The Tertiary Sector in the Indian Economy

Total Questions: 66

21. Consider the following statements: [2007]

1. Life Insurance Corporation of India is the oldest insurance company in India.

2. National Insurance Company Limited was nationalized in the year 1972 and made a subsidiary of General Insurance Corporation of India.

3. Headquarters of United Indian Insurance Company Limited are located at Chennai.

Which of the statements given above are correct?

Correct Answer: (c) 2 & 3 only
Solution:The oldest existing insurance company in India is the National Insurance Company, which was founded in 1906, and is still in business.

About LIC
• Life Insurance Corporation of India (LIC) is the largest public sector life insurance company and institutional investor in India.
• Headquartered in Mumbai, it plays a crucial role in India’s financial market.
• Motto: “Yogakshemam Vahamyaham” (From the Bhagavad Gita) – “Your welfare is our responsibility.”
• Established in 1956 through the Life Insurance of India Act, which nationalized the insurance sector by merging 245 private insurers and provident societies into a single entity.
• LIC operates through 8 zonal offices in Delhi, Chennai, Mumbai, Hyderabad, Kanpur, Kolkata, Bhopal, and Patna.

22. Consider the following statements: [2007]

1. The repo rate is the rate at which other banks borrow from the Reserve Bank of India.

2. A value of 1 for Gini Coefficient in a country implies that there is perfectly equal income for everyone in its population.

Which of the statements given above is/are correct?

Correct Answer: (a) 1 only
Solution:Repo Rate is the rate at which commercial banks borrow funds from RBI. A reduction in the repo rate will help banks to get money from the central bank at a cheaper rate. When the repo rate increases borrowing from RBI becomes more expensive.

A value of for Gini Coefficient in a country implies that there is perfect equality in the system. If the value is I then there is complete inequality in the country.

23. The National Housing Bank was set up in India as a wholly-owned subsidiary of which one of the following? [2007]

Correct Answer: (b) Reserve Bank of India
Solution:National Housing Bank has been set up under the National Housing Bank Act of 1987, which was passed on 9th July, 1988. It is wholly owned by the Reserve bank of India and was created to encourage housing, finance institutions and provide them with financial support.
The NHB has been set up with the following objectives:
• Promoting a viable and cost-effective housing finance system to cater to all segments of the population and to integrate the housing finance system with the overall financial system.
• Promoting a pool of dedicated housing finance institutions to adequately serve the needs of various regions and different income groups.
• Regulating the activities of housing finance companies based on existing regulatory and supervisory authority derived under the Act.
• Augmenting existing resources for the housing sector.
• Making housing credit more affordable for the people.
• Providing support and aid for housing finance institutions.
• Augmenting the supply of buildable land and also building materials for the housing sector and upgrading the housing stock in the country.
• Encouraging public authorities to emerge as facilitators and suppliers of serviced land, for housing.

24. Which one of the following pairs is not correctly matched? [2009]

Correct Answer: (b) Singapore : Shcomp
Solution:Shangai-Shcomp: Singapore-SIMEX, Straits Time. Shcomp is a composite index of Shanghai Stock exchange. SIMEX and Strait Times are indicators for Singapore.
Famous Stock Exchanges Around the World
CountryStock ExchangeIndex
JapanTYONIKKEI
AustraliaASXS&P/ASX
South KoreaKRXKOSPI
Hong KongHKESHANG SENG
ChinaSHANGHAISSE
IndiaNSE & BSENIFTY & SENSEX
GermanyFRANKFURTDAX
UKLONDONFTSE
USANYSE, NASDAQDOW, NASDAQ, S&P 500

25. Which of the following terms indicates a mechanism used by commercial banks for providing credit to the government? [2010]

Correct Answer: (d) Statutory Liquidity Ratio
Solution:Commercial banks provide long-term credit to government by investing their funds in government securities and short-term finance by purchasing Treasury Bills. This comes under Statutory Liquidity Ratio (SLR).

Commercial banks do play an important role in fulfilling the short-term and mid-term credit requirements in an economy. However, they do not provide long-term credit for over 15 years or more, so that liquidity of assets can easily be maintained.

The funds parked at the commercial banks belong to the general public and are withdrawn at a short notice; therefore, commercial banks prefer to provide credit for a short period of time backed by tangible and easily marketable securities.

26. With reference to the Non-banking Financial Companies (NBFCs) in India, consider the following statements: [2010]

1. They cannot engage in the acquisition of securities issued by the government.

2. They cannot accept demand deposits like Savings Account

Which of the statement given above is/ are correct?

Correct Answer: (b) 2 only
Solution:A non-banking financial company (NBFC) is a company registered under the Companies Act, 1956 and is engaged in the business of loans and advances, acquisition of shares/stock/bonds/debentures/securities issued by government or local authority or other securities of like marketable nature, leasing, hire-purchase, insurance business, chit business, but does not include any institution whose principal business is that of agriculture activity, industrial activity, sale/purchase/construction of immovable property. They cannot accept demand deposits like commercial banks as they are not a part of clearance and settlement system.

27. In the parlance of financial investments, the term 'bear' denotes : [2010]

Correct Answer: (a) An investor who feels that the price of a particular security is going to fall
Solution:Bear is a speculator who sells shares in anticipation of fall operator prices to buy them back and thus make a profit.
PointBull MarketBear Market
1A market condition characterized by rising prices and optimism among investorsA market condition characterized by falling prices and pessimism among investors
2Typically associated with a strong economy, high investor confidence, and positive market sentimentTypically associated with a weak economy, low investor confidence, and negative market sentiment
3Investors have a positive outlook on the market and expect prices to continue risingInvestors have a negative outlook on the market and anticipate prices to decline further
4Demand for securities exceeds supply, leading to increased buying activitySupply of securities exceeds demand, leading to decreased buying activity
5Market indices, such as the S&P 500 or Dow Jones Industrial Average, experience sustained upward trendsMarket indices, such as the S&P 500 or Dow Jones Industrial Average, experience sustained downward trends
6Stocks and other investments tend to perform well, with increasing values and potential for capital gainsStocks and other investments tend to perform poorly, with decreasing values and potential for capital losses
7Trading volumes are often high as investors actively participate in buying stocksTrading volumes may be low as investors adopt a cautious approach to selling stocks
8Bull markets are associated with a "buy" or optimistic investment strategyBear markets are associated with a "sell" or defensive investment strategy
9Investor sentiment is driven by positive economic indicators, strong corporate earnings, and market optimismInvestor sentiment is influenced by negative economic indicators, weak corporate earnings, and market pessimism
10Bull markets are typically characterized by shorter periods of market correction or pullbacksBear markets can be characterized by longer periods of market correction or extended declines

28. In India, the interest rate on savings accounts in all the nationalized commercial banks is fixed by : [2010]

Correct Answer: (d) None of the above.
Solution:It is fixed by Reserve Bank of India. In 2011, RBI permitted the commercial banks to fix interest rate on saving account independently.
• Nationalisation of Banks means transferring control and ownership of private banks into the hands of the government.
• This means the government becomes the majority shareholder in an erstwhile private bank, and the bank operates as a public sector entity.
The process of Nationalisation of Banks was conducted in multiple phases:
• Partial Nationalisation: The first experiment began in 1955 with the State Bank of India Act, under which three Imperial Banks were merged to form the State Bank of India (SBI). This was the first public sector bank in India.
• Full-Scale Nationalisation: Success of the initial step encouraged the government to nationalise private banks on a larger scale through the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1969, and later in 1980.
Phase 1 (1969): 14 banks with deposits above ₹50 crores were nationalised.
Phase 2 (1980): 6 more banks with deposits above ₹200 crores were nationalised.

29. With reference to the institution of Banking Ombudsman in, India, which one of the statements is not correct? [2010]

Correct Answer: (c) The orders passed by the Banking Ombudsman are final and binding on the parties concerned.
Solution:The Banking ombudsman Scheme is an expeditious and inexpensive forum for bank customers for resolution of complaints relating to certain services rendered by banks. Any person aggrieved by the decision of the Banking Ombudsman can approach the Appellate Authority. The Appellate Authority is vested with a Deputy Governor of the RBI.

30. With reference to India, consider the following: [2010]

1. Nationalization of Banks

2. Formation of Regional Rural Banks

3. Adoption of villages by Bank Branches

Which of the above can be considered as steps taken to achieve the "financial inclusion" in India?

Correct Answer: (d) 1, 2 & 3
Solution:"Financial inclusion" is the delivery of financial services at affordable costs to vast sections of disadvantaged and low income groups. Banking services are in the nature of public good.

It is essential that availability of banking and payment services be available to the entire population without discrimination.

Financial inclusion means that individuals and businesses have access to useful and affordable financial products and services that meet their needs transactions, payments, savings, credit and insurance - delivered in a responsible and sustainable way.