Department of Law

B.Com. LL.B. (Hons) sem -II

Money & Financial System –II
Internal Question Bank
Academic year 2022-23
Write True or False
1. Commercial banks are essentially a multipurpose financial institution with a board
development outlook. False
2. Blue chip and deficit financing are not the one of the tools of monetary policy. True
3. Spirit of Development lies spreading the spirit of development finance whereby
entrepreneur learn to invest in real fixed assets. True
4. Development Bank provides assistance for modification, modernization and innovation of
industrial units only. False
5. The IFCI and the UT1 are the subsidiaries of the IDBI. True
6. Unregulated market creates serious problems of credit control for the monetary authority,
both at the aggregate level and at the level of credit allocation. True
7. Reserve bank of India is also known as lender of last resort for commercial banks. True
8. During 1995-96, the IDBI’s financial assistance sanctioned amounted to Rs. 10,636 crore
were disbursed. True
9. IRBI was established in March 1979 to take over IRCI. False
10. Development banks are not providing very short term finance. True
11. The indigenous banker takes advantage of the weak borrowing position of small borrowers
and is able to charge him an excessively high rate of interest. True
12. The venture capital operation of ICICI has taken over by the TDICI since July 1989. False
13. The financial assistance sanctioned and disbursed by SIDBI aggregated to Rs. 421 crore
during the financial year 2006-07. False
14. The rates of interest of the indigenous banker same and systematically among various
segments of the market. False
15. The interest differentials policies are adopted by the authority with a view to achieve the goal
of business welfare. False
16. Reserve Bank of India is regulates and supervises NBFCs. True
17. IDBI extend financial support to various organisations in conducting studies or surveys of
relevance to social development. False
18. During 1995-96, the sanctions of IRBI amounted to Rs. 897 crore. Its cumulative sanctions
amounted to Rs. 3,521 crore and disbursement Rs. 2,404 crore. True
19. A variety of short-term, medium-term and long-term interest rates exists in the financial
markets. True
20. The Export Bill Credit Scheme was introduced by RBI for Pre-shipment Credit Scheme to
promote export. True
21. The IFCI caters to the financial needs of large and medium sized limited companies in the
public and private sectors and co-operative societies. True
22. Non-Banking Financial Company (NBFC) is a company registered under the NBFC Act
1956. True
23. The Rural Infrastructure Development Fund (RIDF) Rs.2034.93 crores were disbursed
during 2007-08. False
24. One of the important objectives of monetary policy is growth with price stability. True
25. The State Finance Corporations (SFCS) is one of the integral parts of institutional finance
structure of Indian economy. True
26. The finance minster is the chairperson of the Monetary Policy committee of India. False
27. NABARD is providing financial assistance for large scale enterprise only. False

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 28. The ICICI was established in January 1955 as a public limited company. False
29. Fiscal policy can help in narrowing the balance of payments deficit through high rate of
interest. False
30. The RBI serves as representative of the Government of India as member of various
institutions i.e IMF, World Bank and ADB. True
31. The Co-operative Bank determines the margin requirements against specific securities. False
32. The SIDBI was established as a wholly owned subsidiary of Industrial Development Bank
of India (IDBI) and started its operations on April 2, 1990. True
33. The bank rate, known as the discount rate, is the rate payable by commercial banks on the
loans from or rediscounts of the government loans. False
34. A difference in the liquidity of saving is a source of interest rate differentials as observed in
India. False
35. The Indian Government were allowed public sector banks in mid- 1980s for issuing share
and debentures. False
36. Cheap credit may induce a higher demand both for investment and consumption purposes.
True
37. National Bank for Agriculture and Rural Development, more popularly known as
NABARD was established by an Act of Parliament on 12th July 1982. True
38. Quantitative method of credit control which is regulation of margin requirement, credit
rationing, regulation of consumer credit and direct action. False
39. Under-developed bill markets, thus, limit the bank rate operations.True
40. The sociological reaction to a change in the bank rate should consider for the effectiveness
of the bank rate policy. False
41. Monetary policy, embraces the tax and expenditure policies of the government. False
42. Non-banking Financial Companies have registered significant growth in recent years in terms
of both number and volume of business transactions. True
43. Public debt is dividing into two groups Tax Revenue and Non - tax Revenue.False
44. Gifts are important source of revenue during the times of inflation and recession. False
45. Public loans floated within the other country, international financial institution called
external debt. True
46. The UTI Act passed by the Parliament in 1963 created Unit Trust of India. True
47. Many borrowers are in extremely weak borrowing position and often times submit to
extortionist tactics of money lenders. True
48. The main charge against indigenous bankers is that rate of interest charged by them on their
credit is very low as compared to the lending rates of banks. False
49. The monetary authority also encourages to establish branch banking in both the rural and
urban areas. True
50. The committee also recommended the enlargement role in building up of the co-operative
credit structure and developing a strong private movement in India. False
51. In 1970, the RBI promotes this scheme to promote a wide-ranging system of guarantee for
loans granted by the credit institutions to small and needed borrowers. True
52. The Export Bill Credit Scheme extended in 1988 for refinancing to the banks by which ratio
of exporter can be increase. False
53. Central Bank administers control over the credit that the commercial grant. True
54. The Bill of Market Scheme was introduced by the RBI in January 1999.False
55. The separation of the eligible from the ineligible and acceptable borrowing capacity of the
eligible borrowers rests on this concern. True
56. Commercial banks keep an elastic cash-deposit ratio because of the central bank’s control.
True
57. Government Issue, from time to time, bonds generally long-term for mobilization of funds
for unproductive activities. False

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 58. Administered rates enable the government to direct the monetary transactions into desired
directions and ensuring effectiveness in monetary measurement. True
59. The RBI administers the lending rates of commercial banks for borrowers of different
categories. True
60. Liquidity of an asset refers to the degree of ease and certainty with which it can be converted
into cash at long notice without any loss. False
61. Development Bank provides assistance for not only modification, modernization and
innovation of industrial units. True
62. Public borrowing is one of the essentials in India in order to finance development
programmes and to control the money supply. True
63. Cheap credit may induce a higher demand both for investment and consumption purposes.
True
64. Rates of interest on loans and advances decided by private moneylenders, indigenous
bankers, finance companies as an element of Monopoly loss. False
65. Monetary policy is an important instrument for achieving price stability to bring a proper
adjustment between the demand for and supply of money. True
66. Such borrowers are in extremely weak borrowing position and often times submit to
extortionist tactics of moneylenders. True

Fill in the Banks

1. SIDBI the financial development institution created especially for the small & medium
enterprises
2. Development bank is the institutions, which provide term finance to promote
entrepreneurship, enhance organizational effectiveness and upgrade knows how and does
how.
3. IDBI, is in the collaboration with the All-India Financial Institutions, has set up a network of
Technical Consultancy Organisations (TCOs) covering the entire country
4. The IDBI can refinance term loans to industrial concerns repayable within 3 to 25 years
given by the IFCI, SFCs and some other financial institutions.
5. NABARD does not provide refinance to State Land Development Bank
6. IDBI is in the collaboration with the All-India Financial Institutions has set up a network of
Technical Consultancy Organisations (TCOs) covering the entire country.
7. The State Finance Corporations (SFCs) are the integral part of institutional finance structure
in the country.
8. The SFCs can augment its fund through issue and sale of bonds and debentures, which
should exceed five times the capital and reserves at Rs. 50 Lakh.
9. In July 1998, the ICICI established the Technology Development and Information
Company of India (TDICI) to finance technology intensive development activities, including
commercial R & D scheme
10. The Industrial Development Bank of India (IDBI) was set up in July 1994, as a wholly-
owned subsidiary of the Reserve Bank of India.
11. According to the amendment of 1986, the authorised capital of the IDBI has raised to Rs.
1,000 crores for sustaining the growing tempo of its operations.
12. NABARD had Refinance disbursement under ST-Agri & Others and MT-
Conversion/Liquidity support aggregated Rs. 16952.83 crore during 2007-08.
13. The Government of India set up the Industrial Reconstruction Corporation of India
(IRCI)in April 1971, under the Indian Companies Act for sick units’
14. The NBFCs were also encouraged the broad-base resources through borrowings from banks
and financial institutions.
15. Quantitative method of credit control method designed to regulate the volume of credit
created by the banking system.

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 16. The IFCI caters to the financial needs of large and medium sized limited companies in the
public and private sectors and Co-operative societies.
17. The State Finance Corporations (SFCs) are the integral part of institutional finance structure
in the country.
18. Public borrowing is essential in such countries in order to finance development programmes
and to control the money supply.
19. The Industrial Finance Corporation of India is the first Indian development bank which,
established in 1948.
20. Tax concessions in the form of tax holiday have been given to encourage the private sector
to set up industries in the backward regions.
21. IIBI was Set up in 1985, it assists industrial mainly medium and Large scale through wide
ranging product service
22. The ICICI has also promoted a number of institutions for technology upgradation. It has
also promoted TCQ’s in a number of states in collaborations with IDBI, IFCI, and state
level institutions.
23. In July 1998, the ICICI established the Technology Development and Information
Company of India (TDICI)to finance technology intensive development activities, including
commercial R & D scheme.
24. The venture capital operation of ICICI have been taken over by the TDICI since July 1998,
UTI and corporate sector, the ICICI floated a second Venture Capital Fund (VECAUS-
II)of 100 crores in 1990.
25. The Reserve Bank employs two types of reserve ratio for this purpose, viz. the Statutory
Liquidity Ratio (SLR) and the Cash Reserve Ratio (CRR).
26. Changes in tax rates, the structure of taxation, and its incidence, influence the volume and
direction of private spending in the economy.
27. Quantitative instruments of monetary policy which directly affect the quantity of money
supply
28. A non-banking institution which is a company and which has its principal business of
receiving deposits under any scheme or arrangement or any other manner, or lending in any
manner is also a non-banking financial company
29. Interest rate is also a tool for controlling inflation and the rate and composition of savings is
affected by the interest rate.
30. Commercial bills, popularly known as bill of exchange is a credit instrument or re-
discounting facilities.
31. The monetary and credit policy followed in the country in the recent past has left a section
of borrowers outside the purview of banking system and these NBFCs increasingly hatred to
these sections
32. Two main determinants of their liquidity are their (a) marketability and (b) term to maturity.
33. Small borrowers have no alternative source of funds to turn to and in a village, a few local
moneylenders may be the only source of credit from are private moneylenders.
34. A moneylender conducts his transactions in cash, while a large pan of die transactions of an
indigenous banker based on dealings in short term credit instruments like hundis and
commercial bills.
35. Credit policy of commercial bank is controlled by central bank of india
36. The Agricultural Credit Department with the main objective to develop co-operative credit
movement in agricultural finance was constituted along with establishment of the RBI in year
1935.
37. The commercial banks generally advance loans to their customers against some security or
securities offered by the borrower and acceptable to banks and Changes in margin
requirements designed to influence the flow of credit against specific commodities.
38. The money and capital markets are undeveloped are bills, stocks and shares which limit the
success of monetary policy.

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 39. Quantitative or traditional methods of credit control include banks rate policy, open market
The Reserve Bank of India has frequently resorted to the sale of government securities to
which the commercial banks have been generously contributing.
40. operations and variable reserve ratio
41. The Reserve Bank of India is empowered to raise this ratio up to 40 per cent of aggregate
deposits of commercial banks.
42. Rationing of credit is a method by which the Central Bank seeks to limit the maximum
amount of loans and advances.
43. The (Small Industrial Development Bank if India) SIDBI was established as a wholly owned
subsidiary of The Industrial Development Bank of India (IDBI) and started its operations
on April 2, 1990.
44. Variable Reserve Ratio refer to that proportion of bank deposits that the commercial banks
are required to keep in the form of cash to ensure liquidity for the credit created by them.
45. Government spending on new goods and services directly adds to aggregate demand and
indirectly increases income through secondary spending which takes place on account of the
multiplier effect.
46. Tax concessions in the form of tax holiday have been given to encourage the private sector
to set up industries in the backward regions.
47. The Public Expenditure is incurred on various activities for the welfare of the people and
also for the economic development, especially in developing countries.
48. Public revenue consists of taxes, revenue from administrative activities like fines, fees,
income from public enterprises, gifts and grants
49. The Industrial Development Bank Of India is an apex institution to coordinate, supplement
and integrate the activities of all existing specialised financial institution.
50. Growth with Price Stability is one of the important objectives of monetary policy of the RBI.
51. Public Receipts includes public revenue plus the receipts from public borrowings, the
receipts from sale of public assets and printing and issuing new currency notes.
52. Rates of consideration paid for the deposits made in bonds called bond rates.
53. The unregulated credit markets create serious problems of credit control for the monetary
authority, both at the aggregate level and at the level of credit allocation.
54. Commercial bank is required to maintain a fixed percentage of its assets in the form of cash
is called Statutory Liquidity Ratio (SLR)
55. The Reserve Bank commenced operations as India’s central bank on April 1, 1935 as a
private shareholders’ bank with a paid up capital of rupees five crore (rupees fifty million).
56. The Reserve Bank carries out the currency management function through its Department of
Currency Management located at its Central Office in Mumbai.
57. The RBI examine whether the minimum requirement of capital, reserve and liquid assets
are fulfilled by the banks.
58. Exchange control implies a kind of rationing of foreign exchange for the various categories
of demand.
59. The National Agricultural Credit (Long Term Operation) Fund in February 1956.
60. The committee also recommended the enlargement role in building up of the co-operative
credit structure and developing a strong co-operative movement in India.
61. The Export Bill Credit Scheme extended in 1958 for refinancing to the banks by which ratio
of exporter can be increase.
62. Public Receipts includes public revenue plus the receipts from public borrowings, the
receipts from sale of public assets and printing and issuing new currency notes
63. National Bank For Agriculture And Rural Development was established in 1982 with a
Special Act of the Parliament, with a mandate to uplift rural India by facilitating credit flow
in agriculture and small-scale industries

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 64. The Bharatiya Reserve Bank Note Mudran Pvt. Ltd. (BRBNMPL), a wholly owned
subsidiary of the Reserve Bank, also has set up printing presses at Mysore in Karnataka and
Salboni in West Bengal

Answer the Following the Questions

1. Which is the first industrial development bank of India? Give details of it

The Industrial Finance Corporation of India (IFCI) was the first development bank
established in 1948 in the country for providing medium and long-term credits to industrial
concerns, particularly in such circumstances where normal banking accommodation is
inappropriate or recourse to capital issue methods is impracticable
2. State the functions of Development Banks.
 It is specialised financial institution
 It provides medium and long term finance to business units
 Unlike commercial, it does not accept deposits
 It is not just term lending institution but a multipurpose institution
 It subscribe to the issue of stocks, shares, bonds and debenture of industrial units.
 It under write the issue of stocks, shares, bonds and debenture of industrial units.
3. Why Development Banks are important?
 Engines of development
 Spirit of Development
 Creation and promotion of enterprise
 Promotional of regional development
 Increasing productivity of investment
 Upgradation of skills
 Upgradation of technology
 Research
4. Give the structure of Development Bank in India.
 Industrial Development Bank
AllIndia Level are IFCI, IDBI,IRBI, (formerly IRCI), ICICI NSIC and State level SFCs,
SIDCs, SIICs
 Agricultural Development Bank
NABARD, SLDBs, PLDBs and branches of SLDBs
 Export Import Bank
5. Which institutions are establishing by the IDBI?
The National Stock Exchange (NSE), the National Securities Depository Services Ltd.
(NSDL), Stock Holding Corporation of India (SHCIL) are some of the Institutions which has
been built by IDBI.
6. What are the main functions of IDBI?
 Planning, promoting, and developing industries with a view to fill the gaps in the
industrial structure by conceiving, preparing, and floating new projects.
 Providing technical and administrative assistance for promotion, management and
expansion of industry.
 Providing refinancing facilities to the various banks like IFCI, SFCs and other
financial institutions approved by the government.
 Coordinating the activities to various financial institutions for promotion and
development of industries.
 Purchasing or underwriting shares and debentures of industrial concerns.

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  Guaranteeing deferred payments due from industrial concerns and for loans raised
by them.
7. What is direct assistance function of IDBI?
 The IDBI grants loans and advances to industrial concerns. There is no restriction
on the upper or lower limits for assistance to any concern itself. The bank guarantees
loans raised by industrial concerns in the open market from the State Co-operative
Banks, the Scheduled Banks, the Industrial Finance Corporation of India (IFCI) and
other ‘notified’ financial institutions.
8. What are the main functions of IRBI?
 Provide financial assistance to sick industrial units.
 To provide managerial and technical assistance to sick industrial units,
 To secure the assistance of other financial institutions and government agencies for
the revival and revitalisation of sick industrial units,
 To provide merchant banking services for amalgamation, merger, reconstruction,
etc.,
 To provide consultancy services to the banks in the matter of sick units, and
 Undertake leasing business.
9. What are functions IFCI?
 To guarantee loans raised by industrial concerns;
 Grant loans and advances to or subscribe to the debentures of industrial concerns.
 To underwrite the issue of stocks, shares, bonds or debentures by industrial
concerns.
 To extend guarantee in respect of deferred payments by importers.
10. What are functions SFCs?
 The SFCs grant loans mainly for acquisition of fixed assets like land, building, plant
and machinery.
 The SFCs provide financial assistance to industrial units whose paid-up capital and
reserves do not exceed Rs. 3 crore
 The SFCs underwrite new stocks, shares, debentures etc., of industrial concerns.
 The SFCs provide guarantee loans raised in the capital market by scheduled banks,
industrial concerns, and state co-operative banks to be repayable within 20 years.
11. State the objectives of the ICICI bank.
 To provide finance the foreign exchange component of industrial product.
 To provide assistance in the creation, expansion and modernization of industrial
enterprise
 To encourage and promote industrial development and investment
 To expanded capital market
12. State the functions of SIDBI.
 SIDBI refinances loans extended by the primary lending institutions to small scale
industrial units, and also provides resources support to them.
 SIDBI discounts and rediscounts bills arising from sale of machinery to or manufactured
by industrial units in the small scale sector.
 SIDBI extends seeds capital/soft loans assistance under National Equity Fund, Mahila
Udyam Nidhi and Mahila Vikas Nidhi and seed capital schemes through specified lending
agencies.
 It provides services like leasing, factoring etc. to industrial concerns in the small scale
sector.

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13. Which schemes were introduce by SIDBI in 1991-92?
 A scheme of direct assistance to widen the supply based small scale ancillary units
 A scheme to provide resources support to factoring companies against factored debts
of SSIs
 A refinance scheme for acquisition of computers including their accessories
 A scheme for refinancing assistance to qualified professionals for setting up their
own business enterprise
 An equipment financing scheme to assist existing small scale units
 A refinance scheme to resettle retired workers of National textile Corporation and to
help them in purchasing up to loans at the maximum
 A venture capital fund was created with an initial corpus of Rs. 10 crore
 A special Self Employment Scheme for Ex-services
 Mahila Udyam Nidhi Scheme
14. What are the main functions of NABARD?
 Credit functions, involving preparation of potential-linked credit plans annually for
all districts of the country for identification of credit potential, monitoring the flow of
ground level rural credit, issuing policy and operational guidelines to rural financing
institutions and providing credit facilities to eligible institutions under various
programmes.
 Development functions, concerning reinforcement of the credit functions and
making credit more productive.
 Supervisory functions, ensuring the proper functioning of cooperative banks and
regional rural banks.
15. Define Non-Banking Financial Company.
"A Non-Banking Financial Company (NBFC) is a company registered under the
Companies Act, 1956 and is engaged in the business of loans and advances, acquisition of
shares/ stock/bonds/debentures/securities issued by Government or local authority or other
securities of like marketable nature, leasing, hire-purchase, insurance business, chit business
but does not include any institution whose principal business is that of agriculture activity,
industrial activity, sale/purchase/construction of immovable property
16. Explain classification of NBFCs.
 Development finance institutions
 Leasing companies
 Investment companies
 Housing finance companies
 Venture capital companies
 Discount and guarantee houses
 Underwriting practitioners.
17. State the main features of NBFCs.
o Those accepting public deposits,
o Those not accepting public deposits but engaged in financial business,
o Coreinvestment companies with 90 per cent of their total assets as investments in the
securities of their group/holding/ subsidiary companies.
18. What are the objectives of SIDBI
 Financing
 Promotion
 Development
 Co-ordination

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19. What is Monetary Policy?
Definition: Monetary policy is usually defined as the central bank’s policy pertaining
to the control of the availability, cost, and use of money and credit with the help of monetary
measures in order to achieve specific goals.
Prof. Wrightsman defines monetary policy as “the deliberate effort by the central
bank to control the money supply and credit condition for the purpose of achieving certain
broad economic objectives.”
20. Define monetary policy of RBI
The policy is the central bank’s policy pertaining to the control of the availability, cost and use
of money and credit with the help of monetary measures in order to achieve specific goals
21. What are limitations of Monetary Policy?
 Large Non-monetized Sector:
 Undeveloped Money and Capital Markets:
 Large Number of NBFLs:
 High Liquidity:
 Foreign Banks:
 Small Bank Money:
 Money not deposited with Banks:
22. What is Quantitative Methods of credit control
Quantitative controls designed to regulate the volume of credit created by the banking system.
Quantitative or traditional methods of credit control include banks rate policy, open market
operations and variable reserve ratio.
23. What is Qualitative Method of credit control?
Qualitative measures or selective methods designed to regulate the flow of credit in specific
uses .Qualitative or selective methods of credit control include regulation of margin
requirement, credit rationing, regulation of consumer credit and direct action.
24. What is Open Market Policy?
Open market operations are another method of quantitative credit control. This method refers
to the sale and purchase of securities, bills, and bond of government as well as private financial
institution by the central government. It simply means dealing only in the government securities
and bonds
25. What is Bank Rate?
The bank rate or the discounted rate is the rate fixed by the central bank at which it rediscounts
the first class bills of exchange and government securities held by the commercial banks.
26. What is Variable Reserve* Ratio?
Variable reserve ratios refer to that proportion of bank deposits that the commercial banks are
required to keep in the form of cash to ensure liquidity for the credit created by them.
27. State the Tools of Qualitative Methods
 Margin Requirements
 Credit Rationing
 Regulation of Consumer Credit
 Moral Suasion
28. What are the limitations of bank rate policy?
 Money Market do not changes with bank rate
 Wages, costs and prices not elastic
 Banks do not approach central bank
 Bills of Exchanges not used
 Non-Discriminatory
 Not successful in controlling BOP disequilibrium:
 Non Banking Financial institution:

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 29. State the limitations of Variations of cash ratio
1. Large excess reserves
2. Determination of bank credit policy
3. Demand for bank credit
4. Distortions caused by frequent use
5. Discriminatory effect
6. Involving an element of uncertainty
7. Extra burden on banks.
30. Which institutions are parts of NBFCs?
 Mutual fund
 Housing finance
 Insurance company
 Financial instructions
 Credit society
31. State the functions of NBFCs.
 NBFC Company should keep away from accepting demand deposits from any sources.
 NBFC Company can't issue cheques drawn on itself.
 NBFC Company can't form part of the payment and settlement system.
 Depositors of a NBFC company cannot have facilities like deposit insurance scheme.
32. List the any two function of Issuing Notes by Reserve Bank of India
 The Finance Ministry is responsible for the design, production and overall management
of the nation’s currency
 Currency chests are storehouses where bank notes and rupee coins are stocked on behalf
of the Government
33. RBI is serving as bank of government, which services are provided?
 Marinating and operating of deposit accounts of the Central and State Government,
receipts and collection of payments to the Central and State Government.
 Making payments on the behalf of the Central and State Government.
 Managing the public debt and remittance facilities to the Central and State Government.
34. What is public expenditure?
The expenditure done by government of India for the development of economy which
incurred on various activities for the welfare of the people and also for the economic
development Central, State and local governments to satisfy the collective social wants of the
people
35. What is known as ‘Lender of Last Resort’
As a Banker to Banks, the Reserve Bank also acts as the 'lender of the last resort'. It can come
to the rescue of a bank that is solvent but faces temporary liquidity problems by supplying it
with much needed liquidity when no one else is willing to extend credit to that bank. When a
commercial bank is in crisis, it may place its reasonable demand for accommodation to
Reserve Bank of India
36. State the features of Bank Rate.
 Bank rate is a rate at which Central Bank is ready to give credit to commercial banks
 Bank rate and interest rates are different
 Bank rate is the discount rate of the Central Bank
37. State tools of Fiscal policy
 Public Expenditure
 Tax
 Public Debt


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38. What is public debt?
When Government borrowings financial resources from the individuals, financial institutions,
organisations and foreign countries. If revenue collected through taxes and other sources is not
adequate to cover expenditure
39. What is credit control policy?
Credit control is one of the A major weapon of the monetary policy used to control the
demand and supply of money (liquidity) in the economy. Central Bank administers control
over the credit that the commercial banks grant
40. Why credit control policy of central government is important?
 To encourage the overall growth of the “priority sector” i.e. those sectors of the
economy which is recognized by the government as “prioritized” depending upon their
economic condition or government interest. These sectors broadly totals to around 15
in number.[1]
 To keep a check over the channelization of credit so that credit is not delivered for
undesirable purposes.
 To achieve the objective of controlling “Inflation” as well as “Deflation”.
 To boost the economy by facilitating the flow of adequate volume of bank credit to
different sectors.
41. What is the importance of administrative rates?
 The Controller of Capital Issues fixed the ceiling on the coupon rates on industrial
debentures and preference shares.
 The Government had a great say in the fixation of interest rates on long term loans of
term financing institutions.
 Co-operative societies were required to accept deposits at higher rates and to lend at
lower rates than the rates of commercial banks

42. State the functions of EXIM Banks?

 Functioning as a specialized institution for providing comprehensive credits on
international competitive terms for exports of capital goods, engineering goods,
manufactured produced, projects and services
 Offering advisory services to exporters for non –traditional exports
 Providing refinance facilities in regard to export financing by banks and other financial
institutions
43. What is Fiscal Policy?
According to Arthur Smithies fiscal policy is a “policy under which the government uses
its expenditure and revenue programmes to produce desirable effects and avoid undesirable
effects on the national income, production and employment.”
44. What are the objectives of Fiscal Policy?
 Restoring Fiscal Equilibrium
 Reforming Tax-structure
 Promoting Socially Desirable Activities
 Market- Oriented Development
45. State the objectives government attempts to obtain by Budget
 To Promote Economic Development
 Balanced Regional Development
 Redistribution of Income and Wealth
46. What are the main objectives of Public Expenditure?
i. Administration of law and order and justice.
ii. Maintenance of police force.
iii. Maintenance of army and provision for defence goods.

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 iv. Maintenance of diplomats in foreign countries.
v. Public Administration.
vi. Servicing of public debt.
vii. Development of industries.
viii. Development of transport and communication.
ix. Provision for public health.
x. Creation of social goods.
47. State the types of Public Debt
 Internal And External Debt
 Short Term. Medium Term And Long
 Productive And Unproductive Debt
 Compulsory And Voluntary Debt
 Redeemable And Irredeemable Debt
 Funded And Unfunded Debt
48. What are the types of rates?
 Ceiling rate
 Coupon rate
 Bills rates
 Deposit rates
 Bonds rates
 Repo (Repurchase) Rate
 Bank Rate
 Call Rate
49. What is Repo rate?
Repo rate is the rate at which banks borrow funds from the RBI to meet the gap between the
demands they are facing for money (loans) and how much they have on hand to lend. If the
RBI wants to make it more expensive for the banks to borrow money, it increases the repo rate;
similarly, if it wants to make it cheaper for banks to borrow money, it reduces the repo rate.
50. What is meant by Repo rate?
The rate which decided by RBI for temporary or short term financial facilities to the
commercial banks against the government securities on the condition that the bank will
repurchase the securities within a short period.
51. What are the main sources of interest rate differentials?
1. Differences in Risk of Default and over dues
2. Differences in the liquidity of debt
3. Differences in term to maturity
4. Differences in lender’s cost of servicing loans
5. Differences in lending practices and extra-loan services
6. Differences in monopoly (or exploitative) gains and
7. Other reasons.
52. Shortcomings of the Indigenous Banking System in India
1. The main charge against indigenous bankers is that rate of interest charged by them on
their credit is very high as compared to the lending rates of banks.
2. The indigenous banker takes advantage of the weak borrowing position of small borrowers
and is able to charge him an excessively high rate of interest.
3. Indigenous banking is almost totally unsupervised and unregulated.
4. The indigenous credit market, besides being local, is highly segmented.
5. The rates of interest also differ systematically among various segments of the market.

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53. What is indigenous Bank ?
Indigenous bankers are private firms or individuals who operate as banks and as such
both receive deposits and give loans. Like banks, they are also financial intermediaries. They
should be distinguished h professional moneylenders whose primary business is not banking
but money lending
54. Which financial factors affecting to the institutional credits?
1. The Net Rate of Return,
2. The Risk of Default,
3. Security (Primary and Collateral),
4. Margin Requirement,
5. The Credit Supply Curve and
6. Inter-Borrower Allocation of Credit.
(i) The risk of default and
(ii) The net rate of return.
55. Which non-finical factors affecting to the institutional credits?
Social factors and political factors
56. What are objectives of RBI?
 To promote monetisation and monetary integration of economy.
 To manage currency and regulate foreign exchange.
 To institutionalise saving through promotion of banking habits.
 To build up a sound and adequate banking and credit structure
 To evolve a well differentiated structure of institutions purveying credit for agriculture
and allied activities.
 To set up or promote several specialised financial institutions at all India level and
regional levels to widen facilities for term finance to industry.
57. State the Traditional functions of RBI.
 Traditional Functions
 Issuing notes
 Bank of Government
 Banker's Bank
 Exchange Management and control
 Control of Credit
 Collection and Publication and Data and Reports
 Training facilities
58. What are main the promotional and Development Functions?
Promotional and Development Functions
i. Agricultural Finance
ii. Industrial Finance
iii. Export credit
iv. Credit to Priority sector and welfare
v. Bill Market Scheme
vi. Development and Regulation of Banking System
59. Which are the main publications of RBI?
 Reserve Bank of India bulletin (monthly) and its weekly statistical supplements
 Report of the Central Board of Directors (annual)
 Report on currency and finance
 Review of the Cooperative Movement in India
 Banking Statistics
 Banking and Monetary Statistics of India and Supplement
60. What is Deposit Rate?

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 The interest rates offered for deposits to the public are called deposit rates. The rates of
interest on public deposits with different companies vary based on maturity, over a wide range.
Interstates offered by the companies to the public on deposits used to be higher than the rates
offered by the banks
61. What is Bond Rate?
Rates of consideration paid for the deposits made in bonds called bond rates. Government
issue, from time to time, bonds generally long-term for mobilization of funds for development
activities
62. What is SLR?
The banks are required to maintain a certain ratio between their liquid assets and total
deposits.
63. What is Call rate?
Call rate is the interest rate paid by the banks for lending and borrowing for daily fund
requirement. Since banks need funds on a daily basis, they lend to and borrow from other
banks according to their daily or short-term requirements on a regular basis.

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 Assignment Questions for Money and Financial System -II
1. Which banks are known as development bank? Explain the functions and importance of
development in India.
Or
Define a development bank. Give its function. Critically examine development banking in
India.
2. What is development bank? Explain the functions IDBI, ICICI and SFCs.
3. Write note on Small Industries Development Bank of India.
4. Explain the functions of Industrial Reconstruction Bank of India and State Industrial
Development Corporations
5. Critically examine the functions of EXIM bank.
6. Briefly discuss the functions of Industrial Finance Corporation of India.
Or
Short note: Industrial Credit and Industrial Finance Corporation of India.
7. What is Non banking financial institutions and explain the functions of NBFs
Or
Explain the working of non-banking financial companies in India. What has been control and
regulate them? Explain briefly.
8. Discuss the functions and achievements of NABARD. Give suggestions for making
improvement in its working.
9. Explain the features and working of EXIM bank.
10. Describe the constitution and organizational structure of Reserve Bank of India
11. What are the functions of the Reserve Bank of India? How far has it succeeded as the central
bank of the country?
Or
Explain the traditional functions of RBI in detail.
Or
Discuss the essential functions of the central bank.
12. How functions of RBI are important for industrial development in India?
13. Discuss the policy of the Reserve Bank of India financing industries in the country.
14. Briefly discuss the role of the Reserve Bank of India in development of Bill Market.
15. What the role the Reserve Bank of India has been playing with the regards to financing of
agricultural sector.
16. “The Reserve bank of India is known as Banker’s bank.’ Explain the statement.

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 Or
Explain the function of RBI as Banker’s Bank.
Or
What has the Reserve Bank of India done to develop and regulate banking in India?
17. Short note: Exchange Control Management of the RBI
18. Explain unregulated credit market in India
19. Explain the functions and limitations of monetary policy
Or
Explain monetary policy of India. To what extent it has been successful in its objective?
Or
Critically discuss the effectiveness of monetary policy in controlling inflation.
Or
Discuss the role of monetary policy in a developing economy.
20. Discuss critically the policy of the Reserve Bank of India.
Or
Discuss the principal objectives of monetary policy.
21. Explain how the Bank Rate policy is operated by the Central Government of India.
22. Distinguish between quantitative and qualitative methods of credit control. Which are more
effective in an inflationary situation?
23. What are the instruments of selective credit control employed by the Reserve Bank of India?
24. What is credit control policy? What are the quantitative functions of credit policy?
25. What is quantitative instrument of credit control? Explain bank rate and open market policy
of credit control.
Or
Between Bank Rate and Open Market Operation which is more effective as an instrument of
credit control? Give reasons.
26. Explain the features of fiscal policy and its instrument and limitations.
Or
Explain fiscal policy of government of India.
Or
Narrate the policy of government.
27. Examine the role of indigenous bankers in the Indian economy.
Or
What is indigenous bankers? How it is important for Indian economy?
Or

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 How do indigenous bankers differ from commercial banks?
28. Explain problems and policies of allocations of institutional credit
29. Explain problems of small and large borrowers
Or
What are small and large borrowers? Which types of problems are facing by these type of
borrowers for credit?
30. Explain administrated and market determined rates.
31. Explain various deposits rates in India.
32. Explain the financial factors that affecting the institutional credits
33. Discuss the major sources for differential interest rates in India.
Write short notes:
1. Limitations of fiscal policy
2. Types of development bank
3. Problems between government and commercial sector for credit allocations
4. Tools of Fiscal Policy
5. Cash reserve ratio.

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