Reading Comprehension Practice Questions for SBI PO 2017
Directions (1 – 10): Read the passage given below and then
answer the questions given below the passage. Some words may be highlighted for
your attention.
Chief Economic Advisor Arvind
Subramanian laid the blame at the doors of Reserve Bank of India Governor
Raghuram Rajan for interest rate cuts not seeping through the system as the
central bank mismanaged the liquidity even after reducing policy rates.
The Economic Survey has downplayed
the effect of small savings rates on policy transmission as it said the bigger
factor was availability of liquidity, which fluctuated wildly during the period of rate cuts.
"The reason is straightforward;
if liquidity conditions are tight, commercial banks will be extra cautious
about passing on policy rate cuts into lower deposit rates, for fear of losing
customers and hence more liquidity", Subramanian said.
The survey said, "Small savings
schemes can't explain why reductions that have taken place in deposit rates
have not led to commensurate
reductions in lending rates. It consequently seems additional factors are at
work. One possible factor could be changes in liquidity conditions as these can
reinforce or negate the changes in policy rates."
For bond traders, the assertion in
the survey does not come as a surprise at all, given that they have been
complaining about the central bank's reluctance to keep the banking system with
surplus liquidity. When the net situation was that banks have to borrow from
RBI, they did not reduce deposit rates, which was partly responsible for yields
on bonds surging back to days before rate cuts began.
After the June rate cut, daily bank
borrowings fell to zero on average following RBI's easy monetary stance while
the scene changed after October's 50 basis points reduction. Banks started
borrowing Rs 1-1.75 lakh crore daily from RBI windows. A basis point is 0.01
percentage point.
Deposit rates before the rate cut in
January 2015 were about 50 basis points higher than policy or repo rate at
which banks borrow short-term funds from RBI. Now they are around 75 bps
higher.
"What quantity and price data
suggests is that starting in late 2015, liquidity has been tightening even as
policy rates have been cut," the survey said. "Consequently, market
interest and exchange rates are higher than otherwise, with implications for
domestic growth, exports and health of the over-indebted corporate
sector."
1. Who has blamed the RBI for mismanagement of liquidity?
a) Prime Minister
b) Finance Minister
c) Chief Economic Advisor
d) RBI Deputy Governor
e) Finance Ministry
2. According to the passage, when will be the commercial banks
be afraid of losing customers?
a) When liquidity conditions are tight
b) When liquidity conditions are relaxed
c) Liquidity conditions are not important
d) When policy rates are high
e) When deposit rates are high
3. What is the repo rate?
a) The rate at which RBI borrows funds from the banks.
b) The rate at which banks borrow short term funds from RBI.
c) The rate at which RBI borrows long term funds from banks.
d) The rate at which banks borrow long term funds from RBI.
e) None of the above.
4. 50 basis points reduction converts to how many percentage
points?
a) 0.05 percentage points
b) 50 percentage points
c) 500 percentage points
d) 5000 percentage points
e) 0.5 percentage points
5. According to the passage, what is the likely effect of the
reduction in deposit rates?
a) Reduction in liquidity
b) Reduction in money supply
c) Expansion in money supply
d) Reduction in lending rates
e) Both 3 and 4
6. What kind of a banking system do bond traders not want?
a) A system with surplus liquidity
b) A system with little liquidity
c) A system with inflation
d) A system with no inflation
e) None of the above
7. What is the synonym for the word ‘commensurate’ as given in
the passage?
a) In proportion
b) Disproportionate
c) Opinion
d) Equivalent
e) Both 1 and 4
8. What is the antonym for the word ‘fluctuated’ as given in
the passage?
a) Oscillate
b) Swing
c) Change
d) Steady
e) Wavering
9. Which word in the passage means ‘an opinion or standpoint’?
a) Stance
b) Commensurate
c) Transmission
d) Reinforce
e) Surging
10. What is the main idea behind the passage?
a) Liquidity mismanagement by the RBI has caused the interest
rate cuts not to have the desired effect.
b) Liquidity management by the RBI has caused the interest
rate cuts not to have the desired effect.
c) The disagreement between RBI and bond traders.
d) Transactions between the commercial banks and RBI.
e) Both 3 and 4
Answers:
1. C) 2. A)
3. B) 4. E) 5. D)
6. B) 7. E) 8. D)
9. A) 10. A)
