Banking & Financial Services

The financial system in India plays an active role in transforming savings into investment and consumption. This is because the financial system provides various channels and instruments through which individuals and businesses can invest their savings and access funds for consumption. It includes banks, stock markets, mutual funds, insurance companies, and other financial institutions that facilitate the flow of funds between savers and borrowers. This promotes economic growth by channeling savings into productive investments and enabling individuals to access funds for consumption, ultimately contributing to the overall development of the economy.

Commercial paper is indeed a money market instrument. Money market instruments are short-term debt securities that are highly liquid and have a maturity period of less than one year. Commercial paper is a type of unsecured promissory note issued by corporations to raise short-term funds. It is typically used to finance current operations, such as accounts payable and inventory purchases. Commercial paper is considered a safe investment because it is issued by financially stable companies with a high credit rating. It is commonly traded among institutional investors and provides a way for corporations to meet their short-term borrowing needs.

The Reserve Bank of India exercises monetary control through various measures, including the cash reserve ratio, statutory liquidity ratio, repo rate, and bank rate. These tools help the central bank manage the money supply in the economy, regulate inflation, and influence interest rates. By adjusting these rates, the RBI can either encourage or discourage borrowing and spending, thereby impacting economic growth and stability. Therefore, the statement "True" is correct as the RBI does exercise monetary control through these measures.

G Securities issued by the Central and State Government are indeed instruments in the Debt Market. These securities include government bonds, treasury bills, and other debt instruments that are issued by the government to borrow money from the public. These securities are considered to be low-risk investments as they are backed by the government. Investors who purchase these securities lend money to the government and receive regular interest payments in return. Therefore, the statement is true.

Forfaiting is a financial instrument used for financing international trade. It involves the purchase of trade receivables at a discount by a forfaiter, who takes on the risk of non-payment by the buyer. This allows exporters to receive immediate cash flow and transfer the risk to the forfaiter. Forfaiting is commonly used for medium to long-term financing, making it an important tool for international trade. Therefore, the statement that forfaiting has emerged as an important instrument for short to long-term financing of international trade is true.

The statement suggests that good debt and cash management by the government can complement the monetary policy and provide the Reserve Bank of India (RBI) with the freedom to set its operating procedures. This implies that effective debt and cash management can support the overall financial stability and flexibility of the government and the central bank. Therefore, the answer "True" indicates that the statement is accurate in describing the relationship between good debt and cash management and the autonomy of the RBI in setting its operating procedures.

The statement is true because GNP (Gross National Product) is calculated by adding the net factor income from abroad to the GDP (Gross Domestic Product) at factor cost. This means that the income earned by domestic factors of production from abroad is added to the domestic production income to arrive at GNP. So, the correct answer is true.

An installment purchase system refers to a credit sale where the seller provides the buyer with the option to pay the money in agreed installments. This means that the buyer does not have to make a lump sum payment upfront but can instead pay in smaller, regular installments over a set period of time. The seller offers this facility to make the purchase more affordable and convenient for the buyer.

The Reserve Bank of India has supervision over commercial banks, NBFCs (Non-Banking Financial Companies), primary dealers, and financial institutions. This means that the RBI has regulatory authority and oversight over these entities to ensure their compliance with rules and regulations, maintain financial stability, and protect the interests of depositors and investors.

The correct answer is Financial System. The financial system refers to the structure or mechanism in an economy that facilitates the mobilization of capital from surplus sectors to needy sectors. It includes various institutions, such as banks, financial markets, and intermediaries, that play a crucial role in the allocation and distribution of capital. The financial system is essential for the efficient functioning of an economy as it ensures the flow of funds to productive sectors and supports economic growth.

The correct answer is 4.00% because it is the option that matches the current CRR (Cash Reserve Ratio) as of today. CRR is the portion of the total deposits that banks are required to keep with the central bank.

The correct answer is "All of the above". Factoring is a financial transaction where a business sells its accounts receivable to a third party, known as a factor, at a discount. The beneficiary of factoring includes the client, who receives immediate cash flow by selling their accounts receivable, the customers, who can continue to purchase goods or services on credit, and the banks, who may provide funding or other services to facilitate the factoring process. Therefore, all three options mentioned in the question are correct beneficiaries of factoring.

LAF, or Liquidity Adjustment Facility, is a monetary policy tool used by central banks to manage liquidity in the banking system. It allows banks to borrow money from the central bank for a short period of time. The correct answer is "Both Fixed Rate Repo & Reverse Repo" because LAF is operated through both fixed rate repo and reverse repo transactions. In a fixed rate repo, the central bank lends money to banks and takes government securities as collateral. In a reverse repo, banks lend money to the central bank and receive government securities as collateral. Both transactions help the central bank to regulate the money supply and manage interest rates in the economy.

Forfaiting is a financing method that allows exporters to sell their receivables to a forfaiter at a discount. By doing so, exporters can avoid various risks such as interest rate risk, which refers to the potential fluctuations in interest rates that could affect the profitability of the export transaction. Currency risk is also mitigated as forfaiting allows exporters to receive payment in their own currency, eliminating the need to deal with foreign exchange fluctuations. Additionally, forfaiting helps exporters avoid credit risk, which is the risk of non-payment by the importer, and political risk, which refers to the potential adverse effects of political events on the export transaction.

The idea of designing regional rural banks is to help the targeted groups. These banks are specifically created to cater to the financial needs of rural and agricultural communities. They provide banking services and credit facilities to farmers, small businesses, and other marginalized groups in rural areas who may not have access to traditional commercial banks. By focusing on these target groups, regional rural banks aim to promote financial inclusion and support the economic development of rural communities.

RK Industries should lease the machine. Leasing the machine at a monthly cost of Rs 1,20,000 with an upfront deposit of Rs 5,00,000 is a more affordable option compared to purchasing the machine outright for Rs 1,30,00,000. Additionally, the incremental value of 10% per year for the lease is a reasonable rate. Therefore, leasing the machine would be a suitable choice for RK Industries.

Lufthansa is not a bank because it is an airline company, not a financial institution. HSBC, BNP Paribas, and Barclays are all well-known banks, while Lufthansa operates in the aviation industry.

Jet Airways is planning to reduce their manpower and cost of handling flights. In Case-1, they are looking to lease their flights along with the full crew and engineers, which is known as a wet lease. In Case-2, they are planning to lease their flights without a crew, which is referred to as a dry lease.

The Leverage Ratio is a financial ratio that gives a measure of a company's ability to meet its financial losses. It calculates the proportion of a company's debt to its equity. A higher leverage ratio indicates that a company has a higher level of debt compared to its equity, which means it may have difficulty meeting its financial obligations and losses. Therefore, the Leverage Ratio is a useful indicator of a company's financial risk and ability to handle financial losses.

Under domestic Factoring, the payment of the bills that the seller gets from the factor is nearly 80% of the bill amount upon tendering the bill and balance on due date after collecting it from the buyer. This means that the seller will receive 80% of the bill amount immediately upon submitting the bill to the factor. The remaining 20% will be paid to the seller on the due date, but only after the factor has collected the payment from the buyer. This payment structure allows the seller to receive a significant portion of the bill amount upfront while still ensuring that the full amount is paid on time.

The maximum time period available for call money is 91 days. Call money refers to short-term borrowing and lending in the money market, usually for a period of one day to 91 days. It is a type of loan that is availed by banks and financial institutions to meet their short-term funding requirements. Therefore, out of the given options, 91 days is the correct answer.

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Repurchase Agreements (Repo) are a monetary policy tool used by the Reserve Bank of India (RBI) to manage money supply and interest rates. In a repo, the RBI buys government securities from commercial banks with an agreement to sell them back in the future at a predetermined price. By conducting repos, the RBI injects liquidity into the banking system, increasing the money supply and lowering interest rates. Conversely, when the RBI sells the securities back to the banks, it absorbs liquidity from the system, reducing the money supply and increasing interest rates. Therefore, repos are an effective instrument for the RBI to control and smoothen money supply and interest rates.

The statement suggests that there is a direct relationship between the outstanding amount in the case of both CD (Certificate of Deposit) and CP (Commercial Paper). However, the correct answer is false. In reality, CD and CP are different financial instruments with distinct characteristics. CD is a time deposit offered by banks, while CP is a short-term unsecured promissory note issued by corporations. The outstanding amount of CD is fixed and predetermined, whereas the outstanding amount of CP can vary depending on market demand and supply. Therefore, there is no direct relationship between the outstanding amount of CD and CP.

MSF stands for Marginal Standing Facility. It is a facility provided by the Reserve Bank of India (RBI) to the commercial banks to borrow funds overnight. This facility helps banks to meet their immediate liquidity requirements and fulfill their demand liabilities. Therefore, the correct answer is MSF.

The correct answer is all of the above. Leasing is a method of acquiring commercial assets through rental payments, and there are various types of leases available. An operating lease is a short-term lease where the lessor retains ownership of the asset, while a financial lease is a long-term lease where the lessee has ownership rights. Wet lease and dry lease are specific types of leases used in the aviation industry. Therefore, all of these options are correct types of leases.

A decrease in the Statutory Liquidity Ratio (SLR) does not contract credit creation. In fact, a decrease in SLR actually expands credit creation. SLR is the percentage of a bank's net demand and time liabilities that it must maintain in the form of liquid assets like cash, gold, or government securities. When the SLR is reduced, banks have more freedom to lend out a larger portion of their deposits, which increases credit creation and liquidity in the economy. Therefore, the statement is false.

The reverse repo is a tool used by central banks to absorb liquidity from the market. It involves the central bank selling securities to commercial banks with an agreement to repurchase them at a later date. This helps to reduce the amount of money in circulation and control inflationary pressures. By absorbing liquidity, the central bank can influence interest rates and maintain stability in the financial system.

Bill receivables under export import arrangement cannot be discounted under factoring facility. Factoring is a financial service where a company sells its accounts receivable to a third party at a discount in order to receive immediate cash. However, in the case of export import arrangements, the bills receivable are typically not eligible for factoring because they involve international transactions and may have additional risks and complexities. Therefore, the correct answer is False.

Banking & Insurance and Business Services are part of the Finance Sector because they involve financial activities such as providing banking services, insurance coverage, and financial advice to individuals and businesses. This sector plays a crucial role in the economy by facilitating the flow of funds, managing risks, and supporting the growth of businesses. It encompasses various financial institutions, including banks, insurance companies, investment firms, and other financial service providers.

In the call money market, only banks are allowed to trade. This market is a segment of the money market where banks borrow and lend money to each other for a short duration, usually overnight. Other participants such as corporates, primary dealers, and mutual funds are not permitted to directly participate in this market. Hence, the correct answer is "Only Banks."

The correct answer is "Total NPA to Gross Advances." Gross NPA refers to the total non-performing assets (NPA) of a bank before any provisions or write-offs are made. The ratio of total NPA to gross advances provides a measure of the proportion of non-performing loans in relation to the total loan portfolio. This ratio is commonly used to assess the asset quality and credit risk of a bank.

MCLR, which stands for Marginal Cost of Funds based Lending Rate, is a benchmark interest rate that commercial banks use to determine the minimum interest rate at which they can lend to borrowers. The MCLR is adjusted and announced by both the RBI (Reserve Bank of India) and commercial banks. The RBI sets the policy rates, which influence the MCLR, while commercial banks have the authority to adjust their MCLR based on their own cost of funds. Therefore, both the RBI and commercial banks play a role in adjusting and announcing the MCLR.