Q20. Why may banks’ teaser-rate loans pose risks?
[UPSC CSE Prelims 2012]
A. A low initial rate may reset upward and increase default risk
B. They are always interest-free forever
C. They are issued solely to exporters
D. They are deposits rather than loans
Answer: (A) A low initial rate may reset upward and increase default risk
Explanation: Teaser loans begin with attractive initial interest rates, which can later rise. Borrowers assessed mainly on the introductory payment may struggle after repricing, raising credit risk for lenders. Such loans need not be limited to entrepreneurs or exports.
Q19. Which public institution principally frames India’s monetary policy?
[WBCS Prelims 2012]
A. Reserve Bank of India
B. State Bank of India
C. Life Insurance Corporation
D. Industrial Development Bank
Answer: (A) Reserve Bank of India
Explanation: The RBI is India’s central monetary authority. Monetary policy involves managing interest-rate and liquidity conditions in pursuit of policy objectives, whereas individual banks and insurers perform distinct commercial or sectoral roles.
Q18. Which institution is custodian of India’s official foreign-exchange reserves?
[UPPSC Civil Services Paper 1 2012]
A. Reserve Bank of India
B. State Bank of India
C. Union Finance Ministry
D. Export–Import Bank of India
Answer: (A) Reserve Bank of India
Explanation: The Reserve Bank of India maintains and manages foreign-exchange reserves under statutory powers. Reserve assets can include foreign-currency securities, gold, SDRs and the reserve position in the IMF.
Q17. Which financial services can microfinance encompass: credit, savings, insurance and remittances?
[UPSC CSE Prelims 2011]
A. Credit only
B. Credit and remittances only
C. Savings and insurance only
D. All four
Answer: (D) All four
Explanation: Microfinance is broader than microcredit. Financial inclusion for low-income customers can involve small loans, savings, insurance protection and payments or remittance facilities. Providing multiple services can help households manage risks and irregular cash flows.
Q16. What supports inclusive growth: self-help groups, micro and small enterprises and universal elementary education?
[UPSC CSE Prelims 2011]
A. SHGs alone
B. SHGs and MSMEs only
C. MSMEs and education only
D. All three
Answer: (D) All three
Explanation: Self-help groups can widen finance, smaller enterprises generate livelihoods, and education raises long-term capabilities. All contribute to participation in economic opportunities and wider distribution of benefits rather than growth confined to a narrow segment.
Q15. What is the immediate implication when RBI increases the Cash Reserve Ratio?
[UPSC CSE Prelims 2010]
A. Commercial banks have less money available to lend
B. RBI must reduce its own capital
C. Government tax collections stop
D. Commercial banks gain additional loanable reserves
Answer: (A) Commercial banks have less money available to lend
Explanation: CRR requires commercial banks to keep a prescribed share of eligible liabilities as cash balances with RBI. A higher CRR absorbs funds that otherwise could support loans, thereby tightening bank liquidity and potential credit expansion.
Q14. Why did Mauritius historically figure prominently as a source of FDI into India?
[UPSC CSE Prelims 2010]
A. Mandatory Indian preference for Mauritius
B. Double-taxation avoidance treaty advantages
C. Every Mauritian was an Indian citizen
D. Climate-related compulsory capital transfers
Answer: (B) Double-taxation avoidance treaty advantages
Explanation: The India–Mauritius tax treaty influenced the routing of investments by reducing or changing certain tax exposures under the prevailing provisions. Foreign direct investment statistics reflected treaty-based investment structures, not a formal preference based on ethnicity or climate.
Q13. Which institution was identified as the apex body promoting bank linkage of rural self-help groups?
[WBCS Prelims 2010]
A. Regional Rural Banks collectively
B. Grameen Bank
C. State Bank of India
D. NABARD
Answer: (D) NABARD
Explanation: NABARD supports rural banking and the Self-Help Group–Bank Linkage Programme, encouraging community thrift groups to obtain formal finance. Its refinancing and developmental activities broaden agricultural and rural credit access.
Q12. Which institution maintains the country’s foreign-exchange reserves?
[WBCS Prelims 2008]
A. Reserve Bank of India
B. State Bank of India
C. Export-Import Bank
D. Competition Commission
Answer: (A) Reserve Bank of India
Explanation: India’s foreign exchange reserves are managed by RBI within a central-bank framework. These assets provide external payment capacity, assist intervention when warranted and constitute a buffer against financial disruptions.
Q11. National Housing Bank was originally set up as a wholly owned subsidiary of which institution?
[UPSC CSE Prelims 2007]
A. State Bank of India
B. Reserve Bank of India
C. ICICI Bank
D. Life Insurance Corporation
Answer: (B) Reserve Bank of India
Explanation: NHB began operations in 1988 as a wholly owned subsidiary of RBI to develop housing finance. Its ownership subsequently shifted to the Union Government, but the historically correct institutional relationship is with the central bank.
