IBPS Reading Comprehension 4 — Questions and Answers
Question 1: Passage: 'The statutory liquidity ratio obliges banks to maintain a minimum proportion of their net demand and time liabilities in liquid assets such as gold, cash, or approved securities. This ensures banks retain sufficient liquid assets to meet unexpected obligations.' What is the primary purpose of the SLR as described?
- Maximize bank profits
- Ensure banks retain sufficient liquid assets (Correct answer)
- Fund government infrastructure projects
- Attract foreign investment
Correct answer: Ensure banks retain sufficient liquid assets
The passage explicitly states that SLR ensures banks retain sufficient liquid assets to meet unexpected obligations.
Question 2: Read: 'Sovereign wealth funds are state-owned investment vehicles that manage national savings accumulated from trade surpluses or commodity revenues. These funds invest globally to generate returns that stabilize national economies during downturns.' According to the passage, where do sovereign wealth funds typically source their capital?
- Private sector donations
- Trade surpluses or commodity revenues (Correct answer)
- International loans
- Foreign aid
Correct answer: Trade surpluses or commodity revenues
The passage states that SWFs manage national savings accumulated from trade surpluses or commodity revenues.
Question 3: Passage: 'Repo rate is the interest rate at which the central bank lends short-term funds to commercial banks. A reduction in the repo rate lowers borrowing costs for banks, which may pass on this benefit to customers through cheaper loans.' What is the likely effect of a repo rate cut on customers?
- Customers face higher loan interest rates
- Customers may access cheaper loans (Correct answer)
- Banks reduce deposit interest rates only
- Customers face tighter credit conditions
Correct answer: Customers may access cheaper loans
The passage states banks may pass on reduced borrowing costs to customers through cheaper loans.
Question 4: A passage reads: 'Trade finance instruments such as letters of credit and bank guarantees facilitate international commerce by reducing counterparty risk. Exporters receive assurance of payment while importers confirm goods will be delivered before funds are released.' The passage suggests letters of credit primarily benefit which parties?
- Only importers
- Only exporters
- Both exporters and importers (Correct answer)
- Only central banks
Correct answer: Both exporters and importers
The passage describes benefits for both exporters (payment assurance) and importers (goods confirmed before fund release).
Question 5: Passage: 'Asset-liability mismatches arise when banks fund long-term assets using short-term liabilities. During periods of rising interest rates, refinancing costs increase, squeezing net interest margins and potentially threatening bank solvency.' The phrase 'net interest margins' most likely refers to:
- Total deposits held by the bank
- The difference between interest earned and interest paid (Correct answer)
- Government-mandated interest rate caps
- Loan default rates
Correct answer: The difference between interest earned and interest paid
Net interest margin is the difference between the interest income generated and the interest paid out, a key profitability measure for banks.
Question 6: Read: 'Financial literacy remains abysmally low in rural India, leaving farmers and small traders vulnerable to predatory lending and financial fraud. Targeted educational campaigns and simplified banking products are urgently needed to address this gap.' Which solution does the author recommend for improving financial literacy?
- Higher interest rate caps on loans
- Reducing the number of banks in rural areas
- Targeted educational campaigns and simplified products (Correct answer)
- Stricter penalties for financial fraud only
Correct answer: Targeted educational campaigns and simplified products
The passage explicitly recommends targeted educational campaigns and simplified banking products as solutions.
Question 7: Passage: 'Systemically important financial institutions, often called 'too big to fail,' require enhanced regulatory scrutiny because their failure could trigger widespread economic disruption. Regulators impose additional capital requirements and stress tests on these entities.' Why are SIFIs subject to stricter regulation?
- Because they are always profitable
- Because their failure could cause widespread economic disruption (Correct answer)
- Because they lend exclusively to governments
- Because they operate without any risk
Correct answer: Because their failure could cause widespread economic disruption
The passage states that SIFIs require enhanced scrutiny because their failure could trigger widespread economic disruption.
IBPS Reading Comprehension 4
Passage: 'The statutory liquidity ratio obliges banks to maintain a minimum proportion of their net demand and time liabilities in liquid assets such as gold, cash, or approved securities.
This ensures banks retain sufficient liquid assets to meet unexpected obligations.' What is the primary purpose of the SLR as described?