MULTIPLE-CHOICE QUESTIONS WITH ANSWERS RELATED TO FUNCTIONS AND ROLE OF MONEY
What is the primary function of money in an economy?
A) Store of value
B) Medium of exchange
C) Unit of account
D) All of the above
Answer: B) Medium of exchange
Which of the following is NOT a function of money?
A) Transfer of value
B) Standard of deferred payments
C) Measure of wealth
D) Generating profits
Answer: D) Generating profits
In India, the Reserve Bank of India (RBI) is responsible for:
A) Issuing currency
B) Setting monetary policy
C) Regulating the banking system
D) All of the above
Answer: D) All of the above
Which type of money includes coins and paper currency?
A) M1 money
B) M2 money
C) M3 money
D) M4 money
Answer: A) M1 money
What is the term used for the money supply consisting of physical currency and demand deposits (checking accounts)?
A) Narrow money
B) Broad money
C) Liquid money
D) All of the above
Answer: A) Narrow money
The role of money as a unit of account means:
A) It facilitates comparison of the value of goods and services
B) It helps in storing value for future use
C) It enables the transfer of value between parties
D) It acts as a medium for deferred payments
Answer: A) It facilitates comparison of the value of goods and services
Which of the following is NOT a characteristic of money?
A) Divisibility
B) Durability
C) Invisibility
D) Portability
Answer: C) Invisibility
Which function of money ensures that people can hold wealth in a readily spendable form?
A) Store of value
B) Medium of exchange
C) Unit of account
D) Measure of value
Answer: A) Store of value
What is the term used for the process of converting assets into a widely acceptable form of payment?
A) Liquidity
B) Divisibility
C) Durability
D) Malleability
Answer: A) Liquidity
Which entity in India is responsible for issuing coins?
A) Ministry of Finance
B) Reserve Bank of India
C) Security Printing and Minting Corporation of India Limited (SPMCIL)
D) State Bank of India
Answer: C) Security Printing and Minting Corporation of India Limited (SPMCIL)
What is the term used for the ability of money to be easily divided into smaller units to facilitate transactions?
A) Divisibility
B) Durability
C) Portability
D) Convertibility
Answer: A) Divisibility
Which of the following is considered a modern form of money in India?
A) Barter system
B) Cryptocurrency
C) Commodity money
D) Shell money
Answer: B) Cryptocurrency
The legal framework for the Indian currency is provided by:
A) Finance Act
B) Monetary Policy Committee Act
C) Reserve Bank of India Act
D) Securities Contracts (Regulation) Act
Answer: C) Reserve Bank of India Act
Which component of money supply includes time deposits and savings deposits in addition to M1 money?
A) M1 money
B) M2 money
C) M3 money
D) M4 money
Answer: B) M2 money
Which function of money allows individuals and businesses to easily compare the value of different goods and services?
A) Medium of exchange
B) Store of value
C) Unit of account
D) Measure of value
Answer: C) Unit of account
In India, the demonetization of high-denomination currency notes occurred in which year?
A) 2015
B) 2016
C) 2017
D) 2018
Answer: B) 2016
The concept of fiat money refers to:
A) Money backed by a physical commodity
B) Money declared by the government as legal tender
C) Money issued by private entities
D) Money used in barter transactions
Answer: B) Money declared by the government as legal tender
Which of the following is NOT a feature of Indian currency notes?
A) Serial numbers
B) Signature of the President of India
C) Signature of the Finance Minister
D) Hologram
Answer: C) Signature of the Finance Minister
The process of creating money by the banking system through the issuance of loans is known as:
A) Fractional reserve banking
B) Central banking
C) Open market operations
D) Fiscal policy
Answer: A) Fractional reserve banking
Which entity in India is responsible for formulating and implementing monetary policy?
A) Ministry of Finance
B) Reserve Bank of India
C) Securities and Exchange Board of India (SEBI)
D) Indian Banks’ Association (IBA)
Answer: B) Reserve Bank of India
Which term refers to the ease with which money can be converted into goods and services?
A) Portability
B) Liquidity
C) Stability
D) Divisibility
Answer: B) Liquidity
The process of controlling the money supply and interest rates to achieve specific economic goals is known as:
A) Fiscal policy
B) Monetary policy
C) Exchange rate policy
D) Trade policy
Answer: B) Monetary policy
Which entity in India is responsible for regulating and supervising non-banking financial companies (NBFCs)?
A) Reserve Bank of India
B) Ministry of Finance
C) Securities and Exchange Board of India (SEBI)
D) Insurance Regulatory and Development Authority of India (IRDAI)
Answer: A) Reserve Bank of India
The process of money changing hands from buyers to sellers during transactions is facilitated by which function of money?
A) Store of value
B) Unit of account
C) Medium of exchange
D) Measure of value
Answer: C) Medium of exchange
Which of the following is NOT a form of money in India?
A) Currency notes
B) Demand drafts
C) Treasury bills
D) Cheques
Answer: C) Treasury bills
The Indian rupee symbol, ₹, was adopted in which year?
A) 2008
B) 2009
C) 2010
D) 2011
Answer: C) 2010
Which term refers to the stability of the value of money over time?
A) Inflation
B) Deflation
C) Stability
D) Appreciation
Answer: C) Stability
The process of money supply expansion through the purchase of government securities by the central bank is known as:
A) Quantitative easing
B) Open market operations
C) Reserve requirement
D) Discount window lending
Answer: B) Open market operations
Which of the following is NOT a characteristic of fiat money?
A) Backed by a physical commodity
B) Declared by the government as legal tender
C) No intrinsic value
D) Accepted for transactions
Answer: A) Backed by a physical commodity
The term “M0 money” refers to:
A) Currency in circulation and demand deposits
B) Currency in circulation only
C) Currency held by the public only
D) Total money supply
Answer: B) Currency in circulation only
Which entity in India is responsible for issuing government bonds?
A) Reserve Bank of India
B) Ministry of Finance
C) Securities and Exchange Board of India (SEBI)
D) Indian Banks’ Association (IBA)
Answer: B) Ministry of Finance
Which function of money helps in preserving purchasing power over time?
A) Medium of exchange
B) Store of value
C) Unit of account
D) Measure of value
Answer: B) Store of value
Which entity in India regulates the functioning of credit rating agencies?
A) Reserve Bank of India
B) Securities and Exchange Board of India (SEBI)
C) Ministry of Finance
D) Indian Banks’ Association (IBA)
Answer: B) Securities and Exchange Board of India (SEBI)
The term “legal tender” means that:
A) Money has no intrinsic value
B) Money can be used for illegal transactions
C) Money is recognized by law for transactions
D) Money is accepted only in specific legal cases
Answer: C) Money is recognized by law for transactions
Which function of money refers to its ability to facilitate deferred payments and contracts?
A) Medium of exchange
B) Store of value
C) Unit of account
D) Measure of value
Answer: A) Medium of exchange
Which entity in India is responsible for regulating and supervising the insurance sector?
A) Reserve Bank of India
B) Ministry of Finance
C) Insurance Regulatory and Development Authority of India (IRDAI)
D) Securities and Exchange Board of India (SEBI)
Answer: C) Insurance Regulatory and Development Authority of India (IRDAI)
Which component of money supply includes time deposits, savings deposits, and non-bank financial institution deposits?
A) M1 money
B) M2 money
C) M3 money
D) M4 money
Answer: C) M3 money
The term “commodity money” refers to:
A) Money backed by a physical commodity
B) Money issued by the government
C) Money created by banks through loans
D) Money used in barter transactions
Answer: A) Money backed by a physical commodity
The process of exchanging one currency for another is known as:
A) Monetary policy
B) Currency swap
C) Foreign exchange
D) Exchange rate determination
Answer: C) Foreign exchange
Which entity in India is responsible for regulating and supervising the stock exchanges?
A) Reserve Bank of India
B) Ministry of Finance
C) Securities and Exchange Board of India (SEBI)
D) Indian Banks’ Association (IBA)
Answer: C) Securities and Exchange Board of India (SEBI)
The term “velocity of money” refers to:
A) The speed at which money circulates in the economy
B) The rate of inflation
C) The amount of money held by banks
D) The effectiveness of monetary policy
Answer: A) The speed at which money circulates in the economy
Which entity in India is responsible for regulating and supervising the pension sector?
A) Reserve Bank of India
B) Ministry of Finance
C) Pension Fund Regulatory and Development Authority (PFRDA)
D) Securities and Exchange Board of India (SEBI)
Answer: C) Pension Fund Regulatory and Development Authority (PFRDA)
Which of the following is NOT a function of the Reserve Bank of India (RBI)?
A) Issuing currency
B) Regulating banks and financial institutions
C) Formulating fiscal policy
D) Managing foreign exchange reserves
Answer: C) Formulating fiscal policy
The term “hyperinflation” refers to:
A) A rapid increase in the value of money
B) A situation where inflation remains stable
C) A very high rate of inflation
D) A decrease in the overall price level
Answer: C) A very high rate of inflation
Which entity in India is responsible for regulating and supervising the mutual funds industry?
A) Reserve Bank of India
B) Ministry of Finance
C) Securities and Exchange Board of India (SEBI)
D) Indian Banks’ Association (IBA)
Answer: C) Securities and Exchange Board of India (SEBI)
Which function of money allows individuals to hold wealth in a form that can be easily exchanged for goods and services?
A) Medium of exchange
B) Store of value
C) Unit of account
D) Measure of value
Answer: B) Store of value
Which entity in India is responsible for regulating and supervising the commodity futures market?
A) Reserve Bank of India
B) Ministry of Finance
C) Securities and Exchange Board of India (SEBI)
D) Forward Markets Commission (FMC)
Answer: D) Forward Markets Commission (FMC)
Which function of money involves money being used as a common base for expressing the value of goods and services?
A) Medium of exchange
B) Store of value
C) Unit of account
D) Measure of value
Answer: C) Unit of account
Which entity in India is responsible for regulating and supervising the credit rating agencies?
A) Reserve Bank of India
B) Ministry of Finance
C) Securities and Exchange Board of India (SEBI)
D) Indian Banks’ Association (IBA)
Answer: C) Securities and Exchange Board of India (SEBI)
The term “deflation” refers to:
A) A decrease in the overall price level
B) A very high rate of inflation
C) A rapid increase in the value of money
D) A situation where inflation remains stable
Answer: A) A decrease in the overall price level
