Money Market — Set 2
Banking · मुद्रा बाजार · Questions 11–20 of 80
What does 'SDF' stand for in the context of RBI's liquidity management?
Correct Answer: B. Standing Deposit Facility
The Standing Deposit Facility (SDF) is a tool used by the RBI to absorb excess liquidity without providing collateral. It was introduced to replace the fixed reverse repo rate as the floor of the policy corridor. This facility helps in better management of the money supply in the banking system.
A 'Ways and Means Advance' (WMA) is a facility provided by RBI to whom?
Correct Answer: A. Governments
WMA is a mechanism to provide temporary advances to the Central and State governments. It helps them bridge the temporary mismatch between their receipts and payments. The government must repay the amount within three months from the date of advance.
Which rate is defined as the rate at which banks park their excess funds with the RBI?
Correct Answer: A. Reverse Repo Rate
Reverse Repo Rate is the interest rate paid by the RBI to commercial banks for depositing their surplus cash. Increasing this rate encourages banks to park more money with the RBI, reducing overall liquidity. It is an important tool for controlling inflation.
What is the primary feature of a 'Zero-Coupon Bond' often seen in the money market?
Correct Answer: D. It pays no periodic interest
Zero-coupon bonds do not pay regular interest payments during their tenure. Instead, they are issued at a discount to their face value and redeemed at par. Treasury Bills are a classic example of zero-coupon instruments.
Which of the following is a 'Secured' money market instrument?
Correct Answer: D. REPO
A Repurchase Agreement (REPO) is a secured form of borrowing involving the sale and later repurchase of securities. The securities act as collateral for the loan provided. Call money and Commercial Paper are generally considered unsecured instruments.
What is the 'Bank Rate' primarily used for currently?
Correct Answer: B. Calculating penal interest
The Bank Rate is the rate at which the RBI is prepared to buy or rediscount bills of exchange. Currently, it is primarily used to calculate penalties on banks for defaulting on CRR or SLR requirements. It is generally aligned with the MSF rate.
In the Indian money market, 'CMB' stands for what?
Correct Answer: A. Cash Management Bills
Cash Management Bills (CMBs) are short-term instruments issued by the RBI to meet temporary cash flow mismatches of the government. They have a maturity of less than 91 days. They share similar characteristics with Treasury Bills but have flexible tenures.
What is the maximum limit for a single transaction in the 'Call Money' market?
Correct Answer: B. No specific limit
There is no specific maximum limit for transactions in the call money market. The volume is determined by the liquidity needs of the participating banks. However, the RBI sets individual limits for banks on how much they can borrow or lend.
The parallel market where indigenous bankers and money lenders operate is known as ____.?
Correct Answer: D. Unorganized Money Market
The unorganized money market consists of unregulated entities like Sahukars and Nidhis. They operate outside the formal banking system and are not directly controlled by the RBI. While the organized sector is modern and efficient, the unorganized sector still serves rural areas.
Which of the following is a hallmark of a 'Liquid' money market?
Correct Answer: C. Stability of interest rates
A liquid money market ensures that interest rates remain stable and predictable. It allows participants to buy or sell instruments quickly with minimal loss in value. This stability is crucial for the effective transmission of monetary policy.