Reading Comprehension Practice Questions for SBI PO 2017

Mentor for Bank Exams
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
1. C)   2. A)   3. B)   4. E)   5. D)   6. B)   7. E)   8. D)   9. A)   10. A)