Monetary Policy questions with solutions

1. Question 1Easy

   What does CRR stand for?

   • A.Credit Reserve Ratio
   • B.Cash Reserve RatioCorrect
   • C.Central Reserve Rate
   • D.Cash Reserve Rate
   • E.Credit Reserve Rate
   Show solution

   CRR stands for Cash Reserve Ratio, the share of a bank's deposits that it must keep as reserves with the RBI, held in cash and earning no interest.

2. Question 2Easy

   What does SLR stand for?

   • A.Statutory Liquidity RatioCorrect
   • B.Standard Liquidity Rate
   • C.Statutory Lending Ratio
   • D.Standard Lending Ratio
   • E.Secure Liquidity Ratio
   Show solution

   SLR stands for Statutory Liquidity Ratio, the minimum share of deposits a bank must hold in the form of cash, gold or approved government securities before lending.

3. Question 3Moderate

   The repo rate is the rate at which:

   • A.the RBI lends short-term funds to commercial banksCorrect
   • B.banks lend to their retail customers
   • C.the RBI borrows from commercial banks
   • D.banks lend to one another overnight
   Show solution

   The repo rate is the rate at which the RBI lends short-term funds to commercial banks against government securities. The rate at which the RBI borrows from banks is the reverse repo rate.

4. Question 4Moderate

   The reverse repo rate is the rate at which:

   • A.the RBI borrows from commercial banksCorrect
   • B.the RBI lends to commercial banks
   • C.banks lend to customers
   • D.banks borrow from each other
   Show solution

   Reverse repo is the rate at which the RBI absorbs liquidity by borrowing from banks against securities.

5. Question 5Moderate

   CRR in banking stands for:

   • A.Cash Reserve RatioCorrect
   • B.Credit Reserve Ratio
   • C.Current Reserve Rate
   • D.Cash Return Ratio
   Show solution

   CRR stands for Cash Reserve Ratio, the share of deposits banks must keep with the RBI.

6. Question 6Moderate

   MSF, a facility of the RBI, stands for:

   • A.Marginal Standing FacilityCorrect
   • B.Minimum Support Fund
   • C.Marginal Savings Facility
   • D.Maximum Standing Facility
   Show solution

   MSF stands for Marginal Standing Facility, letting banks borrow overnight from the RBI against securities.

7. Question 7Moderate

   The repo rate is the rate at which

   • A.commercial banks lend to their customers
   • B.the RBI lends short-term funds to commercial banksCorrect
   • C.commercial banks lend to one another
   • D.the RBI borrows from commercial banks
   • E.the government borrows from the public
   Show solution

   The repo rate is the rate at which the RBI lends short-term funds to commercial banks against government securities. The reverse repo rate is the rate at which the RBI borrows from banks.

8. Question 8Moderate

   Which body decides the repo rate in India?

   • A.The Union Cabinet
   • B.The Monetary Policy CommitteeCorrect
   • C.SEBI
   • D.The Finance Commission
   • E.NITI Aayog
   Show solution

   The Monetary Policy Committee, chaired by the RBI Governor, sets the repo rate to keep inflation within its target while supporting growth.

9. Question 9Moderate

   SLR in banking stands for:

   • A.Statutory Liquidity RatioCorrect
   • B.Standard Liquidity Rate
   • C.Statutory Loan Ratio
   • D.Savings Liquidity Ratio
   Show solution

   SLR stands for Statutory Liquidity Ratio, the minimum reserve of liquid assets a bank must hold.

10. Question 10Hard

    LAF, an RBI liquidity tool, stands for:

    • A.Liquidity Adjustment FacilityCorrect
    • B.Loan Advance Facility
    • C.Liquidity Accrual Fund
    • D.Long-term Asset Facility
    Show solution

    The Liquidity Adjustment Facility lets banks manage short-term liquidity via repo and reverse repo with the RBI.

11. Question 11Hard

    Open Market Operations (OMOs) by the RBI involve:

    • A.buying and selling government securitiesCorrect
    • B.changing the income tax rate
    • C.printing new currency only
    • D.setting the minimum wage
    Show solution

    In OMOs the RBI buys or sells government securities to inject or absorb liquidity from the banking system.

12. Question 12Hard

    A 'dear money policy' by the central bank means:

    • A.raising interest rates to curb inflationCorrect
    • B.cutting interest rates to boost growth
    • C.printing unlimited currency
    • D.fixing the exchange rate
    Show solution

    A dear money policy raises interest rates, making credit costlier to rein in demand and inflation.

These are 12 of 15 monetary policy questions in the bank. Attempt the rest with instant feedback in the practice drills, or under a clock in the mock tests.