Statement 2 is Incorrect:
Financial Stability and Development Council is chaired by Union Finance Minister

Financial Stability and Development Council (FSDC)
It is an apex-level body constituted by the government of India.

Members: Heads of the financial sector regulatory authorities (i.e., RBI, SEBI, IRDA, and PFRDA), Finance Secretary and/or Secretary, Department of Economic Affairs (Union Finance Ministry), Secretary, Department of Financial Services, and Chief Economic Adviser. FSDC can invite experts to its meeting if required.

The objectives of FSDC would be to deal with issues relating to:
• Financial stability
• Financial sector development
• Inter-regulatory coordination
• Financial literacy
• Financial inclusion
• Macro prudential supervision of the economy including the functioning of large financial conglomerates.
• Coordinating India’s international interface with financial sector bodies such as the Financial Action Task Force (FATF) and Financial Stability Board (FSB).

Option D is Incorrect:
Under Floating Exchange Rate,the exchange rate is determined in well-functioning foreign exchange markets with no government interference.The exchange rate reflects the true value of the domestic currency which helps in establishing the trust among foreign investor.

Under this system, the market is allowed to determine the value of exchange rate freely.
The exchange rate is determined by the forces of demand and supply.

If due to any reason exchange rate fluctuates, the government never intervenes and allows the market to function and determine the true value of exchange rate.
The only demerit of floating exchange rate system is that exchange rate fluctuates a lot on day to day basis.

The advantages of such a system are: the exchange rate is determined in well-functioning foreign exchange markets with no government interference.
The exchange rate reflects the true value of the domestic currency which helps in establishing the trust among foreign investor.
A country can easily access funds/ loans from IMF and other international institutions if the exchange rate is market determined.

Both Statements are Correct.
Banker’s bank And Lender of Last Resort:
RBI acts as a banker to other banks. It provides financial assistance to scheduled banks and state co-operative banks in the form of rediscounting of eligible bills and loans and advances against approved securities.
RBI acts as a lender of last resort. It provides funds to the bank when they fail to get it from any other source.
It also acts as a clearing house. Through RBI, banks make inter-banks payments.
Manages Exchange Rate and Is Custodian of the Foreign Exchange Reserve:
RBI has the responsibility of removing fluctuations from the exchange rate market and maintaining a competitive and stable exchange rate.
RBI functions as custodian of nations foreign exchange reserves.
It has to maintain a fair external value of Rupee.
RBI achieves its objective through appropriate monetary and exchange rate policies.

Statement 3 is Incorrect:
MAT is applicable to both public and private companies

Minimum Alternate Tax (MAT) is a tax levied on profit-making entities that do not pay corporate income-tax because of exemptions and incentives. It facilitates the taxation of zero tax companies. A zero taxcompany is a business that shows a book profit and pays dividends to investors but does not pay taxes.

As per meaning of MAT, the tax obligation of the company will be higher of the following:
Income tax of company calculated as per normal provision of income tax.
Tax calculated at x% on book profit plus surcharge and cess as applicable.

Statement 2 is Incorrect:
MSF is always fixed higher than the repo rate

Marginal Standing Facility is a new Liquidity Adjustment Facility (LAF) window created by Reserve Bank of India in its credit policy of May 2011. MSF is the rate at which the banks are able to borrow overnight funds from RBI against the approved government securities.
MSF has been introduced by RBI with the main aim of reducing volatility in the overnight lending rates in the interbank market and to enable smooth monetary transmission in the financial system.
MSF is always fixed above the repo rate. It represents the upper band of the interest corridor with repo rate at the middle and reverse repo as the lower band.

Both Statements are Correct:
A Non-Banking Financial Company (NBFC) is a company registered under the Companies Act, 1956 engaged in the business of loans and advances, acquisition of shares/stocks/bonds/debentures/securities issued by Government or local authority or other marketable securities of a like nature, leasing, hire- purchase, insurance business, chit business but does not include any institution whose principal business is that of agriculture activity, industrial activity, purchase or sale of any goods (other than securities) or providing any services and sale/purchase/construction of immovable property.
A non-banking institution which is a company and has principal business of receiving deposits under any scheme or arrangement in one lump sum or in installments by way of contributions or in any other manner, is also a non-banking financial company (Residuary non-banking company).

Difference between NBFC and Banks
The major differences between NBFCs and Banks are as follows:
NBFC cannot accept demand deposits (they can accept term deposits).
NBFCs do not form part of the payment and settlement system.

Statement 1 is Incorrect:
It is a statutory body.

SEBI:
The Securities and Exchange Board of India (SEBI) was established in 1988. It got a legal status in 1992. SEBI was primarily set up to regulate the activities of the merchant banks, to control the operations of mutual funds, to work as a promoter of the stock exchange activities and to act as a regulatory authority of new issue activities of companies. The SEBI was set up with the fundamental objective, ‘to protect the interest of investors in securities market and for matters connected therewith or incidental thereto.’

Functions of SEBI:
To regulate the business of the stock market and other securities market.
To promote and regulate the self regulatory organizations.
To prohibit fraudulent and unfair trade practices in securities market.
To promote awareness among investors and training of intermediaries about safety of market.
To prohibit insider trading in securities market.
To regulate huge acquisition of shares and takeover of companies.

Statement 2 is Incorrect:
There is no defined relation between repo rate and currency deposit ratio.

The Currency Deposit Ratio:
The Currency Deposit Ratio (cdr) is the ratio of money held by the public in currency to that they hold in bank deposits.
cdr = CU/DD.
If a person gets Re. 1 she will put Rs. 1/(1 + cdr) in her bank account and keep Rs. cdr/(1 + cdr) in cash.
It reflects people’s preference for liquidity. It is a purely behavioral parameter which depends, among other things, on the seasonal pattern of expenditure. For example, CDR increases during the festive season as people convert deposits to cash balance for meeting extra expenditure during such periods.

Statement 2 is Incorrect:
For Masala Bonds, the currency risk resides with investor.
Masala Bonds:
‘Masala Bonds’ are Indian rupee denominated bonds issued in offshore capital markets which issued to offshore investors settled in dollars and, therefore, the currency risk resides with investors. It is used to refer to rupee-denominated borrowings by Indian entities in overseas markets.
The International Finance Corporation (IFC) the investment branch of the World Bank issued a 10-year, 10 billion Indian rupee bonds in November 2014 to increase foreign investment in India and mobilize international capital markets to support infrastructure development in the country.
Masala bond was the first Indian bond to get listed in London Stock Exchange. IFC named it Masala bonds to give a local flavour by calling to mind Indian culture and cuisine. Moreover, there are popular bonds name are there in the list Dim-Sum Bond of China and Samurai Bonds of Japan, Yankee of USA and the bulldog of UK.

Statement 1 is Incorrect:
What is MUDRA Bank and what is its role in the MUDRA Yojna?
– MUDRA Bank = Micro Units Development and Refinance Agency Bank
– The Rs 20,000 crore MUDRA Bank aims to provide refinancing to small and medium enterprises, particularly those from SC & ST
– The idea is to refinance micro-finance institutions through Pradhan Mantri Mudra Yojana
– This bank would be responsible for regulating and refinancing all MFIs which are in the business of lending to MSME

Statement 3 is Incorrect:
Developed economies generally go through liquidity trap.
‘Liquidity Trap’:
The liquidity trap is the situation in which the current interest rates are low and savings rates are high, rendering monetary policy ineffective. In a liquidity trap, consumers choose to avoid bonds and keep their funds in savings because of the prevailing belief that interest rates will soon rise. Because bonds have an inverse relationship to interest rates, many consumers do not want to hold an asset with a price that is expected to decline.
As part of the liquidity trap, consumers continue to hold funds in standard deposit accounts, such as savings and checking accounts, instead of in other investment options, even when the central banking system attempts to stimulate the economy through the injection of additional funds. These consumer actions, often spurred by the belief of a negative economic event on the horizon, causes monetary policy to be generally ineffective.

Statements 2 and 3 are Incorrect:
Payments banks are a new model of banks conceptualised by the Reserve Bank of India (RBI) to meet government’s financial inclusion target.
It will be set up as a differentiated bank and will confine its activities to acceptance of demand deposits, remittance services, Internet banking and other specified services but cannot undertake lending services.
Payments banks can accept deposits up to Rs. 1 lakh per account from individuals and small businesses. They can issue ATM/debit cards but not credit cards. They can also issue other prepaid payment instruments.
They can distribute non-risk sharing simple financial products like mutual funds and insurance products. Non-resident Indians (NRIs) are not be allowed to open accounts in payment banks. This new model of banking allows mobile firms, supermarket chains and others to cater to banking requirements of individuals and small businesses.

Both Statements are Correct:
A Giffen good is a good for which demand increases as the price increases, and falls when the price decreases. A Giffen good has an upward-sloping demand curve, which is contrary to the fundamental law of demand which states that quantity demanded for a product falls as the price increases, resulting in a downward slope for the demand curve.
A Giffen good is typically an inferior product that does not have easily available substitutes, as a result of which the income effect dominates the substitution effect. Giffen goods are quite rare, to the extent that there is some debate about their actual existence. The term is named after the economist Robert Giffen.

Statement 2 is Incorrect:
Mutual Funds are regulated by SEBI.

A mutual fund is a fund that is created when a large number of investors put in their money, and is managed by professionally qualified persons with experience in investing in different asset classes-shares, bonds, money market instruments like call money, and other assets like gold and property.

The name of the mutual fund gives a good idea about what type of asset class a fund, also called a scheme, will invest in. For example, a diversified equity fund will invest in a large number of stocks, while a gilt fund will invest in government securities while a pharma fund will mainly invest in stocks of companies from the pharmaceutical and related industrie.

There are three types of schemes in which an investor can invest in. These are open-ended schemes, closed-ended schemes, and exchange-traded funds (ETFs).

Open Ended Fund:
An open-ended fund is the one which is usually available from a mutual fund on an ongoing basis that is an investor can buy or sell as and when they intend to at a NAV-based price.

As investors buy and sell units of a particular open-ended scheme, the number of units issued also changes every day.

The value of the scheme’s portfolio also changes on a daily basis. So, the NAV also changes on a daily basis. In India, fund houses can sell any number of units of a particular scheme, but at times fund houses restrict selling additional units of a scheme for some time.

Close-ended Fund:
A close-ended fund usually issue units to investors only once, when they launch an offer, called new fund offer (NFO) in India.

Thereafter, these units are listed on the stock exchanges where they are traded on a daily basis. As these units are listed, any investor can buy and sell these units through the exchange.

As the name suggests, close-ended schemes are managed by fund houses for a limited number of years, and at the end of the term either money is returned to the investors or the scheme is made open-ended.

However, usually, units of close ended funds which are listed on the stock exchanges, trade at a high discount to their NAVs. But as the date for closure of the fund nears, the discount between the NAV and the trading price narrows, and vanishes on the day of closure of the scheme.

ETFs:
ETFs are a mix of open-ended and close-ended schemes.
ETFs, like close-ended schemes, are listed and traded on a stock exchange on a daily basis, but the price is usually very close to its NAV, or the underlying assets, like gold ETFs.

Statement 1 is Incorrect:
Inflation harms creditors, as they lose in real terms

Effects of Inflation on Different Sections:
Creditor/lender : Inflation harms creditors, as they lose in real terms.

For example : A 1000 Rupees lent @ 5%, will pay an interest rate of 50. If inflation rises to 10%, the price of goods will be 1100, but after interest, the return will only be 1050.

Debtor/Borrower : Inflation benefits the Debtor as they gain in real terms.

Pensioner : Inflation harms the pensioners, if their pensions are not indexed to inflation, and loses money.
Producers : They stand to gain by inflation since the price of goods and services rise faster than the cost of production as wages take time lag to react.
Wealth Holders : They stand to lose due to inflation, as their real returns fall due to rise in prices.

Option C is Correct:
A deficit can be defined as a value by which the total amount falls short of a reference amount.
Revenue Deficit:
Revenue deficit is the excess of total revenue expenditure of the government over its total revenue receipts. It is related to only revenue expenditure and revenue receipts of the government. Alternatively, the shortfall of total revenue receipts compared to total revenue expenditure is defined as revenue deficit.

It is an indicator of the fact that the government or the organisation in consideration is not raising enough money to meet its basic needs and the provisions of schemes and services extended by it. Revenue deficit results in borrowing. For example, when government spends more than what it collects by way of revenue, it incurs revenue deficit. Mind, revenue deficit includes only such transactions which affect current income and expenditure of the government.

Fiscal Deficit:
The fiscal deficit is the excess of total budget expenditure over total budget receipts excluding borrowings during a fiscal year. In simple words, it is the amount of borrowing the government has to resort to meet its expenses.

When a large amount of borrowing is to be done by the government to fulfil its requirements. This is done when the available resources are scarce.

Primary Deficit:
Primary deficit is defined as the fiscal deficit of current year minus interest payments on previous borrowings.

The difference between fiscal deficit and primary deficit is that fiscal deficit indicates the borrowing requirements includes. of the interest amount where as primary deficit excludes interest payment amount. We have seen that borrowing requirement of the government includes not only accumulated debt, but also interest payment on the debt. If we deduct ‘interest payment on debt’ from borrowing, the balance is called primary deficit

Option C is Correct:
National Income at Factor Cost
National Income from Factor Cost is also called National Income of a country.
National Income means the sum of all incomes earned by the citizens in the form of Rent, Wages, Interest and Profits.

The difference between National Income at Factor Cost and National Income at Market Price (NNPMP) arises from the fact that indirect taxes and subsidies cause the market price to be different from the factor income received by the citizens.

Example, A mobile handset of Rs10,000 purchased by you includes a GST of 12%. In this case, while the market price of RS 10,000 includes the GST. The factor of production used to produce mobile handset will only get RS 8800. Thus, the difference between market price and factor cost is the tax.

Similarly, a subsidy results in the market price of a product to be less than the factor cost.
Therefore, while calculating National Income, we must deduct indirect taxes and add subsidies into Net National Product at Market Price.
NNPFC = NNPMP – Indirect Taxes + Subsidies.

Both Statements are Incorrect:
Headline inflation includes food and fuel items.

Core inflation is used by government as tool for framing long-term policy targeting inflation.

Inflation is a rise in the general level of prices of goods and services in an economy over a period of time. When the general price level rises, Each unit of currency buys fewer goods and services.

Headline Inflation versus Core Inflation:
Headline inflation reflects prices of all the tradeables within an economy including those commodities or items that experience sudden inflationary spikes such as food or energy. On the other hand, Core Inflation is a measure which excludes transitory or temporary price volatility as in the case of some commodities such as food items, energy products etc.

Since headline inflation includes everything, it may not present an accurate picture of the current state of the economy. On the other hand, the core inflation shows long term trends and is focused by Central Banks because it reflects the demand side pressure in the economy. It is also used as tool for framing long-term policy. In recent years, due to the these reasons, RBI has inclined from headline to core inflation which shows a more correct trend in inflation.

Statement 2 is Incorrect:
GDP at (Constant) Market price is the official GDP of India.

When we combine the monetary value of all the final goods and services produced in the economic territory of a country for a specified time such as a year, this will be called “Gross Domestic Product”. GDP is concerned with the final / finished goods and not the unfinished or intermediate goods.

GDP at Current Prices and Constant Prices:
GDP can be estimated at the current prices and constant prices. GDP at Current prices is the total market value of goods and services at current market prices. For example, if the average unit price of 100 goods + services is Rs. 100 in 2010 and Rs. 150 in 2015; then the GDP will be Rs. 10000 in 2010 but Rs. 15000 in 2015 at current prices. Thus, this figure does not take into account the inflation and despite being an increased figure in value; the increase in production is zero.
Due to this, GDP at Current Prices is also known as Nominal GDP. In this figure inflation is not adjusted, so can be misleading. When it is estimated on the basis of some fixed prices prevalent at a particular point of time, this is called GDP at constant prices. If the average unit price of 100 goods + services is Rs. 100 in 2010 and Rs. 150 in 2015; then the GDP at current prices will be Rs. 10000 in 2010 but Rs. 15000 in 2015. However, GDP at constant prices will still be Rs. 10000, so GDP growth is zero in this case

Statement 2 is Incorrect:
RBI extends LAF facility only to commercial banks (excluding RRBs) and Primary dealers.

Liquidity Adjustment Facility (LAF) is the primary instrument of Reserve Bank of India for modulating liquidity and transmitting interest rate signals to the market. It refers to the difference between the two key rates viz. repo rate and reverse repo rate. Informally, Liquidity Adjustment Facility is also known as Liquidity Corridor.

How Liquidity Adjustment Facility works :
As mentioned above, the two components of LAF are repo rate and reverse repo rate. Under Repo, the banks borrow money from RBI to meet short term needs by putting government securities (G-secs) as collateral. Under Reverse Repo, RBI borrows money from banks by lending securities. While repo injects liquidity into the system, the Reverse repo absorbs the liquidity from the system. RBI only announces Repo Rate. The Reverse Repo Rate is linked to Repo Rate and is 100 basis points (1%) below repo rate. RBI makes decision regarding Repo Rate on the basis of prevalent market conditions and relevant factors.
Banks participating in LAF auctions:
All the Scheduled Commercial Banks are eligible to participate in auctions except the Regional Rural Banks. Further, the Primary Dealers (PDs) having Current Account and SGL Account (Subsidiary General Ledger Account ) with Reserve Bank, Mumbai are also eligible to participate in the Repo and Reverse Repo auctions.