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Question 1General Knowledge and Banking Awareness

Under Nepal Rastra Bank's regulatory framework, which institution is primarily responsible for formulating and implementing monetary policy in Nepal?

  1. Ministry of Finance
  2. Nepal Rastra Bank Correct answer.
  3. Nepal Bankers' Association
  4. Securities Board of Nepal

Explanation

Nepal Rastra Bank is the central bank of Nepal and, under the Nepal Rastra Bank Act, is entrusted with formulating and implementing monetary policy to maintain price and balance-of-payments stability. The Ministry of Finance handles fiscal policy, while the other bodies have different mandates.

Question 2General Knowledge and Banking Awareness

In Nepalese banking terminology, what does the abbreviation 'NRB' stand for?

  1. Nepal Rural Bank
  2. National Reserve Board
  3. Nepal Rastra Bank Correct answer.
  4. Nepal Regulatory Bureau

Explanation

NRB is the standard abbreviation for Nepal Rastra Bank, the country's central bank established in 1956. Candidates should recognize this abbreviation because it appears constantly in circulars, directives, and monetary policy documents.

Question 3General Knowledge and Banking Awareness

Which of the following is classified as a 'A' class licensed institution under Nepal Rastra Bank's bank classification?

  1. Microfinance institution
  2. Finance company
  3. Commercial bank Correct answer.
  4. Development bank

Explanation

Nepal Rastra Bank licenses banks and financial institutions in classes, with 'A' class denoting commercial banks. Development banks fall under 'B' class, finance companies under 'C' class, and microfinance institutions under 'D' class.

Question 4General Knowledge and Banking Awareness

A customer deposits NPR 100,000 in a commercial bank. If the cash reserve ratio is 4 percent, how much of this deposit must the bank hold as reserves with Nepal Rastra Bank?

  1. NPR 4,000 Correct answer.
  2. NPR 40,000
  3. NPR 400
  4. NPR 96,000

Explanation

The cash reserve ratio is the share of deposits that a bank must maintain as reserves, here 4 percent of NPR 100,000, which equals NPR 4,000. The remaining NPR 96,000 is available for lending subject to other requirements.

Question 5General Knowledge and Banking Awareness

Which instrument is a short-term debt security issued by the Government of Nepal to raise funds, typically for periods of less than one year?

  1. Corporate debenture
  2. Preference share
  3. Fixed deposit receipt
  4. Treasury bill Correct answer.

Explanation

Treasury bills are short-term government securities issued at a discount and redeemed at face value, commonly used for cash management. Corporate debentures and preference shares are issued by companies, while fixed deposit receipts are bank liabilities.

Question 6General Knowledge and Banking Awareness

What is the principal function of a commercial bank when it accepts deposits from the public and lends those funds to borrowers?

  1. Currency issuance
  2. Securities underwriting
  3. Financial intermediation Correct answer.
  4. Fiscal administration

Explanation

By collecting surplus funds from depositors and channeling them to borrowers, a commercial bank performs financial intermediation, transforming small short-term deposits into larger loans. Currency issuance and fiscal administration are central bank and government functions.

Question 7General Knowledge and Banking Awareness

In Nepal, deposits held by customers in banks and financial institutions are protected up to a specified limit by which institution?

  1. Insurance Board
  2. Deposit and Credit Guarantee Fund Correct answer.
  3. Nepal Stock Exchange
  4. Employee Provident Fund

Explanation

The Deposit and Credit Guarantee Fund provides insurance cover to small depositors of licensed banks and financial institutions, up to a ceiling set by the Fund. This protects depositors in the event of institutional failure.

Question 8General Knowledge and Banking Awareness

Which of the following best describes 'KYC' in banking operations?

  1. A type of government bond issued to retail investors
  2. A process to identify and verify customers before providing services Correct answer.
  3. A method of calculating interest on savings accounts
  4. A scheme for refinancing agricultural loans

Explanation

Know Your Customer (KYC) is a due-diligence process through which banks identify and verify the identity of clients before opening accounts or providing services. It supports anti-money-laundering and counter-terrorist-financing compliance.

Question 9General Knowledge and Banking Awareness

Nepal Rastra Bank issues directives to banks and financial institutions primarily to achieve which objective?

  1. To determine the interest rates charged by cooperative shops
  2. To ensure financial stability and protect depositors Correct answer.
  3. To maximize the profits of individual banks
  4. To set the salaries of bank employees

Explanation

NRB's directives set prudential norms on capital, liquidity, lending, and governance to safeguard the financial system and depositors' interests. Profit maximization and salary setting are matters for individual institutions, not the regulator's objective.

Question 10General Knowledge and Banking Awareness

A bank's total risk-weighted assets are NPR 500 million and its capital is NPR 60 million. What is its capital adequacy ratio?

  1. 8 percent
  2. 10 percent
  3. 12 percent Correct answer.
  4. 6 percent

Explanation

The capital adequacy ratio is capital divided by risk-weighted assets, here 60 divided by 500, which equals 12 percent. This ratio indicates the bank's cushion against credit, market, and operational risks.

Question 11General Knowledge and Banking Awareness

Which of the following is a qualitative tool of monetary control used by Nepal Rastra Bank?

  1. Open market operations
  2. Bank rate
  3. Moral suasion Correct answer.
  4. Cash reserve ratio

Explanation

Moral suasion is a qualitative or selective tool through which the central bank persuades banks to follow desired lending practices. Open market operations, the cash reserve ratio, and the bank rate are quantitative instruments that act through volumes or prices of credit.

Question 12General Knowledge and Banking Awareness

In Nepalese banking, what is the main purpose of maintaining a statutory liquidity ratio?

  1. To determine the number of branches a bank may open
  2. To fix the maximum interest rate on loans
  3. To limit foreign exchange transactions
  4. To ensure banks hold a minimum of liquid assets against deposits Correct answer.

Explanation

The statutory liquidity ratio requires banks to hold a specified proportion of their liabilities in liquid assets such as cash, gold, and approved securities. This safeguards solvency and ensures that banks can meet withdrawals.

Question 13General Knowledge and Banking Awareness

A Nepali exporter receives USD 10,000 from a foreign buyer. Through which mechanism is this foreign currency converted and recorded in the domestic banking system?

  1. Exchanging the dollars at any retail grocery store
  2. Surrendering the foreign exchange to a licensed bank and receiving local currency Correct answer.
  3. Depositing the dollars directly with the Ministry of Finance
  4. Holding the dollars without any banking record

Explanation

Under Nepal's exchange-control framework, foreign exchange earnings are surrendered to authorized dealers, who credit the equivalent in local currency and report the transaction. Only licensed institutions may deal in foreign exchange.

Question 14General Knowledge and Banking Awareness

Which of the following instruments is typically used by Nepal Rastra Bank to absorb excess liquidity from the banking system?

  1. Lowering the minimum balance requirement for savings accounts
  2. Issuing deposit collection instruments to banks Correct answer.
  3. Reducing the paid-up capital requirement
  4. Increasing government capital expenditure

Explanation

Deposit collection instruments allow NRB to mop up surplus liquidity by taking deposits from banks at a specified rate. Capital requirements, government spending, and account rules affect liquidity indirectly rather than through direct absorption.

Question 15General Knowledge and Banking Awareness

What does the term 'non-performing loan' refer to in a bank's portfolio?

  1. A loan disbursed in foreign currency
  2. A loan on which principal or interest has remained overdue beyond the prescribed period Correct answer.
  3. A loan granted at a subsidized interest rate
  4. A loan secured by a government guarantee

Explanation

A loan is classified as non-performing when principal or interest payments are overdue beyond the period specified in NRB's loan-loss provisioning directives. Such loans require provisioning and signal deteriorating asset quality.

Question 16General Knowledge and Banking Awareness

Which institution regulates and supervises insurance companies in Nepal?

  1. Nepal Rastra Bank
  2. Insurance Board Correct answer.
  3. Securities Board of Nepal
  4. Department of Cooperatives

Explanation

The Insurance Board is the sectoral regulator for insurance business in Nepal, licensing insurers and enforcing prudential norms. NRB supervises banks, the Securities Board oversees capital markets, and the Department of Cooperatives handles cooperatives.

Question 17General Knowledge and Banking Awareness

A bank customer wants to remit money to a relative abroad. Which channel is legally authorized for such remittance under Nepalese regulations?

  1. A foreign exchange dealer without a license
  2. A licensed remittance company or authorized bank Correct answer.
  3. A private individual acting as an agent
  4. An informal hundi operator

Explanation

Only banks and licensed remittance companies are authorized to handle outward remittances under Nepal's foreign exchange regulations. Informal channels such as hundi are illegal and expose users to legal and financial risk.

Question 18General Knowledge and Banking Awareness

What is the primary role of the Nepal Stock Exchange in the financial system?

  1. Setting monetary policy targets
  2. Issuing currency notes on behalf of the central bank
  3. Providing a platform for trading listed securities Correct answer.
  4. Guaranteeing deposits of commercial banks

Explanation

The Nepal Stock Exchange operates the secondary market where listed shares, debentures, and other securities are bought and sold. Currency issuance, deposit insurance, and monetary policy are functions of other institutions.

Question 19General Knowledge and Banking Awareness

A bank faces a sudden surge in deposit withdrawals. Which ratio would best indicate its ability to meet such short-term obligations?

  1. Capital adequacy ratio
  2. Return on equity
  3. Liquidity ratio Correct answer.
  4. Net interest margin

Explanation

The liquidity ratio compares liquid assets with short-term liabilities and shows whether a bank can meet withdrawals as they fall due. Capital adequacy measures loss absorption, while return on equity and net interest margin are profitability indicators.

Question 20General Knowledge and Banking Awareness

Which of the following best explains why Nepal Rastra Bank requires banks to maintain a minimum paid-up capital?

  1. To reduce the tax liability of banks
  2. To fix the interest rate on deposits
  3. To increase the number of bank branches
  4. To ensure banks have an adequate buffer to absorb losses Correct answer.

Explanation

Minimum paid-up capital requirements strengthen a bank's loss-absorption capacity and reduce the risk of failure. They do not control branch numbers, deposit rates, or tax liability, which are governed by other policies.

Question 21General Knowledge and Banking Awareness

In the context of Nepalese banking, what does 'priority sector lending' require?

  1. Restricting all lending to government securities
  2. Lending only to large corporate borrowers
  3. Directing a specified share of credit to sectors such as agriculture and small enterprises Correct answer.
  4. Charging uniform interest rates to all borrowers

Explanation

Priority sector lending obliges banks to allocate a minimum proportion of their loans to productive sectors such as agriculture, energy, and small and medium enterprises. This supports inclusive growth and sectoral development.

Question 22General Knowledge and Banking Awareness

Which of the following is the most accurate description of 'financial inclusion' in Nepal's banking policy?

  1. Restricting banking services to urban areas
  2. Removing all interest rate regulations
  3. Extending affordable financial services to unbanked and underserved populations Correct answer.
  4. Merging all banks into a single institution

Explanation

Financial inclusion means ensuring that individuals and businesses, especially in rural and low-income groups, have access to affordable and appropriate financial products and services. It is promoted through branch expansion, digital banking, and simplified accounts.

Question 23General Knowledge and Banking Awareness

A bank's gross non-performing loans are NPR 40 million and total loans are NPR 800 million. What is the gross NPL ratio?

  1. 5 percent Correct answer.
  2. 8 percent
  3. 10 percent
  4. 20 percent

Explanation

The gross NPL ratio is gross non-performing loans divided by total loans, here 40 divided by 800, which equals 5 percent. This ratio is a key indicator of asset quality and is monitored closely by the regulator.

Question 24General Knowledge and Banking Awareness

Which policy combination would most likely reduce inflationary pressure in Nepal's economy?

  1. Tightening monetary policy while restraining government expenditure Correct answer.
  2. Devaluing the currency while cutting taxes
  3. Lowering policy rates while increasing public spending
  4. Expanding credit while reducing reserve requirements

Explanation

Inflation is curbed when aggregate demand is restrained, so tighter monetary policy and fiscal consolidation act together to reduce spending pressure. The other combinations expand demand or raise import costs, worsening inflation.

Question 25General Knowledge and Banking Awareness

A bank reports a high net interest margin but a low return on assets. Which explanation is most plausible?

  1. The bank's capital base is unusually large
  2. High operating expenses are eroding profitability despite strong interest spreads Correct answer.
  3. The bank is earning excessive interest income relative to its assets
  4. The bank has no non-performing loans

Explanation

Net interest margin measures the interest spread, while return on assets reflects overall profitability after all costs. A wide spread combined with low returns suggests that operating costs, provisions, or losses are consuming the interest income.

Question 26General Knowledge and Banking Awareness

Which body is the apex monetary authority of Nepal and is responsible for formulating and implementing monetary policy?

  1. Nepal Rastra Bank Correct answer.
  2. Nepal Insurance Authority
  3. Nepal Stock Exchange
  4. Securities Board of Nepal

Explanation

Nepal Rastra Bank is the central bank of Nepal, established under the Nepal Rastra Bank Act, and it holds the statutory mandate to formulate and implement monetary policy, issue currency, and supervise banks and financial institutions. The other bodies regulate insurance, securities markets, and securities trading respectively, not monetary policy.

Question 27General Knowledge and Banking Awareness

Nepal Rastra Bank issues currency notes. Which of the following is the highest denomination of banknote currently issued for general circulation in Nepal?

  1. NPR 5,000
  2. NPR 2,000
  3. NPR 500
  4. NPR 1,000 Correct answer.

Explanation

Nepal Rastra Bank currently issues banknotes up to the NPR 1,000 denomination for general circulation, alongside lower denominations such as 5, 10, 20, 50, 100, and 500. Higher denominations like 2,000 or 5,000 are not part of Nepal's note series.

Question 28General Knowledge and Banking Awareness

A customer in Nepal wants to open a savings account. Which document is most commonly required as the primary proof of identity under KYC norms?

  1. A citizenship certificate or passport Correct answer.
  2. A land ownership certificate
  3. A utility bill in the customer's name
  4. A recent salary slip

Explanation

Under Nepal's KYC and anti-money-laundering requirements, a government-issued photo identity document such as a citizenship certificate or passport is the primary identity proof. Utility bills and salary slips serve as address or income evidence, and land certificates are not standard identity documents.

Question 29General Knowledge and Banking Awareness

In Nepalese banking terminology, what does the term 'Bittiya Sanstha' most closely refer to?

  1. A cooperative savings group outside regulation
  2. A financial institution licensed to conduct financial transactions Correct answer.
  3. A foreign exchange dealer only
  4. A government revenue office

Explanation

'Bittiya Sanstha' translates as financial institution, and in Nepal it denotes entities licensed by Nepal Rastra Bank to carry out banking and financial transactions, including commercial banks, development banks, and finance companies. It is broader than a single function such as foreign exchange dealing.

Question 30General Knowledge and Banking Awareness

A commercial bank in Nepal classifies a term loan account as 'pass', 'watchlist', 'substandard', 'doubtful', or 'bad'. What is the primary basis for this classification?

  1. The number of days the principal or interest has remained overdue Correct answer.
  2. The size of the loan relative to the borrower's income
  3. The interest rate charged on the loan
  4. The currency in which the loan is denominated

Explanation

Nepal Rastra Bank's loan-loss provisioning framework classifies loans primarily by the ageing of overdue amounts, moving an account from pass to watchlist, substandard, doubtful, and bad as the overdue period lengthens. Loan size, pricing, and currency do not drive this classification.

Question 31General Knowledge and Banking Awareness

A bank holds NPR 1,000 million in cash and balances with Nepal Rastra Bank and has total deposits of NPR 8,000 million. If the cash reserve ratio requirement is 4 percent, what is the minimum required cash reserve in NPR million?

  1. 40
  2. 80
  3. 320 Correct answer.
  4. 400

Explanation

The cash reserve ratio is applied to total deposits, so the requirement is 4 percent of NPR 8,000 million, which equals NPR 320 million. The bank's actual holding of NPR 1,000 million exceeds this minimum.

Question 32General Knowledge and Banking Awareness

Which Nepali institution is responsible for collecting and maintaining credit information on borrowers so that lenders can assess their creditworthiness?

  1. Deposit and Credit Guarantee Fund
  2. Credit Information Bureau of Nepal Correct answer.
  3. Nepal Stock Exchange
  4. Nepal Rastra Bank's foreign exchange department

Explanation

The Credit Information Bureau of Nepal compiles borrower credit histories and supplies credit reports to member banks and financial institutions for credit appraisal. The Deposit and Credit Guarantee Fund provides deposit insurance and credit guarantees, while the other options perform different functions.

Question 33General Knowledge and Banking Awareness

A Nepali bank receives a deposit in foreign currency from a non-resident and must maintain it under the rules for such accounts. Which type of account is designed for this purpose?

  1. A call money account with another bank
  2. A margin lending account
  3. A domestic savings account in NPR
  4. A foreign currency non-resident account maintained under exchange regulations Correct answer.

Explanation

Foreign currency deposits from non-residents are maintained in designated non-resident foreign currency accounts governed by Nepal Rastra Bank's foreign exchange regulations. Domestic NPR savings accounts, margin lending accounts, and interbank call money accounts serve entirely different purposes.

Question 34General Knowledge and Banking Awareness

A bank's net profit after tax is NPR 120 million, its total assets are NPR 6,000 million, and its equity is NPR 800 million. What is its return on equity?

  1. 2 percent
  2. 15 percent Correct answer.
  3. 6.7 percent
  4. 20 percent

Explanation

Return on equity equals net profit after tax divided by equity, so NPR 120 million divided by NPR 800 million equals 15 percent. Return on assets would instead divide profit by total assets.

Question 35General Knowledge and Banking Awareness

In Nepal, which scheme provides insurance cover to small depositors of licensed banks and financial institutions up to a prescribed limit?

  1. The Employees Provident Fund
  2. The Nepal Insurance Authority
  3. The Citizen Investment Trust
  4. The Deposit and Credit Guarantee Fund Correct answer.

Explanation

The Deposit and Credit Guarantee Fund administers deposit insurance, reimbursing small depositors up to the prescribed ceiling when a licensed institution fails. The provident fund and citizen investment trust manage retirement and investment savings, and the insurance authority regulates insurers.

Question 36General Knowledge and Banking Awareness

A bank wants to raise additional tier-1 capital by issuing an instrument that carries no fixed maturity and can absorb losses. Which instrument best fits this description under Basel-style capital rules?

  1. A perpetual non-cumulative preference share Correct answer.
  2. A short-term interbank borrowing
  3. A secured overdraft facility
  4. A fixed-term corporate bond

Explanation

Additional tier-1 capital must be perpetual and able to absorb losses, and perpetual non-cumulative preference shares are a typical qualifying instrument. Fixed-term bonds, short-term borrowings, and overdraft facilities are liabilities with maturity or repayment obligations and do not qualify as tier-1 capital.

Question 37General Knowledge and Banking Awareness

Nepal Rastra Bank conducts an open market operation by selling treasury bills to banks. What is the most direct intended effect of this action?

  1. To absorb liquidity from the banking system Correct answer.
  2. To increase the paid-up capital requirement
  3. To lower the statutory liquidity ratio automatically
  4. To inject liquidity into the banking system

Explanation

When the central bank sells securities, banks pay for them, which drains reserves from the banking system and absorbs liquidity. Injecting liquidity would require buying securities instead, while reserve and capital ratios are changed by separate directives.

Question 38General Knowledge and Banking Awareness

A bank's assets include long-term fixed-rate loans funded largely by short-term deposits. Which risk does this mismatch primarily create?

  1. Reputational risk from poor customer service
  2. Interest rate risk arising from maturity transformation Correct answer.
  3. Operational risk from internal process failures
  4. Country risk from foreign sovereign exposure

Explanation

Funding long-term fixed-rate assets with short-term liabilities is maturity transformation, which exposes the bank to interest rate risk because funding costs can reprice before asset yields do. Operational, reputational, and country risks arise from different sources and are not created by this maturity mismatch.

Question 39General Knowledge and Banking Awareness

A bank reports a low net interest margin but a high return on assets. Which combination most plausibly explains this outcome?

  1. High funding costs combined with large loan losses
  2. Strong growth in non-interest income such as fees and commissions alongside controlled operating expenses Correct answer.
  3. A large increase in provisions for loan impairments
  4. A sharp decline in the volume of loans and advances

Explanation

Net interest margin measures the spread earned on interest-bearing business, while return on assets reflects total earnings relative to assets, including non-interest income. Strong fee and commission income with contained expenses can lift return on assets even when the interest spread is thin. High funding costs, loan losses, or falling volumes would depress rather than raise profitability.

Question 40General Knowledge and Banking Awareness

Under Nepal's foreign exchange regulations, which activity is generally permitted for an authorized dealer without prior specific approval for each transaction?

  1. Opening a branch of a foreign bank in Nepal
  2. Issuing a foreign currency loan to a non-resident without limit
  3. Selling foreign exchange to a resident traveler within the prescribed travel allowance Correct answer.
  4. Guaranteeing a foreign loan on behalf of a resident without approval

Explanation

Authorized dealers may sell foreign exchange to resident travelers up to the prescribed travel allowance under the foreign exchange regulations without case-by-case approval. Establishing a foreign bank branch, extending unlimited foreign currency loans to non-residents, and issuing guarantees generally require specific regulatory approval.

Question 41Monetary Policy and Central Banking

Nepal Rastra Bank's primary objective under the Nepal Rastra Bank Act is best described as:

  1. Maintaining price stability and balance of payments stability to support sustainable economic development Correct answer.
  2. Setting sectoral lending ceilings for every commercial bank
  3. Maximizing seigniorage revenue for the government budget
  4. Financing the fiscal deficit directly through primary issuance of treasury bills

Explanation

The NRB Act assigns the central bank the core mandate of preserving price stability and balance of payments stability, with the broader aim of supporting sustainable development of the economy. Seigniorage maximization and direct deficit financing are not its objectives and are in fact restricted.

Question 42Monetary Policy and Central Banking

Which instrument does Nepal Rastra Bank use to absorb excess liquidity from the banking system on a short-term basis?

  1. Issuance of new currency notes
  2. Reduction of the cash reserve ratio
  3. Purchase of foreign exchange from banks
  4. Deposit collection auction Correct answer.

Explanation

Deposit collection auctions let the central bank mop up surplus interbank liquidity by accepting deposits from banks at a chosen rate. Raising reserve requirements or selling foreign exchange are separate operations with different transmission channels.

Question 43Monetary Policy and Central Banking

A bank faces a temporary shortfall of settlement balances. The facility Nepal Rastra Bank provides for such short-term liquidity against eligible collateral is the:

  1. Statutory liquidity ratio revision
  2. Cash reserve ratio hike
  3. Open market sale of securities
  4. Standing liquidity facility Correct answer.

Explanation

The standing liquidity facility is a standing window through which banks borrow overnight or short-term funds against approved collateral when they face settlement shortfalls. Open market sales and reserve ratio changes are policy instruments, not borrowing windows for individual banks.

Question 44Monetary Policy and Central Banking

The interest rate at which Nepal Rastra Bank lends to commercial banks against collateral, serving as a ceiling for short-term market rates, is the:

  1. Interbank weighted average rate
  2. Deposit rate
  3. Bank rate Correct answer.
  4. Base rate

Explanation

The bank rate is the central bank's collateralized lending rate and acts as a reference ceiling for short-term money market rates. Interbank rates are market-determined, while deposit and base rates are set by individual banks.

Question 45Monetary Policy and Central Banking

Which of the following is classified as a quantitative instrument of monetary policy?

  1. Directives on priority sector lending
  2. Open market operations Correct answer.
  3. Moral suasion
  4. Margin requirements on imports

Explanation

Open market operations affect the total volume of reserves and money supply, making them a quantitative instrument. Moral suasion and directed credit are qualitative or selective instruments that influence the direction rather than the volume of credit.

Question 46Monetary Policy and Central Banking

An increase in the cash reserve ratio, other things equal, will most likely:

  1. Increase the net worth of commercial banks
  2. Lower the cost of borrowing for customers
  3. Raise the money multiplier immediately
  4. Reduce the volume of loanable funds available to commercial banks Correct answer.

Explanation

The cash reserve ratio locks a larger share of deposits with the central bank, shrinking the reserves banks can lend and thereby contracting the money multiplier. The effect is contractionary rather than supportive of lending capacity.

Question 47Monetary Policy and Central Banking

The transmission of a policy rate change to household and firm borrowing costs is known as the:

  1. Interest rate channel of monetary transmission Correct answer.
  2. Expectations channel of monetary transmission
  3. Exchange rate channel of monetary transmission
  4. Credit channel of monetary transmission

Explanation

The interest rate channel describes how policy rate changes pass through to market and lending rates, altering consumption and investment. The exchange rate, credit, and expectations channels operate through different variables.

Question 48Monetary Policy and Central Banking

Which of the following best describes the role of the monetary policy committee in a modern central bank?

  1. Auditing the annual financial statements of commercial banks
  2. Deciding the policy rate and monetary stance at scheduled reviews Correct answer.
  3. Approving branch expansion plans of commercial banks
  4. Supervising anti-money laundering compliance in banks

Explanation

A monetary policy committee is the body that sets the policy rate and decides the stance of monetary policy at regular reviews. Bank audit, branch licensing, and AML supervision are regulatory functions separate from monetary policy decisions.

Question 49Monetary Policy and Central Banking

Nepal Rastra Bank publishes a monetary policy for each fiscal year. Which of the following is normally a stated component of that policy?

  1. The salary structure of bank employees
  2. The number of new bank branches to be licensed
  3. Monetary targets for broad money and private sector credit growth Correct answer.
  4. The exact profit target of each commercial bank

Explanation

The annual monetary policy sets monetary aggregates such as broad money growth and private sector credit growth consistent with inflation and growth projections. Bank profitability, branch counts, and pay structures are outside the scope of monetary policy.

Question 50Monetary Policy and Central Banking

If the central bank wishes to tighten monetary conditions, which combination of actions is most consistent with that goal?

  1. Lowering the cash reserve ratio and selling securities in open market operations
  2. Raising the cash reserve ratio and buying securities in open market operations
  3. Raising the policy rate and selling securities in open market operations Correct answer.
  4. Lowering the policy rate and buying securities in open market operations

Explanation

Tightening requires both a higher policy rate and a drain of reserves, which open market sales achieve. Mixing a contractionary measure with a liquidity injection would offset the intended effect.