MONEY MARKET BUSINESS ECONOMICS FOR C.A.

FOUNDATION : – 1 –

CHAPTER – 8
MONEY MARKET
UNIT-1: THE CONCEPT OF MONEY DEMAND IMPORTANT THEORIES

Introduction to Money (a) Generally Acceptable & possessing

uniformity
1. Barter exchange refers t exchanges of good/
(b) Durable or long-lasting
services for goods/services. Which of the fol-
lowing is the limitation of Barter exchange ? (c) Portable & efforlessly recognizable
(a) Lack of Double coincidence of wants (d) Easily counterfeitable
(b) Lack of store of value 7. Any unit of money, whose face value and in-
trinsic value are equal, is known as ________
(c) Lack of common measure of value

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(a) Full-Bodied Money
(d) All of the above

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(b) Representative full-bodied money
2. Which of the following is the primary func-

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tion of money? (c) Credit money

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(d) All of the above

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(a) Medium of exchange

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(b) Standard of Deferred Payments 8. Which one of the following form of legal ten-
der money can be paid in discharge of a debt
(c) Store of value
up t a certain limit only?
(d) All of the above

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(a) Coins
3. Which function of money is also known by the

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(b) Paper Notes
name of “Unit of Account”?

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(c) Cheques
(a) Medium of exchange

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(d) Bank Draft
(b) Standard of deferred Payments
9. Choose the incorrect statement.
(c) Measure of value
(a) Anything that would act as a medium of ex-
(d) Store of value
change is money.
4. If there were no money, we would be reduced
(b) Money has generalized purchasing power
to a______________.
and is generally acceptable in settlement of
(a) Non-Monetary Economy
all transactions
(b) Barter Economy
(c) Money is a totally liquid asset and provides
(c) Monetary Economy as with means to access goods and services
(d) None of the above (d) Currency which represents money does not
5. Flat money is materially _________ but has necessarily have in trinsic value
___________ simply because a nation collec- 10. Money performs all of the three functions
tively agreed to ascribe a value to it. mentioned below, namely :
(a) Worthless, value (a) Medium of exchange, price control, store of
(b) Valuable, worthless value
(c) Transparent, liquid (b) Unit of account, store of value, provide
(d) Liquid, exchangeability yields

6. Which of the following is Not a Part of gen- (c) Medium of exchange, unit of account store
eral characteristics that money should possess of value
in order to make it serve its function as money.
BUSINESS ECONOMICS FOR C.A. FOUNDATION BY : RAHUL UPADHYAY
MONEY MARKET BUSINESS ECONOMICS FOR C.A. FOUNDATION : – 2 –
(d) Medium of exchange, unit of account, in- (b) Money has demonstration effect
come distribution (c) Money gives authority
The Demand for Money (d) None of these
11. Demand for money is : 17. The quantity of nominal money of how much
(a) Derived demand money people would like to hold to liqud form
(b) Direct demand depends many factors. Which of the following
is the variable on which this demand for money
(c) Real income demand
demands?
(d) Inverse demand
(a) Income
12. Higher the _________ higher would be
(b) General level of prices & rate of interest
_______of holding cash and lower will be the
__________. (c) Real GDP and the degree of financial inno-
vation
(a) Demand for money oopotunity cost, inter-

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est rate (d) All of the above

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(b) Price level, opportunity cost, interest rate 18. The quantity which people desire to hold is
_________ proportional to the income.

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(c) Real income opportunity cost demand for

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money (a) Directly

money
A
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(d) Interest rate, opportunity cost, demand for

13. The money is demanded for its purchasing

(b) Inversely
(c) Regressive
(d) Noneof these

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power. Therefore, the demand for money is in 19. The Demand for money depends upon prevail-
the nature of _________. ing price level.
(a) Purchasing power demand
(b) Real power demand

P A (a) Lower, Higher

(b) Higher, Lower
(c) Direct demand
(d) Derived demand
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14. The demand for money is actually
(a) Demand for liquidity
(c) Higher, Higher
(d) Lower, Lower
20. Which of the following innovation, has reduced
the need for holding liquid money?
(b) Demand to store value (a) Interest Banking
(c) Both (a) and (b) (b) Application based transfer
(d) None of the above (c) Automated Teller Machines
15. The decsion about how much of one’s given (d) All of the above
stock of wealth should be held in the form of 21. The rate of inerest is crucial factor on which
money rather than as other assets (like bonds) demand for money depends on. The demand
is called as __________ for money is _________ proportional to the
(a) Demand for money interest rate.
(b) Decision for money (a) Directly
(c) Supply of money (b) Inversely
(d) None of above (c) Progressively
16. The individuals, households as well as firms (d) None of the above
hold money which gives little or no return. This Theories of Demand for money
is because _________.
22. Which one of the following is not a theory of
(a) Money is liquid Demand for money?
BUSINESS ECONOMICS FOR C.A. FOUNDATION BY : RAHUL UPADHYAY
MONEY MARKET BUSINESS ECONOMICS FOR C.A. FOUNDATION : – 3 –
(a) The quantity theory of money (a) Velocity of money (V) and total number of
(b) Hicksian theory of Demand transactions (T) are constant

(c) Cash Balance Approach (b) There is full employment in economy

(d) Keynesiantheory of Demand for money (c) Money is only used as medium of exchange

23. The quantity theory of money holds that: (d) All of the above

(a) Changes in the general level of commodity 28. Fisher’s version is formally stated as MV=PT.
prices are caused by chages in the quantity In this equation of exchange.
of money (a) M and V are constant
(b) There is strong relationship between money (b) P and T are consant
and price level and the quantity of money is (c) M and P are constant
the main determinant of the price
(d) V and T are constant
(c) Changes in the value of money or purchas-
29. Which are of the following is the expanded

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ing power of money ae determined first and
form of Fisher’s equation of exchange?
foremost by changes in the quantity of

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money in circulation (a) MV = PT

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(d) All of the above (b) MV+MV=PT

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(c) MV=PT+PT

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24. Which theory was propounded in the

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book.”The Purchasing power of money”? (d) MV+MV=PT+PT
(a) Quantity theory of money 30. As per fisher’s expanded quantity theory of
(b) Cash Balance Approach money, the toal value of transactions made is

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equal to ________ and the value of money flow
(c) Keynesian theory of Demand for money

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is equal to __________.
(d) None of these

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(a) MV;PT
25. As regards Fisher’s quantity of money, which

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(b) PT; MV
of the following is incorrect?
(c) PT;MV+MV
(a) There is direct relationship between money
supply and inflation. (d) MV+M’V:PT

(b) There is indirect relationship between money 31. The Cambridge approach to quantity theory
supply and value of money is also known as:

(c) Price is a passive factor (a) Cash balance approach

(d) The economy is not at full employment (b) Fisher’s theory of money

26. Both the versions of the quantity theory of (c) Classical approach
money demonstrate that there is a _________ (d) Keynesian Approach
relationship between money and price level 32. Fisher’s approach and the Cambridge ap-
and the quantity of money is the _________ proach to demand for money consider:
determinant of the price level or value of
(a) Money role in acting as a store of value and
money.
therefore, demand for money is for storing
(a) Weak, main value temporarily
(b) Strong, main (b) Money as a means of exchange and therefor
(c) Weak, very passive demand for money is termed as for
(d) Strong, very passive liquiditypreference

27. Which one of following is the criticism of (c) Money as a means of transactions and there-
Quantity theory of money? fore demand for money is only transaction
demand for money
BUSINESS ECONOMICS FOR C.A. FOUNDATION BY : RAHUL UPADHYAY
MONEY MARKET BUSINESS ECONOMICS FOR C.A. FOUNDATION : – 4 –
(d) None of the above 38. Real money is:
33. The Cambridge equation is: (a) Nominal mney adjusted to the price level
Md=K.P.Y (b) Real national income
In above equation, __________is exogenous (c) Money demanded at given rate of interest
(a) M (d) Nominal GNP divided be price level
(b) K 39. With reference to Cambride theory, the prod-
(c) P uct of the price level (P) and the real Income
(Y) is known as ___________.
(d) Y
(a) Nominal Income
34. The Cambridge equation focuses on ________
instead of _________. (b) National Income

(a) Money demand, money supply (c) Real Income

(b) Money supply; money demand (d) Equilibrium Income

(c) Money demand; money movement

(d) Money supply money movement

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for money is also called as:

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(a) Demand Preference Theory
35. The cash balance approach was put forward

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(b) Liquidity Preference Theory

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by Cambride economists. The economists

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assciated with this approach are: (c) Preference Demand Theory
(i) Alfred Marshall (d) Preference Liquidity Theory
(ii) A.C. Pigou 41. The people hold their resources in liquid form
(iii) D.H. Robertson
(iv) John Maynard Keynes

AD when they can get interes by lending money of

buying bonds or stocks. According to Keynes,

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by which motive the desire to hold money
(a) (i) only arises?

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(b) (i) and (ii) (a) Transaction motive
(c) (i), (ii) and (iii) (b) Precautionary motive
(d) (i), (ii), (iii) and (iv) (c) Speculative motive
36. The Cambridge money demand function is (d) Unforeseen motive
stated as follows:
42. According to John Maynard Keynes, the trans-
Md=KPY actions demand for money depends only on the
In this equation PY stands for: __________ and not influenced by the ______.
(a) National Income (a) Rate of Interest level of Income
(b) Real National Income (b) Level of Incme Rate of Interest
(c) Nominal Income (c) Psychology of individual, Real Income
(d) Real Income (d) Psychology of individual, Rate of Interest
37. In Cambridge money demand function, 44. As per lquidity preference theory, the trans-
____________ is a parameter reflecting the actions demand for money is ________ pro-
proportion of national income (PY) that people portional and __________ function of the level
want to hold as cash balance: of income.
(a) M (a) Direct, positive
(b) K (b) Indirect, positve
(c) P (c) Direct, negative
(d) Y (d) Indirect, negative
BUSINESS ECONOMICS FOR C.A. FOUNDATION BY : RAHUL UPADHYAY
MONEY MARKET BUSINESS ECONOMICS FOR C.A. FOUNDATION : – 5 –
45. Under Keynesian theory, the aggregate trans- (b) Is positiely related to interest rates
action demand for money is a function of (c) Is negatively, related to interest rates
___________.
(d) Is determined by general price level
(a) Specific Income
51. Which one of following motive reflects people’s
(b) Individual Income desire to hold cash in order to be equipped to
(c) Notional Income exploit any attractive investment opportunity
(d) National Income requiring cash expenditure?

46. The precautionay money balances people want (a) Transaction motive
to hold _________. (b) Precautionary motive
(a) As income elastic and not very sensitive to (c) Speculative motive
rate of interest (d) Non-speculative motive
(b) As income inelastic and very sensitive to rate 52. Under liquidity preference theory, Keynes as-

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of interest sumed that the expected return on money is
(c) Are determined primarily by the level of

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___________ while the expected return on
transactions they expect to makein the fu- bonds are _________ and _________.

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ture (a) Zero, interest payment, expected rate of capi-

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(d) Are determined primarily by the current tal gain

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level of transactions (b) One, interest payment, expected rate of capi-
47. Under _________ motive, people hold money tal gain
in cash form or liquid form of unforeseen con- (c) Zero, fixed interest, fixed loss

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tingencies such as sickness, accident, danger
(d) None of the above

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of unemployment and other uncertain perils.
53. With reference to speculative demand for

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(a) Transaction
money, the market value of bonds and the

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(b) Speculative market rate of interest are ________ related.
(c) Precautionary (a) Positively
(d) Non-contingency (b) Inversely
48. Prof. J.M. Keynes regarded the Precaution- (c) Directly
ary balance as income __________ and by it-
(d) Nor
self not very sensitie to ___________.
54. According to Keynes, if the current interest
(a) Elastic, rate of interest rate is high:
(b) Inelastic, rate of interest (a) People will demand more money because the
(c) Elastic, level of income capital gain on bonds would be less than re-
(d) Inelastic, level of income turn on money

49. The amount of money demanded under the (b) People will expect the interest rate to rise
precautionary motive depends on _________. and bond price to fall in the future

(a) Size of income (c) People will expect the interest rate to fall
and bond price to rise in the future
(b) Prevailing economic political conditions
(d) Either (a) or (b) will happen
(c) Personal characteristics of individual
55. Under liquidity preference theory, if the cur-
(d) All of the above
rent rate of interest is lower than the critical
50. Speculative demand for money ___________ rate of interest, his asset portfolio would con-
(a) Is not determined by interest rates sist_________

BUSINESS ECONOMICS FOR C.A. FOUNDATION BY : RAHUL UPADHYAY

MONEY MARKET BUSINESS ECONOMICS FOR C.A. FOUNDATION : – 6 –
(a) Only government bonds (b) Explains the positive relationship between
(b) Wholly of cash money demand and the interest rate

(c) Both cash and bonds equally (c) Explain the positive relationship between
money demand and general price level
(d) Either cah or bonds
(d) Explains the nature of expectations of people
56. __________ is an adverse economic situation
with respect to interest rates and bond prices
that can occur when consumers and investors
hoard cash rather than spending or investing 61. In which approach, the money or real cash
it even when interest rates are low. balance was essentially viewed as an inventroy
held for transaction purposes.
(a) Liquidity trap
(a) Inventory explicit Approach
(b) Monetary trap
(b) Inventory implicit Approach
(c) Precautionary trap
(c) Inventory theoretic Approach
(d) Stimulus trap

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(d) Inventory regressive Approach
57. There is a liquidity trap at short term________

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per cent interest rate. 62. Who has developed deterministic theory of
transaction demand for money known as In-

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(a) 10

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ventory Theoritic approach?

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(b) 7.5

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(a) Baumol and Tobin

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(c) 5
(b) Baumol and Fisher
(d) Zero
(c) Tobin and Fisher
58. Which of the following statement is correct,

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(d) Baumol and Marshall
in te situation of liquidity trap?
63. According to Baumolwhich of the following

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(a) Investors would maintain cash savings rather
formula can be used to calculate the average

P
than hold bonds
amount of cash withdrawal which minimises

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(b) The speculative demand becomes perfectly cost?
elastic with respet to interest rate
(a) C = 2byr
(c) The speculative money demand curve
becomes parallel to the X-axis
2by
(b) C=
(d) All of the above r
59. In the situation of liquidity trap, the monetary
byr
authority is _________ to stimulate the (c) C=
2
economy with monetary policy.
(a) Unable 2br
(d) C=
(b) Able y
(c) Perfectly able 64. In accrdance with the Inventory Theoretic
(d) Very effective Approach, an ndividual combines his asset
portfolio of ________ and _________ in such
proportions hat his ___________ of holding the
Post-Keynesian Developments in the
assets is minimized.
Theory of demand for Money
(a) Cash bonds,;overall cost
60. The inventory-theoretic approach to the trans-
(b) Shares bonds; overall cost
actions demand for money ___________
(c) Cash bond ; bond cost
(a) Explains the negative relationship between
(d) Cash bond; Cash cost
money demand and the interest rate

BUSINESS ECONOMICS FOR C.A. FOUNDATION BY : RAHUL UPADHYAY

MONEY MARKET BUSINESS ECONOMICS FOR C.A. FOUNDATION : – 7 –
65. The nominal demand for money rises if : (c) Temporary income
(a) The opportunity costs of money holdings - (d) Flexible income
i.e. bonds and stock returns rB and rE respec- 70. Under Friedman’s Qauntity theory, the nomi-
tively decline and vice versa nal demand for money is _________ related to
(b) The opportunity costs of money holdings, the price level.
i.e. bonds and stock returns rB and rE respec- (a) Negatively
tively rises and vice versa
(b) Positively
(c) The opportunity costs of money holdings -
(c) Regressively
i.e. bonds and stock returns, rB and rE respec-
tively remain constant (d) Not

(d) (b) and (c) above 71. According to James Tobin’s theory, an
individual’s behaviour shows risk aversion,
66. ____________ considered demand for money
which means they prefer_________ risk to
is as an appliation of a more general theory of

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__________ risk at a given rate of return.
demand for capital assets.
(a) Loss, more

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(a) Baumol
(b) More, less

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(b) James Tobin
(c) Less, positive

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(c) J.M. Keynes
(d) More, negative

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(d) Milton Friedman
72. Tobin’s theory holds that people prefer
67. As per Milton Friedman’s restatement of the
_______ portfolio of money bonds and shares,
quantity Theory the nominal demand for

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with each person optin for a little differen bal-
money is a function of __________, which is
ance between risk and return.

A
represented by permanent income divided by
(a) Mixed

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the __________ rates, defined as the average
return on the __________ asset classes in the (b) Diversified

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monetarist theory world. (c) Mixed or diversified
(a) Toal wealth, discount five (d) Non-diversified
(b) Total wealth, Interest, Five 73. In Tobin’s portfolio approach, the demand
(c) Permanent wealth, Interest, six function for money as an asset slopes
(d) None of these downwoards, where horizontal axis shows
___________ and vertical axis shows
68. As per Friedman’s theory, the nominal demand
_________.
for money is influenced by inflation, a positive
inflation rate _________ the real value of (a) Demand for money rate of interest
money balances, there by _________ the op- (b) ate of interest, demand for money
portunity costs of money holdings. (c) Supply for money, ate of interest
(a) Increases, reduces (d) Demand for money, supply for Money
(b) Reduces, incresing 74. The demand for money as behaviour owards
(c) Stimulates, reduces “aversion o risk” was propounded by:
(d) None of these (a) Fisher
69. The present expected value of all future income (b) Marshall
is Friedman’s measure of wealth. Friedman;s (c) Friedman
regarded this as __________.
(d) Tobin
(a) Permanent income
75. Which of the following statement holds true
(b) Current income with reference to Tobin’s Demand for money
BUSINESS ECONOMICS FOR C.A. FOUNDATION BY : RAHUL UPADHYAY
MONEY MARKET BUSINESS ECONOMICS FOR C.A. FOUNDATION : – 8 –
heory involving individual’s behaviour to- (a) Money includes money held by public only
wards risk? (b) Money does not include money creating sec-
(a) Money is a safe assets tor (suppliers of money)
(b) Investor will be willing to exercise a trade- (c) Money is a sock concept, as it is concerned
off with a particular point of time.
(c) Invesor sacrifice to some extent, the higher (d) All of the above
return from bonds for a reduction in risk 81. Choose the correct statement from the follow-
(d) All of the above ing:
76. According to Baumol and Tobin’s approach to (a) Money is deemed as something held b the
demand for money, the optimal average money public and therefore only curency held by
holding is: the public is included in money supply
(a) A positive function of income Y and the price (b) Money is deemed as something held by the
level P public and therefore inter bank deposits are

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(b) A positive function of transactions coss c.
(c) A negative function of the nominal interest
included in money supply
(c) Since inter-bank deposits are not held by the

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rate i public, therefore interbank deposits are ex-

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cluded from the measure of money supply

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(d) All the above

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(d) Both (a) and (c) above
82. Which one of the following is not the produc-
UNIT 2 : CONCEPT OF MONEY
ers of money?
SUPPLY

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(a) Government
Money Supply : Rationale & Sources

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(b) Banking System

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77. The total stock of money held by the _______
(c) Household & Firms
in an economy at a particular point of time is

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called Money Supply. (d) All of the above

(a) Public 83. In the definition of money supply, the term

public includes economic unit:
(b) Governmen
(a) Households
(c) Banks
(b) Firms
(d) Corporate Entities
(c) Institutions
78. Money Supply is a __________ variable.
(d) All of the above
(a) Flow
84. While discussing the definition of “Supply of
(b) Stock
Money” and the Standard measures of
(c) Both (a) & (b) money__________ is/are not included.
(d) None of the above (a) Inter bank Deposits
79. Money Supply does not include stock of money (b) Money held by the Government
held by the______________ as well as ______
(c) Banking System
of country.
(d) All of the above
(a) Public, government
85. In the definition of money supply, the world
(b) Public, banking system
“public” includes:
(c) Government, banking system
(a) All Local Authorities
(d) Public, banks
(b) Non-Banking Financial Insitutions
80. which one of the following is the feature of
(c) Foreign Central Banks
money supply?
BUSINESS ECONOMICS FOR C.A. FOUNDATION BY : RAHUL UPADHYAY
MONEY MARKET BUSINESS ECONOMICS FOR C.A. FOUNDATION : – 9 –
(d) All of the above (d) Both (a) and (c) above
86. The Central Banks all over the World adopt 92. Under the ‘minimum reserve system’ the cen-
monetary policy which depends to a large ex- tral bank is _________.
tent on he controllability of the : (a) Empowered to issue currency to any extent
(a) Monetay base by keeping an equivalent reserve of gold and
(b) Money Supply foreign securities

(c) Monetary base & the money Supply (b) Empowered to issue currency to any extent
by keeping only a certain mnimum reserve
(d) Money Supply & money demand
of gold and foreign securities
87. The empirical analysis of the ____________ fa-
(c) Empowered to issue currency in proportion
cilities analysis of monetary developments in
to the reserve money by keeping only a mini-
order to provide a deeper Understanding of
mum reserve of gold and foreign securities
the causes of money growth.
(d) Empowered to issue currency to any extent

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(a) Money Supply
by keeping a reserve of gold and foreign se-
(b) Money Demand

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curities in the extent of ˆ350 crores.
(c) Money supplied by households

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93. The Money is a liability of the __________ and

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(d) Money demanded by Governments

A
88. The supply of money in the economy depends
an asset of the ________.

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(a) Issuing central bank, holding public
on the decision of: (b) Public, central bank
(a) Commercial Banks (c) Issuing central bank, central government

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(b) Central Bank (d) Central government, issuing central bank

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(c) Minisry of Finance 94. The currency issued by the Central Bank is

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(d) Central Government “FLAT MONEY” and is backed by support-
ing ________ and its value is guaranteed by

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89. Paper currency is a :
the __________.
(a) Representative Money
(a) Currency; central Bank
(b) Full-bodied Money
(b) Currency; government
(c) Metallic Money
(c) Reserves, government
(d) None of the above
(d) Reserves, central bank
90. The primary source of money supply in all
countries is : 95. Banks create money supply in the process of
borrowing and lending transactions with the
(a) The Reserve Bank of India
public. Money so created by the commercial
(b) The Central bank of the country
Banks is called:
(c) The Bank of England
(a) Credit Money
(d) The Federal Reserve
(b) Artificial Money
91. The supply of money in an economy depends
(c) Debit Money
on.
(d) None of these
(a) The decision of the central bank based on
96. Which of the following is a type of money?
the authority conferred on it
(a) Metallic Currency
(b) The decision of the central bank and the sup-
ply responses of the commercial banking (b) Paper Currency
system (c) Digital Currency
(c) The decision of the central bank in respect (d) All of the above
of high powered money
BUSINESS ECONOMICS FOR C.A. FOUNDATION BY : RAHUL UPADHYAY
MONEY MARKET BUSINESS ECONOMICS FOR C.A. FOUNDATION : – 10 –
97. With the advent of cutting edge technologies (d) M1, M2, M3, M4
and advancement in technology has made it 102. In India, who releases data on money supply?
possible for the development of new form of
(a) RBI
money [Link]. What is the full form of
CBDC? (b) Central Government

(a) Cenral Bank Digital Certficate (c) Minister of Finance

(b) Central Bank Dynamic Certificate (d) Commercial Bank

(c) Central Bank Digital Currency 103. M1 and M2 are generally known as ________
supply concepts, whereas, M1 and M2 are
(d) Central Bank Dynamic Currency
known as ________ supply concepts.
98. At present, which of the following Statement
(a) Narraw Money, Broad Money
is true about the crypto currencies?
(b) Broad Money, Narrow Money
(a) These face Significant. Legislative Uncer-
tainties (c) Least Liquid Money, Narrow Money

currency

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(b) These are not legally recognised in India as (d) Broad Money, Most liquid money
104. The four measures of money supply represent

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(c) These are not categorized as money different degrees of liquidity. In this regard

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________ is the most liquid and __________ is

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(d) All of the above
least liquid.

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99. Banks in the country ae required to maintain
(a) M4, M1
deposits with the central bank ________.
(b) M1, M4
(a) To provide the necessary reserves for the

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functioning of the central bank (c) M2, M3

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(b) To meet the demand for money by the bank- (d) M3, M2

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ing system 105. Reserve money is also known as .

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(c) To meet the central bank prescribed reserve (a) General bank money
requirements and to meet settlement obliga- (b) Base money
tions
(c) High powered money
(d) To meet the money needs for the day to day
(d) All of the above
working of the commercial banks
106. Reserve Money is composed of :
100. “Money” consists of currency and
(a) Currency in circulation+demand deposits of
_________,while “High Powered Money”.
banks (Crrent and Saving accounts)+Other
Consists of currency and __________.
deposits with the RBI
(a) Demand depsosits, cash reserves with banks
(b) Currency in circulation+Bankers deposits
(b) Cash reserves with Banks demand Deposits
with the RBI+Other deposits with the RBI
(c) Public money, paper money
(c) Currency in circulation+demand deposits of
(d) Paper money, public money banks+Other deposits with the RBI
(d) Currency in circulation+demand and time
Mesurement of Money Supply deposits of banks + Other deposits with the
101. Till 1967-68, the RBI used to publish________ RBI.
measure of money supply. 107. M1 is the sum of
(a) M (a) Currency and coins with the people + de-
(b) M1 and M2 mand deposis of banks (Current and Saving
accounts)+ other deposis of the RBI
(c) M1, M2 and M3

BUSINESS ECONOMICS FOR C.A. FOUNDATION BY : RAHUL UPADHYAY

MONEY MARKET BUSINESS ECONOMICS FOR C.A. FOUNDATION : – 11 –
(b) Currency and coins with the people+demand Notes in circulations 26,09,005
and time deposits of banks (Current and Circulation of Rupee Coin 40,715
Saving accounts)+other deposits of the RBI.
Circulation of Small Coins 1,080
(c) currency in circulation+Bankers deposis
Cash on hand and Bank 99,200
with the RBI+ Other deposits wih the RBI
What is the currency with the Public?
(d) none of the above
(a) ˆ26,09,005 crores
108. The empirical definition of measure M3 is
__________ (b) ˆ26,49,720 crores

(a) M3 = M1+M2 (c) ˆ26,50,800 crores

(b) M3=M1 + Saving deposits with post office (d) ˆ25,51,600 crores
saving banks 113. Consider the following data:
(c) M3+M1+Time deposits with the banking sys- M1 42,90,550 crores
tem

L
M2 44,42,695 crores
(d) M3=M2 + Saving deposit with post office Calculate the value of Post Office Saving Bank
saving banks

H U Y
Consider the following data and answer the follow-
Deposits.
(a) ˆ87,33,245

A A
ing questions 109-111
(b) ˆ1,52,145

R HY
Curency with Public ˆ45,000 crores
(c) ˆ3,04,290
Demand Deposits wih ˆ1,00,000 crores
(d) None of these
Banking System

D
Read the following data and answer the questions
Time Deposits with Banking ˆ1,10,000 crores
114 to 116.

A
System
Mr. X has calculated following four alternative mea-

P
Other deposit wih RBI ˆ1,40,000 crores sures of money supply:

U
Saving Deposits of Post ˆ30,000 crores
M1 ˆ4,85,000 crores
Office Saving Banks
M2 ˆ5,50,000 crores
109. What is the amount of Narrow Money (M1)?
M3 ˆ5,90,000 crores
(a) ˆ2,85,000 crores
M4 ˆ6,24,000 crores
(b) ˆ3,15,000 crores
114. What is the amount of “Time Deposits with
(c) ˆ3,95,000 crores
the Bankng System”?
(d) None of the above
(a) ˆ74,000 crores
110. The calculated value of M2 is __________.
(b) ˆ65,000 crores
(a) ˆ285,000 crores
(c) ˆ1,05,000 crores
(b) ˆ3,95,000 crores
(d) ˆ34,000 crores
(c) ˆ3,15,000 crores
115. What is the amount of “Saving deposits with
(d) None of the above Post Office Saving Bank”?
111. The value of M2 will be ___________ (a) ˆ74,000 crores
(a) ˆ2,85,000 crores (b) ˆ65,000 crores
(b) ˆ3,95,000 crores (c) ˆ1,05,000 crores
(c) ˆ3,15,000 crores (d) ˆ34,000 crores
(d) None of the above 116. The Total Deposits with the Post Office Sav-
Consider the following data (ˆcrore)? ing Organisation (excluding National Savings
certificates) is ___________.
BUSINESS ECONOMICS FOR C.A. FOUNDATION BY : RAHUL UPADHYAY
MONEY MARKET BUSINESS ECONOMICS FOR C.A. FOUNDATION : – 12 –
(a) ˆ74,000 crores (b) ˆ41,25915
(b) ˆ65,000 crores (c) ˆ42,07,046
(c) ˆ1,05,000 crores (d) ˆ42,67,701
(d) ˆ34,000 crores 120. Calculate M2
117. Find M2 From the following information: (a) ˆ43,04,609
M4 ˆ4,41,2 Cr. (b) ˆ41,25,915
Saying deposits with Post ˆ41,200 Cr. (c) ˆ42,07,046
Office Saving Banks
(d) ˆ42,67,701
Total Deposits with the ˆ31,245 Cr.
121. Calculate M1
Post Office Saving Orgaisaion
(excluding Nation Savings (a) 41,04,609
Certificate) (b) 41,25,915

L
Time Deposits with the ˆ65,315 Cr. (c) 42,07,046
Banking System (d) 42,67,701
(a) ˆ4,10,015 cr.
(b) 3,44,700 cr.

H U Y Money Multiplier Approach

A A
(c) 3,85,900 cr.

R HY
122. The Money Multiplier Approach holds that
(d) Cannot be determined
total Supply of nominal money in the economy
118. On the recommendations of the Second Work- is determined by the _________ behaviour of
ing Group on money supply from April 1977, the ___________.

D
the RBI has been publishing data on which of
(a) Single; Central Bank

A
the following alternative measures of money
(b) Joint; Central Bank and Commercial Bank

P
supply?
(a) M1 only (c) Joint; Central Bank and Public
(b) M1 and M2
(c) M1, M2 and M3
(d) M1, M2, M3 and M4
U
Read the following data, and answer the questions (119
(d) Joint, Central Bank, Commercial Banks and
the Public
123. The ratio that relates the change in the money
supply to a given change in the monetay base
is caled the:
to 121)
(a) Reqired reserve ratio
Particulars ˆ in crores
(b) Money multiplier
Notes in Circulation 24,20,964
Circulation of Rupee Coin 25,572 (c) Deposit ratio

Circulation of Small Coins 743 (d) Discount rate

Post Office Saving Bank 1,41,786 124. The money multiplier will be large:
Deposits (a) For higher currency ratio (c), lower required
Cash on Hand with Banks 97,563 reserve ratio (r) and lower excess reserve
Deposit Money of the Public 17,76,199 ratio (e)
Demand Deposits with Banks 17,37,692
(b) For constant currency ratio (c), higher re-
Other Deposits with RBI 38,507 quired reserve ratio(r) and lower excess re-
Total Post Office Deposits 14,896 serve ratio (e)
Time Deposits with Banks 1,78,694
(c) For lower currency ratio(c) lower required
119. Calculate M1 reserve ratio (r) and lower excess reserve
(a) ˆ43,04,609 ratio (e)

BUSINESS ECONOMICS FOR C.A. FOUNDATION BY : RAHUL UPADHYAY

MONEY MARKET BUSINESS ECONOMICS FOR C.A. FOUNDATION : – 13 –
(d) None of the above 1 c
(a) m
125. The money multiplier and the money supply rec
are
1 r
(a) Positively related to the excess reserves ra- (b) m
rec
tio?
1 e
(b) Negatively related to the excess reserves (c) m
rec
ratio?
c
(c) Not related to the excess reserves ratio? (d) m
rec
(d) Proportional to the excess reserves ratio?
131. Which formula is used to find out Money
126. The currency ratio represents:
Supply(m) where:
(a) The behaviour of central bank in the issue f
r = required reserve ratio
currency
c = currency = deposit ratio (C/D)

L
(b) The behaviour of central bank in respect cash
e = ratio of Excess Reserves to Deposits
reserve ratio

H U
(c) The behaviour of the public

Y
(d) The behaviour of commercial banks in the
H = Stock of high powered money

M
1 c
H

A
(a)

A
country rec

R HY
127. The size of the money multiplier is determined 1 C
(b) M H
by: rec

D
(a) The currency (c) of the public 1 H
(c) M C
(b) The required reserve ratio (r) at the central rec
bank and

P A
(c) The excess reserve ratio (e) of commercial (d) M
1 H
rec
C

U
banks
132. If M is the money supply m is the money mul-
(d) All of the above tiplier and MB is the monetary base or high-
128. The required reserved ratio is 10% for every powered money, then which of the following
ˆ2,00,000 deposited in the banking system. equation is correct?
What will be the Credit Multiplier and Credit (a) MB= M × m
Creation?
(b) m = MB = M
(a) 10, ˆ20,00,000 (c) M = MB× m
(b) 10, ˆ20,000 (d) M = MB + m
(c) 8, ˆ20,00,000 133. For a given level of the monetary base, an in-
(d) 8, ˆ20,000 crease in the required reserve ratio will denote
129. For initial deposits of ˆ5,00,000, the credit (a) A decrease in the money supply
creation is calculated at ˆ40,00,000. What is (b) An increase in the money supply
RRR (required reserved ratio)?
(c) An increase n demand depends
(a) 8
(d) Nothing precise can be said
(b) .08
134. For a given level of the monetary base, an in-
(c) 12.5% crease in the currency ratio causes the money
(d) Cannot be calculated multiplier to _______ and the money supply
130. When there are excess reserves, the money to ___________.
multiplier (m) is expressed as _________. (a) Decrease; increase
BUSINESS ECONOMICS FOR C.A. FOUNDATION BY : RAHUL UPADHYAY
MONEY MARKET BUSINESS ECONOMICS FOR C.A. FOUNDATION : – 14 –
(b) Increase; decrease 139. If commercial banks reduce their holdins of
(c) Decrease; decrease excess reserves

(d) Increase; increase (a) The monetary base increases

135. __________ tells us how much new money will (b) The monetary base falls
be created by the banking system for a given (c) The money supply increases
increasein the high-powered money. (d) The money supply falls
(a) The currency ratio 140. The Money Multiplier is a function of the cur-
(b) The excess reserve ratio (e) rent ratio which depends on the:
(c) The credit multiplier (a) Behaviour of the public
(d) The currency ratio (c) (b) Excess reserve ratio of the banks
[Link] the following data : (c) Required reserve ratio set by the Central
Required Reserve Ratio 10 Per cent Bank

L
Currency in circulation ˆ400 Billion (d) All of the above

U
Demand Deposits ˆ1000 Billion 141. Excess reserves ratio (e) is ___________ related

Y
to the market interest ratio (i)

H
Excess Reserves ˆ1 Billion

A
(a) Positively

(a) 1.74
(b) 2.74
A
R HY
The value of money multiplier will be ______ (b) Negatively
(c) Uniformly
(d) Nor

D
(c) 1.79 142. As a role, an increase in monetary base that

A
(d) 2.79 whereas an increase in monetary based that

P
goes into ___________ is multiplied
137. The ___________ the reserve ratio, the ______

U
of each deposit bank loan out and the ______ (a) Supporting deposits, currency
the money multiplier. (b) Currency, Supporting, deposits
(a) Higher, less, smaller (c) High Powered Corency, currency
(b) Higher, high element, smaller (d) Currency, High Powered Currency
(c) Smaller, less, smaller 143. If some portion of the increase in high pow-
(d) None of these ered money finds its way into __________, this
portion does not undergo multiple deposit ex-
138. Under the fractional reserve system :
pansion.
(a) The money supply is an increasing function
(a) Curency
of reserve money (or high powered money)
and the money multiplier (b) Supporting deposits
(b) Tje money supply is an decreasing function (c) Both (a) and (b)
of reserve money (or high powered money) (d) Neither (a) nor (b)
and the money multiplier 144. The size of the money multiplier is reduced
(c) The money supply is an increasing function when funds are held as ___________ rather
of reserve money (or high powered money) than as ___________.
and a decreasing function of money multi- (a) Term Deposits, Cash
plier
(b) Cash, Term Deposits
(d) None of the above as the determinants of
(c) Demand deposits, Cash
money supply are different
(d) Cash, demand deposits

BUSINESS ECONOMICS FOR C.A. FOUNDATION BY : RAHUL UPADHYAY

MONEY MARKET BUSINESS ECONOMICS FOR C.A. FOUNDATION : – 15 –
The Money Multiplier Approach to Supply of (c) Directly, Central Government
Money (d) Negatively, Central Government
145. The Money multiplier approach to money sup- 150. The Money Multiplier and the money supply
ply was propounded by _________. are __________ related to the ratio of currency
(a) Milton Friedman to deposits (c) i.e. C/D.
(b) Milton Friedman and Anna Schwartz (a) Negatively
(c) Milton Friedman and irvan fisher (b) Positively
(d) Milton Fried man and Marshall (c) Not
146. The money multiplier approach to money sup- (d) Progressively
ply considers three factors as immediate de- 151. The behaviour of Commercial Banks is impor-
terminants of money sypply. Which one of the tant under money multiplier approach to sup-
following is not included in these factors? ply of money. By creating credit, the commer-

L
(a) Stock of high powered money(H) cial banks determine the total amount
(b) The ratio of reserves t deposits or reserve ___________.
ratio (r)

H U Y
(c) The ratio of currency to deposits or currency
(a) Nominal High-Powered Money
(b) Nominal Demand Deposits

A A
deposit ratio (c) (c) National High-Powered Money

R HY
(d) The ratio of high powered money to depos- (d) National Demand Deposits
its (h)
152. Which of the following reflects the behaviour
147. Whose behaviour among the following, has

D
of commercial banks in the economy regard-
been considered, under Money Multiplier ap- ing money multiplier approach to supply of

A
proach? money?

P
(a) Central Bank (a) Ratio of cash reserves to deposits

U
(b) Commercial Banks (b) Ratio of currency to deposits
(c) General Public (c) Ratio of cash reserves to currency
(d) All of the above (d) Tatio of High-powered money to currency
148. Under Money Multiplier Approach, the 153. Considering all other variables remain the
behaviour of the Central Bank which controls same. If ratio of cash reserves to deposits (re-
the issue of curency is reflected in the _____ serve ratio) increases, then__________ will
(a) Supply of the Nominal High-Powered decrease.
money (a) Deposits
(b) Total amount of nominal demand deposits (b) Money Supply
(c) Degree of adoption of banking habits by the (c) Reserves
people
(d) High-powered money
(d) All of the above
154. When reserve ratio (r) is 8%, the money mul-
149 If the behaviour of the Public and the Com- tiplier is calculated at 2.58. If the reserve ratio
mercial banks remain unchanged over time, is increasd to 12%, the value of money multi-
the total supply of nominal money in the plier will be __________.
economy will vary ________ with the supply
(a) Less than 2.58
of nominal high-powered money issued by the
_________. (b) More than 2.58

(a) Directly, Central Bank (c) 2.58

(b) Negatively, Central Bank (d) Cannot be decided

BUSINESS ECONOMICS FOR C.A. FOUNDATION BY : RAHUL UPADHYAY
MONEY MARKET BUSINESS ECONOMICS FOR C.A. FOUNDATION : – 16 –
Monetary Policy and Effect of (c) Both (a) and (b)
Goverment Expenditue on Money (d) None of the above
Supply
160. When the Reserve Bank of india lends to the
155. The value of money multiplier is zero when: governments under WMA/OD, it can poten-
(a) Interest rates are too low tially lead to an _________ in money supply
(b) Banks prefer to hold the newly injeced re- through the money multiplier process.
serves as excess reasons with no risk at- (a) Increase
tached to it (b) Decrease
(c) Both (a) and (b) (c) Substantial Decrease
(d) Money Multiplier can never be zero (d) No effect
156. As a part of monetary policy, an open market 161. Identify the Correct Statement?
purchase by Central Bank will ________ the
(a) There is no difference between the type of

L
reserves and thereby _________ the money
money created by commercial bank and that
supply.
which are issued by the Central Bank
(a) Reduce, reduce
(b) Increase, increase

H U Y
(b) Money creation is same as is the wealth cre-
ation

A A
(c) Reduce, increase (c) The depositmultiplier and the money multi-

R HY
(d) Increase, reduce plier are identical
157. The credit creation process by the banking (d) In actual practice, all borrowers spend ev-
system in the country will create money to the ery rupee they have borrowed

tune of  money supply =

AD1
R 
× Reserves.
162. If required reserve ratio is 20%, then what will
be credit multiplier?

P
If holds true, when it assumed that _______. (a) 0.2

U
(a) Banks do not hold excess reserves (b) 0.8
(b) People do not hold more currency than beofe (c) 1.2
(c) There is demand for loans from business (d) 5
(d) All of the above 163. What is the formula used to calculate credit
158. If the Central Bank of a country wants to Multiplier?
stimulate economic activity it does so by in- (a) 100–Required Reserve Ratio
fusing liquidity into the system. The high pow-
(b) 100+Required Reserve Ratio
ered money (monetary base) is injected into
the system when__________. (c) 100×Required Reserve Ratio

(a) Government securities are purchased 1

(d) Re quired Reserve Ratio
(b) Government Securities are sold
(c) Any of (a) and (b) 164. The credit multiplier s also referred to as the
__________.
(d) Both (a) and (b)
(a) Deposit multiplier
159. Whenever the Central and the State
Government’s cash balances fall short of the (b) Deposit expansion multiplier
minimum requirement, they are eligible to (c) Both (a) & (b)
evail of a facility. What is the name of that fa- (d) None of the above
cility?
165. Which describes the amount of additional
(a) Ways & Means Advances (WMA) money created by commercial bank through
(b) Overdraft facility (OD)
BUSINESS ECONOMICS FOR C.A. FOUNDATION BY : RAHUL UPADHYAY
MONEY MARKET BUSINESS ECONOMICS FOR C.A. FOUNDATION : – 17 –
the process of lending the available moneyit has (d) All of the above
in excess of the Central Banks reserve reqirement? 170. Which of the follwing is the function of mon-
(a) Credit multiplier etary policy
(b) Deposit multiplier (a) Regulate the exchange rate and keep it stable
(c) Deposit Expension (b) Reglate the movement of credit to the cor-
(d) All of the above porate sector

166. What will be the total deposit created if initial (c) Regulate the level of preduction and prices
deposit is of ˆ800 crores and required reserve (d) Regulate the availability cost and use of
ratio is 10%? money and credit
(a) ˆ80 crores 171. Which of the follwing is a basic component of
(b) ˆ800 crores monetary policyframework?

(c) ˆ8000 crores (a) The objectives of monetary policy

L
(d) None of these (b) The analysis of monetry policy which focus
on the transmission mechanism

U
167. The total deposits created by the commercial
(c) The opening procedure which focus on the

Y
banks is 16,800 crores and the required reserve

H
ratio is 12.5%. Calculate the amount of initial operating targets and instruments
deposits.
(a) ˆ16,800
(b) ˆ2,100 A
R HY A (d) All of the above the basic components
[Link] main objective of monetary policy in In-
dia is ___________:

D
(c) ˆ18,900 (a) Reduce food shortages to achieve stability
(b) Economic growth with price stability in the

A
(d) None of these
banking system

P
168. Initial Deposit of 1,521 crores lead to creation
of total deposits of 12,168 crores by the com- (c) Overall monetary stability in the banking

U
mercial banks. What is required reserve ra- system
tio? (d) Reduction of poverty and unempoyment
(a) 15% 173. When the Centrl Bank lowers interest rates,
(b) 12.5% monetary poliy is __________.

(c) 10% (a) Easing

(d) 7.5% (b) Tightening

(c) Ineffective

UNIT 3 : MONETARY POLICY (d) None of the above

The Monetary Policy Framework 174. Fundamentally, the primary objective of he

monetary policy has been:
169. Monetary Policy refers to th e use of monetary
policy instruments which are at the disposal of (a) To reduce price stability
the Central Bank___________ (b) To cash economic growth
(d) quantita (c) To maintain udicious balance between price
(a) To regulate the availability cost and use of stability and economic growth
money and credit (d) None of the above
(b) To achieve price stability 175. Which of the following is an explicit bjective
(c) To promote economic growth optimum lev- included in the monetary police of developing
els of output and employment balance of countries ?
payment equilibrium etc. (a) Maintenance of economic growth
BUSINESS ECONOMICS FOR C.A. FOUNDATION BY : RAHUL UPADHYAY
MONEY MARKET BUSINESS ECONOMICS FOR C.A. FOUNDATION : – 18 –
(b) Ensuring an adequate flow of credit to the 179. The analytics of monetary policy focus on the
productive sectors transmission mechanisms. Which of the fol-
(c) Sustaining a moderate strucure of interest lowing is included in such mechanism?
rates in encourage investments, and creation (a) The interest rate channel
of an efficient market for government secu- (b) The exchange rate channel
rities
(c) The quantum channel and the asset price
(d) All of the above channel
176. The monetary transmission mechanism refers (d) All the above
to :
180. Which of the following statement is correct?
(a) How money gets circulated in different sec-
(a) The governer of the RBI in consulation with
tors of the economy post monetary policy
the Ministry of Finance decides the policy
(b) The ratio of nominal interest and real inter- rate and implements the same
est rates consequent on a monetary policy

L
(b) While CRR has to be maintained by banks
(c) The process or channels through which the as cash with the RBI, the SLR requires hold-

U
evolution of monetary aggregates affects the ing of approved assets by the bank itself

Y
level of product and prices

H
(c) When repo rates increase , it means that

A
(d) None of the above

A
banks can now borrow money through Open

R HY
177. A contractionary monetary policy induced in- Market Operations (OMO)
crease in interest rates. (d) None of the above
(a) Increass the cost of capital and the real cost 181 Which of the following Statements is incorrect?

D
of borrowing for firms
(a) Quantitative instruments are general in na-

A
(b) Increases the cost of capital and the real cost ture

P
of borrowing for firms and households
(b) Quantitative instruments affects all the sec-
(c) Decreases the cost of capital and the real cost

U
tors making use of bank credit
of borrowing for firms
(c) Quantitative controls are designed to regu-
(d) Has no interest rate effect on firms and late the direction of credit
households
(d) Quantitative Controls are also known as tra-
178. During deflation: ditional methods of control
(a) The RBI reduces the CRR in order to en- 182. As a part of credit control instruments of RBI,
able the banks to expand credit and increase which of the following is not a part of Quanti-
the supply of money available in the tative method?
economy
(a) Cash Reserve Ratio (CRR)
(b) The RBI increases the CRR in order to en-
(b) Statutory Liquidity Ratio (SLR)
able the banks to expand credit and increase
the supply of money available n the economy (c) Open Market Operations (OMO)

(c) The RBI reduces the CRR in order to en- (d) Margin requirements
able the banks to contract credit and increase 183. As a part of open market operations, sale of
the supply of money available in the securities by the Central Bank _________ the
economy money supply in the economy.
(d) The RBI reduces the CRR but increase SLR (a) Decreases
in order to enable the banks to contract credit (b) Increases
and increase the supply of money available
(c) Brings no change in
in the economy
(d) Either (a) or (b)

BUSINESS ECONOMICS FOR C.A. FOUNDATION BY : RAHUL UPADHYAY

MONEY MARKET BUSINESS ECONOMICS FOR C.A. FOUNDATION : – 19 –
184. __________ refers to the minimum percentage 189. __________ is the interest rate at which RI
of net demand and time labilities, to be kep by lends long-term funds to banks.
commercial banks with the central bank. (a) Interest Rate
(a) Statutory Liquidity Ratio (b) Bank Rate
(b) Cash Reserve Ratio (c) Repo Rate
(c) Bank Rate (d) Marginal Rate
(d) Repo Rate 190. RBI provides financial accommodation to the
185. In order to control money supply the RBI buys commercial banks through repos/reverse repos
and sells government securities in the open under?
market. These operations conducted by the (a) Market Stabilisation Scheme (MSS)
central bank are referred to as :
(b) The Marginal Standing Facility (MSF)
(a) Open Monetary Operations
(c) Liquidity Adjustment Facility (LAF)

L
(b) Open Money Operations
(c) Statutory Liquidity Ratio (SLR)
(c) Open Market Operations

U
191. In India, the term ‘Policy rate’ refers to:
(d) Open Marginal Operations

H Y
(a) The bank rate prescribed by the RBI in its
186. The commercial banks are required to main-

A
half yearly monetary policy statement

A
tain with themselves, a minimum percentage

R HY
(b) The CRR and SLR prescribed by RBI in its
of Net Demand & Time liabilities, in the form
monetary policy statement
of designated liquid assets. This ratio is called
as: (c) The fixed repo rate quoted for soverign se-

D
curities in the evernight segment of Liquid-
(a) Statutory Liquidity Ratio
ity Adjustment Facility (LAF)

A
(b) Cash Reserve Ratio

P
(d) The fixed repo rate quoted for soverign se-
(c) Bank Rate curities in the overnight segment of Marginal

U
(d) Repo Rate Standing Facility (MSF)
187. Which one of the following statement is incor- 192. ________ is a money market instrument, which
rect about Qualitative method of credit con- enables collateralised short-term borrowing
trol instruments of RBI? and lending through sale/purchase operations
(a) These include margin requirements, moral in debt instruments.
suasion, selective credit controls, etc. (a) OMO
(b) These are general in nature and affect all the (b) CRR
sector (c) SLR
(c) These are designed to regulate the direction (d) Repo
of credit
193. Reverse repo operation takes place when:
(d) These are also known as selective methodss
(a) RBI borrows money from banks by giving
of control
them securities
188. Which one of the following is not a part of
(b) Banks borrow money from RBI by giving
Qualitative method of credit control instru-
them securities
ments of RBI?
(c) Banks borrow money in the overnight seg-
(a) Open Market Operations
ment of the money market
(b) Margin reqirements
(d) RBI borrows money from the central gov-
(c) Moral suasion ernment
(d) Selective credit control

BUSINESS ECONOMICS FOR C.A. FOUNDATION BY : RAHUL UPADHYAY

MONEY MARKET BUSINESS ECONOMICS FOR C.A. FOUNDATION : – 20 –
194. The Monetary Policy Frameworks Agreement 197. Under ___________ the Government of India
is on ____________. borrows from the RBI (Such borrowing being
(a) The maximum repo rae the RBI can charge additional to its normal borrowing require-
from government ments) and isues treasury bills/dated securi-
ties.
(b) The maximum tolerable inflation rate that
RBI should target to achieve price stability (a) Market Stabilisation Scheme (MSS)

(c) The maximum reporate that RBI can charge (b) Minimum Statutory Scheme (MSS)
from the commercial banks (c) Marginal Standing Facility (MSF)
(d) The maximum reverse repo rate that RBI can (d) Minimum Statutory Facility (MSF)
charge from the commercial banks. 198. _________ is defined as an instrument for lend-
195. An open market operation is an instrument of ing funds by purchasing securities with an
monetary policy which involves buying or sell- agreement to resell the securities on a mutu-
ing of _________ from or to the public and ally agreed future date at an agreed price
banks.

U L
(a) Bonds and bills of exchange
which includes interest for the funds lent.
(a) Reverse Repo

H Y
(b) Debentures and shares (b) Repo Rate

A A
(c) Government securities (c) Bank Rate

R HY
(d) None of these (d) MSF
196. Monetary Policy Committee (MPC) deter- 199. The Monetary Policy Framework Agreement
mines the policy rate to achieve the inflation is an agreement reached between the Govern-

D
target through debate and majority vote by a ment of India and the Reserve Bank of India

A
panel of experts. How many members does this (RBI) to keep the Consumer Price Index (CPI)

P
MPC consists of? inflation rate between _________.
(a) Three members (a) 1 to 5 per cent
(b) Four members
(c) Five members
(d) Six members
U (b) 2 to 6 per cent
(c) 3 to 5 per cent
(d) 4 to 6 per cent

BUSINESS ECONOMICS FOR C.A. FOUNDATION BY : RAHUL UPADHYAY

MONEY MARKET BUSINESS ECONOMICS FOR C.A. FOUNDATION : – 21 –

ANSWERS
1 (d) 2 (a) 3 (c) 4 (b) 5 (a) 6 (d) 7 (a) 8 (a) 9. (a)

10 (c) 11. (a) 12. (d) 13. (d) 14. (c) 15 (a) 16 (a) 17 (d) 18. (a)

19. (c) 20. (d) 21. (b) 22. (b) 23. (d) 24. (a) 25. (d) 26. (b) 27. (a)

28. (d) 29. (b) 30. (c) 31. (a) 32. (c) 33. (d) 34. (a) 35. (d) 36. (c)

37. (b) 38. (a) 39. (a) 40. (b) 41. (d) 42. (a) 43. (b) 44 (a) 45. (d)

46. (a) 47. (c) 48. (a)

U L
49. (d) 50. (c) 51. (c) 52. (a) 53. (d) 54. (c)

55. (d) 56. (a) 57. (d)

AH
58.

AY (d) 59. (a) 60. (a) 61. (c) 62. (a) 63. (d)

R HY
64. (a) 65. (a) 66. (d) 67. (a) 68. (d) 69. (a) 70. (d) 71. (a) 72. (c)

D
73. (a) 74. (d) 75. (d) 76. (d) 77. (a) 78. (d) 79. (c) 80. (d) 81. (c)

82. (c) 83. (d) 84. (d)

P A 85. (d) 86. (c) 87. (a) 88. (b) 89. (a) 90. (d)

91. (b)

100. (a)
92. (b)

101. (a)
93.

U
(a)

102. (a)
94.

103.
(c)

(a)
95. (a)

104. (b)
96. (d)

105. (d)
97. (c)

106. (b)
98. (d)

107. (a)
99. (c)

108. (c)

109. (a) 110 (c) 111. (b) 112. (d) 113. (b) 114. (c) 115. (b) 116. (d) 117. (c)

118. (d) 119. (b) 120. (d) 121. (a) 122 (d) 123 (b) 124 (c) 125 (b) 126 (c)

127 (d) 128 (a) 129. (c) 130. (a) 131. (b) 132. (c) 133. (a) 134. (c) 135. (c)

136. (d) 137. (a) 138 (a) 139. (c) 140. (d) 141. (b) 142. (b) 143. (a) 144. (d)

145. (b) 146. (d) 147. (d) 148. (a) 149. (a) 150. (a) 151. (b) 152. (a) 153. (b)

154. (a) 155. (c) 156. (a) 157. (d) 158. (a) 159. (c) 160. (a) 161. (a) 162. (d)

163. (d) 164. (c) 165. (d) 166. (c) 167. (b) 168. (b) 169. (d) 170. (d) 171 (a)

172. (b) 173. (a) 174. (c) 175. (d) 176. (c) 177. (b) 178 (a) 179. (d) 180. (b)
BUSINESS ECONOMICS FOR C.A. FOUNDATION BY : RAHUL UPADHYAY
MONEY MARKET BUSINESS ECONOMICS FOR C.A. FOUNDATION : – 22 –

181. (c) 182. (d) 183. (a) 184. (b) 185. (c) 186. (a) 187. (b) 188. (a) 189. (b)

190. (c) 191. (c) 192. (d) 193. (c) 194. (b) 195. (c) 196. (d) 197. (a) 198. (a)

199. (b)

U L
AH AY
R HY
AD
UP

BUSINESS ECONOMICS FOR C.A. FOUNDATION BY : RAHUL UPADHYAY