PAPER 3: FINANCE & MANAGEMENT (FM) – FULL MOCK

⏱ Time: 120 Minutes | 📊 Marks: 100

🧠 SECTION A: OBJECTIVE (MCQs) – 50 MARKS (50 QUESTIONS)

🏦 BANKING & REGULATION

Q1. Basel III primarily focuses on:
(A) Fiscal deficit
(B) Capital adequacy and liquidity
(C) Trade policy
(D) Taxation

Q2. CRAR stands for:
(A) Credit Risk Asset Ratio
(B) Capital to Risk-Weighted Assets Ratio
(C) Cash Reserve Adjustment Rate
(D) Capital Return Allocation Ratio

Q3. NPA classification is based on:
(A) Profit
(B) Interest repayment delay
(C) GDP
(D) Inflation

Q4. Repo rate is:
(A) Lending rate to customers
(B) RBI lending rate to banks
(C) Government borrowing rate
(D) Forex rate

Q5. Reverse repo is used to:
(A) Inject liquidity
(B) Absorb liquidity
(C) Increase GDP
(D) Reduce tax

📊 FINANCIAL MARKETS

Q6. Primary market deals with:
(A) Trading existing shares
(B) Fresh issue of securities
(C) Banking loans
(D) Insurance

Q7. Secondary market refers to:
(A) IPO
(B) Trading of existing securities
(C) Government budget
(D) RBI operations

Q8. SEBI regulates:
(A) Banking
(B) Insurance
(C) Securities market
(D) Fiscal policy

Q9. Mutual funds pool money from:
(A) Government
(B) Investors
(C) RBI
(D) Banks only

Q10. Stock index represents:
(A) Inflation
(B) Market performance
(C) GDP
(D) Forex

💰 MONETARY POLICY

Q11. Monetary policy is controlled by:
(A) Government
(B) RBI
(C) SEBI
(D) NABARD

Q12. Fiscal policy is handled by:
(A) RBI
(B) Government
(C) Banks
(D) SEBI

Q13. Open Market Operations involve:
(A) Tax collection
(B) Buying/selling government securities
(C) Currency printing
(D) Export control

Q14. Inflation targeting in India is:
(A) 2% ±1
(B) 4% ±2
(C) 6% ±2
(D) 5% ±1

Q15. Money supply includes:
(A) CPI
(B) M1, M2, M3
(C) GDP
(D) WPI

📉 RISK MANAGEMENT

Q16. Credit risk means:
(A) Market crash
(B) Borrower default risk
(C) Inflation risk
(D) Currency risk

Q17. Operational risk includes:
(A) Fraud/system failure
(B) Inflation
(C) GDP change
(D) Trade deficit

Q18. Market risk relates to:
(A) HR issues
(B) Price fluctuations
(C) Taxation
(D) Banking hours

Q19. Diversification reduces:
(A) Profit
(B) Risk
(C) Inflation
(D) Demand

Q20. Liquidity risk means:
(A) No profit
(B) Unable to meet short-term obligations
(C) Inflation rise
(D) GDP fall

🌍 GLOBAL FINANCE

Q21. IMF provides:
(A) Grants
(B) Financial assistance
(C) Insurance
(D) Trade control

Q22. World Bank provides:
(A) Short-term loans
(B) Long-term development loans
(C) Currency printing
(D) Taxation

Q23. SDR is issued by:
(A) RBI
(B) IMF
(C) World Bank
(D) SEBI

Q24. Forex reserves are held by:
(A) Commercial banks
(B) Central bank
(C) Private firms
(D) Stock exchange

Q25. Depreciation means:
(A) Currency strengthens
(B) Currency weakens
(C) Inflation falls
(D) GDP rises

🧾 MANAGEMENT

Q26. SWOT stands for:
(A) Sales, Work, Output, Time
(B) Strength, Weakness, Opportunity, Threat
(C) Strategy, Work, Output, Target
(D) None

Q27. Motivation means:
(A) Punishment
(B) Encouraging employees
(C) Cost cutting
(D) Risk control

Q28. Corporate governance ensures:
(A) Profit only
(B) Ethical business practices
(C) Tax saving
(D) Export increase

Q29. Delegation means:
(A) Centralization
(B) Assigning responsibility
(C) Salary cut
(D) Outsourcing

Q30. Decision making is:
(A) Random
(B) Structured process
(C) Accounting rule
(D) Tax policy

ADVANCED MCQs (Q31–Q50) – CORRECT FORMAT

Q31. Inflation targeting in India is primarily the responsibility of:
(A) Government of India
(B) SEBI
(C) RBI
(D) NABARD
Ans: C

Q32. Basel III norms are designed to improve:
(A) Trade balance
(B) Banking stability and capital adequacy
(C) Fiscal deficit
(D) GDP growth
Ans: B

Q33. A rise in Non-Performing Assets (NPAs) leads to:
(A) Higher bank profitability
(B) Lower bank profitability
(C) Higher GDP
(D) Lower inflation
Ans: B

Q34. Fiscal deficit occurs when:
(A) Revenue exceeds expenditure
(B) Expenditure exceeds revenue
(C) Exports exceed imports
(D) Savings exceed investment
Ans: B

Q35. A liquidity trap occurs when:
(A) Interest rates are very high
(B) Monetary policy becomes ineffective
(C) Inflation is zero
(D) GDP rises rapidly
Ans: B

Q36. An increase in repo rate generally leads to:
(A) Increase in borrowing
(B) Decrease in borrowing
(C) Increase in inflation
(D) Currency depreciation only
Ans: B

Q37. Cash Reserve Ratio (CRR) is maintained with:
(A) Government of India
(B) RBI
(C) Commercial banks
(D) SEBI
Ans: B

Q38. Statutory Liquidity Ratio (SLR) refers to:
(A) Bank lending to RBI
(B) Liquid assets maintained by banks
(C) Stock market liquidity
(D) Foreign exchange reserves
Ans: B

Q39. Credit rating agencies assess:
(A) Inflation
(B) Borrower creditworthiness
(C) GDP growth
(D) Fiscal deficit
Ans: B

Q40. When interest rates rise, bond prices generally:
(A) Rise
(B) Fall
(C) Remain constant
(D) Double
Ans: B

Q41. GDP measures:
(A) Government revenue
(B) Total economic output
(C) Inflation rate
(D) Banking assets
Ans: B

Q42. Inflation reduces:
(A) Money supply
(B) Purchasing power
(C) Exports
(D) Tax revenue only
Ans: B

Q43. Financial inclusion means:
(A) Only corporate banking
(B) Access to banking services for all
(C) Stock market expansion
(D) Foreign trade expansion
Ans: B

Q44. Fintech primarily improves:
(A) Taxation
(B) Financial service delivery
(C) Inflation
(D) Fiscal deficit
Ans: B

Q45. UPI is an example of:
(A) Fiscal tool
(B) Digital payment system
(C) Banking regulation
(D) Insurance product
Ans: B

Q46. Primary regulator of banks in India is:
(A) SEBI
(B) RBI
(C) IRDAI
(D) NABARD
Ans: B

Q47. SEBI regulates:
(A) Banking sector
(B) Insurance sector
(C) Capital markets
(D) Tax system
Ans: C

Q48. NBFC stands for:
(A) Non-Banking Financial Company
(B) National Banking Finance Corporation
(C) New Banking Financial Control
(D) None
Ans: A

Q49. Capital adequacy ratio ensures:
(A) Bank marketing growth
(B) Bank financial stability
(C) Inflation control
(D) Tax reduction
Ans: B

Q50. Risk management in banks aims to:
(A) Increase loans only
(B) Minimize financial risks
(C) Increase inflation
(D) Reduce GDP
Ans: B

SECTION B: CASE STUDY (20 MARKS)

📌 Q51. Case Study

A mid-sized bank is facing:

Rising NPAs in MSME loans
Liquidity pressure
Declining recovery rates

Questions:

Identify causes of NPAs
Suggest corrective measures
Role of Reserve Bank of India in resolving banking stress

✍️ SECTION C: DESCRIPTIVE (30 MARKS)

✍️ Q52. Essay (10 marks)

“Role of financial institutions in economic development of India.”

✍️ Q53. Essay (10 marks)

“Digital transformation in banking sector: opportunities and risks.”

✍️ Q54. Short Answer (5 marks)

Difference between monetary policy and fiscal policy.

✍️ Q55. Short Answer (5 marks)

Explain credit risk and operational risk.

ANSWER KEY – FM MCQs (Q1–Q50)

Q	Ans	Q	Ans	Q	Ans	Q	Ans
1	B	2	B	3	B	4	B
5	B	6	B	7	B	8	C
9	B	10	B	11	B	12	B
13	B	14	B	15	B	16	B
17	B	18	B	19	B	20	B
21	B	22	B	23	B	24	B
25	B	26	B	27	B	28	B
29	B	30	B	31	C	32	B
33	B	34	B	35	B	36	B
37	B	38	B	39	B	40	B
41	B	42	B	43	B	44	B
45	B	46	B	47	C	48	A
49	B	50	B

51: Case Study (NPAs in MSME sector)

✔ 1. Causes of NPAs

Weak credit appraisal in MSME lending
Economic slowdown affecting repayment capacity
Over-leveraging by small businesses
Poor monitoring of loan utilization
External shocks (inflation, demand contraction)

✔ 2. Corrective Measures

Strengthen credit risk assessment before sanction
Early warning systems for stressed accounts
Loan restructuring where viable
Better collateral management
Digital monitoring of MSME cash flows

✔ 3. Role of RBI

Framework for NPA classification
Guidelines for loan restructuring
Prompt Corrective Action (PCA) framework
Monetary policy support for liquidity
Strengthening banking supervision and regulation

✍️ Q52: Essay – Financial Institutions & Economic Development

Financial institutions play a crucial role in economic development by mobilizing savings and channeling them into productive investments.

They provide credit to industries, agriculture, and infrastructure sectors, thereby supporting economic growth. Banks also facilitate financial inclusion by extending services to rural and underserved areas.

Institutions like commercial banks, NBFCs, and development banks support capital formation and entrepreneurship.

In India, the Reserve Bank of India ensures stability and regulates the financial system.

However, challenges like NPAs, financial exclusion, and inefficiencies still exist.

Overall, strong financial institutions are essential for sustainable economic development.

✍️ Q53: Essay – Digital Banking

Digital banking has transformed the financial sector by improving accessibility, efficiency, and transparency.

Technologies such as UPI, mobile banking, and fintech platforms have reduced transaction costs and expanded financial inclusion.

It has enabled real-time payments and reduced dependency on physical banking infrastructure.

However, risks such as cyber fraud, data privacy issues, and digital divide remain significant concerns.

Regulatory oversight by the RBI ensures safe and stable digital financial systems.

Thus, digital banking represents both an opportunity and a challenge for India’s financial ecosystem.

✍️ Q54: Monetary vs Fiscal Policy

Monetary Policy	Fiscal Policy
Controlled by RBI	Controlled by Government
Deals with money supply & interest rates	Deals with taxation & expenditure
Tools: repo rate, CRR, OMO	Tools: taxes, subsidies, spending
Objective: price stability	Objective: economic growth & welfare

Monetary policy focuses on controlling inflation and liquidity, while fiscal policy focuses on government revenue and expenditure management.

Both must work in coordination for macroeconomic stability.

✍️ Q55: Credit Risk vs Operational Risk

✔ Credit Risk

Credit risk is the risk of borrower defaulting on loan repayment.
Example: Loan given to MSME not repaid due to business failure.

✔ Operational Risk

Operational risk arises from internal failures such as fraud, system breakdown, or human error.
Example: Cyberattack on bank system or employee fraud.

Both risks are critical in banking and require strong risk management systems.

Disclaimer

This mock test is an original practice set created for educational purposes only and is not affiliated with or endorsed by the Reserve Bank of India. It is designed strictly for exam preparation based on the latest exam pattern and trends.