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mcq on Functions of Money and banking for Students
What is the main role of a savings account?
A) To apply for a home loan
B) To earn interest on deposited Money
C) To carry out routine financial transactions
D) To make online bill payments
Option b – To earn interest on deposited Money
In banking, what does the term “Overdraft” indicate?
A) Shifting funds from one account to another
B) The highest permissible withdrawal from an ATM
C) A short-term borrowing arrangement
D) The interest levied on borrowed funds
Option c – A short-term borrowing arrangement
Who stated the phrase: “Money is what Money does”?
A) Prof. Cole
B) Prof. Seligman
C) Prof. Robertson
D) Prof. Walker
Option d – Prof. Walker
What is the primary function of a Bank statement?
A) To record Income and expenses
B) To enable fund transfers between accounts
C) To promote new banking services
D) To offer locker information in banks
Option a – To record Income and expenses
When overall interest rates are very low, which situation is most likely?
A) People expect rates to increase later
B) People prefer to invest in bonds
C) People predict further reduction in interest rates
D) Extra Money supply pushes rates down further
Option a – People expect rates to increase later
Which among the following is NOT fiat Money in India?
A) Rs. 500 currency note
B) Rs. 200 cheque
C) Rs. 10 coin
D) Rs. 20 coin
Option b – Rs. 200 cheque
Who originally introduced the concept of “Money illusion”?
A) Adam Smith
B) Robertson
C) J.M. Keynes
D) Irving Fisher
Option d – Irving Fisher
What makes money unique compared to other assets that also serve as a store of value?
A) It has universal acceptability
B) It offers high liquidity
C) It is neutral in nature
D) It is simple to store
Option d – It is simple to store
The Income velocity of idle (hoarded) money in an Economy is equal to
A) One
B) More than one
C) Zero
D) Greater than zero
Option c – Zero
Which of the following is the correct description of the relationship between speculative demand for money and the liquidity preference curve? I. At this point, speculative demand for money becomes completely unresponsive, while the liquidity preference curve turns perfectly elastic II. At this stage, speculative demand for money is fully responsive, and the liquidity preference curve becomes perfectly inelastic III. Here, both speculative demand for money and the liquidity preference curve are perfectly elastic IV. At this point, there is no connection between speculative demand for money and the liquidity preference curve
A) Only Statement I is correct
B) Only Statement III is correct
C) Only Statement IV is correct
D) Only Statements I and II are correct
Option b – Only Statement III is correct
What happens to the money supply when RBI lowers the repo rate?
A) It falls
B) It rises
C) It remains the same
D) It stays stable at first and then begins to decline
Option b – It rises
Which of the following is a lending instrument under the Liquidity Adjustment Facility (LAF)?
A) Bank rate
B) Reverse repo rate
C) Repo rate
D) Cash reserve ratio
Option c – Repo rate
In money supply terminology, M4 represents
A) Currency available with the public
B) M1 plus post office savings deposits
C) M3 plus all post office deposits
D) M1 plus time deposits with banks
Option c – M3 plus all post office deposits
Which of the following is correct about money supply?
A) It refers to the total money held by the public at a given point
B) It is treated as a flow concept
C) M1 is considered the most liquid form of money supply
D) Both I and III are correct
Option d – Both I and III are correct
What distinguishes a debit card from a credit card?
A) Debit cards are only for online use, credit cards for offline use
B) Credit cards need a PIN, debit cards need a signature
C) Debit cards deduct money directly from a Bank account, while credit cards allow borrowing up to a limit
D) Debit cards usually have higher interest charges than credit cards
Option c – Debit cards deduct money directly from a Bank account, while credit cards allow borrowing up to a limit
Which of these is NOT a property of money?
A) Portability
B) Perishability
C) Durability
D) Divisibility
Option b – Perishability
In banking, what does the term “interest” signify?
A) Extra Income earned on loans or deposits
B) Total amount placed in a Bank account
C) Currency value in comparison to others
D) Fee imposed for ATM withdrawals
Option a – Extra Income earned on loans or deposits
What is considered the primary function of money in an Economy?
A) To generate wealth
B) To regulate interest levels
C) To serve as a medium of exchange
D) To control inflation
Option c – To serve as a medium of exchange
In banking, what does “Collateral” refer to?
A) An investment package
B) A specific type of credit card
C) A digital payment option
D) An asset pledged to secure a loan
Option d – An asset pledged to secure a loan
Which of the following statements is NOT correct?
A) Fiat money is issued without being backed by gold or silver reserves
B) The Money Multiplier is the ratio between money supply and reserve money
C) Time deposits can only be withdrawn after maturity, or earlier with a penalty
D) Vault cash is considered a part of the money supply
Option d – Vault cash is considered a part of the money supply
The deposits that commercial banks maintain with the RBI are known as
A) Reserves
B) Loans
C) Liabilities
D) Inheritance
Option a – Reserves
Which type of money is used as a medium of exchange purely on the basis of mutual trust?
A) Full-bodied money
B) Credit money
C) Fiduciary money
D) Fiat money
Option c – Fiduciary money
Basel III guidelines are applicable to which sector of the Economy?
A) banking
B) Capital market
C) Automobile
D) Aviation
Option a – banking
What is the minimum amount that can be sent using RTGS?
A) Rs. 3,00,000
B) Rs. 2,00,000
C) Rs. 1,00,000
D) Rs. 5,00,000
Option b – Rs. 2,00,000
A written instruction to the Bank to pay a fixed amount from one account to another is called
A) Cash
B) Cheque
C) Passbook
D) Currency
Option b – Cheque
The monetary or non-monetary gains received over a certain period of time are termed as
A) Price
B) Value
C) Income
D) Services
Option c – Income
The unique alphanumeric code assigned to each Bank branch under the NEFT system is called
A) IFSC
B) STP
C) RTGS
D) SFMS
Option a – IFSC
Merchant Discount Rate (MDR) refers to
A) Taxes applicable on digital transactions
B) Discount provided by merchants for online transactions
C) The fee charged to merchants for processing debit/credit card payments
D) Discount offered by banks to merchants for promoting online transactions
Option c – The fee charged to merchants for processing debit/credit card payments
An asset owned by a borrower—such as land, property, deposits, or livestock—pledged as security for a loan is called
A) Debts
B) Liability
C) Collateral
D) Fixed assets
Option c – Collateral
Consider the following about money supply: I. In modern economies, it consists of cash and Bank deposits II. It is created by both the central Bank and the commercial banks
A) Only I
B) Only II
C) Both I and II
D) Neither I nor II
Option c – Both I and II
Which of the following is true about measures of money supply? I. M1 and M2 represent narrow money II. M3 and M4 represent broad money
A) Only I
B) Only II
C) Both I and II
D) Neither I nor II
Option c – Both I and II
Which measure of money supply is most widely used?
A) M2
B) M4
C) M3
D) M1
Option c – M3
The primary and most important function of money is
A) Medium of exchange
B) Planning
C) Budget
D) Product
Option c – Budget
Consider the following statements about money: I. Money serves as a unit of account II. The value of all goods and services can be expressed in monetary terms
A) Only I
B) Only II
C) Both I and II
D) Neither I nor II
Option c – Both I and II
Which measure of money supply is considered the most liquid?
A) M4
B) M3
C) M1
D) M2
Option c – M1
Which of the following statements about money is accurate? I. Money supply is a stock concept II. The total quantity of money circulating among the public at a particular time is called money supply
A) Only I
B) Only II
C) Both I and II
D) Neither I nor II
Option c – Both I and II
Which measure of money supply is also referred to as aggregate monetary resources?
A) M1
B) M3
C) M2
D) M4
Option b – M3
Which of the following statements is/are correct? I. M0 is referred to as broad money II. M1 is known as narrow money III. M0 = Currency in circulation + Bankers’ deposits with RBI + Other deposits with RBI
A) Only I
B) Only II and III
C) Only II
D) Only I and III
Option b – Only II and III
Choose the correct option: I. Under barter, transporting wealth is difficult II. Money is perishable and cannot be stored III. Rising prices reduce the purchasing power of money
A) I and II
B) II and III
C) I and III
D) Only II
Option c – I and III
Which of the following is classified as ‘Near Money’?
A) Coins
B) Currency notes
C) Bank money
D) National savings deposits
Option d – National savings deposits
Which of the following is NOT a disadvantage of the barter system?
A) Absence of a common measure of value
B) Surplus goods are exchanged for other goods
C) Problems in contractual agreements
D) Double coincidence of wants
Option b – Surplus goods are exchanged for other goods
Identify which of the following assets fall under intangible investments: 1. Brand value 2. Inventory stock 3. Customer mailing list 4. Intellectual property. How many of the above are intangible in nature?
A) Only one
B) Only two
C) Only three
D) All four
Option c – Only three
In the context of the Indian Economy, “Collateral Borrowing and Lending Obligations (CBLO)” function as instruments of the
A) Bond market
B) Foreign exchange market
C) Money market
D) Stock market
Option c – Money market
Consider the following statements: 1. Non-banking Financial Companies (NBFCs) in India can avail of the Liquidity Adjustment Facility (LAF) from the Reserve Bank of India 2. Foreign Institutional Investors (FIIs) in India are permitted to invest in Government Securities (G-Secs) 3. Indian stock exchanges can provide exclusive trading platforms for debt instruments. Which of the above statements is/are correct?
A) 1 and 2 only
B) 3 only
C) 1, 2 and 3
D) 2 and 3 only
Option d – 2 and 3 only
Which of the following best describes Project Nexus?
A) A global agreement to facilitate the movement of labor across nations
B) An international framework aimed at enabling real-time cross-border retail payments
C) A worldwide initiative for transferring Technology between countries
D) A global agreement to build a database on financial inclusion
Option b – An international framework aimed at enabling real-time cross-border retail payments
The GDP of a country can be calculated with the help of which function of money?
A) Store of value
B) Unit of account
C) Standard of deferred payments
D) Medium of exchange
Option b – Unit of account
Regarding the Currency Deposit Ratio (CDR), which of the following is NOT correct?
A) It is influenced by seasonal expenditure trends
B) It is considered a behavioural parameter
C) During festive periods, CDR usually falls
D) It reflects people’s desire to hold more liquidity
Option c – During festive periods, CDR usually falls
Which SET of Treasury bill maturities is correctly issued by the Government of India?
A) 82 days, 182 days, 345 days
B) 91 days, 152 days, 356 days
C) 91 days, 182 days, 364 days
D) 61 days, 145 days, 360 days
Option c – 91 days, 182 days, 364 days
Which of the following statements about currency notes is correct? I. Currency notes do not carry intrinsic value II. They are considered fiat money III. They are not legal tender
A) Only I
B) Only II
C) Only I and II
D) Only II and III
Option c – Only I and II
Transfer payments are recorded under which of the following economic accounts?
A) Household account
B) Government account
C) Production account
D) Appropriation account
Option b – Government account
Which measure of money supply is referred to as aggregate monetary resources?
A) M4
B) M1
C) M2
D) M3
Option d – M3
The NET worth of a bank can be expressed as
A) Liabilities – Assets
B) (Reserves + Loans) – Liabilities
C) Interest + Liabilities
D) (Reserves + Loans) + Liabilities
Option b – (Reserves + Loans) – Liabilities
An asset that stays in the substandard category for 12 months is treated by a bank as ( mcq on Functions of Money and Banking )
A) Liquid
B) Non-performing
C) Doubtful
D) Loss
Option c – Doubtful
Which of the following is an example of transfer payment? I. Unemployment benefits II. Scholarships III. Retirement pension ( mcq on Functions of Money and Banking )
A) Only I
B) Only I and II
C) Only III
D) All of I, II and III
Option d – All of I, II and III
Fisher’s Quantity Theory of Money is represented by which of the following equations? ( mcq on Functions of Money and Banking )
A) MV = PT
B) MP = VT
C) MT = PV
D) PV = MV
Option a – MV = PT
To reduce credit flow in the Economy, the central bank may choose to ( mcq on Functions of Money and Banking )
A) Purchase securities in the open market
B) Lower the CRR
C) Increase the bank rate
D) Reduce the SLR
Option c – Increase the bank rate
For commercial banks, which of the following is considered the main liability? ( mcq on Functions of Money and Banking )
A) Economic rent
B) Deposits
C) Assets
D) Loans
Option b – Deposits
Which of the following statements on the functions of money is/are correct? I. Money as a unit of account provides a standard measure of value for goods, services, and transactions II. Money as a standard of deferred payments is insignificant since modern economies seldom use it for future payments
A) Neither I nor II
B) Both I and II
C) Only II
D) Only I
Option d – Only I
Which law in Economics is known for the phrase “Bad money drives out good money”? ( mcq on Functions of Money and Banking )
A) Ohm’s Law
B) Baxter’s Law
C) Gresham’s Law
D) Gauss’s Law
Option c – Gresham’s Law
An account opened by an Indian bank in a foreign country, usually in the currency of that country, for facilitating transactions, is called ( mcq on Functions of Money and Banking )
A) Vostro
B) Nostro
C) LIBOR
D) MIBOR
Option b – Nostro
Which of the following records the assets and liabilities of a company? ( MCQ on Functions of Money and Banking )
A) Balance of payment
B) Bill file
C) Balance sheet
D) Bank bailout
Option c – Balance sheet
In which type of account is a fixed monthly installment deposited regularly? ( MCQ on Functions of Money and Banking )
A) Savings account
B) Reinvestment deposits
C) Fixed deposits
D) Recurring deposits
Option d – Recurring deposits
The currency held by the public along with reserves of commercial banks, also called ‘high-powered money’, is known as ( MCQ on Functions of Money and Banking )
A) Desired reserve ratio
B) Excess reserves
C) Money multiplier
D) Monetary Base
Option d – Monetary Base
The Reserve Bank of India conducts Open Market Operations under how many categories? ( MCQ on Functions of Money and Banking )
A) 2
B) 3
C) 4
D) 5
Option a – 2
The total stock of money in circulation among the public at a specific time is referred to as ( MCQ on Functions of Money and Banking )
A) Money supply
B) Money order
C) Money laundering
D) Short money
Option a – Money supply
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