Under the Minimum Reserve System followed since 1957, the Reserve Bank of India must hold assets of at least
- A.Two hundred crore rupees, of which gold is at least one hundred and fifteen crore
- B.One hundred crore rupees, of which gold is at least fifty crore
- C.Five hundred crore rupees, of which gold is at least two hundred crore
- D.Two hundred crore rupees, entirely in gold
Correct answer
Explanation
The correct answer is A. Since 1957 India has followed the Minimum Reserve System of note issue, under which the Reserve Bank must keep assets worth at least two hundred crore rupees against the notes in circulation, of which gold must be worth at least one hundred and fifteen crore rupees and the remainder may be held in foreign securities. The system replaced the earlier proportional reserve system and allows the note issue to expand with the needs of a growing economy instead of being tied to a fixed proportion of bullion.
Option B understates both figures. Option C overstates them. Option D is wrong because the reserve is not held wholly in gold; only the smaller gold component is fixed, and the rest may be in approved foreign securities. The pair of numbers is what papers test, so learn them together.
Read the full article: Functions of the RBI: Monetary Policy and Tools
Practice Questions
View allIn which year was the RBI nationalised?
- A.1971
- B.1956
- C.1949
- D.1935
Show answer
The Reserve Bank of India began as a shareholders' bank and was taken into public ownership on 1 January 1949 under the Reserve Bank (Transfer to Public Ownership) Act, 1948.
Read the full explanation →The legal provisions governing the management of foreign exchange reserves are laid down in the Reserve Bank of India Act, ______.
- A.1947
- B.1934
- C.1923
- D.1971
Show answer
The Reserve Bank of India Act, 1934 is the statute that created the Bank and it carries the provisions on the custody and deployment of the country's foreign exchange reserves, which the Bank holds and invests.
Read the full explanation →Which of these institutions fixes the Repo Rate and the Reverse Repo Rate in India?
- A.Ministry of Finance
- B.State Bank of India
- C.Comptroller and Auditor General of India
- D.Reserve Bank of India
Show answer
Policy rates are announced by the Reserve Bank, and since 2016 the decision is taken by its Monetary Policy Committee of six members under the chairmanship of the Governor.
Read the full explanation →The Reserve Bank of India commenced its operations on
- A.1 April 1935
- B.1 July 1955
- C.1 January 1949
- D.1 April 1934
Show answer
The Reserve Bank of India Act was passed in 1934 and the Bank began work on the first day of April in the following year, with its central office at Calcutta.
Read the full explanation →The establishment of the Reserve Bank of India was recommended by which commission?
- A.Hilton Young Commission
- B.Narasimham Committee
- C.Fazl Ali Commission
- D.Sarkaria Commission
Show answer
Formally the Royal Commission on Indian Currency and Finance, it reported in 1926 and recommended that the currency and credit functions then divided between the Government and the Imperial Bank be placed in a single central bank.
Read the full explanation →