Q.1 Which of the following is the primary function of a central bank?
Accepting deposits from the public
Issuing currency and controlling money supply
Providing loans to retail customers
Selling insurance products
Explanation - The central bank issues the national currency and regulates the money supply in the economy to maintain financial stability.
Correct answer is: Issuing currency and controlling money supply
Q.2 Which of the following is NOT a function of the Reserve Bank of India (RBI)?
Regulation of credit
Issuing government securities
Managing foreign exchange reserves
Providing personal loans to citizens
Explanation - RBI regulates the banking system and money supply but does not provide personal loans to individuals.
Correct answer is: Providing personal loans to citizens
Q.3 What is the term for the rate at which the central bank lends to commercial banks?
Repo Rate
Reverse Repo Rate
Cash Reserve Ratio
Statutory Liquidity Ratio
Explanation - Repo rate is the rate at which commercial banks borrow money from the central bank against government securities.
Correct answer is: Repo Rate
Q.4 The RBI controls inflation primarily through:
Monetary policy
Fiscal policy
Direct lending to the public
Price control of commodities
Explanation - The central bank uses tools like repo rate, reverse repo rate, and cash reserve ratio to control money supply and inflation.
Correct answer is: Monetary policy
Q.5 What is the Cash Reserve Ratio (CRR)?
The portion of a commercial bank's deposits kept with the central bank
The interest rate charged by RBI to commercial banks
The amount banks can lend to the public
The ratio of liquid assets to total deposits
Explanation - CRR is the minimum fraction of a commercial bank's net demand and time liabilities that must be maintained with the central bank as reserves.
Correct answer is: The portion of a commercial bank's deposits kept with the central bank
Q.6 Which instrument is used by RBI to absorb liquidity from the banking system?
Open Market Operations
Repo Transactions
Cash Reserve Ratio
Lending to commercial banks
Explanation - Open Market Operations involve the sale or purchase of government securities to control liquidity in the economy.
Correct answer is: Open Market Operations
Q.7 What is the main purpose of the Statutory Liquidity Ratio (SLR)?
To maintain liquidity and financial stability
To regulate inflation
To control foreign exchange rates
To lend directly to citizens
Explanation - SLR is the minimum percentage of a commercial bank's net demand and time liabilities that must be invested in approved government securities to ensure liquidity and safety.
Correct answer is: To maintain liquidity and financial stability
Q.8 Which of the following is a quasi-fiscal function of a central bank?
Issuing currency
Managing government debt
Regulating commercial banks
Lending to the public
Explanation - Quasi-fiscal functions include activities like managing public debt and acting as a banker to the government.
Correct answer is: Managing government debt
Q.9 RBI's role as a 'lender of last resort' means:
Providing loans to the government
Providing emergency funds to commercial banks
Offering low-interest loans to public
Maintaining foreign currency reserves
Explanation - In times of financial distress, the central bank lends to commercial banks to prevent systemic collapse.
Correct answer is: Providing emergency funds to commercial banks
Q.10 The repo rate is increased primarily to:
Encourage borrowing
Control inflation
Promote exports
Increase public lending by banks
Explanation - Increasing repo rate makes borrowing costlier for banks, which reduces credit flow and helps control inflation.
Correct answer is: Control inflation
Q.11 RBI issues the Indian currency under the authority of:
The Reserve Bank of India Act, 1934
The Companies Act, 2013
The Banking Regulation Act, 1949
The Finance Act, 1994
Explanation - The RBI Act, 1934 empowers the central bank to issue currency and regulate monetary policy in India.
Correct answer is: The Reserve Bank of India Act, 1934
Q.12 Which of the following is an example of monetary policy tool?
Repo rate
Income tax
Government subsidy
GST
Explanation - Monetary policy tools include repo rate, reverse repo rate, CRR, SLR, and open market operations, which influence money supply and credit.
Correct answer is: Repo rate
Q.13 Reverse Repo Rate is used by RBI to:
Inject liquidity into the system
Absorb excess liquidity from banks
Set currency value
Provide foreign loans
Explanation - Reverse repo is the rate at which RBI borrows money from commercial banks, reducing money supply in the system.
Correct answer is: Absorb excess liquidity from banks
Q.14 Which of the following is a function of central bank in the foreign exchange market?
Maintaining exchange rate stability
Providing personal forex accounts
Issuing travel cards
Offering export subsidies
Explanation - The central bank manages foreign reserves and intervenes in forex markets to stabilize currency fluctuations.
Correct answer is: Maintaining exchange rate stability
Q.15 Which function of the central bank helps in controlling credit flow to productive sectors?
Credit rationing
Currency issuance
Managing government debt
Bank licensing
Explanation - Through credit rationing and sectoral lending norms, central banks direct credit flow to desired sectors of the economy.
Correct answer is: Credit rationing
Q.16 The minimum reserve system of RBI requires it to maintain:
A minimum cash reserve backed by gold and approved securities
A minimum lending ratio to banks
A minimum number of branches
A minimum export reserve
Explanation - RBI must maintain a minimum reserve of gold and approved securities to ensure currency stability and credibility.
Correct answer is: A minimum cash reserve backed by gold and approved securities
Q.17 Which of the following is a developmental function of RBI?
Providing refinance to financial institutions
Issuing currency
Controlling inflation
Managing public debt
Explanation - Developmental functions involve supporting sectors like agriculture, small-scale industries, and financial inclusion through refinancing facilities.
Correct answer is: Providing refinance to financial institutions
Q.18 Which policy helps RBI in controlling the volume of credit in the economy?
Monetary policy
Fiscal policy
Trade policy
Industrial policy
Explanation - Monetary policy uses instruments like CRR, SLR, repo rate, and open market operations to regulate credit supply in the economy.
Correct answer is: Monetary policy
Q.19 What is the main objective of the Liquidity Adjustment Facility (LAF)?
To adjust day-to-day liquidity mismatches in banks
To provide loans to the public
To maintain foreign exchange reserves
To set inflation targets
Explanation - LAF allows banks to borrow or park funds with RBI to manage short-term liquidity needs efficiently.
Correct answer is: To adjust day-to-day liquidity mismatches in banks
Q.20 Which of the following is a primary objective of central bank’s monetary policy?
Price stability
Maximum employment
Foreign trade promotion
Public debt management
Explanation - The central bank’s primary focus is to maintain price stability and control inflation while supporting economic growth.
Correct answer is: Price stability
Q.21 Repo and reverse repo rates are part of:
Liquidity adjustment facility
Cash reserve ratio
Statutory liquidity ratio
Public debt management
Explanation - RBI uses repo and reverse repo operations under LAF to manage short-term liquidity in the banking system.
Correct answer is: Liquidity adjustment facility
Q.22 Which of the following statements is TRUE about central bank?
It directly competes with commercial banks for deposits
It controls currency issuance and credit regulation
It only serves the government and not the banking system
It provides personal loans to citizens
Explanation - The central bank regulates currency supply, credit, and banking stability but does not compete with commercial banks for deposits.
Correct answer is: It controls currency issuance and credit regulation
Q.23 The main role of RBI as banker to the government is to:
Manage public debt and provide ways and means advances
Provide personal savings accounts
Issue personal loans
Control commercial banks' branch operations
Explanation - RBI manages government borrowing, debt instruments, and provides temporary financing to meet short-term expenditure.
Correct answer is: Manage public debt and provide ways and means advances
Q.24 Which of the following is an indirect tool of monetary policy?
Open market operations
Cash reserve ratio
Bank rate
Selective credit control
Explanation - Indirect tools like OMO influence liquidity and credit conditions without directly changing the lending rate of banks.
Correct answer is: Open market operations
Q.25 Which of the following best describes the term 'central bank independence'?
Freedom from government influence in monetary policy decisions
Ability to lend freely to commercial banks
Authority to fix prices of goods and services
Freedom to regulate foreign trade
Explanation - Central bank independence ensures that monetary policy decisions are made objectively to maintain financial stability and control inflation.
Correct answer is: Freedom from government influence in monetary policy decisions