Sample Questions and Answers
What is the primary function of money in an economy?
A) Store of value
B) Medium of exchange
C) Unit of account
D) Standard of deferred payment
Answer: B
Which of the following is considered ‘near money’?
A) Treasury Bills
B) Bills of Exchange
C) Bonds and Debentures
D) All of the above
Answer: D
Who is responsible for regulating and overseeing the banking industry?
A) Commercial banks
B) Central banks
C) Non-Banking Financial Companies (NBFCs)
D) Stock exchanges
Answer: B
What is the main function of a commercial bank?
A) To provide investment advisory services
B) To offer financial services to businesses and individuals
C) To regulate the banking industry
D) To facilitate international trade transactions
Answer: B
Which of the following is NOT a function of money?
A) Medium of exchange
B) Store of value
C) Measure of value
D) Make demand and supply
Answer: D
What is the purpose of a fixed deposit account in a bank?
A) To provide quick access to funds for everyday expenses
B) To earn a higher rate of interest on savings over a fixed period
C) To make cash withdrawals at any time without penalty
D) To secure personal belongings in a safe deposit box
Answer: B
Which of the following is a characteristic of token money?
A) Full value
B) Token money
C) Credit money
D) Convertible
Answer: B
What does the term ‘convertible money’ mean?
A) It can buy means
B) Government can give gold against it
C) Illegal money
D) Low value of money
Answer: B
Which of the following is NOT included in the function of money?
A) Make demand and supply
B) Store of value
C) Medium of exchange
D) Measure of value
Answer: A
What is the primary role of banks in the financial system?
A) To regulate the stock market
B) To facilitate the transfer of goods and services
C) To provide financial advisory services
D) To accept deposits and offer financial services
Answer: D
What is the role of central banks in the banking system?
A) To provide loans to individuals and businesses
B) To offer retail banking services to customers
C) To regulate and oversee the banking industry
D) To issue currency and control monetary policy
Answer: D
What is the main function of a commercial bank?
A) To provide investment advisory services
B) To offer financial services to businesses and individuals
C) To regulate the banking industry
D) To facilitate international trade transactions
Answer: B
What is the primary function of a central bank in the economy?
A) To regulate interest rates in the stock market
B) To control inflation and stabilize the currency
C) To provide loans to individuals and businesses
D) To offer financial services to retail customers
Answer: B
What is the purpose of a fixed deposit account in a bank?
A) To provide quick access to funds for everyday expenses
B) To earn a higher rate of interest on savings over a fixed period
C) To make cash withdrawals at any time without penalty
D) To secure personal belongings in a safe deposit box
Answer: B
Which of the following is NOT a function of money?
A) Medium of exchange
B) Store of value
C) Measure of value
D) Make demand and supply
Answer: D
What is the primary role of banks in the financial system?
A) To regulate the stock market
B) To facilitate the transfer of goods and services
C) To provide financial advisory services
D) To accept deposits and offer financial services
Answer: D
What is the role of central banks in the banking system?
A) To provide loans to individuals and businesses
B) To offer retail banking services to customers
C) To regulate and oversee the banking industry
D) To issue currency and control monetary policy
Answer: D
What is the main function of a commercial bank?
A) To provide investment advisory services
B) To offer financial services to businesses and individuals
C) To regulate the banking industry
D) To facilitate international trade transactions
Answer: B
What is the primary function of a central bank in the economy?
A) To regulate interest rates in the stock market
B) To control inflation and stabilize the currency
C) To provide loans to individuals and businesses
D) To offer financial services to retail customers
Answer: B
What is the purpose of a fixed deposit account in a bank?
A) To provide quick access to funds for everyday expenses
B) To earn a higher rate of interest on savings over a fixed period
C) To make cash withdrawals at any time without penalty
D) To secure personal belongings in a safe deposit box
Answer: B
Which of the following is NOT a function of money?
A) Medium of exchange
B) Store of value
C) Measure of value
D) Make demand and supply
Answer: D
What is the primary role of banks in the financial system?
A) To regulate the stock market
B) To facilitate the transfer of goods and services
C) To provide financial advisory services
D) To accept deposits and offer financial services
Answer: D
What is the role of central banks in the banking system?
A) To provide loans to individuals and businesses
B) To offer retail banking services to customers
C) To regulate and oversee the banking industry
D) To issue currency and control monetary policy
Answer: D
Which of the following best defines the “time value of money”?
A) The idea that money today is worth more than the same amount in the future due to its potential earning capacity
B) The concept that money loses value over time
C) The relationship between interest rates and the amount of money invested
D) The inflation-adjusted value of money over time
Answer: A
Which of the following is a function of the Federal Reserve?
A) Managing government debt
B) Conducting monetary policy by regulating money supply and interest rates
C) Issuing government bonds
D) Regulating stock exchanges
Answer: B
What does the Federal Open Market Committee (FOMC) primarily control?
A) Interest rates on savings accounts
B) Government spending
C) The money supply and short-term interest rates
D) The stock market
Answer: C
What happens when the Federal Reserve increases the federal funds rate?
A) Interest rates on loans and mortgages decrease
B) Inflation increases
C) Borrowing becomes more expensive, and the economy slows down
D) Bank reserves increase
Answer: C
Which of the following best describes “monetary policy”?
A) The process by which the government adjusts its spending levels
B) The methods used by the central bank to control the money supply and achieve economic objectives
C) The regulation of stock market activities
D) The law governing banking operations in the private sector
Answer: B
The “interest rate” is primarily determined by:
A) The Federal Reserve’s regulatory policies
B) The demand for and supply of money in the market
C) Government spending levels
D) The stock market performance
Answer: B
What does the “discount rate” refer to in monetary policy?
A) The rate at which the Federal Reserve lends to commercial banks
B) The rate at which commercial banks lend to their customers
C) The rate charged by commercial banks for business loans
D) The rate that businesses pay on corporate bonds
Answer: A
Which of the following is the primary tool used by the Federal Reserve to conduct monetary policy?
A) Adjusting tax rates
B) Open market operations
C) Changing bank reserve requirements
D) Regulating corporate bonds
Answer: B
When banks make loans, they create:
A) Deposits and increase the money supply
B) Only new banknotes
C) New sources of government debt
D) Corporate stock
Answer: A
Which of the following best explains the term “liquidity” in the context of banking?
A) The ability to convert an asset into cash quickly without losing value
B) The profitability of a bank’s loans
C) The number of customers a bank has
D) The amount of long-term investments a bank holds
Answer: A
What is a central bank’s primary goal when it engages in monetary policy?
A) To encourage banks to charge higher interest rates
B) To regulate the stock market
C) To stabilize the currency and control inflation
D) To eliminate competition between banks
Answer: C
What is an example of “expansionary monetary policy”?
A) Raising interest rates to control inflation
B) Lowering interest rates to stimulate economic growth
C) Increasing reserve requirements for banks
D) Selling government securities to reduce the money supply
Answer: B
What is the main function of the “reserve requirement” set by the Federal Reserve?
A) To ensure that banks have sufficient funds to meet customer withdrawals
B) To regulate the stock market
C) To set interest rates on loans
D) To control government spending
Answer: A
Which of the following represents an “open market operation”?
A) The Federal Reserve buying or selling government securities
B) The Federal Reserve changing bank reserve requirements
C) Commercial banks setting their interest rates
D) The government adjusting tax rates
Answer: A
What is meant by “interest rate risk” in banking?
A) The risk of borrowing money from the central bank at a higher rate
B) The risk of changes in interest rates affecting the value of a bank’s financial assets
C) The risk that a bank will not have enough cash to cover withdrawals
D) The risk that a bank will not attract enough customers to be profitable
Answer: B
The structure of the Federal Reserve includes how many regional banks?
A) 5
B) 8
C) 12
D) 15
Answer: C
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