Read the passage below carefully and answer the five questions that follow:

Capital flows, exchange rates and the interest are causes of immediate concern to the national economies. Central banks of various countries have been using a variety of methods with the excessive capital inflows. Foreign portfolio investment have a direct and indirect impact on exchange rates, valuation of traded assets and yields of various government and corporate securities.

RBI, in the post-pandemic scenario and the recent Russia-Ukraine war situation is working on multiple options to stabilize the exchange rates by protecting both the exporters and importers. One way which RBI adopts to maintain a desirable level of exchanges rates is to mop up nets foreign exchange assets from scheduled commercial banks in exchanges of domestic currency () assets. The liquidity flows are, in essence, inflationary. RBI has projected a comfortable GDP rate for the current fiscal and believes a reasonable level of CPI inflation as 5.3%.

The retail inflation, according to the RBI governor, recently is likely to be 4.5% in 2023 fiscal. With this perspective, the repo rate and reverse repo rate remain at 4% and 3.35%, respectively, since May 22, 2020. A balancing act between economic growth and inflation is visible. Though the RBI rates are consistent, the burden on borrowers for the short-term and long-term, is still unpredictable.

1. The primary purpose of the monetary policy of RBI is to maintain

(a) Wealth

(b) Exchange Rate Volatility

(c) Income Equality

(d) Stability of prices

2. The stance of a monetary policy wherein the interest rates may move either way, upwards or downwards, is called

(a) Accommodative stance

(b) Neutral stance

(c) Calibrated stance

(d) Hawkish stance

3. An increase in investment is most likely to be caused by

(a) Decrease in marginal propensity to consume

(b) Expectations of lower GDP

(c) Lowering of interest rates

(d) Writing-off of Non-performing Assets

4. Quantitative easing by the Central bank implies

(a) Selling of assets by the Central bank

(b) Lowering of interest rates for commercial bank lending

(c) Purchase of assets by the Central bank

(d) Central bank reducing the policy rate

5. Changes in foreign portfolio investments is directly related to

(a) Money demanded

(b) Exchange rates

(c) Prices

(d) Circulation of money


1 - d

2 - b

3 - c

4 - c

5 - b