PRELIMS मतलब MAD

Answer: B

Explanation:
Statement 1 is correct as increasing taxes can increase government revenue, thereby reducing the fiscal deficit. When the government increases taxes, it collects more revenue, which can be used to finance its expenditures. This can help reduce the gap between revenue and expenditure, thereby reducing the fiscal deficit.

Statement 2 is incorrect as more external commercial borrowings would actually increase the fiscal deficit. Borrowing more money from external sources would add to government debt, increasing the deficit.

Statement 3 is correct as disinvestment of public sector enterprises can generate revenue for the government, reducing the fiscal deficit. When the government sells its shares in public sector enterprises, it receives revenue.

Statement 4 is incorrect as increasing revenue expenditure would add to the government’s expenditure, increasing the fiscal deficit.

Therefore, Answer is B.

Theme: Fiscal policy.

Answer: A

Explanation:
Statement 1 is correct as T-Bills are indeed issued by the Reserve Bank of India on behalf of the Government of India. The RBI acts as an agent for the government in issuing T-Bills.

Statement 2 is correct as T-Bills are short-term securities with maturities ranging from 14 days to 364 days. This is a key characteristic of T-Bills, distinguishing them from other government securities.

Statement 3 is correct as T-Bills are sold through auctions conducted by the RBI. The RBI uses auctions to determine the cut-off price and yield of T-Bills.

Statement 4 is incorrect as T-Bills do not carry a fixed interest rate that is paid periodically. Instead, T-Bills are sold at a discount to their face value, and the difference between the purchase price and the face value represents the return to the investor.

Therefore, correct answer is A.

Theme: Money market and capital market.

Answer: C

Explanation:
The Standing Deposit Facility (SDF) is a non-collateral open-ended liquidity management instrument that enables the Reserve Bank of India to absorb liquidity from Scheduled Commercial Banks without requiring collateral or government securities in return. (Hence, Statement 1 is correct)

Key Features:

– They are not eligible for Cash Reserve Ratio (CRR) maintenance under Section 42 of the RBI Act, 1934.
– They are eligible assets for maintenance of the Statutory Liquidity Ratio (SLR) under Section 24 of the Banking Regulation Act, 1949. (Hence, Statement 3 is correct)
– The SDF facility is available at the discretion of banks and not RBI. (Hence, Statement 2 is not correct)

Therefore, Correct answer is C.

Theme: Banking.

Answer: C

Explanation:
The currency deposit ratio shows the amount of currency that people hold as a proportion of aggregate deposits. If people hold more money in currency, they are more likely to spend it. Thus, leading to an increase in inflation. A high CDR indicates that a large proportion of the bank’s deposits are being held in the form of currency, which may limit the bank’s ability to lend or invest. A low CDR indicates that a smaller proportion of the bank’s deposits are being held in the form of currency, which may allow the bank to lend or invest more.

Theme: Banking.

Answer: C

Explanation:
Marginal Standing Facility (MSF) is a window for banks to borrow from the Reserve Bank of India in an emergency when inter-bank liquidity dries up completely. It is a penal rate at which banks can borrow money from RBI when they are completely exhausted of all borrowing assistance.

Banks borrow from the central bank by pledging government securities at a rate higher than the repo rate under the liquidity adjustment facility.

Hence, Option C is the correct answer.