mcq on credit control

7. As a result of this, the country’s exports will increase because of increased foreign demand due to lower prices; and imports will decline because the prices in the foreign countries are relatively higher. Welcome to EconomicsDiscussion.net! Our mission is to provide an online platform to help students to discuss anything and everything about Economics. It assumes special significance in the underdeveloped countries where the bank rate and the open market operations are not so effective because of a number of limitations. The correct approach is that, instead of selecting this method or that method, all the three methods should be judiciously combined in right proportions to achieve the objectives of credit control effectively. (ii) It does not produce immediate effect on the cash reserves of the commercial banks. Students can solve NCERT Class 10 Social Science Money and Credit MCQs … (vi) Through selective measures, the central bank can give preferential treatment to the backward and priority sectors, such as agricultural sector, small scale sector, export sector, of the developing economies by providing special credit facilities to these sectors. 1- Clause (4) of Article 15 has been added to the Constitution by (A) The Constitution First Amendment Act. Changes in the bank rate influence the interest rates in the money market. The bank rate is distinct from the market interest rate. Learners at any stage (CA Foundation, CA Inter, and Final) … 2. McQ is a … An account will be classified as substandard if it remains NPA for a. period not exceeding----months. The higher cash reserve requirements may lead the commercial banks to sell the securities in hand which, in turn, will reduce their prices in the market. Your Answer increase Select The Blank Question Like all organism, the firm too is an organism according to the _____ Correct Answer life-cycle theory. (ii) The bank rate indicates the rate at which the commercial banks can get accommodation from the central bank against the government and other approved securities. Central bank has a monopoly of issuing notes and thereby can control the volumes of currency. When the bank rate rises, short-term interest rates rise consequently. (c) 9. Bank Rate Policy: The bank rate policy is the traditional method of credit control used by a central bank. ibps banking awareness amp ga high priority topics studyplan. The method of direct action is most extensively used by the central bank to enforce both quantitative as well as qualitative credit controls. Banks and cooperatives need to lend more to borrowers because: (a) high cost of borrowing from informal sources, (c) borrowers need more money but cannot ask. Through publicity, the central bank seeks- (a) to influence the credit policies of the commercial banks; (b) to educate people regarding the economic and monetary condition of the country; and (c) to influence the public opinion in favour of its monetary policy. Factors to consider in assessing the client’s control … This website includes study notes, research papers, essays, articles and other allied information submitted by visitors like YOU. 16. 2. IBPS Banking Awareness Amp GA High Priority Topics Studyplan. (iii) It is suitable when large changes in the cash reserves of the commercial banks are required. Bank rate policy aims at influencing- (a) the cost and availability of credit to the commercial banks, (b) interest rates and money supply in the economy, and (c) the level of economic activity of the economy. Credit … VI. (iii) This method is appropriate only when big changes in the reserves of the commercial banks are required. The information for preparing a Control account is obtained from: ... As at 1 August 2012 the Trade Receivables ledger had £216,400 debit balances and £11,450 credit balance. You can undertake it in the type of soft file. The credit multiplier will then rise from 10 to 12.5 (i.e., 1/8% =12.5). Commerce provides you all type of quantitative and competitive aptitude mcq questions with easy and logical explanations. Limitations of Variable Cash Reserve Ratio: The following are the limitations of the method of variable cash reserve ratio: (i) This method is not effective when the commercial banks keep very large excessive cash reserves. Limitations of Selective Credit Controls: The selective controls suffer from the following limitations: (i) The selective credit controls are effective only in influencing the credit policies of the commercial banks and not of the other non-bank financial institutions. In modem times, the selective credit controls have become very popular, particularly in the developing countries. When dealing with Bank reconciliation statement while using missing method the credit side of cash book corresponds to? In such a situation, the use of a more direct method like the variable cash reserve ratio may prove more effective in siphoning off the surplus liquidity. Share Your Word File 2. Hence, open market operations can also affect interest rates. BUSINESS CONTROL SRL Via Roma Est 4/B 35045 Ospedaletto Euganeo (PD) • Italy Tel. They play an important role in removing various types of imbalances which tend to emerge in an economy during the process of economic development. The credit control methods adopted by RBi includes: a) Quantitative control b) Qualitative control c) Fixed control d) a &b 20. When the central bank purchases securities aggressively, it increases their prices and thereby lowers their yields. The important quantitative methods of credit control are- (a) bank rate, (b) open market operations, and (c) cash-reserve ratio. As these assumptions are not fully achieved in reality, the bank rate policy suffers from a number of limitations: The Radcliffe Committee in Great Britain and the American Committee on Money and Credit have pointed out that the entrepreneurs are not very sensitive to changes in the interest rates while making their investment decisions. Variable Cash Reserve Ratio in Underdeveloped Countries: The variable cash reserve ratio, as a method of credit control, is very popular in the underdeveloped countries because of the following reasons: (i) The narrow market for government securities limits the effectiveness of open market operations. 3. This reduces the cash reserves of the commercial banks. (b) It may be difficult for the commercial banks to make clear-cut distinction between essential and non-essential industries, productive and unproductive activities, investment and speculation. The open market operations policy is more successful in controlling an expansion of credit during inflation rather than a contraction of credit during depression. When the central bank purchases or sells securities in the open market, it affects the economy in the following ways: I. (iv) It is not flexible. Effectiveness of Bank Rate Policy in Under-Developed Countries: The necessary conditions for the success of bank rate policy are more satisfied in the developed countries than in underdeveloped countries. A comparative picture of the distinctive features of the three quantitative credit control methods, i.e., bank rate policy, open market operations and variable cash reserve ratio, is presented below: All the three methods have two common features: (i) They are objective and indiscriminatory in nature; they aim at controlling the total volume of credit in the economy without any regard for the uses for which the credit is put. Changes in the cash reserve ratio are a powerful method for influencing not only the volume of excess reserves with the commercial banks, but also the credit multiplier of the banking system. Control Systems Multiple Choice Questions With Answers Bing. Thus, a favourable balance of payments will be achieved. A fall in the cash reserves of the commercial banks reduces their ability to create credit and results in multiple contractions in the total volume of credit due to the operation of credit multiplier. A rise in the bank rate will set right an adverse balance of payment. 24. Free PDF Download of CBSE Class 10 Social Science Economics Chapter 3 Money and Credit Multiple Choice Questions with Answers. Oct 21, 2020 • Nikita Khetan. Control Mahesy Mcq In Infection Control Mahesy Getting the books mcq in infection control mahesy now is not type of challenging means. However, the effectiveness of this method requires that there are no leakages of credit from productive areas to the unproductive or speculative areas. (iii) Even if the commercial banks are able to provide loans for productive purposes, it is not possible for them to control the ultimate use of these loans. (a) Money market ... Control inflation. But, in reality, credit expansion and contraction by banks depend more on the mood of the investors. According to M. Spalding, the bank rate is “the minimum rate charged by the central bank for discounting approved bills of exchange.”. A change in the bank rate leads to a corresponding change in the other interest rates of the market. According to Hawtrey, changes in the bank rate result in changes in the short-term interest rates which, in turn, influences the cost of borrowing from the commercial banks and the willingness of the dealers to hold stocks of finished goods through bank loans. Since it is applicable to the entire banking system, therefore, it cannot be varied in accordance with the requirements of the local situation. Learn about interview questions and interview process for 276 companies. Under the RBI Act, 1934 every _____bank has to keep certain minimum cash reserves with RBI: a) Public Bank. Thus, a change in reserve requirements affect the money supply in two ways- (a) it changes the level of excess reserves; and (b) it changes the credit multiplier. Similarly, the increases in the cash reserves of the commercial banks as a result of the open market purchase of securities by the central bank may be used by them to repay the outstanding loans from the central bank. Which of the following is not one of the three primary objectives of effective internal control… The quantitative credit control methods- the bank rate, the open market operations and the variable reserve ratio-operate primarily by affecting the cost, volume and availability of bank reserves, and thereby, tend to regulate the total supply of credit. The internal and external effects of the bank rate policy may be conflicting. The central bank can control the consumer credit- (a) by changing the amount that can be borrowed for the purchase of the consumer durables and (b) by changing the maximum period over which the installments can be extended. 7. Credit Management Important MCQs. Credit rationing is a selective method of controlling and regulating the purpose for which credit is granted by the commercial banks. Financial Management MCQ is important for exams like CA, CS, CMA, CPA, CFA, UPSC, NET, Banking and other accounts department exam. MCQ Questions for Class 12 Business Studies with Answers were prepared based on the latest exam pattern. If the central bank wants to fix the security price, and thus the interest rate, below (or above) the natural rate of interest, i.e., the market determined rate of interest rate, it must be prepared to buy (or sell) an unlimited quantity of securities at the fixed lower (or higher) price, and must accept an increase (or decrease) in the reserves of commercial banks and thus in money supply. Share Your PPT File, Fisher’s Quantity Theory of Money: Equation, Example, Assumptions and Criticisms. In view of falling orders, the industrialists will reduce production and employment. (b) It controls inflation by curtailing speculative activities on the one hand and by diverting credit to the productive activities on the other. This will lower interest rates, increase investment, production and employment, and raise consumer spending and prices. The bank rate policy remained successful during the prevalence of international gold standard. Directed by John Sturges. 15. All these factors may neutralise the effect of the sale of securities by the central bank. It is on account of this superiority that the open market operations are now increasingly used to influence the interest rates as well as the prices of the government securities. The control environment, which is the foundation for the other components of internal control, provides discipline and structure by setting the tone of an organization and influencing control consciousness. Commerce provides you all type of quantitative and competitive aptitude mcq questions with easy and logical explanations. Under the consumer credit system, a certain percentage of the price of the durable goods is paid by the consumer in cash. Similarly, the central bank may persuade the commercial banks not to, approach it for financial accommodation. Objectives of Open Market Operations Policy: The policy of open market operations, by directly changing the cash reserves with the commercial banks, attempts to influence the total volume of credit created in the system and ultimately the level of economic activity and the price level of the country. IV. (B) The Constitution Second Amendment Act(C) The Constitution Fourth Amendment Act. (iv) The selective credit controls are particularly useful in the developing countries where quantitative methods are not so much effective because of underdeveloped money market. In such a case ever if cash reserve ratio is raised, ample reserves remain after satisfying the minimum requirements. 1. (ii) It affects the cash reserves of the commercial banks through the purchase and sale of securities. Major portion of the deposits is used by banks for: (a) setting up new branches (b) paying taxes, (c) paying interest on loans (d) extending loans. When the central bank buys securities during depression in order to increase the reserves of the commercial banks, the latter generally find it difficult to expand the credit because of the unwillingness of the businessmen and industrialists to borrow on account of low business expectations. Keynes, on the other hand, was of the view that the economic activity in the economy is influenced by the effect of the bank rate on the long-term interest rates. This makes credit either dearer or cheaper. During inflation, the central bank increases the bank rate. (c) It is difficult for the commercial banks to control the ultimate use of credit by the borrowers. During boom, when the businessmen are over-optimistic about the future, the banks will not contract their credit even if their cash reserves are reduced by central bank’s open market operations. Thus, investment activity which is based on the bank loans will be curtailed. Control Valves Multiple Choice Questions. With John Wayne, Eddie Albert, Diana Muldaur, Colleen Dewhurst. In this way, the ability of these banks to create credit will not be adversely affected and the purpose of the open market operations will be defeated. As a result, the investors tend to avoid borrowing from the banks and tend to raise funds by selling long-term securities. (v) In the underdeveloped countries, the open market operations are a very useful method of credit control. Mcq Questions On Budgetary Control Home North South University. iii. Control Mahesy Mcq In Infection Control Mahesy Getting the books mcq in infection control mahesy now is not type of challenging means. Watch Queue Queue The significance of the bank rate policy is three fold: (i) The bank rate indicates the rate at which the public can get accommodation against the approved securities from the banks. In practice, direct action as a method of controlling credit has certain limitations: (a) The method of direct action involves the use of force and creates an atmosphere of fear. Similarly, during depression, the purchase of securities from the banks by the central bank may not induce the commercial banks to expand credit despite their cash reserves. This is an no question simple means to specifically acquire lead by on-line. A rise in the bank rate makes the credit costlier, reduces the volume of credit, discourages economic activity and brings down the price level in the economy. (ii) Open market Operations have a direct influence on long-term interest rates. You could not and no-one else going similar to book addition or library or borrowing from your friends to contact them. This increases the cash reserves and the credit creation capacity of the banking system. In the narrow sense, open market operations refer to the purchase and sale by the central bank of government securities in the money market. What is the ‘collateral’ demand that lenders make against loans? Article shared by (a) “Money is what money does” – who said? In recent years, other and more effective methods of credit control such as open market operations, variable cash reserve ratios, selective credit controls, etc, have been developed. The term ‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐ refers financial investment in a highly risky and growth oriented venture with the … This will, in turn, affect the level of economic activity and the price level. What is the main source of income for banks? The Central Bank acts as a controller of money supply and credit, using the following methods (i) Margin requirement It is a qualitative method of credit control… This collection agency pursues collections from customers with former or accounts accounts with health care providers, credit … In the underdeveloped countries, however, this method has little significance where such a system is yet to develop. As a result of rise in the long-term interest rates, given the marginal efficiency of capital, the businessmen will reduce their investment and the reduction in investment will result in contraction in economic activity, leading to a fall in production, employment and prices. The success of the open market operations is also limited by the willingness of the central bank to incur losses. MM is the supply of money curve. (c), 8. This discourages the traders to hold finished goods because now the cost (i.e., interest burden) of holding such stock has risen. The various methods or instruments of credit control used by the central bank can be broadly classified into two categories: The methods used by the central bank to influence the total volume of credit in the banking system, without any regard for the use to which it is put, are called quantitative or general methods of credit control. 1. They should have some background knowledge of how credit control has developed already and be able to use that as one way to envision its future. 11. Content Guidelines Which of the following are qualitative control methods a) Margins b) Maximum limit of credit for specific purpose . 14 Multiple Choice Questions (MCQs) With Answers on Money, Banking and Public Finance. The policy of open market operations is based on the following assumptions: (i) A well-organised and well-developed securities market should exist. Jul 29, 2020 • 1h 1m . This will discourage the businessmen from borrowing from banks. (iii) Most of the commercial banks in the underdeveloped countries are in the habit of keeping excess cash reserves over and above the minimum requirements. (iii) The selective credit controls discourage excessive consumer spending on durable goods financed through the hire-purchase schemes. (iv) In the underdeveloped countries, the central banks do not have enough experience in using the technique of open market operations. But, after the Great Depression of 1929-33, the importance of the bank rate as a method of credit control declined. It first influences the cost and availability of credit to the commercial banks and thereby, influences the willingness of the businessmen to borrow and invest. b) … This is why, the PDF books that we presented always the books later amazing reasons. It is not suitable for marginal adjustments in the reserves of the commercial banks. (vi) Frequent changes in the cash reserve ratio are not desirable. (d) 12. In other words, credit rationing aims at- (a) limiting the maximum loans and advances to the commercial banks, and (b) fixing ceiling for specific categories of loans and advances. Open Market Operations Policy during Depression: During depression, the central bank attempts to increase the volume of credit by purchasing the securities from the public. On the other hand, to check deflation, the central bank may reduce the cash reserve ratio from 10% to 8% and thus make available 2% excess cash reserves to the commercial banks which they utilise to expand credit. A rise in the bank rate is regarded as the official signal for the beginning of the period of relatively dearer money and a fall in the bank rate is an indication for the onset of a cheaper money phase. Qualitative Control to regulates the flow of credit Here is a brief description of the quantitative and qualitative measures of credit control … BE CSE Semester 5 MA8551 Algebra and Number Theory MCQ EC8691 Microprocessors and Microcontrollers MCQ CS8592 Object Oriented Analysis and Design MCQ CS8591 Computer Networks MCQ CS8501 Theory Of Computation MCQ (ELECTIVE I) OMD551 Basic OF Biomedical Instruments MCQ (ELECTIVE I) OCE551 Air Pollution and Control Engineering MCQ (All India 2013) Ans. It is generally adopted to achieve the following objectives: (i) To influence the cash reserves with the banking system; (iii) To stabilise the securities market by avoiding undue fluctuations in the prices and yields of Securities; (iv) To control the extreme business situations of inflation and deflation; (v) To achieve a favourable balance of payments position; and. (c) 11. 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