[Mission 2022] QUIZ – 2022: INSIGHTS STATIC QUIZ, 9 March 2022 – Economy – INSIGHTSIAS

Solution: c)

• Cash Management Bills (CMBs) are short term bills issued by central government to meet its immediate cash needs.
• The bills are issued by the RBI on behalf of the government. Hence the CMBs are short-term money market instruments that help the government to meet its temporary cash flow mismatches.
• CMBs are eligible as SLR securities. Investment in CMBs is also recognized as an eligible investment in Government securities by banks for SLR purpose under Section 24 of the Banking Regulation Act, 1949.

Solution: b)

Foreign Portfolio Investment (FPI) is investment by non-residents in Indian securities including shares, government bonds, corporate bonds, convertible securities, infrastructure securities etc. The class of investors who make investment in these securities are known as Foreign Portfolio Investors.

SEBI stipulates the criteria for Foreign Portfolio Investment. Any equity investment by non-residents which is less than or equal to 10% of capital in a company is portfolio investment. While above this the investment will be counted as Foreign Direct Investment (FDI).

As per SEBI regulations, FPIs are not allowed to invest in unlisted shares and investment in unlisted entities will be treated as FDI.

Solution: b)

Qualitative instruments are also known as selective instruments of the RBI’s monetary policy. These instruments are used for discriminating between various uses of credit; for example, they can be used for favouring export over import or essential over non-essential credit supply.

Following are some qualitative method of credit control used by the RBI:

• Rationing of Credit: RBI fixes a credit amount to be granted for commercial banks. For certain purposes, the upper credit limit can be fixed, and banks have to stick to that limit. This helps in lowering the bank’s credit exposure to unwanted sectors.
• Regulation of Consumer Credit: Here, features like instalment amount, down payment, loan duration, etc., are all fixed in advance, which helps to check the credit and inflation in the country.
• Change in Marginal Requirement: This instrument is used to encourage the credit supply for the necessary sectors and avoid it for the unnecessary sectors. That can be done by increasing the marginal of unnecessary sectors and reducing the marginal of other needy sectors.
• Moral Suasion: Moral suasion refers to the suggestions to commercial banks from the RBI that helps in restraining credits in the inflationary period. RBI implies pressure on the Indian banking system without taking any strict action for compliance with rules.

Solution: d)

The call money market (CMM) the market where overnight (one day) loans can be availed by banks to meet liquidity. Banks who seeks to avail liquidity approaches the call market as borrowers and the ones who have excess liquidity participate there as lenders.

Banks can access CMM to meet their reserve requirements (CRR and SLR) or to cover a sudden shortfall in cash on any particular day.

Participants in the call money market are banks and related entities specified by the RBI.

Scheduled Commercial Banks (including Small Finance Banks), Payment Banks and Regional Rural Banks, Co-operative Banks and Primary Dealers participate in CMM.

Solution: b)

RBI is the apex regulatory body of Indian Bank System. It keeps the cash reserves of all scheduled banks and hence it is known as Reserve Bank.

The Reserve Bank is the nation’s sole note issuing authority.  The Government of India is the issuing authority of coins and supplies coins to the Reserve Bank on demand. The Reserve Bank puts the coins into circulation on behalf of the Central Government.

RBI acts as a banker to governments both the centre and state. It keeps deposits of governments and lends to governments.