Money Market — Set 4
Banking · मुद्रा बाजार · Questions 31–40 of 80
What is the maximum limit of SLR (Statutory Liquidity Ratio) that RBI can set?
Correct Answer: C. 40%
As per the Banking Regulation Act, the RBI has the power to set the SLR anywhere between 0% and 40%. SLR is the percentage of deposits that banks must keep in the form of gold or government securities. It serves as a safety measure for depositors and a source of funding for the government.
Which of these is NOT a characteristic of a money market?
Correct Answer: A. High capital gain
Money markets focus on liquidity and safety rather than high capital appreciation. Capital gains are a primary feature of the equity or long-term bond markets. Money market instruments are bought for their fixed, short-term returns and ease of conversion to cash.
What is 'Float' in the context of money market transactions?
Correct Answer: C. Time lag in clearing funds
Float refers to the money that is counted in the accounts of both the payer and the payee during the time a check or transfer is being processed. It represents funds that are 'in transit' between two bank accounts. High float can temporarily affect the estimated liquidity in the money market.
Which instrument is specifically used to handle 'seasonal' liquidity requirements?
Correct Answer: D. Commercial Paper
Corporates often issue Commercial Paper to meet seasonal spikes in their working capital needs. For instance, a manufacturing firm might issue CP during peak production months. It provides a cheaper alternative to bank loans for highly rated entities.
In 'NDTL', what does the 'N' stand for?
Correct Answer: C. Net
NDTL stands for Net Demand and Time Liabilities. It represents the sum of demand and time deposits with the public and other banks, minus deposits held with other banks. Reserve requirements like CRR and SLR are calculated as a percentage of a bank's NDTL.
What happens to the liquidity in the system when the CRR (Cash Reserve Ratio) is decreased?
Correct Answer: C. Liquidity increases
CRR is the portion of deposits that banks must keep as cash with the RBI. When the RBI decreases the CRR, banks have more cash available for lending to the public. This increases the overall liquidity and money supply in the economy.
What is 'Clean Call'?
Correct Answer: A. Borrowing without collateral
Clean call refers to the borrowing of funds in the inter-bank call money market without providing any collateral. It depends entirely on the creditworthiness and reputation of the borrowing bank. Most call money transactions between scheduled commercial banks are clean calls.
Which component of the money market is most sensitive to RBI's monetary policy changes?
Correct Answer: C. Call Money Market
The call money market is highly sensitive because it reflects the immediate liquidity position of banks. Any change in policy rates by the RBI is first reflected in the call money rates. It serves as a barometer for the overall liquidity condition in the financial system.
What is 'Haircut' in a Repo transaction?
Correct Answer: C. Margin on collateral value
A haircut is the difference between the market value of the collateral and the amount of the loan granted. For example, if a bank provides Rs. 100 worth of bonds for a Rs. 95 loan, the haircut is 5%. It acts as a safety buffer for the lender against price fluctuations.
Which of the following is an 'organized' sector of the Indian money market?
Correct Answer: A. Mutual Funds
Money Market Mutual Funds are part of the organized sector as they are regulated by SEBI and deal in formal money market instruments. Indigenous bankers and money lenders are part of the unorganized sector. Organized sectors follow standardized rules and transparency norms.