20
Credit Multiplier = 1 ÷ 0.20 = 5
Total Deposits = ₹1,000 × 5 = ₹5,000
Derivative (Secondary) Deposits = Total Deposits − Primary Deposit
= ₹5,000 − ₹1,000
= ₹4,000
Why is (c) Correct?
The question asks for derivative deposits, not total deposits.
Exam Tip
Remember:
- Total Deposit = Primary Deposit × Multiplier
- Derivative Deposit = Total Deposit − Primary Deposit
23. If the banking system has reserves of Rs. 500 crore and the reserve requirement is 20%, to what extent can the system support demand deposits?
(a) Rs. 5,000 crore
(b) Rs. 2,000 crore
(c) Rs. 10,000 crore
(d) Rs. 2,500 crore
Explanation:
Formula:
Demand Deposits = Reserves ÷ CRR
= ₹500 crore ÷ 0.20
= ₹2,500 crore
Why is (d) Correct?
Banks can support demand deposits equal to five times their reserves when CRR is 20%.
Exam Tip
Demand Deposits = Reserves ÷ CRR
Example:
CRR = 20%
Reserve = ₹500 crore
Demand Deposit = ₹500 ÷ 0.20 = ₹2,500 crore
24. When the commercial banks create credit they are actually increasing ______.
(a) The national debt
(b) The supply of money
(c) The purchasing power of the rupee
(d) The real wealth of the country
Explanation
Commercial banks create credit by giving loans. Instead of giving cash, banks credit the loan amount to the customer's account. This increases bank deposits, which are a part of the money supply.
For example:
(a) Rs. 5,000 crore
(b) Rs. 2,000 crore
(c) Rs. 10,000 crore
(d) Rs. 2,500 crore
Explanation:
Formula:
Demand Deposits = Reserves ÷ CRR
= ₹500 crore ÷ 0.20
= ₹2,500 crore
Why is (d) Correct?
Banks can support demand deposits equal to five times their reserves when CRR is 20%.
Exam Tip
Demand Deposits = Reserves ÷ CRR
Example:
CRR = 20%
Reserve = ₹500 crore
Demand Deposit = ₹500 ÷ 0.20 = ₹2,500 crore
24. When the commercial banks create credit they are actually increasing ______.
(a) The national debt
(b) The supply of money
(c) The purchasing power of the rupee
(d) The real wealth of the country
Explanation
Commercial banks create credit by giving loans. Instead of giving cash, banks credit the loan amount to the customer's account. This increases bank deposits, which are a part of the money supply.
For example:
- A bank gives a loan of ₹5 lakh.
- The amount is credited to the customer's account.
- The customer can now use this money for payments.
- Thus, the money supply increases.
Why is (b) Correct?
Credit creation increases deposits in the banking system, which increases the money supply.
Exam Tip
Commercial Banks Create Credit = Increase Money Supply
25. Commercial bank is an institution ______.
(a) Dealing in securities
(b) Providing credit
(c) Helping farmers and small industrialists
(d) Providing money to the government
Explanation:
A commercial bank accepts deposits and provides loans and advances to individuals and businesses. Providing credit is its main function.
Examples:
Credit creation increases deposits in the banking system, which increases the money supply.
Exam Tip
Commercial Banks Create Credit = Increase Money Supply
25. Commercial bank is an institution ______.
(a) Dealing in securities
(b) Providing credit
(c) Helping farmers and small industrialists
(d) Providing money to the government
Explanation:
A commercial bank accepts deposits and provides loans and advances to individuals and businesses. Providing credit is its main function.
Examples:
- Home Loans
- Education Loans
- Business Loans
- Vehicle Loans
Why is (b) Correct?
The primary function of a commercial bank is to provide credit to the economy.
Exam Tip
Commercial Bank = Accept Deposits + Provide Credit
26. Banks perform the function of ______.
(a) Receiving deposits
(b) Lending money
(c) Agency services
(d) All of the above
Explanation:
Commercial banks perform several important functions:
Primary Functions
The primary function of a commercial bank is to provide credit to the economy.
Exam Tip
Commercial Bank = Accept Deposits + Provide Credit
26. Banks perform the function of ______.
(a) Receiving deposits
(b) Lending money
(c) Agency services
(d) All of the above
Explanation:
Commercial banks perform several important functions:
Primary Functions
- Accepting deposits
- Lending money
Secondary Functions
- Agency services (collecting cheques, paying bills, fund transfer)
- Utility services (locker facility, ATM, internet banking)
Why is (d) Correct?
Banks perform all these functions, making option (d) the correct answer.
Exam Tip
Remember the three major functions:
Exam Tip
Remember the three major functions:
- Accept Deposits
- Give Loans
- Agency Services
27. Agency functions are ______.
(a) Carried out by the Reserve Bank of India
(b) Carried out by the commercial banks
(c) Not carried out by the commercial bank
(d) Carried out by the government of india
Explanation:
Agency functions are services that commercial banks perform on behalf of their customers. In these functions, the bank acts as an agent for the customer and carries out various financial transactions.
Some common agency functions are:
(a) Carried out by the Reserve Bank of India
(b) Carried out by the commercial banks
(c) Not carried out by the commercial bank
(d) Carried out by the government of india
Explanation:
Agency functions are services that commercial banks perform on behalf of their customers. In these functions, the bank acts as an agent for the customer and carries out various financial transactions.
Some common agency functions are:
- Collection of cheques, bills and dividends
- Payment of electricity, water and telephone bills
- Payment of insurance premiums
- Collection of interest and dividends
- Purchase and sale of shares and securities
- Fund transfer services
- Standing instructions (e.g., monthly EMI or SIP payments)
Since these services are provided by commercial banks, the correct answer is Option (b).
Why is Option (b) Correct?
Commercial banks act as agents for their customers and perform financial services on their behalf. Therefore, agency functions are carried out by commercial banks.
Exam Tip
"ABC Rule"
A → Agency Functions
B → Bank (Commercial Bank)
C → Customer
Agency Functions = Commercial Bank works on behalf of the Customer.
28. Which of the following is NOT a function of the commercial bank?
(a) The provision of safe deposit facilities
(b) The provision of a cheque system
(c) Lending loans to private firms
(d) Acting as a lender of last resort
Explanation:
Commercial banks perform several important functions such as accepting deposits, providing loans, cheque facilities, locker (safe deposit) facilities, and agency services.
However, acting as the "Lender of Last Resort" is the function of the Reserve Bank of India (RBI), not commercial banks.
The RBI provides emergency financial assistance to commercial banks when they face a shortage of funds.
Why is Option (d) Correct?
The RBI is known as the Lender of Last Resort because it lends money to commercial banks during financial emergencies.
Exam Tips
Why is Option (b) Correct?
Commercial banks act as agents for their customers and perform financial services on their behalf. Therefore, agency functions are carried out by commercial banks.
Exam Tip
"ABC Rule"
A → Agency Functions
B → Bank (Commercial Bank)
C → Customer
Agency Functions = Commercial Bank works on behalf of the Customer.
28. Which of the following is NOT a function of the commercial bank?
(a) The provision of safe deposit facilities
(b) The provision of a cheque system
(c) Lending loans to private firms
(d) Acting as a lender of last resort
Explanation:
Commercial banks perform several important functions such as accepting deposits, providing loans, cheque facilities, locker (safe deposit) facilities, and agency services.
However, acting as the "Lender of Last Resort" is the function of the Reserve Bank of India (RBI), not commercial banks.
The RBI provides emergency financial assistance to commercial banks when they face a shortage of funds.
Why is Option (d) Correct?
The RBI is known as the Lender of Last Resort because it lends money to commercial banks during financial emergencies.
Exam Tips
- Commercial Bank: Deposits, Loans, Locker, Cheques
- RBI: Currency Issue, Monetary Policy, Lender of Last Resort
29.Which of the following is NOT a function of the Central Bank?
(a) Credit control
(b) Credit creation
(c) Exchange control
(d) Government Bank
Explanation:
The Central Bank (RBI) controls the country's money supply and regulates the banking system. Its functions include:
(a) Credit control
(b) Credit creation
(c) Exchange control
(d) Government Bank
Explanation:
The Central Bank (RBI) controls the country's money supply and regulates the banking system. Its functions include:
- Credit Control
- Exchange Control
- Banker to the Government
- Banker's Bank
- Currency Issue
Credit creation is mainly done by commercial banks by giving loans and advances.
Why is Option (b) Correct?
Commercial banks create credit by granting loans, whereas the RBI controls the amount of credit in the economy.
Exam Tips
Remember this comparison:
Commercial Banks Central Bank (RBI)
Why is Option (b) Correct?
Commercial banks create credit by granting loans, whereas the RBI controls the amount of credit in the economy.
Exam Tips
Remember this comparison:
Commercial Banks Central Bank (RBI)
Creates Credit Controls Credit
Accepts Public Deposits Does not accept deposits from the general public
Provides Loans Regulates Banks
Customer Banking Monetary Policy
30.The Central Bank does NOT perform the function of ______.
(a) The banker to the Government
(b) Accepting deposits from commercial banks
(c) Accepting deposits from the general public
(d) Acting as a clearing house
Explanation:
The Reserve Bank of India (RBI) is the Central Bank of India.
It performs important functions such as:
Accepts Public Deposits Does not accept deposits from the general public
Provides Loans Regulates Banks
Customer Banking Monetary Policy
30.The Central Bank does NOT perform the function of ______.
(a) The banker to the Government
(b) Accepting deposits from commercial banks
(c) Accepting deposits from the general public
(d) Acting as a clearing house
Explanation:
The Reserve Bank of India (RBI) is the Central Bank of India.
It performs important functions such as:
- Banker to the Government
- Banker's Bank
- Accepting deposits from commercial banks
- Acting as a clearing house
- Issuing currency
- Controlling credit
However, it does not accept deposits from the general public. This function is performed by commercial banks like SBI, HDFC Bank, ICICI Bank, etc.
Why is Option (c) Correct?
The RBI deals mainly with the Government and commercial banks, not with individual customers. People open savings and current accounts in commercial banks, not in the RBI.
Exam Tips
"RBI = Bank of Banks, Not Bank of People"
Why is Option (c) Correct?
The RBI deals mainly with the Government and commercial banks, not with individual customers. People open savings and current accounts in commercial banks, not in the RBI.
Exam Tips
"RBI = Bank of Banks, Not Bank of People"
- General Public → Commercial Banks
- Commercial Banks → RBI
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