Free The Banking System 01 Practice Test - 12th Grade - Commerce 

Question 1

A commercial bank is a bank that:

A.

Gives long-term loans

B.

Creates credit

C.

Gives short-term loans

D.

All of these

SOLUTION

Solution : D

A commercial bank provides long-term and short-term loans and creates credit. 

Question 2

Credit cards issued by the banks:

A.

Encourage consumer spending

B.

Increase aggregate demand in the economy

C.

Both (a) and (b)

D.

None of these

SOLUTION

Solution : C

Credit cards boost aggregate demand and encourage spending. 

Question 3

In India, operative cash reserves are known as:

A.

CRR

B.

SLR

C.

Vault cash

D.

None of these

SOLUTION

Solution : C

Vault cash refers to the cash reserves held by the bank itself, over and above the mandated CRR amount. 

Question 4

Demand for money balances is called ___ . 

SOLUTION

Solution :

Liquidity preference is demand for money balances.

Question 5

The demand for money which arises from not wanting to invest in stocks and bonds fearing capital loss is called:

A.

Liquidity demand

B.

Transaction demand

C.

Speculative demand

D.

Precautionary demand

SOLUTION

Solution : C

The demand for money which arises from not wanting to invest in stocks and bonds fearing capital loss is called speculative demand.

Question 6

If the size of income of a family is increasing, the precautionary demand of money will:

A.

Increase

B.

Decrease

C.

Remain constant

D.

Cannot be determined

SOLUTION

Solution : A

With higher incomes, the precautionary demand will increase because expenditures may increase.

Question 7

Rate of interest on loans - Rate of interest on deposits is called ___ . 

SOLUTION

Solution :

Spread is the rate of interest on loans minus the interest on deposits.

Question 8

Derivative deposits are:

A.

Primary deposits

B.

Secondary deposits

C.

Tertiary deposits

D.

None of the above

SOLUTION

Solution : B

Derivative deposits are secondary deposits.

Question 9

Which of the following is the most commonly used measure of money supply?

A.

M1

B.

M2

C.

M3

D.

M4

SOLUTION

Solution : C

M3 is the most commonly used measure of money supply.

Question 10

Broad money comprises of:

A.

M1

B.

M2

C.

M3

D.

M4

SOLUTION

Solution : C and D

Broad money includes M3 and M4.

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