96 BANKING AWARENESS
C H A P T E R
10
MONEY AND
FINANCIAL MARKET
Money (ii) Token Money is that money whose face
Money is an object or record that is generally value (value as money) is greater than its
accepted as payment for goods and services and intrinsic value (value as commodity). Token
repayment of debts in a given socio-economic money/coins are generally made up of cheaper
metals like copper, nickel, etc. (Indian `1 coin
context of a country. Any kind of object or secure
is token money).
variable record that fulfills these functions can be
considered as money. It plays an important role in (iii) Subsidiary Money The purpose of subsidiary
our life. Modern form of money includes paper money is to help token money. All coins from
notes and coins. 50 paise to ` 10 are the subsidiary money. It is
legal money.
Types of Money 2. Paper Money
There are many types of money. The important
Money made up of paper is called paper money.
types of money are explained below
Paper money consists of currency notes issued
1. Metallic Money by the government or the Central Bank of a
Money made up of any metal is called metallic country.
money. It refers to coins that are made up of Paper money is of following types
various metals like gold, silver, nickel, copper, etc. (i) Representative Paper Money The paper
The right of minting coins, is the monopoly of the money which is fully backed by gold and silver
government of the country. reserves is called representative paper money.
Metallic money is further classified into (ii) Convertible Paper Money It is that paper
(i) Standard Money or full bodied money is that money which is convertible into standard
money whose face value (value as money) is coins.
equal to the intrinsic value (value as (iii) Inconvertible Paper Money It is that paper
commodity). Standard money/coins are money which is not convertible into standard
generally made up of gold and silver. coins or valuable metals.
Money and Financial Market 97
(iv) Fiat Money Paper money which circulates on
the authority (i.e., fiat) of the government is Money in India
fiat money. Fiat money is created and issued In India, RBI is authorised to issue currency notes,
by the state. It is only a variety of inconvertible on behalf of the Government of India.
paper money. There is a legal sanction behind every currency,
that implies that a rupee cannot be refused as a
3. Acceptable Money
means of setting transactions in India. Thus, rupee
On the basis of general acceptability, money can be is the universally accepted means of exchange in
categorised into legal tender money and non-legal India.
tender money (optional money). They can be
understood as follows The Indian Currency System
(i) Legal Tender Money The present monetary system of India is based on
It refers to that money which the state and the inconvertible paper currency and is managed
people accept as means of payment in discharge of by the Reserve Bank of India.
debts. Legal tender money is enforced by law. No The present currency system is based on
one can refuse to accept it as a means of payment. minimum reserve system of note issue. It was
Legal tender money may be of two types adopted in 1957.
(a) Limited Legal Tender Money It is accepted Under the minimum reserve system, RBI has to
only upto a certain limit. For example, in India, keep a minimum reserve of ` 200 crore
the small coins of 50 paise are legal tender comprising of gold coins and foreign currencies.
money only upto a sum of ` 20. Out of the total ` 200 crores, ` 115 crore should be
in form of gold.
(b) Unlimited Legal Tender Money It is that
money which has to be accepted as a medium Rupee coins are the legal tender in India under
of payment upto any amount. In India, 50 paise the provision of Indian Coinage Act, 1906.
coins, ` 1, ` 2, ` 5, ` 10, ` 20 coins and currency In India, the System of Decimal Coinage was
notes of all denominations are unlimited legal introduced on 1st April, 1957.
tender money.
Paper Currency in India
(ii) Non-Legal Tender Money British Government had given the right of issuing
It is also known as optional money. It refers to of currency notes to Bank of Bengal, but from 1st
that money which may or may not be accepted as April, 1935, the only rights of issuing currency
a means of payment. was given to RBI.
Optional money has no legal sanction. No one Reserve Bank of India was established in 1935 as
can be forced to accept optional money. Central Bank of India and Chief Banking
Different credit instruments like cheques, Authority of India. It is controller of credit in
bankdrafts, bill of exchange, treasury bills, India.
insurance policies, bonds, etc. are examples of
optional money. ` Symbol
The symbol of Indian Rupee (`) came into use on 15th
4. Adjacent Money July, 2010.
It is not exact money, but near to money. Because The new symbol was designed by D Udaya Kumar.
its nature of liquidity is more in comparison to This symbol is an amalgamation of Devnagari ‘Ra’
others. Bond, government debenture, etc. are and the Roman ‘R’ without the stem.
consider as adjacent money.
98 BANKING AWARENESS
Printing of Securities and Minting in India
Security Press Station Established Year Related by
Currency Notes Press Nasik, Maharashtra 1928 Bank notes from ` 1 to ` 100
Security Paper Press Hoshangabad (MP) 1967-68 Banks and currency notes paper
Bank Dewas (MP) 1974 Bank notes of ` 20, ` 50, ` 100, ` 200,
Notes Press ` 500 and ` 2000
Security Notes Printing Press Hyderabad 1982 Union excise duty stamps
India Security Press Nasik 1992 Postal material,
postal stamps, etc.
Modernised Currency Notes Mysore (Karnataka), Salbani 1995 Currency notes
Press (West Bengal)
Coins are minted at four places viz, Mumbai, Kolkata, Hyderabad and Noida.
Current Circulating Bank Notes
Value Dimension Main Description Year of
Colour Obverse Reserve Watermark Issue
`5 117 mm ´ 63 mm Green Mahatma Tractor Mahatma 2002/2009
` 10 123 mm ´ 63 mm Brown Gandhi Konark Sun Temple Gandhi and 2018
Electrotype
` 20 129 mm ´ 63 mm Yellow Ellora Caves 2019
denomination
` 50 135 mm ´ 66 mm Cyan Hampi with Chariot 2017
` 100 142 mm ´ 66 mm Lavendeer Rani ki Vav 2018
` 200 146 mm ´ 66 mm Orange Sanchi Stupa 2017
` 500 150 mm ´ 66 mm Stone grey Red Fort 2016
` 2000 166 mm ´ 66 mm Magenta Mangalyaan 2016
Note All the currency notes are signed by Governor of RBI, except `1 which is signed by the Finance Secretary.
Relaunched ` 1 Note
After 20 years, RBI relaunched ` 1 note in March, 2015. In November, 1994, printing of ` 1 note was stopped mainly
due to higher cost and for freeing capacity to print currency notes of higher denomination. Printing of ` 2 notes also
were discontinued in 1995.
Languages in Currency
Government of India has directed the coins and currency division of RBI to take appropriate steps to
include Maithili as well as the remaining four languages i.e., Manipuri, Santhali, Dogri and Bodo, on the
rupee note.
Out of 22 languages, having been accorded official languages status (as per Eighth Schedule of the
Constitution of India), only 17 find place on the Indian currency till now.
Demonetisation
Demonetisation is the act of banning/taking back of a currency unit of its status as a legal tender.
Demonetisation is necessary whenever there is a change of national currency. The old unit of currency
must be retired and replaced with a new currency unit.
Money and Financial Market 99
History of Demonetisation M 3 = M1 + Time Deposits with the Banking
In January 1946, banknotes of ` 1000 and ` 100 System
were withdrawn and new notes of ` 1000, ` 50 and M 4 = M 3 + Office Savings of Banks (Excluding
` 10000 were introduced in 1954. National Savings Certificates)
Janata Party coalition government had again The working group under the chairmanship of
demonetised banknotes of ` 1000, ` 5000 and Dr YV Reddy the then Deputy Governor of RBI
` 10000 on 16th January, 1978 as a means to curb has suggested four new monetary measures
counterfeit money and black money. (M 0 , M1 , M 2 , M 3 ).
PM Narendra Modi has demonetised ` 500 and ` Here,
1000 notes from 9th November, 2016, similar M 0 = Reserve money which is most liquid
banknotes demonetisation have been taken in the measure of money supply
past. M 1 = Narrow money
Minting of Coins M 3 = Broad money
Mint is a place where coins are made from metals. The decreasing order of liquidity of these
Coins are minted by the Government of India and monetary aggregates is M 0 > M 1 > M 2 > M 3 .
responsibility for their distribution and handling The decline in liquidity indicates the growing
lies with RBI. preference among general public regarding
Coins are minted at four Government mints at physical store of value such as cash.
Mumbai, Kolkata, Saifabad and Noida. As of June
2021, coins in denominations of One Rupee, Two Financial Market
Rupees, Five Rupees, Ten Rupees and Twenty
Financial market is a transfer process between
Rupees are in circulation. The provision regarding
lender and debtor through which the transfer of
minting of coins in India is contained in Coinage
financial fund can be done easily.
Act, 1906.
It provides safe exchange of financial assets. It
provides liquidity to investors in the sale of
Measures of Money financial assets and also ensures the minimum cost
Supply in India of exchange and related information.
Money supply is the stock of liquid assets held by Components of Indian
the public which can be freely exchanged for goods
and services. RBI calculates various concepts of
Financial Market
money supply. These are known as measures of Money Market It is a key component of the
monetary aggregates or money stock measures. financial market. It is a market for short-term
funds with maturity ranging from overnight to
Various monetary and liquidity aggregates
one year and includes financial instruments that
compiled in India are as follow
are deemed to be close substitutes of money. It is
Reserve Money (M 0 ) = Currency in Circulation a safe place to park money in the short term.
+ Bankers’ Deposits with the RBI + Other
Deposits with the RBI Capital Market It is a market for buying and
selling equity and debt instruments. Capital
M1 = Currency with the Public + Demand
market channels savings and investments among
Deposits with the Banking System + Other
suppliers of capital such as retail investors and
Deposits with the RBI
institutional investors and users of capital like
M 2 = M1 + Post Office Savings Banks businesses, government and individuals.
100 BANKING AWARENESS
Commodity Market It is a market that trades in requirements at an efficient market clearing
primary rather than manufactured products. Soft price.
commodities are agricultural products such as It provides avenue for Central Bank intervention
wheat, coffee and sugar. Hard commodities are in influencing both quantum and cost of liquidity
mined such as gold, rubber and oil. in the financial system, thereby transmitting
Derivatives Market It is the financial market Monetary Policy impulses to the real economy.
for derivatives, financial instruments like future Difference between Money
contracts or options, which are derived from Market and Capital Market
other forms of assets.
Money Market Capital Market
Insurance Market Objective of this market is
the equitable transfer of the risk of a loss from Duration It is for short term It is for long term
funds (1 year or funds (more than
one entity to another. It is a form of risk less). 1 year).
management primarily used to hedge against the Instruments are Instruments are
Instruments
risk of a contingent uncertain loss. T-Bill, commercial shares,
Foreign Exchange Market The Foreign papers, certificate of debentures,
Exchange Market (Forex, FX or Currency Market) deposit, etc. bonds, etc.
is a global decentralised market for the trading of Institutions Central banks, Stock exchanges,
currencies. The main participants in this market commercial banks, Commercial banks
acceptance and non-banking
are the larger international banks. houses, institutions such
non-banking as insurance
Money Market financial
institutions, bill
companies,
mortgage banks,
The cluster of financial institutions that deal in brokers, etc. building societies,
short term securities and loans, gold and foreign etc.
exchange is termed as money market. Broker Transaction Transaction have
It is a key component of the financial system, as it is without the help to be conducted
of broker. with the help of
the function of monetary operations conducted by
broker.
the Central Bank in its pursuit of Monetary policy
Market Commercial The institutions
objectives. Short term funds and financial assets Regulation banks are closely are not much
that are close substitutes of money are considered regulated. regulated.
in this market.
Close substitutes of money or near money assets
are regarded to be the financial assets that can be
Sub-Market of Money Market
easily converted into money with the minimum A specialised sub-division of a market is known as
transaction cost and without a loss in value. In sub-market. A money market consists of several
Indian money market there is a predominance of sectors or sub-markets; each specialising in a
two distinct parts, one is organised and another is particular type of lending. The following are the
unorganised. To protect the investors, RBI had instruments that are integral part of the Indian
established Investor Protection Fund. money market system
Functions of Money Market Call Money Market
It provides an equilibrating mechanism for The call/notice money market forms an important
demand and supply of short term funds. segment of the Indian money market. It is an
It enables borrowers and lenders of short term amount borrowed or lent on demand for a very
funds to fulfill their borrowing and investment short period.
Money and Financial Market 101
Call money market deals in short term financial 2. Treasury Bill (T-Bill)
assets, which are close substitutes for money and It is an instrument for short term borrowing by
repayable on demand. It mainly deals with day to the government. The bill is issued by tender to the
day surplus funds of bank. money market and to government departments
Under the notice money market, funds are through tap issues.
transacted for the period between 2 days and 14 Tenders are invited every week from bankers,
days. discount houses and brokers.
Term money refers to borrowing/lending of funds T-Bill provides the government with a highly
for a period exceeding 14 days. flexible and relatively cheap means of borrowing
As these transactions are mostly done between money to meet its fluctuating needs for cash.
banks and that too for short duration, collateral For the customers it provides a sound security for
security is not required to cover these transactions. dealings in the money market. The Reserve Bank
The interest rate for transaction for loans is of India, being the banker to the government,
determined by the market and loans are availed issues Treasury Bill at a discount.
through auction/negotiation. An electronic trading There are four types of Treasury Bill
platform called Negotiated Trading System helps in (i) 14 days T-Bill
transactions of instruments of this market. (ii) 91 days T-Bill
(iii) 182 days T-Bill
Inter-bank Call Money Market (iv) 364 days T-Bill
The ‘inter-bank call money market’ is a term used to
refer comprehensively to a call money market for
The Reserve Bank now auctions 91 days T-Bills
institution. It is not exclusively used by bank. on a weekly basis and 182 days T-Bills
Inter-bank call money market customers can include (re-introduced in April, 2005) and 364 days
other financial institutions, mutual funds, large T-Bills on a fortnightly basis, on behalf of the
corporations and insurance companies. Central Government.
Commercial Paper (CP)
Bill Market
Commercial Paper is issued in the form of a
The underlying purpose of developing the bill promissory note, sold directly by the issuer to
market was to enable banks and other financial investors or else placed by the borrowers through
institutions to invest their surplus funds profitably agents such as merchant banks and security
by selecting appropriate maturities. houses.
Some types of bill market are as follow CP can be issued in denominations of ` 5 lakh or
1. Commercial Bill Market multiples thereof. It was introduced in India in
It is the market that deals in commercial bills. A 1990 to enable the corporate borrowers to raise
commercial bill or a bill of exchange is a short-term funds.
short-term, negotiable and self-liquidating money This paper has a maturity of minimum 7 days and
market instrument. maximum of upto 1 year from the date of issue.
A bill of exchange is a negotiable instrument This is negotiable and transferable by endorsement.
directing a certain person to pay a certain sum of It can be issued by corporate having tangible net
money to the bearer of the instrument. wroth of not less than ` 4 crore as per the latest
It is also known as trade bill and involves three balance sheet.
parties i.e. drawer, drawee and the payee.
Promissory Note (PN)
These trade bills are called commercial bills when
they are accepted by commercial banks. Duration It is a legal document between a lender and a
of commercial bill is 1 to 14 days only. borrower, whereby the latter agrees to certain
102 BANKING AWARENESS
conditions for the repayment of the sum of State Development Loans and Government of
money borrowed. India Special Securities like oil bonds, food bonds
When one borrows from a commercial bank, he and fertiliser bonds.
signs a promissory note. Particular form of The entities permitted to undertake repo
promissory note, known as commercial paper, can transactions include Scheduled Commercial
be bought and sold. Banks, Co-operative Banks, Primary Dealers,
A promissory note is a written promise to pay Mutual Funds, Insurance Companies and
within a specific time period. It establishes a clear Corporate Entities.
record of a loan, either between individuals or
between entities and are common documents in Collateralised Borrowing and
any financial service. Lending Obligation (CBLO)
They are usually issued by large corporations, but A CBLO is a money market instrument that
in some countries. Promissory notes are a represents an obligation between a borrower and
common form of small business finance. a lender concerning the terms and conditions of a
loan.
Certificate of Deposits (CD) CBLO was operated by the Clearing Corporation
Certificates of Deposits (CDs) are short-term of India Ltd. (CCIL), for the benefit of the entities
financial securities issued by Commercial Bank who have either no access to the inter-bank call
and Special Financial Institutions (SFIs) and are money market or have restricted access in terms
freely transferable from one party to another. of ceiling on call borrowing and lending
It is either issued in demat form or in the form of a transactions.
usance promissory note. This instrument is CBLO was a discounted instrument available in
issued in lieu of the funds deposited in a bank for a electronic book entry with the maturity period
specified time period. ranging from one day to 90 days (upto 1 year as
Certificate of Deposits was first issued in New per RBI guidelines).
York in the 1960s and thus, denominated in CBLO has been discontinued from November,
dollars. Sterling CDs followed in 1968. 2018.
Maturity period of Certificate of Deposits is from
7 months to 1 year and it is issued in the Unorganised Money Market
dematerialised form or as a usance promissory ● This sector consists of unregulated non-bank
note. Certificate of Deposits is issued for ` 1 lakh financial intermediaries such as moneylenders,
chit funds, nidhis, etc.
or its multiples.
● Chit funds are saving institutions. They are of
Repo various types and do not have any standardised
form.
It is a repurchase agreement entered into
● Chit funds have regular members, who make
between eligible counter parties for borrowing
periodic contributions.
and lending of funds on a collateralised basis.
● Organised chit funds are regulated by the
A repo involves selling of a security with the Registrar of Chit Funds under Chit Funds Act,
agreement to repurchase the same at a future date 1982.
for a pre-determined price. ● There is however, regulatory confusion since
Repo transactions are permitted between counter Collective Investment Schemes (CISs) are to be
parties and in instruments permitted by the RBI. registered and regulated by SEBI.
● Many chit funds take advantage of the regulatory
At present, repoable securities include Central loopholes.
Government Dated Securities, Treasury Bills,
Money and Financial Market 103
of Close-Ended Schemes, new investors can
Mutual Fund buy the units only from secondary markets.
It is a body corporate registered with Securities 3. Offshore Mutual Funds Schemes These
Exchange Board of India (SEBI) that pools money make investments in international markets and
from individuals/corporate investors and invests hence, are also referred to as international
the same in a variety of different financial funds.
instruments or securities such as equity shares, These schemes invest in stocks of overseas
government securities, bonds, debentures, etc. firms and MNCs and also in fixed income
Mutual funds can thus be considered as financial securities of a foreign country. In the case of
intermediaries in the investment business that domestic mutual fund, money is invested in
collect funds from the public and invest on behalf stocks of domestic firms and MNCs.
of the investors. Mutual funds issue units to the The major difference between domestic and
investors. offshore mutal fund is that in the latter, the
investors of abroad have to face many
The appreciation of the portfolio or securities in regulation issues in the investing countries.
which the mutual fund has invested the money Because of high risk, higher returns are also
leads to an appreciation in the value of the units expected in case of offshore mutual funds.
held by investors.
The investment objectives outlined by a mutual Money Market Mutual Fund
fund in its prospectus are binding on the Mutual A money market mutual fund is a type of mutual fund
that invests in high quality and short-term debt
Fund Scheme. In a mutual fund, investors’
instruments such as cash and cash equivalents.
subscriptions are accounted for as unit capital. RBI introduced a scheme of MMMF in India in April,
The investment objectives specify the class of 1992. Money market securities have an average
securities. A mutual fund can invest in various maturity of one-year, that is why these are termed as
asset classes like equity, bonds, debentures, basics money market instruments. The objective behind this
scheme was to provide an additional short term
of financial markets, etc.
avenue to the individual investors.
Types of Mutual Fund
On the basis of closure time permitted, Mutual Mutual Funds in India
Fund is classified into The first Indian Mutual Fund was setup in 1963,
1. Open-Ended Schemes These are allowed to when the Government of India created the Unit
issue and redeem units any time during the life Trust of India (UTI). Until 1987, UTI enjoyed a
of the scheme. But close-ended funds cannot monopoly in the Indian mutual fund market and
issue new units except in case of bonus or sold a range of mutual funds through a network of
rights issue. Therefore, unit capital of financial intermediates.
open-ended funds can fluctuate on daily basis At the end of 1988, UTI had ` 6,700 crore of assets
(as new investors may purchase fresh units). under management. In 1993, with the creation of
2. Close-Ended Schemes New investors can SEBI and better regulation, transparency and
join the schemes by directly applying to the liberalisation of capital markets (which included
mutual fund at applicable net asset value the creation of the NSE and the NSDL), the private
related prices in case of open-ended schemes, sector was allowed to enter the mutual fund
but not in case of close-ended schemes. In case industry.
104 BANKING AWARENESS
Mutual Fund Regulations Net Asset Value
The erstwhile Unit Trust of India (UTI) was setup Net Asset Value (NAV) is the value of an entity’s
by the Reserve Bank of India in 1963 and it assets minus the value of its liabilities often in
functioned under its regulatory and administrative relation to open-end or mutual funds.
control till 1978, the Industrial Development Bank It is the market value of all securities held by the
of India (IDBI) took over regulatory and Mutual Fund Scheme. NAV may represent the
administrative control of the UTI thereafter. value of the total equity or it may be divided by the
number of shares outstanding held by investors
The Government of India enacted the Securities and thereby, represent the net asset value per
and Exchange Board of India Act, 1992 on 4th April, share. Net Asset Value is the price used for all
1992 which created the Securities and Exchange Mutual Fund Share transactions which includes
Board of India (SEBI). new purchases, sales and exchange from one fund
SEBI issued a comprehensive set of regulations in to another within the same fund family. It is
1993 and revised them again in 1996. calculated on daily basis.
QUESTION BANK
1. Money is an object or record that is 6. It is not exact money, but near to money.
generally accepted as payment for (a) Fiat money (b) Adjacent money
(a) goods (b) services (c) Subsidiary money (d) Token money
(c) gold (d) Both (a) and (b) (e) Standard money
(e) All of these 7. Who is the final authority for deciding the
2. Which of the following is/are metallic design, form and material of bank notes?
money? (a) Central Government
(b) Reserve Bank of India
(a) Standard money (b) Token money
(c) Indian Banks Association
(c) Subsidiary money (d) All of these (d) Note Issuing Authority of India
(e) None of these (e) None of the Above
3. Indian ` 1 coin is [IBPS 2012] 8. The approved assets against which currency
(a) Standard money notes are issued by RBI comprise of
(b) Subsidiary money (a) gold coin, bullion and rupee coin
(c) Token money (b) foreign securities and Government of India
(d) Adjacent money
rupee securities of any maturity
(e) Limited legal tender money
(c) bills of exchange end promisory notes payable
4. Paper money which circulates on authority in India which are eligible for purchases by RBI
of the government is (d) All of the above
(a) Representative money (e) None of the above
(b) Fiat money
(c) Token money 9. The term ‘Currency of India’ refers to
(d) Subsidiary money (a) one rupee notes and coins
(e) Non-legal tender money (b) bank notes issued by Reserve Bank of India
viz., ` 2, ` 5, ` 10, ` 20, ` 50, ` 100 and for
5. Fiat money is created and issued by other higher denominations
[IBPS 2013] (c) one rupee notes and coins and bank notes
(a) Private Bank (b) RBI issued by Reserve Bank of India
(c) State Government (d) Company (d) one rupee notes only
(e) Financial Institutions (e) None of the above
Money and Financial Market 105
10. The note-issue system in India is based on 17. In India, the system of decimal coinage was
(a) Gold Deposit System introduced on ... [IBPS RRB Main 2017]
(b) Minimum Reserve System (a) 26th January, 1949 (b) 1st April, 1957
(c) Proportional Reserve System (c) 15th August, 1957 (d) All of these
(d) Simple Deposit System (e) None of these
(e) None of the above
18. ........... intervenes in markets to maintain the
11. The monetary authority in India, i.e., external value of the Indian rupee.
Reserve Bank of India, is bound to maintain [IBPS Clerk 2015]
a reserve against the notes issued, whatever (a) Exporters (b) Importers
may be the amount. This system is called as (c) RBI (d) SBI
(a) Minimum Reserve System (e) None of these
(b) Proportional Reserve System 19. Security Printing and Minting Corporation
(c) Maximum Fiduciary Issue System
of India Limited (SPMCIL) has four mints in
(d) Simple Deposit System
(e) None of the above India. These four government mints are
situated in [RBI Grade B 2015]
12. The Indian rupee is a (a) Mumbai, Dewas, Hoshangabad and Mysore
(a) token coin (b) standard token coin (b) Mumbai, Nasik, Mysore and Ghaziabad
(c) standard coin (d) gold coin (c) Mumbai, New Delhi, Nasik and Gurgaon
(e) None of these (d) Mumbai, Pune, Nasik and Hoshangabad
(e) Mumbai, Kolkata, Hyderabad and Noida
13. The currency notes are issued by the Reserve
Bank of India under the signature of 20. One rupee note bears the signature of
(a) Executive Director (b) Deputy Governor [SBI Clerk 2015]
(c) Governor (d) Secretary (a) President of India
(e) None of these (b) Vice-President of India
(c) Finance Secretary
14. Which of the following is the sole authority (d) Finance Minister
for issue of currency in India? (e) Commerce Minister
(a) Government of India
(b) Reserve Bank of India
21. Coin of which of the following
(c) Controller of Currency denominations is called Small Coin?
(d) All of the above [RBI Assistant 2012]
(e) None of the above (a) ` 1 (b) ` 2
(c) ` 5 (d) 50 paise
15. The minting of coins in India comes under (e) ` 10
the 22. Rupee coins are the legal tender in India
(a) Coinage Act, 1906
(b) Reserve Bank of India Act, 1934
under the provisions of [IBPS PO 2011]
(a) Reserve Bank of India Act, 1934
(c) Banking Regulation Act, 1949 (b) Negotiable Instruments Act, 1881
(d) Currency Act, 1902 (c) Banking Regulation Act, 1949
(e) None of the above (d) Indian Coinage Act, 1906
(e) None of the above
16. Rupee coins are the legal tender in India
under the provisions of 23. The RBI introduced a fluorescent blue ` 50
[IBPS RRB Main 2017] note, with an incredible ........ motif on
(a) Indian Coinage Act, 1906 reverse side as a nod to India’s syncretic
(b) Reserve Bank of India Act, 1934 past. [SBI 2018]
(c) Negotiable Instruments Act, 1881 (a) Temple (b) Star
(d) Banking Regulation Act, 1949 (c) Hampi (d) Sun
(e) None of the above (e) Moon
106 BANKING AWARENESS
24. What is the dimension of ` 10 (new 32. Which of the following is not a money
currency note)? [IBPS 2018] market instrument?
(a) 123 mm ´ 63 mm (b) 142 mm ´ 66 mm (a) Treasury Bills
(c) 150 mm ´ 66 cm (d) 150 mm ´ 63 mm (b) Commercial Paper
(e) 200 mm ´ 66 mm (c) Certificates of Deposit
25. RBI introduced a Lavendeer ` 100 with an (d) Equity Share
(e) None of the above
........ on reverse side.
(a) Rani ka Vav (b) Sanchi Stupa 33. Which of the following is not money market
(c) Red Fort (d) Tractor instrument? [SBI PO 2016]
(e) Mangalyaan
(a) Treasury Bills (b) Certificates of Deposit
26. What is the main colour of ` 500 new (c) Commercial Bill (d) Promissory Note
currency note? (e) Gilt Edged Bill
(a) Black (b) Brown
(c) Cyan (d) Magenta 34. The segment of money market which
(e) Stone grey pertains day-to-day funds requirements of
the bank, is known as [SBI Grade B 2015]
27. PM Narendra Modi has demonetised ......... (a) Call Money Market
and ....... notes from 9 November, 2016, (b) Capital Market
similar banknotes demonetisation have been (c) Mutual Fund Market
taken in the past. [IBPS 2017]
(d) Equity Funds Market
(a) ` 100, ` 500 (b) ` 500, ` 1000
(c) ` 100, ` 1000 (d) ` 50, ` 100 (e) Index Funds Market
(e) ` 5, ` 500 35. Inter-bank call money market is not
28. RBI calculates various concepts of money exclusively used by
supply. M 2 means (a) Large corporations
(a) M3 + Office Saving of Bank (b) Insurance companies
(b) M3 + M1 + Office Saving of Bank (c) Financial institutions
(c) M1 + Post Office Saving Bank (d) Banks
(d) All of the above (e) None of the above
(e) None of the above
36. What is the minimum denomination
29. The decreasing order of liquidity of amount for a commercial paper?
monetary aggregates is (a) 5 lakh (b) 10 lakh
(a) M 0 > M1 > M 2 > M 3 (c) 25 lakh (d) 15 lakh
(b) M 0 < M1 < M 2 < M 3 (e) None of these
(c) M 0 > M1 < M 2 > M 3
(d) M 0 < M1 > M 2 > M 3 37. What is the maximum denomination for a
(e) M 0 < M1 > M 2 > M 3 commercial paper?
30. Which is not a component of Indian (a) 5 lakh (b) 10 lakh
Financial Market? (c) 25 lakh (d) No ceiling
(a) Derivatives Market (e) None of these
(b) Insurance Market
(c) Money Market
38. Commercial Paper (CP) is an unsecured
(d) Foreign Exchange Market money market instrument issued in the form
(e) General Market of a promissory note. Commercial paper can
be used in denominations of [SBI PO 2014]
31. Money market instruments (a) ` 1 lakh or multiples thereof
(a) are usually sold in large denominations
(b) ` 2 lakh or multiples thereof
(b) have low default risk
(c) mature in one year or less (c) ` 3 lakh or multiples thereof
(d) characterised by all of the above (d) ` 5 lakh or multiples thereof
(e) are characterised by (a) and (b) (e) ` 10 lakh or multiples thereof
Money and Financial Market 107
39. Maximum period for which a commercial 46. Money lent for 15 days or more in Inter-
paper can be issued is bank market is called
(a) 3 months (b) 6 months (a) call money (b) notice money
(c) 1 year (d) 2 years (c) term money (d) All of these
(e) None of these (e) None of these
40. Which of the following cannot issue a 47. Money lent for one day is called
Commercial Paper? (a) call money (b) notice money
(a) Companies (c) term money (d) All of these
(b) Primary Dealers (e) None of these
(c) Commercial Banks
48. The Treasury Bills are issued at a
(d) All Indian Financial Institution (a) discount (b) premium
(e) None of the above (c) Both (a) and (b) (d) face value
41. Commercial bills market is a part of (e) None of these
(a) organised money market 49. The Certificates of Deposit (CD) is a
(b) unorganised money market negotiable money market instrument and
(c) stock market
issued in the form of [SBI Clerk 2018]
(d) capital market
(a) Derivative Usance Promissory Note
(e) None of the above (b) Usance Promissory Note
42. Interest is usually paid on money market (c) Demand Promissory Note
instruments (d) Both (a) and (b)
(a) at maturity (e) None of the above
(b) on request 50. The maturity period of a Cash Management
(c) twice a year
(d) annually Bill can be
(e) All of the above (a) less than 364 days
(b) less than 182 days
43. Commercial paper can be issued (c) less than 91 days
(a) by all corporates (d) any period at discretion of the government
(b) by all corporates with net worth of atleast ` 10 (e) None of the above
crore
(c) by all corporates with net worth of atleast ` 5 51. Consider the following pairs (Financial
crore Instruments).
(d) can be issued only by banks
(e) All of the above I. Call Money – Money lent for 1 day.
II. Notice Money – Money sent for a period
44. Who issues treasury bills? exceeding 1day.
(a) Reserve Bank of India, as the agent of the
Central Government
III. Term Money – Money lent for 15 days or
(b) Any government department of State and more in interbank market.
Central Choose the correct option.
(c) Any commercial bank (a) I and II (b) II and III
(d) All of the above (c) I, II and III (d) I and III
(e) None of the above (e) Only III
45. T-Bills are financial instruments initially 52. Interest is calculated on actual/365 days basis,
sold by ………… to raise funds. respect of the following products, except one
(a) commercial banks (a) Call money
(b) the government (b) Notice money
(c) corporations (c) Term money
(d) Government of India dared securities
(d) agencies of the state government (e) None of the above
(e) None of the above
108 BANKING AWARENESS
53. The money market in India consists of two 58. In case of Close-Ended schemes, new
sectors, namely the organised and the investors can buy the units only from
unorganised. Which of the following do not (a) Primary market
fall under organised sector? (b) Secondary market
(a) RBI, Commercial Banks and SBI (c) Bond market
(b) LIC and GIC (d) Shares market
(c) Unit Trust of India (e) Financial market
(d) Indigenous Banks 59. In a mutual fund, investors’ subscriptions
(e) None of the above
are accounted for as [IBPS RRB Main 2017]
54. Which of the following statements about the (a) Liabilities (b) Deposits
money market is/are true? (c) Unit Capital (d) Assets
(a) Not all Commercial Banks deal for their (e) None of these
customers in the secondary market
60. Unit capital of open ended funds can
(b) Money markets are used extensively by
businesses both to warehouse surplus funds fluctuate on
and to raise short term funds (a) monthly basis (b) yearly basis
(c) The single most influential participant in the (c) daily basis (d) quarterly basis
US money market is the US Treasury (e) half yearly basis
Department
(d) All of the above 61. NAV is normally used in respect of schemes
(e) Both (a) and (b) floated by .......... [SBI Clerk 2011]
(a) Banks
55. Mutual funds can be considered as (b) Mutual funds
(a) financial insurance (c) Insurance companies
(b) financial intermediaries (d) Merchant banker
(c) cheque (e) None of these
(d) draft
(e) All of the above 62. Shareholders purchase and sell a fund at the
fund’s Net Asset Value (NAV), which is
56. The first Indian Mutual Fund was setup in
(a) 1950 (b) 1953 (c) 1963 (d) 1983
calculated daily. NAV is the price used for all
(e) 1993 Mutual Fund Share transactions which include
(a) New purchases [IBPS RRB Main 2017]
57. Which of the following invest on behalf of (b) Sales (redemptions)
the investors? (c) Exchanges from one fund to another within
(a) Mutual Fund (b) Depository System the same fund family
(c) IRDAI (d) Bancassurance (d) Both (a) and (b)
(e) SEBI (e) All of the above
Answers
1. (e) 2. (d) 3. (c) 4. (b) 5. (b) 6. (b) 7. (a) 8. (d) 9. (a) 10. (b)
11. (a) 12. (b) 13. (c) 14. (b) 15. (a) 16. (a) 17. (b) 18. (c) 19. (e) 20. (c)
21. (d) 22. (d) 23. (c) 24. (a) 25. (a) 26. (e) 27. (b) 28. (c) 29. (a) 30. (e)
31. (d) 32. (d) 33. (e) 34. (a) 35. (d) 36. (a) 37. (d) 38. (d) 39. (c) 40. (c)
41. (a) 42. (a) 43. (c) 44. (a) 45. (b) 46. (c) 47. (a) 48. (a) 49. (b) 50. (c)
51. (c) 52. (d) 53. (d) 54. (e) 55. (b) 56. (c) 57. (a) 58. (b) 59. (c) 60. (c)
61. (b) 62. (e)