Money and Banking (Test Questions)

Read this article to learn about the top forty frequently asked questions on Money and Banking.

Q. 1. Give the meaning of money.

OR

Define money.

Ans. It is anything that serves as a medium of exchange.

OR

Money is anything which is generally acceptable by the people in exchange of goods and services and for settlement of debts.

Q. 2. What are the primary functions of money?

Ans. Medium of exchange and measure of value are primary functions of money.

Q. 3. What is barter?

Ans. The direct exchange of goods for goods is called barter.

Q. 4. Define money supply.

Ans. Stock of money in the country on a specific day.

Q. 5. What is included in money supply.

Ans. (i) Currency with public.

(ii) Demand deposits.

Q. 6. State the components of money supply.

Ans. (i) Currency and coins with public

(ii) Demand deposits of commercial banks.

Q. 7. Define a central bank.

Ans. Central bank is the bank which has monopoly of issuing currency and which is the apex monetary authority of the country

Q. 8. What is the name of Central Bank in India?

Ans. Reserve Bank of India is the Central Bank in India.

Q. 9. Define Cash Reserve Ratio (CRR)?

Ans. CRR refers to that minimum percentage of deposits with the commercial banks which the commercial banks must keep with the central bank.

OR

It is the percentage of the net deposits of the banks which they are required to maintain in form of cash in their accounts with RBI.

Q. 10. What is a scheduled bank?

Ans. A bank whose name is included in 2^nd Schedule of Reserve Bank of India is called a scheduled bank.

Q. 11. Define banking.

Ans. Accepting deposits from public and lending funds to them is called banking.

Q. 12. What is meant by double coincidence of wants?

Ans. Double coincidence means that an exchange of goods between two persons is possible only when both parties require goods of each other.

Q. 13. What is fiat money?

Ans. Money issued by the government under emergency conditions.

Q. 14. ‘Legal tender money is also known as fiat money.’ Why?

Ans. Legal tender money is also called fiat money because it has to be accepted as money as per the orders of the government.

Q. 15. What is fiduciary money?

Ans. It is voluntary money generally accepted on the basis of trust by acceptor e.g. drafts, cheques, bills of exchange etc.

Q. 16. What is legal tender money?

Ans. Money declared under the law of the country is called legal tender money. For example, currency notes and coins have been declared as legal tender money by the order of the government.

Q. 17 .What are the secondary functions of money?

Ans. Store of value, standard of deferred payments and transfer of value are the secondary functions of money.

Q. 18. What are the two essential functions of a bank?

Ans. Accepting deposits from the people, and giving loans and advances to them are the two essential functions of banks.

Q. 19. What are demand deposits?

Ans. Deposits that are payable on demand are called demand deposits.

Q. 20. What are the different types of deposits accepted by banks?

Bank accepts mainly three types of deposits:

Ans. (i) Current Account Deposits

(ii) Fixed Term Deposits

(iii) Savings Account Deposits

Q. 21. What is a time deposit?

Ans. Deposits which are payable after the expiry of a fixed period are called time deposits.

Q. 22. Mention the type of deposit in which cheque book facility is not available?

Ans. Cheque book facility is not available in case of time deposits.

Q. 23. In which deposit accounts no interest is paid by the bank?

Ans. No interest is paid by the bank in case of current account deposits.

Q. 24. What is meant by overdraft facility?

Ans. In overdraft facility, a current account holder is allowed to withdraw more than his balance in the account up to an agreed limit.

Q. 25. Define a bank.

Ans. Bank is an institution which accepts deposits from the people and gives loans and advances to them.

Q. 26. What is a commercial bank?

Ans. A commercial bank is an institution that accepts deposits from the people and extends loans and advances to them to earn profit.

Q. 27. Define statutory liquidity ratio (SLR).

Ans. SLR is the ratio of deposits which commercial banks are required to keep with themselves.

OR

It is a percentage fixed by RBI, of net deposits of the banks which they must maintain in the form of liquid assets specified by RBI.

Q. 28. Define Legal Reserve Ratio.

Ans. It is that fraction of deposits which is legally compulsory for the commercial banks to keep with themselves in the form of cash.

Q. 29. What are open market operations?

Ans. Buying and selling of government securities by the central bank from/to banks is called open market operations.

Q. 30. What is margin requirement?

Ans. It is the difference between the value of security and the amount of money given against that.

Q. 31. What is central bank?

Ans. Central bank is an apex institution which controls and regulates the banking and monetary system of a country and has the sole authority for the issue of currency of that country.

Q. 32. Which are the qualitative monetary measures?

Ans. Qualitative monetary measures available to central bank are margin requirements, moral suasion, selective credit controls etc.

Q. 33. Mention the quantitative monetary measures available to the central bank.

Quantitative monetary measures available to central bank are:

Ans. (i) Bank Rate Policy

(ii) Open market operations and

(iii) Varying Reserve Ratios

Q. 34. How are short term borrowings made by the government from the central bank?

Ans. The Government sells treasury bills to central bank for short term borrowings.

Q. 35. Define ‘bank rate’.

OR

What is bank rate?

Ans. The rate at which central bank lends to commercial banks by rediscounting their bills is called bank rate.

Q. 36. What is full bodied money?

Ans. Full bodied money is that money whose value as a commodity is equal to its value as money.

Q. 37. Which system is followed in India for issuing notes?

Ans. For issue of notes, minimum reserve system is followed in India.

Q. 38. What are the various measures of money supply in India?

Ans. RBI has presented four measures of money supply which are M₁, M₂, M₃ and M₄.

Q. 39. Which measure of money supply is most liquid?

Ans. M₁ is the most liquid measure of money supply

Q. 40. Which measure of money supply is least liquid?

Ans. M₄ is the least liquid measure of money supply.