MONEY AND FINANCIAL MARKET

Macro Economics-2

SECTION A

Discuss the nature and development of macroeconomic theory

Explain the concept of equilibrium and discuss its importance in economic theory

What do you understand by national income? Is national incomea true indicator of a country's economic prosperity?

Explain the aggregate demand function and discuss its role in the determination of the level of employment

Explain the theory of income and employment

Explain the concept of foreign trade multiplier with suitable examples

Discuss the long-run and the short-run nature of the income-consumption relationship

8    Although saving is a virtue for the individual but for the community it is a vice. Discuss fully.

Section-B Case Study
CASE STUDY-
The Reserve Bank of India (RBI) is India's central banking institution, which formulates the monetary policy with regard to the Indian rupee. It was established on 1 April 1935 during the British Raj in accordance with the provisions of the Reserve Bank of India Act, 1934.[2] The share capital was divided into shares of  ?100 each fully paid, which was entirely owned by private shareholders in the beginning. Following India's independence in 1947, the RBI was nationalised in the year 1949.
RBI assumes an important part in the development strategy of the Government of India, and as a leading member of the Alliance for Financial Inclusion (AFI), is notably active in promoting financial inclusion policy. RBI is also a member of the Asian Clearing Union. The general superintendence and direction of the RBI is entrusted with the 21-member-strong Central Board of Directors—the Governor (currently Duvvuri Subbarao), four Deputy Governors, two Finance Ministry representative, ten government-nominated directors to represent important elements from India's economy, and four directors to represent local boards head quartered at Mumbai, Kolkata, Chennai and New Delhi. Each of these local boards consists of five members who represent regional interests, as well as the interests of co-operative and indigenous banks.

What is India's central banking institution?
Ans
Section-C Multiple Choice Questions
 
Question 1

" .are funds transfer systems where transfer of money or securities[1] takes place from one bank to another on a ""real time"" and on ""gross"" basis."
   
current price and syndication
 
   
real time gross settlement
 
   
corporate counselling
 
   
lease
 
 
Question 2

"Settlement in ""real time"" means payment transaction is not subjected to any .. period."
   
waiting
 
   
debentures
 
   
fixed deposits
 
   
loans
 
 
Question 3

...means the transaction is settled on one to one basis without bunching or netting with any other transaction
   
gross settlement
 
   
bond markets
 
   
debt markets
 
   
Companies
 
 
Question 4

Technical effciency of the payment system is important for development of an ..
   
common portfolio
 
   
economy
 
   
single portfolio
 
   
single security
 
 
Question 5

"An efficient national ... system reduces the cost of exchanging goods and services, and is indispensable to the functioning of the interbank, money, and capital markets"
   
payment
 
   
payables
 
   
products
 
   
services
 
 
Question 6

A weak payment system may severely drag on the stability and developmental capacity of a .. economy; its failures can result in inefficient use of financial resources
   
SEBI
 
   
national
 
   
NCLT
 
   
CLB
 
 
Question 7

..means to allow a positive value and a negative value to set-off and partially or entirely cancel each other out.
   
price of securities
 
   
netting
 
   
buyers of securities
 
   
TYPES OF SECURITIES
 
 
Question 8

" In the counterparty bankruptcy or any other relevant event of default specified in the relevant agreement if accelerated (i.e. effected), all transactions or all of a given type are netted (i.e. set off against each other) at market value or, if otherwise specified in the contract"
   
global deposits record
 
   
close out netting
 
   
gross domestic record
 
   
gross deposit receipts
 
 
Question 9

The legal obligations of the parties to make required payments under one or more series of related transactions are canceled and a new obligation to make only the net
   
invest in assets
 
   
netting by novation
 
   
Issue stocks
 
   
sell products
 
 
Question 10

"For cash settled trades, this can be applied either bilaterally or multilaterally and on related or unrelated transactions."
   
payment netting
 
   
Govt
 
   
SEBI
 
   
stock exchange
 
 
Question 11
...decreases credit exposure and reduces both operational and settlement risk and operational costs.
   
netting
 
   
market Price
 
   
base price
 
   
discount
 
 
Question 12

" ..refers to a procedure whereby a company can create a new pollution source only if it makes equal reductions in pollution elsewhere in the company, i.e. it cannot acquire new permits from the outside."
   
netting
 
   
AA
 
   
A
 
   
BB
 
 
Question 13

" ..refers to accounting for the ""fair value"" of an asset or liability based on the current market price, or for similar assets and liabilities, or based on another objectively assessed ""fair"" value"
   
mark to market
 
   
bank
 
   
financial institution
 
   
VCF
 
 
Question 14

" .. accounting has been a part of Generally Accepted Accounting Principles (GAAP) in the United States since the early 1990s, and is now regarded as the ""gold standard"" in some circles."
   
service companies
 
   
SEBI
 
   
govt.
 
   
Fair value
 
 

Question 15

" .are formula-based financial contracts between buyers and sellers, and are not traded on exchanges, so their market prices are not established by any active, regulated market trading."
   
Fixed public offer
 
   
Fixed private offer
 
   
otc derivatives
 
   
Free public offer
 
 
Question 16

OTC derivatives such as .. were not marked to market frequently
   
Allowable depository receipts
 
   
interest rate swaps
 
   
American Deposit Referrals
 
   
American Deposit records
 
 
Question 17

The Reserve Bank has a separate Issue Department which is entrusted with the ... of currency notes.
   
issue
 
   
return
 
   
profits
 
   
investment
 
 
Question 18

"At the end of every trading day, the ... is marked to its present market value. If the trader is on the winning side of a deal, his contract has increased in value that day, and the exchange pays this profit into his account"
   
contract
 
   
cash
 
   
services
 
   
product plan
 
 
Question 19

" if the market price of his contract has .., the exchange charges his account that holds the deposited margin."
   
Foreign currency current bonds
 
   
Foreign currency current block
 
   
decreased
 
   
Free currency current bonds
 
 
Question 20

...is a widely used risk measure of the risk of loss on a specific portfolio of financial assets.
   
is alike FDI
 
   
value at risk
 
   
is in the form of business plan
 
   
is selling bonds
 
 
Question 21

.is defined as a threshold value such that the probability that the mark-to-market loss on the portfolio over the given time horizon exceeds this value (assuming normal markets and no trading in the portfolio) is the given probability level
   
private
 
   
VaR
 
   
company
 
   
corporate
 
 
Question 22

... is a currency system in which governments try to maintain their currency value constant against one another
   
a bank
 
   
a financial institution
 
   
a company
 
   
fixed exchange rate system
 
 
Question 23

"In a fixed exchange-rate system, a country s government decides the worth of its currency in terms of either a fixed weight of .., a fixed amount of another currency or a basket of other currencies"
   
similar to a  loan
 
   
gold
 
   
similar to merger
 
   
similar to shares
 
 

Question 24

The central bank provides ... needed to finance payments imbalances
   
Counter party credit risk
 
   
External fraud by clients
 
   
"Legal, compliance and tax risks"
   
foreign currency
 
 

Question 25

The ... of a country remains committed at all times to buy and sell its currency at a fixed price
   
Qualified Institutional Income
 
   
Quality Institutional Investors
 
   
Qualified Iindian Investors
 
   
central bank
 
 
Question 26

"The . or gold exchange standard of fixed exchange rates prevailed from about 1870 to 1914, before which many countries followed bimetallism"
   
reduces risk
 
   
reduces time
 
   
reduces cost
 
   
gold standard
 
 

Question 27

The regime intended to combine binding legal obligations with multilateral decision-making through the International Monetary Fund (IMF).
   
recourse factoring
 
   
non recourse factoring
 
   
bretton woods system
 
   
none of the above
 
 
Question 28

" ...is an audit professional who performs an audit in accordance with specific laws or rules on the financial statements of a company, government entity, other legal entity or organization, and who is independent of the entity being audited"
   
external auditor
 
   
lease
 
   
hire purchase
 
   
mutual fund
 
 
Question 29

" .is India's central banking institution, which formulates the monetary policy with regard to the Indian rupee"
   
RBI
 
   
helps companies
 
   
helps govt
 
   
helps shareholders
 
 

Question 30

It was established on 1 April 1935 during the British Raj
   
rbi
 
   
companies
 
   
govt.
 
   
mangers
 
 
Question 31

"RBI assumes an important part in the development strategy of the Government of India, and as a leading member of the Alliance for Financial Inclusion"
   
Government of India
 
   
china
 
   
japan
 
   
korea
 
 
Question 32

. is notably active in promoting financial inclusion policy.
   
rbi
 
   
leasing
 
   
hiring
 
   
selling
 
 
Question 33

RBI is also a member of the .. Clearing Union
   
SEBI
 
   
Govt
 
   
Asian
 
   
investors
 
 
Question 34

The general superintendence and direction of the RBI is entrusted with the 21-member-strong . Board of Directors
   
Central
 
   
profits
 
   
liquidity
 
   
investment
 
 
Question 35

The Reserve Bank of India has ..regional representations
   
ten
 
   
cost
 
   
time
 
   
investment
 
 
Question 36

" ..formed in November 1994, serves as a CCBD committee to control the financial institutions"
   
India
 
   
BFS
 
   
UK
 
   
Asia
 
 
Question 37

"Under Section 22 of the Reserve Bank of India Act, the Bank has the sole right to issue ... of all denominations"
   
lease
 
   
mutual funds
 
   
factoring
 
   
bank notes
 
 

Question 38

" .was set up by the Reserve Bank of India under the chairmanship of former RBI deputy governor S. S. Tarapore to ""lay the road map"" to capital account convertibility."
   
no entry load
 
   
no exit load
 
   
tarapore committee
 
   
none of the above
 
 
Question 39

The distribution of one rupee notes and coins and small coins all over the country is undertaken by the Reserve Bank as ...of the government.
   
agent
 
   
are taxable
 
   
are income funds
 
   
are growth funds
 
 
Question 40

" ..is the main monetary authority of the country and beside that, in its capacity as the central bank, acts as the bank of the national and state governments"
   
investment in single security
 
   
RBI
 
   
invesment in govt securities only
 
   
investment in bonds