Indian Economy MCQs

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Interest rate risk refers to potential losses from fluctuations in interest rates. It is classified as a type of market risk. Changes in interest rates can directly impact the value of securities such as bonds. Market risk includes other elements such as equity risk and currency risk and is distinguished from credit risk, liquidity risk, or operational risk.

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CRISIL was the first credit rating agency in India, formed in the year1988. In 2005, it became a subsidiary of American company S&P Global. The highest credit risk rating awarded to any company is ‘AAA’ and the lowest is ‘D’.

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When the market is in equilibrium, and when the demand and supply of a commodity increase by an equal absolute amount, the market price will not increase, rather it will remain stable.

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The financial year of India begins from April 1 of a calendar year and ends on March 31 of the next calendar year. This system has been into existence since the British Raj in India. Hence, Banks in India publish their financial statements / balance sheets for March 31st of every year.

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Selective credit control is a qualitative instrument used by RBI to restrict or channel credit to specific sectors. RBI issues directives and margin requirements under the Banking Regulation Act, 1949. It was used for commodities such as foodgrains, sugar, and cotton. Selective credit control is distinguished from quantitative tools like CRR, SLR, bank rate, and repo rates, which affect the overall money supply.

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The World Bank has issued bonds in global markets since 1947. Bonds are issued in various currencies and formats, including domestic and Eurobonds. Funds raised through these bonds finance development loans and projects in member countries. The World Bank holds triple-A credit ratings by Moody’s and S&P. Over 180 member countries are eligible for World Bank development financing.

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The correct answer is Merit Goods. Merit goods are products or services that the government believes are beneficial for individuals and society, and thus should be available to all, regardless of their ability to pay. Examples include education and healthcare. Governments often subsidize these goods to ensure equitable access, as they can lead to positive externalities, such as a more educated workforce and improved public health.

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Financial inclusion refers to providing banking and financial services to all sections of society. RBI and the Government use repo rate adjustments, open market operations, and changing CRR as monetary policy tools to manage money supply and inflation. Financial inclusion programs focus on expanding access, such as PMJDY launched in 2014, and do not directly affect inflation control.

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The shadow banking system comprises non-banking financial companies, investment banks, and hedge funds. These entities conduct credit intermediation and liquidity services outside traditional, regulated banking channels. Shadow banking entities do not have access to central bank liquidity or deposit insurance. The Financial Stability Board monitors shadow banking to assess systemic risk. Scheduled commercial banks are not part of the shadow banking system, as they operate under stricter regulation.

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Fixed to Floating and Floating to Floating describe interest rate swaps, which are derivative contracts exchanging fixed and floating interest payments. Interest rate swaps, including vanilla and basis swaps, are widely used for hedging and managing interest rate risk. Basis swaps exchange floating rates based on different benchmarks. These swaps play a major role in global financial markets and are commonly used by banks and corporations.