Page 268 - DECO502_INDIAN_ECONOMIC_POLICY_ENGLISH

Indian Economic Policy

Notes (ii) The measure of the degree of association between the values of two random variables is
called?
(a) Correlation (b) Association
(c) Regression (d) Co-variance
(iii) In any set of numbers, the geometric mean exists only when all numbers are?
(a) Positive (b) Negative
(c) Zero (d) Positive, zero or negative
(iv) Through open market operations, the Federal Reserve buys and sells government securities
to influence the supply of bank reserves. When the Fed wants to increase reserves, it does
what?
(a) Sells securities (b) Nothing
(c) Buys securities
(v) Which of these is NOT a monetary policy tool?
(a) Reserve requirements (b) Open market operations
(c) Balance accounts (d) Discount rate
(vi) Federal Reserve Board of Governors members serve ............... terms to help insulate them
from political influence.
(a) 7 year (b) Lifetime
(c) 25 year (d) 14 year
(vii) Monetary policy refers to what the Federal Reserve does to influence the amount of ...............
and ............... in the U.S. economy.
(a) Taxes and revenue (b) Currency and gold reserves
(c) Interest and debt (d) Money and credit
20.3 Summary

• In a broad sense, finance refers to funds or monetary resources needed by individuals, business
houses and the Government. Individuals and households require funds essentially for meeting
their current requirements or day-to-day expenses or for buying capital goods (commonly known
as investment).
• The financial system of India refers to the system of borrowing and lending of funds or the
demand lor and the supply of funds of all individuals, institutions, companies and of the
Government. Commonly, the financial system is classified into :
• The Indian financial system performs a crucial role in economic development of India through
saving investment process, also known as capital formation. It is for this reason that the financial
system is sometimes called the financial market.
• The Indian financial system which refers to the borrowing and lending of funds or to the demand
for and supply of funds, consists of two parts, viz., the Indian Money market and the Indian
Capital market.
• The Indian capital market is the market for long-term capital; it refers to all the facilities and
institutional arrangements for borrowing and lending “term funds”—medium-term and long-
term funds. The demand for long-term money capital comes predominantly from private and
public manufacturing industries, trading and transport units, etc .
• A money market is not a market for money but it is a market for “near money”; or it is the
market for lending and borrowing of short-term funds. It is the market where the short-term
surplus investible funds of banks and other financial institutions are demanded by borrowers
comprising individuals companies and the Government.
• One important sub-market of the Indian money market is the Call Money Market, which is the
market for very short-term funds.

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