Answer: (B)

Explanation: Current Account Deficit or CAD is the shortfall between the money flowing in on exports, and the money flowing out on imports. Current Account Deficit (or Surplus) measures the gap between the money received into and sent out of the country on the trade of goods and services and also the transfer of money from domestically-owned factors of production abroad. Hence, statement 1 is incorrect.

The current account constitutes net income, interest and dividends and transfers such as foreign aid, remittances, donations among others. A country with rising CAD shows that it has become uncompetitive, and investors are not willing to invest there. They may withdraw their investments. Current Account Deficit may be a positive or negative indicator for an economy depending upon why it is running a deficit. Foreign capital is seen to have been used to finance investments in many economies. Current Account Deficit may help a debtor nation in the short-term, but it may worry in the long-term as investors begin raising concerns over adequate return on their investments. High software receipts and private transfers can lower current account deficit. Hence, statement 2 and 3 are correct.

Answer: (A)

Explanation:

• The MPC has six members including the RBI Governor — three each nominated by the RBI and the government. The MPC meets every two months to evaluate the current status and outlook for inflation and economic growth. Based on that assessment, it tweaks the repo rate, which is the interest rate at which the RBI loans money to the banking system. It is for this reason that movements in the repo rate influence the overall interest rates in the economy. Hence, statement 1 and 2 are incorrect.
• Typically, when the MPC wants to contain inflation, it raises the repo rate. Such a “dear money” policy makes all types of borrowing — both for consumers (say, car loans) and producers (say, fresh business investments) — costlier and effectively slows down economic activity in the economy. Hence, statement 3 is correct.
• When inflation outlook is benign but growth is stalling, the RBI can choose to lower the repo rate and promote economic activity; such a “cheap money” policy incentivises people to spend money instead of saving it.

Answer: (B)

Explanation: Treasury bills or T-bills, which are money market instruments, are short term debt instruments issued by the Government of India and are presently issued in three tenors, namely, 91-day, 182 day and 364 day. Treasury bills are zero coupon securities and pay no interest. Instead, they are issued at a discount and redeemed at the face value at maturity. For example, a 91 day Treasury bill of ₹100/- (face value) may be issued at say ₹ 98.20, that is, at a discount of say, ₹1.80 and would be redeemed at the face value of ₹100/-. Hence, statement 1 is incorrect.

Answer: (C)

Explanation:

• Prompt Corrective Action or PCA is a framework under which banks with weak financial metrics are put under watch by the RBI. The PCA framework deems banks as risky if they slip below certain norms on three parameters — capital ratios, asset quality and profitability.
• It aims to monitor the operation of weaker banks more closely to encourage them to conserve capital and avoid risks.
• PCA framework is about imposing certain restrictions on expansion of branches and dividend distribution by banks that are financially weak as reflected in parameters like non-performing asset ratio and return on assets.

Hence, both statements are correct.

Answer: (D)

Explanation:

• “Call Money” means borrowing or lending in unsecured funds on overnight basis;
• “Notice Money” means borrowing or lending in unsecured funds for tenors up to and inclusive of 14 days excluding overnight borrowing or lending;
• “Term Money” means borrowing or lending in unsecured funds for periods exceeding 14 days and up to one year.

Hence, option (b) is correct.