The Tertiary Sector in the Indian Economy

Total Questions: 66

41. 'Basel III Accord' or simply 'Basel III', often seen in the news, seeks to [2015-1]

Correct Answer: (b) improve banking sector's ability to deal with financial and economic stress and improve risk management
Solution:Basel III is a comprehensive set of reform measures which was developed by the Basel Committee on Banking Supervision and to strengthen the regulation, supervision and risk management of the banking sector. These measures aim to:

Improve the banking sector's ability to absorb shocks arising from financial and economic stress, whatever the source; improve risk management and governance; strengthen banks transparency and disclosures.

42. With reference to Indian economy, consider the following [ [2015-1]

1. Bank rate

2. Open market operations

3. Public debt

4. Public revenue

Which of the above is/are component/components of Monetary Policy?

Correct Answer: (c) 1 & 2
Solution:The RBI implements the monetary policy through open market operations, bank rate policy, reserve system, credit control policy, moral persuasion and through many other instruments.

Monetary Policy in India
• Monetary Policy is a macroeconomic policy tool used by the Central Bank to manage the money supply in the Indian economy in order to achieve the macroeconomic goals of the country. The central bank uses various monetary instruments to manage the credit availability in the market and fulfill all the objectives of the economic policy.
• The Reserve Bank of India Act 1934 makes it necessary for the Reserve Bank of India to create monetary policies of India. Before 2016, the governor of RBI was responsible for formulating Monetary Policy in India and after 2016, the Finance Act of India 2016 was enacted that led to the creation of  the Monetary Policy Committee. This committee is responsible for formulating the monetary policy of India..

43. When the Reserve Bank of India reduces the Statutory Liquidity Ratio by 50 basis points, which of the following is likely to happen? [2015-1]

Correct Answer: (c) Scheduled Commercial Banks may cut their lending rates
Solution:When the Reserve Bank of India reduces the Statutory Liquidity Ratio by 50 basis points; the Scheduled Commercial Banks may cut their lending rates.
Statutory Liquidity Ratio or SLR is the minimum percentage of deposits that a commercial bank has to maintain in the form of liquid cash, gold or other securities. It is basically the reserve requirement that banks are expected to keep before offering credit to customers. The SLR is fixed by the RBI and is a form of control over the credit growth in India.
The government uses the SLR to regulate inflation and fuel growth. Increasing the SLR will control inflation in the economy while decreasing the statutory liquidity rate will cause growth in the economy. The SLR was prescribed by Section 24 (2A) of Banking Regulation Act, 1949.

44. What is/are the purpose/purposes of the 'Marginal Cost of Funds based Lending Rate (MCLR)' announced by RBI? [2016-1]

1. These guidelines help improve the transparency in the methodology followed by banks for determining the interest rates on advances.

2. These guidelines help ensure availability of bank credit at interest rates which are fair to the borrowers as well as the banks.

Select the correct answer using the code given below.

Correct Answer: (c) Both 1 & 2
Solution:(1) With effect from 1st April, 2016, all loans in India shall be priced with reference to Marginal Cost of Funds based Lending Rates (MCLR) which will comprise of: 1. Marginal Cost of Funds 2. Negative carry on account of CRR 3. Operating Costs 4. Tenor of premium. Banks shall review and publish their MCLR every month on a pre-announced date. Marginal Cost of Funds which will comprise of marginal cost of borrowings and return on net-worth. (ii) Both right. Verbatim lifted from RBI's press statement first paragraph.

45. The establishment of 'Payment Banks' is being allowed in India to promote financial inclusion. Which of the following statements is/are correct in this context?

1. Mobile telephone companies and supermarket chains that are owned and controlled by residents are eligible to be promoters of Payment Banks.

2. Payment Banks can issue both credit cards and debit cards.

3. Payment Banks cannot undertake lending activities.

Select the correct answer using the code given below.

Correct Answer: (b) 1 & 3 only
Solution:(i) They can enable transfers and remittance through mobile phones. The RBI guidelines say that the payments bank cannot undertake lending activities.

(ii) Mobile phone companies and supermarket eligible. But, Payment banks can't issue credit card or give loans. Go by eliminating all options with "2", and you're left with (b) 1 and 3 only.

46. The term 'Core Banking Solutions' is sometimes seen in the news. Which of the following statements best describes/describe this term? [2016-1]

1. It is a networking of a bank's branches which enables customers to operate their accounts from any branch of the bank on its network regardless of where they open their accounts.

2. It is an effort to increase RBI's control over commercial banks through computerization.

3. It is a detailed procedure by which a bank with huge non-performing assets is taken over by another bank.

Select the correct answer using the code given below.

Correct Answer: (a) I only
Solution:(i) Core Banking Solution (CBS) is networking of branches, which enables Customers to operate their accounts, and avail banking services from any branch of the Bank on CBS network, regardless of where he maintains his account. The customer is no more the customer of a Branch. He becomes the Bank's Customer. Thus CBS is a step towards enhancing customer convenience through Anywhere and Anytime Banking.

47. With reference to 'Bitcoins', sometimes seen in the news, which of the following statements is/are correct? [2016-1]

1. Bitcoins are tracked by the Central Banks of the countries.

2. Anyone with a Bitcoin address can send and receive Bitcoins from anyone else with a Bitcoin address.

3. Online payments can be sent without either side knowing the identity of the other.

Select the correct answer using the code given below.

Correct Answer: (b) 2 & 3 only
Solution:(i) Bitcoin are not maintained by the Central Bank. Bitcoins are created as a reward for payment processing work in which users offer their computing power to verify and record payments into a public ledger.
(ii) They're not tracked by any central bank or authority, Both 2 and 3 are right.
• Acquiring Bitcoins:
• One can either mine a new Bitcoin if they have the computing capacity, purchase them via exchanges, or acquire them in over-the-counter, person-to-person transactions.
• Miners are the people who validate a Bitcoin transaction and secure the network with their hardware.
• The Bitcoin protocol is designed in such a way that new Bitcoins are created at a fixed rate.
• No developer has the power to manipulate the system to increase their profits.
• One unique aspect of Bitcoin is that only 21 million units will ever be created.
• A Bitcoin exchange functions like a bank where a person buys and sells Bitcoins with traditional currency. Depending on the demand and supply, the price of a Bitcoin keeps fluctuating.

48. The term 'Base Erosion and Profit Shifting' is sometimes seen in the news in the context of : [2016-1]

Correct Answer: (b) curbing of the tax evasion by multinational companies
Solution:(1) Base Erosion and Profit Shifting (BEPS) is a tax avoidance strategy used by multinational companies, wherein profits are shifted from jurisdictions that have high taxes (such as the United States and many Western European countries) to jurisdictions that have low (or no) taxes (so-called tax havens).

(ii) BEPS aims to curb the tax evasion by MNCs, hence B is the answer.

The BEPS project is said to be an "attempt by the world's major economies to try to rewrite the rules on corporate taxation to address the widespread perception that the [corporations] don't pay their fair share of taxes".

49. There has been a persistent deficit budget year after year. Which action/actions of the following can be taken by the Government to reduce the deficit? [2016-1]

1. Reducing revenue expenditure

2. Introducing new welfare schemes

3. Rationalizing subsidies 4. Reducing import duty

Select the correct answer using the code given below.

Correct Answer: (c) 1 & 3 only
Solution:(i) In order to reduce the fiscal deficit, the government needs to increase its earnings and reduce its expenditure. This is done by following methods: Cut down the subsidies, reforms in tax structures; improve profit generated by Public Sector Enterprises and austerity measures.

(ii) Just by applying logic i.e. to reduce deficit, we've to increase income and reduce Expenditure.

Option Does it increase income Does it reduce Expenditure
1. Reducing revenue expenditure ----YES
2. Introducing new welfare schemes ----NO
3. Rationalizing subsidies ----YES
4. Reducing import dutyNO ----

50. Which of the following is/are included in the capital budget of the Government of India? [2016-1]

1. Expenditure on acquisition of assets like roads, buildings, machinery, etc.

2. Loans received from foreign governments

3. Loans and advances granted to the States and Union Territories

Select the correct answer using the code given below.

Correct Answer: (d) 1, 2 & 3
Solution:(i) The main items of capital budget are receipts and expenditure for capital (Financial) gains. It also includes loans raised by Government from public, Reserve Bank and other parties, and from foreign Governments and bodies. It also includes capital expenditure on acquisition of assets like land, buildings, machinery, equipment, ete and loans and advances granted by Central Government to State and Union Territory Governments, Government companies, Corporations and other parties.