Money and Banking Class 12 MCQs Questions with Answers
Question 1.
Supply of money refers to …………….
(A) currency held by the public.
(B) currency held by Reserve Bank of India (RBI).
(C) currency held by the public and demand deposits with commercial banks.
(D) currency held in the government account.
Answer:
(C) currency held by the public and demand deposits with commercial banks.
Question 2.
…………. is the main source of money supply in an economy.
(A) Central Bank
(B) Commercial Banks
(C) Both (A) and (B)
(D) Government
Answer:
(C) Both (A) and (B)
Question 3.
Demand deposits include:
(A) Saving account deposits and fixed deposits.
(B) Saving account deposits and current account deposits.
(C) Current account deposits and fixed deposits
(D) All types of deposits.
Answer:
(B) Saving account deposits and current account deposits.
Explanation:
Demand deposits include saving account deposits and current account deposits because these are very liquid and can be used immediately to purchase goods and services.
Question 4.
Identify the correctly Matched pair ol items in Column A to that of Column B.
| Column A | Column B |
| 1. Supply of Money | (a) Money in circulation at a point |
| 2. Stock of Money | (b) Supply of money considered over a period |
| 3. Flow of Money | (c) Money held by Public and the Bank today |
| 4. Reserve Money | (d) Supply of money studied at a point of time |
(A) 1 – (a)
(B) 2 – (b)
(C) 3 – (c)
(D) 4 – (d)
Answer:
(A) 1 – (a)
Explanation:
Money Supply is the total stock of money circulating in the economy at a particular point of time including currency and other liquid instruments.
Question 5.
Who regulates money supply in India?
(A) Government of India
(B) Reserve Bank of India
(C) Commercial Banks
(D) Planning Commission
Answer:
(B) Reserve Bank of India
Explanation:
RBI is the top monetary authority in the country who print currency and regulates money supply through its monetary policy.
Question 6.
Which of the following statements is true?
(A) M1 is the most liquid measure of money supply.
(B) M2is the most liquid measure of money supply.
(C) M3 is the most liquid measure of money supply.
(D) All the statements are true.
Answer:
(A) M1 is the most liquid measure of money supply.
Explanation:
includes all forms of assets that are easily exchangeable as payment for goods and services. It consists of coin and currency in circulation and demand deposits, as payment for goods and services.
Question 7.
Identify the correctly matched pair of the items in Column A to that of Column B
| Column A | Column B |
| 1. Money | (a) Supply of Money |
| 2. Commercial Bank | (b) Store of Value |
| 3. Central Bank | (c) Credit Control |
| 4. M4 | (d) Circulation of Money |
(A) 1 – (a)
(B) 2 – (b)
(C) 3 – (c)
(D) 4 – (d)
Answer:
(C) 3 – (c)
Explanation:
Central Bank regulates the volume and use of credit by using quantitative and qualitative tools, i.e., monetary policy. Instruments of Monetary Policy are Bank Rate, Repo Rate, Reverse Repo Rate, Cash Reserve Ratio.
Question 8.
Which of the following statements is/are correct:
(A) note is issued by the RBI.
(B) Coins are issued by the Government of India.
(C) Both statements are true.
(D) Both statements are false.
Answer:
(B) Coins are issued by the Government of India.
Explanation:
Coins in India are issued by the Government of India. It is the sole responsibility of the Government of India to mint coins of all denominations.
Question 9.
Identify the correctly matched pair of the items in Column A to that of Column B.
| Column A | Column B |
| 1. Money Supply | (a) Total stock in circulation |
| 2. Money Creation | (b) Function of Central Bank |
| 3. Money Stock | (c) Function of the Commercial Bank |
| 4. Money Demand | (d) Money in the Banks |
(A) 1 – (a)
(B) 2 – (b)
(C) 3 – (c)
(D) 4 – (d)
Answer:
(A) 1 – (a)
Explanation:
Money supply is the total stock of money in circulation held by public at a given point of time.
Question 10.
Which of the following statements is false?
(A) Demand deposits are not legal tender.
(B) Currency notes issued are not legal tender.
(C) Term deposits are not legal tender.
(D) Wheat is not legal tender.
Answer:
(B) Currency notes issued are not legal tender.
Explanation:
A legal tender is a type of money that the court of law need to see as a satisfactory payment of any financial debt. In India, the authentic legal tender of the Reserve Bank of India consists of coins and notes.
Question 11.
Money supply includes :
(A) All deposits in banks.
(B) Only demand deposits in banks.
(C) Only time deposits in banks.
(D) Currency with the banks.
Answer:
(B) Only demand deposits in banks.
Explanation:
Money Supply is the total stock of money circulating in the economy at a particular point of time including currency and other liquid instruments.
Question 12.
Which of the following statements is true?
(A) All financial institutions are banking institutions.
(B) RBI has the complete authority to issue currency notes.
(C) The government of India issues currency notes.
(D) Banking institutions issue currency notes.
Answer:
(B) RBI has the complete authority to issue currency notes.
Explanation:
The Central Bank undertakes this function of being a monopolist in issuing currency to maintain uniformity of currency across nation and to control money supply process at a centralised level.
Question 13.
Which of the following is not the function of the central bank?
(A) Banking facilities to government
(B) Banking facilities to public
(C) Lending to government
(D) Lending to commercial banks
Answer:
(B) Banking facilities to public
Explanation:
Commercial Banks deals with public directly by accepting and lending deposits.
Question 14.
In the present COVID-19 situation, many economists have raised their concerns that Indian economy may have to face a deflationary situation due to reduced economic activities in the country. Suppose you are a member of the high-powered committee constituted by the Reserve Bank of India (RBI).You have suggested that as the supervisor of commercial banks, …………… (restriction/release) of the money supply be ensured by the Reserve Bank of India (RBI).
(A) Restriction
(B) Release
(C) Either (A) or (B)
(D) Neither (A) nor (B)
Answer:
(B) Release
Explanation:
RBI should release money as it will increase money supply in the economy, and thus intum will increase production activities.
Question 15.
Identify the correctly matched items from Column A to that of Column B:
| Column A | Column B |
| 1. Issue of New Currency Notes | (a) Government of India |
| 2. Banker to the Government | (b) State Bank of India |
| 3. Controller of Credit | (c) Reserve Bank of India |
| 4. SLR | (d) Development Bank |
(A) 1 – (a)
(B) 2 – (b)
(C) 3 – (c)
(D) 4 – (d)
Answer:
(C) 3 – (c)
Explanation:
By controlling credit, the central bank can exercise an effective control over economic activities and mobilise it in the desired direction. Central Bank regulates the volume and use of credit by using | quantitative and qualitative tools.
Assertion and Reason Based MCQs
Directions: In the following questions, a statement of Assertion (A) is followed by a statement of
Reason (R). Mark the correct choice as:
(A) Both Assertion (A) and Reason (R) are true, and Reason (R) is the correct explanation of Assertion (A).
(B) Both Assertion (A) and Reason (R) are true, but Reason (R) is not the correct explanation of Assertion (A).
(C) Assertion (A) is true, but Reason (R) is false.
(D) Assertion (A) is false, but Reason (R) is true.
Question 1.
Assertion (A): M, is the least liquid measure of money supply.
Reason (R): M4 includes the currency in circulation, demand deposits with the bank and other deposits with the RBI.
Answer:
(D) Assertion (A) is false, but Reason (R) is true.
Explanation:
M1 is the most liquid measure of money supply as it includes all forms of assets that are easily exchangeable as payment for goods and services. It includes coins and currency in circulation, demand deposits, traveler’s checks, and other checkable deposits.
Question 2.
Assertion (A): M4 is the least liquid measure of money supply.
Reason (R): M4 is inclusive of all the money supply included in M3 as well as the Total Deposits with the Post Office.
Answer:
(A) Both Assertion (A) and Reason (R) are true, and Reason (R) is the correct explanation of Assertion (A).
Question 3.
Assertion (A): Demand deposits are not legal tenders.
Reason (R): They are with the bank, so only can be used as a legal tender when cheques are issued for the transfer.
Answer:
(C) Assertion (A) is true, but Reason (R) is false.
Explanation:
Legal tender money is that form of money that has a legal sanction by the government behind it. Chequable demand deposits are not legal tenders because a person can legally refuse to accept payment through chequable demand deposits.
Question 4.
Assertion (A): Money is what money does.
Reason (R): Money facilitates exchange of goods and services.
Answer:
(A) Both Assertion (A) and Reason (R) are true, and Reason (R) is the correct explanation of Assertion (A).
Explanation:
Money is defined as anything 1 that acts as a medium of exchange.
Case-Based MCQs
I. Read the below case and answer the questions that follow:
In a 40-minute long speech Prime Minister Narendra Modi announced the demonetisation of existing notes of ₹ 500 and ₹ 1,000 during a televised address on Tuesday evening. Modi announced that the notes of ₹ 500 and ₹ 1,000 “will not be legal tender from midnight tonight” and these will be “just worthless pieces of paper. PM also urged people to ‘join this mahayojna against the ills of corruption. “What is demonetisation and why was it done?”The – Economic Times, Nov 09, 2016
Question 1.
Under whose purview does the issue of new currency fall in?
(A) Reserve Bank of India
(B) Central Government of India
(C) State Government
(D) All of the above
Answer:
(A) Reserve Bank of India
Explanation:
The Central Bank plays the role of the sole note issuing authority in the economy.
Question 2.
Which two currency denominations were demonetised?
(A) ₹ 100 and ₹ 500
(B) ₹ 500 and ₹ 2,000 ₹ 1,000 and ₹ 2,000
(D) ₹ 500 and ₹ 1,000
Answer:
(D) ₹ 500 and ₹ 1,000
Question 3.
………. is issued by the government of India.
(A) Coins
(B) ₹ 500 note
(C) T1000 note
(D) All of these
Answer:
(A) Coins
Explanation:
It is the sole responsibility of the Government of India to mint coins of all denominations.
Question 4.
currency note is issued by ………..
(A) Finance Ministry
(B) RBI
(C) NITIAayog
(D) None of the above
Answer:
(A) Finance Ministry
Explanation:
The one rupee note and coins are issued by ministry of finance and it bears the signature of Finance Secretary.
II. Read the below case and answer the questions that follow:
On March 5, 2020, the Reserve Bank of India (RBI) imposed a 30-day moratorium on YES Bank, superseded the private-sector lender’s board, and appointed Prashant Kumar, who was serving as chief financial officer and deputy managing director at State Bank of India (SBI), as an administrator.
Under the terms of the moratorium, deposit withdrawals were capped at ₹ 50,000 per person. The central bank proposed a reconstruction scheme under which SBI might take a maximum of 49% stake in the restructured capital of the bank. Analysts believed the new management of YES Bank, headed by former Deutsche Bank India head Ravneet Gill, who joined the bank in early 2019, could turn around the ship. Gill, however, has struggled to do so.
The bank’s loan book on March 31, 2014, was ₹ 55,633 crore, and its deposits were ₹ 74,192 crore. Since then, the loan book has grown to nearly four times as much, at ₹ 2.25 trillion as on September 30,2019. While deposit growth failed to keep pace and increased at less than three times to ₹ 2.10 trillion.
The bank’s asset quality also worsened and it came under regulator RBI’s scanner. YES Bank has a substantial exposure to several troubled borrowers, including the Anil Ambani-led Reliance group, DHFL and IL&FS. The tipping point came when one of the bank’s independent directors Uttam Prakash Agarwal, resigned from the board in January 2020 citing governance issues. “What is YES Bank Crisis?” – Business Standard
Question 1.
Which of the following function has been performed by the RBI in the above case study?
(A) Banker to the Commercial Bank, here YES Bank
(B) Supervision and Regulation of the Commercial Bank, here YES Bank.
(C) Controlling the credit creation in the economy.
(D) Managerial function
Answer:
(B) Supervision and Regulation of the Commercial Bank, here YES Bank.
Question 2.
Under the moratorium, the deposit withdrawal was capped at ………..
(A) ₹ 10,000
(B) ₹ 25,000
(C) ₹ 3o,ooo
(D) ₹ 5o,ooo
Answer:
(D) ₹ 5o,ooo
Question 3.
Read the following statements – Assertion (A) and Reason (R).
Assertion (A): YES Bank put into the check of the RBI.
Reason (R): The loan book has grown to nearly four times and deposit failed to grow.
Select the correct alternative from the following:
(A) Both Assertion (A) and Reason (R) are true, and Reason (R) is the correct explanation of Assertion (A).
(B) Both Assertion (A) and Reason (R) are true, but Reason (R) is not the correct explanation of Assertion (A).
(C) Assertion (A) is true, but Reason (R) is false.
(D) Assertion (A) is false, but Reason (R) is true.
Answer:
(A) Both Assertion (A) and Reason (R) are true, and Reason (R) is the correct explanation of Assertion (A).
Explanation:
The loan book has grown to nearly four times as much, at ₹ 2.25 trillion as ; on September 30, 2019. While deposit growth failed to keep pace and increased at less than three times to ₹ 2.10 trillion.
Question 4.
What another role does the RBI play for the Commercial Bank like YES Bank?
(A) Advisor to the Bank
(B) Banker to the Bank
(C) Controls the credit created by the bank
(D) All of the above
Answer:
(D) All of the above
Explanation:
Central Bank, as the Banker’s bank, accepts deposits from the commercial banks and offers them loans as and when required. As the agent and advisor to the government, it manages public debt on behalf of the government and also advices on policy matters. Central bank control credit creation to remove causes responsible for instability in ; price fluctuations which inturn are related to : the supply of money.