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VisionIAS - Online Self Test
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Questions for practice
1) Which one of the following best describes the mechanism of Operation Twist implemented by the Reserve Bank of India (RBI)?

(a) Increasing both short-term and long-term interest rates simultaneously

(b) Buying only long-term securities to reduce long-term interest rates

(c) Selling short-term securities and buying long-term securities simultaneously

(d) Selling long-term securities and buying short-term securities simultaneously

2) Which of the following is not a factor considered in the calculation of the base rate by banks?

(a) Yield to maturity on long-term bonds

(b) Average cost of funds

(c) Cost of maintaining the Cash Reserve Ratio (CRR)

(d) Return on net worth

3) In the calculation of the Marginal Cost of Funds based Lending Rate (MCLR), which component is given the highest weightage?

(a) Cash Reserve Ratio (CRR) cost

(b) Marginal cost of funds

(c) Operational expenses

(d) Tenor premium

4) Which of the following is an external benchmark used in the External Benchmark Lending Rate system introduced by the RBI?

(a) Average cost of deposits

(b) MCLR

(c) 91-day Treasury Bill yield

(d) Base Rate

5)

Consider the following statements regarding Operation Twist:

  1. Operation Twist involves selling long-term securities and buying short-term securities simultaneously.
  2. It aims to make long-term loans cheaper without introducing new money into the market.
Which of the above statements is/are correct?

(a) 1 only

(b) 2 only

(c) Both 1 and 2

(d) Neither 1 nor 2

6)

Consider the following statements regarding Bond Yield and Yield to Maturity:

  1. Bond yield is calculated by dividing the annual coupon by the bonds face value.
  2. Yield to maturity considers the time value of money, unlike the current bond yield.
Which of the above statements is/are correct?

(a) 1 only

(b) 2 only

(c) Both 1 and 2

(d) Neither 1 nor 2

7)

Consider the following statements regarding the determination of the base rate:

  1. Base rate includes the cost of funds, CRR, and SLR.
  2. Base rate is calculated as the average cost of all existing deposits.
  3. Banks have the flexibility to decide the weightage of different costs in the base rate formula.
Which of the above statements is/are correct?

(a) 1 only

(b) 1 and 3

(c) 2 and 3

(d) 1, 2 and 3

8)

Consider the following statements regarding the impact of new deposit costs on MCLR calculation:

  1. MCLR calculation considers only the interest rates on new deposits.
  2. Changes in long-term deposit rates directly affect MCLR rates.
  3. MCLR is influenced by the marginal cost of new funds after repo rate adjustments.
Which of the above statements is/are correct?

(a) 1 only

(b) 2 only

(c) 3 only

(d) 1 and 3 only

9)

Consider the following statements regarding the External Benchmark Lending Rate:

  1. External benchmarks include repo rates and treasury bill yields.
  2. External benchmarking ensures that loan rates are immediately influenced by policy rate changes.
  3. Spread over the benchmark is not visible to borrowers.
Which of the above statements is/are correct?

(a) 1 only

(b) 1 and 2 only

(c) 1 and 3 only

(d) 2 and 3 only

10)

Consider the following statements regarding the evaluation of the interplay between monetary and fiscal policies on inflation targeting:

  1. Monetary policy primarily focuses on controlling inflation through interest rate adjustments.
  2. Fiscal policy does not influence inflation targets.
  3. Coordination between the RBI and the government is essential for effective inflation targeting.
  4. Expansionary fiscal policies cannot substitute for tight monetary measures in controlling inflation.
Which of the above statements is/are correct?

(a) 1 and 3 only

(b) 2 and 4 only

(c) 1, 2 and 3 only

(d) 3 and 4 only



Answers
1) c
2) a
3) b
4) c
5) b
6) b
7) b
8) d
9) b
10) a