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Daily-static-mcqs 04 Apr 2024
Q1:
Consider the following statements regarding 'Fiat Money': 1. Fiat money is a currency that has been declared legal tender by a government. The supply of this currency is controlled by a central bank. 2. Cryptocurrencies are completely virtual currencies that do not have any physical form. It is a decentralized form of currency, where there is no central entity controlling its creation or supply. Which of the statements given above is/are correct?
A: 1 only
B: 2 Only
C: Both 1 and 2
D: Neither 1 nor 2
Answer: C
Explanation:
Both cryptocurrency and fiat currency are based on fundamentally different principles. For example, cryptocurrency is based on blockchain technology, while fiat currency is issued by governments. And hence, there is no direct relation between them. Fiat money is a currency that has been declared legal tender by a government, but that is not backed by a physical object. It is controlled by the Central Bank. Cryptocurrencies are completely virtual currencies that do not have any physical form. It is a decentralized form of currency, where there is no central entity controlling its creation or supply. Cryptocurrencies were first designed to be used as a medium of exchange between individuals. Hence, statements 1 and 2 both are correct.
Q2:
Which of the following statements best describes Sterilization in the context of the economy?
A: Providing loans to micro, small, and medium industries by commercial banks at low interest.
B: Extension of banking service by commercial banks to remote backward areas.
C: Auction of non-performing assets by the Reserve Bank.
D: Controlling excess currency generated by the inflow of foreign exchange into the economy by the Reserve Bank.
Answer: D
Explanation:
Suppose investors from all over the world start investing in Indian Bonds with the expectation of high growth in the future. An increased quantity of money is not always good for the health of the economy. If the quantity of goods and services produced in the economy remains unchanged, the additional currency will increase the price of the goods.
Often the Reserve Bank intervenes with its instruments to prevent such an outcome. The Reserve Bank sells government securities in the open market in an amount equal to the amount of foreign exchange inflows into the economy. Thus the stock of hard money and the total money supply remain unchanged. Thus, it stabilizes the economy against adverse external shocks. This action of the Reserve Bank of India is called 'stabilization'.
Hence, option (d) is correct.
Q3:
Who among the following is likely to benefit from the depreciation in the value of the national currency? 1. Foreign borrowers who take loans from domestic banks in domestic currency. 2. Country importers 3. Exporters of the country How many of the statements given above are correct?
A: Only one
B: Only two
C: All three
D: None
Answer: B
Explanation:
Imports become costlier because now the same value of the local currency can buy less foreign currency.
Exports become more competitive (beneficial to domestic exporters) because it is easier for foreign buyers to buy domestic goods. Foreign borrowers who have taken loans from domestic banks in domestic currency will benefit as they will now have to pay less in case of their original borrowings which are in foreign currency. Hence, option (b) is correct.
Q4:
Which of the following institutions were established under the Bretton Woods Conference? 1. World Bank 2. International Monetary Fund (IMF) 3. International financial institution 4. Asian development bank How many of the statements given above are correct?
A: Only one
B: Only two
C: Only three
D: All four
Answer: B
Explanation:
The Bretton Woods Conference held in 1944 established the International Monetary Fund (IMF) and the World Bank and re-established a system of fixed exchange rates. Hence, option (b) is correct.
Q5:
Generally, the government implements the policy of disinvestment: 1. To reduce the financial burden on the government. 2. To maintain competition and market discipline. 3. To encourage more ownership. 4. To provide funds for development. How many of the statements given above are correct?
A: Only one
B: Only two
C: Only three
D: All four
Answer: D
Explanation:
Divestment can be defined as the action of an organization (or government) to sell or liquidate an asset or subsidiary. It is also called 'disinvestment'. In most contexts, disinvestment usually refers to the sale of a state-owned enterprise, partly or wholly, to the government.
The main objectives of the disinvestment were:
To reduce the financial burden on the government
To improve public finance
To maintain competition and market discipline
to provide funds for the development
To encourage more ownership
To reduce the politicization of non-essential services
Hence, option (d) is correct.
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