Introduction to Indian Financial System

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Questions and Answers

What is the primary purpose of credit creation by banks according to the text?

To increase deposits and economic activity (correct)
To ensure adequate capital through Capital Adequacy Ratio
To absorb losses from non-payment of loans
To maintain market confidence and financial stability

What does the text suggest is the relationship between savings and investment?

Savings and investment are both determined by income, inflation, and interest rates.
Savings and investment are independent of each other.
Savings is a function of investment, which determines the quantum of investment.
Investment is a function of savings, which determines the quantum of investment. (correct)

What is the primary objective of financial regulation?

To ensure coordination between multiple independent regulators.
To increase deposits and economic activity through credit creation.
To maintain market confidence, enhance financial stability, and ensure consumer protection. (correct)
To absorb losses from non-payment of loans and maintain adequate capital.

What role does the central bank play in the credit creation process according to the text?

The central bank keeps a watch on the credit created and diverts the funds to the sectors of the economy that are beneficial to the country. (C) Signup and view all the answers

What is the key role of capital in the banking system according to the text?

Capital is used to absorb losses from non-payment of loans by borrowers. (B) Signup and view all the answers

What is the relationship between savings and investment according to the text?

Savings and investment are both determined by income, inflation, and interest rates. (A) Signup and view all the answers

What is the primary purpose of financial regulation according to the text?

To maintain market confidence, enhance financial stability, and ensure consumer protection. (B) Signup and view all the answers

What is the role of the central bank in the credit creation process?

The central bank diverts the funds created through credit to the sectors of the economy that are beneficial to the country. (B) Signup and view all the answers