UPSC Prelims Practice Questions — RBI ramps up support to shield bonds from oil shock

Q1. Which one of the following wings of the Reserve Bank of India is entrusted with the regulation of the Primary Dealers system and the development of the Government Securities market?

  • A. Financial Markets Operations Department (FMOD)
  • B. Internal Debt Management Department (IDMD)
  • C. Department of Economic and Policy Research (DEPR)
  • D. Department of Regulation (DoR)

Q2. In the context of the Reserve Bank of India's monetary operations, the term 'Open Market Operations (OMOs)' refers to which one of the following?

  • A. Short-term collateralised lending by the RBI to scheduled commercial banks against eligible securities
  • B. Outright purchase or sale of government securities by the RBI for injection or absorption of durable liquidity in the banking system
  • C. Buy-sell foreign exchange swaps undertaken by the RBI in the inter-bank dollar market
  • D. Statutory pre-emption of a portion of bank deposits in the form of government securities held by banks themselves

Q3. With reference to the Reserve Bank of India's tool-kit for managing durable liquidity in the banking system, consider the following: 1. Outright purchase of government securities through Open Market Operations 2. USD/INR buy-sell foreign exchange swap auctions 3. Variable Rate Repo (VRR) auctions under the Liquidity Adjustment Facility 4. Marginal Standing Facility (MSF) borrowing window Which of the above is/are correctly identified as instruments used to inject DURABLE liquidity?

  1. Outright purchase of government securities through Open Market Operations
  2. USD/INR buy-sell foreign exchange swap auctions
  3. Variable Rate Repo (VRR) auctions under the Liquidity Adjustment Facility
  4. Marginal Standing Facility (MSF) borrowing window
  • A. 1 and 2 only
  • B. 1, 2 and 3
  • C. 3 and 4 only
  • D. 1, 2, 3 and 4

Q4. Which one of the following is the principal market-based instrument used by the Reserve Bank of India for the management of DURABLE liquidity in the banking system?

  • A. Marginal Standing Facility (MSF)
  • B. Variable Rate Reverse Repo (VRRR) auction
  • C. Open Market Operations (OMOs) in government securities
  • D. Standing Deposit Facility (SDF)

Q5. Consider the following statements with reference to monetary and fiscal policy in India: 1. Open Market Operations are a liquidity management instrument of the Reserve Bank of India. 2. The Standing Deposit Facility is operated by the Reserve Bank of India to absorb liquidity without collateral. 3. Under the FRBM Act, 2003, the Reserve Bank of India was barred from subscribing to PRIMARY issues of Central Government securities with effect from April 1, 2006. 4. The Securities Transaction Tax (STT) is levied and collected by the Reserve Bank of India as part of its government securities market operations. Which of the statements given above is/are NOT correct?

  1. Open Market Operations are a liquidity management instrument of the Reserve Bank of India.
  2. The Standing Deposit Facility is operated by the Reserve Bank of India to absorb liquidity without collateral.
  3. Under the FRBM Act, 2003, the Reserve Bank of India was barred from subscribing to PRIMARY issues of Central Government securities with effect from April 1, 2006.
  4. The Securities Transaction Tax (STT) is levied and collected by the Reserve Bank of India as part of its government securities market operations.
  • A. 1 only
  • B. 2 and 3 only
  • C. 4 only
  • D. 3 and 4 only