Indian Financial System MCQs 2025 | Financial System MCQs [Multiple Choice Questions and Answers 2025]

Indian Financial System MCQs 2025
For BCOM/MCOM and Other Competitive Exams of India

Meaning of Financial System

The economic development of a nation is reflected by the progress of the various economic units, broadly classified into corporate sector, government and household sector. There are areas or people with surplus funds and there are those with a deficit. A financial system or financial sector functions as an intermediary and facilitates the flow of funds from the areas of surplus to the areas of deficit. A Financial System is a composition of various institutions, markets, regulations and laws, practices, money manager, analysts, transactions and claims and liabilities.

Financial system comprises of set of subsystems of financial institutions, financial markets, financial instruments and services which helps in the formation of capital. It provides a mechanism by which savings are transformed to investment.

Q.1. The Indian financial system comprises of:
a) Only organized sector
b) Only unorganized sector
c) Both organized and unorganized sector
d) None of these
Answer: c) Both organized and unorganized sector

Q.2. SEBI was set up in 1988 and given legal status in:
a) 1989
b) 1990
c) 1992
d) 1995
Answer: c) 1992

Q.3. Non-banking assets and non-performing assets are:
a) Same
b) Synonymous
c) Different terms
d) Always equal
Answer: c) Different terms

Q.4. The Indian money market deals mainly in:
a) Cash transactions
b) Promissory notes and government papers
c) Commodities
d) Shares
Answer: b) Promissory notes and government papers

Q.5. The main function of underwriters in the capital market is to:
a) Provide loans to companies
b) Ensure sale of shares or debentures before public issue
c) Regulate SEBI guidelines
d) Act as brokers in stock exchange
Answer: b) Ensure sale of shares or debentures before public issue

Q.6. RBI follows which system for issuing paper currency?
a) Proportional reserve system
b) Minimum reserve system
c) Gold standard system
d) Partial reserve system
Answer: b) Minimum reserve system

Q.7. Under which section of the RBI Act does RBI issue currency notes?
a) Section 18
b) Section 20
c) Section 22
d) Section 25
Answer: c) Section 22

Q.8. The New Issue Market has:
a) No organizational set-up
b) Informal structure
c) Proper organizational set-up
d) No regulations
Answer: c) Proper organizational set-up

Q.9. Industrial Development Bank of India (IDBI) accepts deposits from public.
a) True
b) False
Answer: b) False

Q.10. The first development bank of India is:
a) NABARD
b) SIDBI
c) IFCI
d) IDBI
Answer: c) IFCI

Q.11. The bill which does not require acceptance is called:
a) Treasury bill
b) Commercial bill
c) Promissory note
d) Trade bill
Answer: c) Promissory note

Q.12. The company which sets up a mutual fund is called:
a) Asset Management Company
b) Sponsor
c) Registrar
d) Depository
Answer: b) Sponsor

Q.13. In Regional Rural Banks, sponsoring commercial banks contribute:
a) 50% of share capital
b) 15% of share capital
c) 35% of share capital
d) 20% of share capital
Answer: c) 35% of share capital

Q.14. Bank deposit is a:
a) Marketable security
b) Non-marketable security
c) Long-term security
d) Tradable security
Answer: b) Non-marketable security

Q.15. Government bond is a:
a) Short-term security
b) Medium-term security
c) Long-term security
d) None
Answer: c) Long-term security

Q.16. Certificates of Deposit can be issued by:
a) Only commercial banks
b) Only stock exchanges
c) Commercial banks and financial institutions
d) Only insurance companies
Answer: c) Commercial banks and financial institutions

Q.17. Credit card is:
a) Prepaid card
b) Postpaid card
c) Debit card
d) None of these
Answer: b) Postpaid card

Q.18. The Narasimham Committee on financial reforms was set up in:
a) 1990
b) 1991
c) 1992
d) 1995
Answer: b) 1991

Q.19. International capital markets are also called:
a) Asian markets
b) Euro markets
c) Global markets
d) Foreign exchange markets
Answer: b) Euro markets

Q.20. The concept of Mutual Funds originated in:
a) India
b) UK
c) USA
d) Japan
Answer: c) USA

Q.21. A development bank in India:
a) Accepts deposits from public
b) Does not accept deposits from public
c) Works like a cooperative bank
d) Issues current accounts
Answer: b) Does not accept deposits from public

Q.22. IDBI was set up in 1964 as a:
a) Subsidiary of RBI
b) Government-owned bank
c) Cooperative institution
d) Private sector company
Answer: a) Subsidiary of RBI

Q.23. SEBI was set up mainly to:
a) Provide loans to industries
b) Protect investors and regulate brokers
c) Control mutual funds only
d) Supervise banks
Answer: b) Protect investors and regulate brokers

Q.24. Commercial banks were allowed to enter insurance through:
a) RBI Act
b) SEBI Act
c) IRDA Act, 1999
d) Companies Act
Answer: c) IRDA Act, 1999

Q.25. NABARD was established in:
a) 1975
b) 1980
c) 1982
d) 1985
Answer: c) 1982

Q.26. The Reserve Bank of India is headed by:
a) Finance Minister
b) RBI Governor
c) Prime Minister
d) Chief Secretary
Answer: b) RBI Governor

Q.27. Treasury Bills are part of:
a) Capital market
b) Money market
c) Forex market
d) Commodity market
Answer: b) Money market

Q.28. Mutual funds were first started in:
a) UK, 18th century
b) USA, 19th century
c) Japan, 20th century
d) India, 20th century
Answer: b) USA, 19th century

Q.29. Financial markets comprise of:
a) Capital market only
b) Money market only
c) Both capital and money market
d) Neither
Answer: c) Both capital and money market

Q.30. Seasonal diversity is considered a defect of:
a) Capital market
b) Money market
c) Insurance sector
d) International market
Answer: b) Money market

Q.31. Price stability is an objective of monetary policy of RBI.
a) True
b) False
Answer: a) True

Q.32. The main function of mutual funds is to:
a) Provide loans to government
b) Mobilize public savings for investment in stock markets
c) Issue treasury bills
d) Regulate SEBI guidelines
Answer: b) Mobilize public savings for investment in stock markets

Q.33. Financial institutions are also called:
a) Financial intermediaries
b) Financial market
c) Mutual funds
d) Sponsors
Answer: b) Financial market

Q.34. The 1970 scheme for nationalized banks provides board composition of:
a) 5 members
b) 7 members including chairman
c) 10 members
d) 12 members
Answer: b) 7 members including chairman

Q.35. Treasury Bills are government bonds usually of duration:
a) 30 days
b) 60 days
c) 91 days
d) 120 days
Answer: c) 91 days

Q.36. Primary market refers to flow of funds from:
a) Government to public
b) Public to private and government sector through issue of equity and debts
c) Banks to RBI
d) None of these
Answer: b) Public to private and government sector through issue of equity and debts

Q.37. Treasury bills, commercial papers, and commercial bills are instruments of:
a) Capital market
b) Money market
c) Forex market
d) Insurance market
Answer: b) Money market

Q.38. Bull, Bear, Stag and Lame Duck are speculators in:
a) Forex market
b) Money market
c) Stock exchange
d) Insurance sector
Answer: c) Stock exchange

Q.39. Merchant bankers also undertake:
a) Portfolio management for investors
b) Issuing currency
c) Insurance services
d) Tax collection
Answer: a) Portfolio management for investors

Q.40. Capital market deals with:
a) Short-term funds
b) Long-term funds
c) Gold market
d) Commodities
Answer: b) Long-term funds

Q.41. Money market deals with:
a) Long-term investible funds
b) Short-term investible funds
c) Insurance funds
d) Gold loans
Answer: b) Short-term investible funds

Q.42. Demonetization in India has been implemented:
a) Once
b) Twice
c) Three times
d) Four times
Answer: c) Three times

Q.43. RBI acts as a:
a) Lender of last resort
b) Primary dealer of securities
c) Stock exchange regulator
d) Mutual fund sponsor
Answer: a) Lender of last resort

Q.44. IDBI accepts deposits from the public.
a) True
b) False
Answer: b) False

Q.45. The company which sets up a mutual fund is called:
a) Sponsor
b) Registrar
c) Asset Management Company
d) Depository
Answer: c) Asset Management Company

Q.46. Sponsoring commercial banks contribute what % share in RRBs?
a) 15%
b) 20%
c) 35%
d) 50%
Answer: c) 35%

Q.47. Bank deposit is:
a) Marketable security
b) Non-marketable security
c) Long-term bond
d) Treasury bill
Answer: b) Non-marketable security

Q.48. Merchant banker performs the function of:
a) Issuing RBI guidelines
b) Portfolio management
c) Insurance regulation
d) Cash withdrawal
Answer: b) Portfolio management

Q.49. Treasury bills are part of which market?
a) Primary market
b) Capital market
c) Money market
d) Secondary market
Answer: c) Money market

Q.50. SEBI protects:
a) Depositors only
b) Insurance policyholders
c) Investors in securities market
d) Only mutual funds
Answer: c) Investors in securities market

Q.51. The Governor of RBI is appointed by:
a) RBI Board
b) SEBI
c) Government of India
d) Finance Commission
Answer: c) Government of India

Q.52. IDBI was established in which year?
a) 1962
b) 1964
c) 1966
d) 1970
Answer: b) 1964

Q.53. NABARD deals mainly with:
a) Housing finance
b) Industrial finance
c) Agricultural and rural development finance
d) Insurance
Answer: c) Agricultural and rural development finance

Q.54. IFCI was set up in which year?
a) 1945
b) 1947
c) 1948
d) 1950
Answer: c) 1948

Q.55. Mutual funds in India were first introduced by:
a) SEBI
b) RBI
c) UTI
d) IDBI
Answer: c) UTI

Q.56. The Narasimham Committee focused on:
a) Agricultural reforms
b) Industrial finance
c) Financial sector reforms
d) Banking mergers
Answer: c) Financial sector reforms

Q.57. Euro market refers to:
a) Only European investors
b) International capital market
c) Forex market in Europe
d) Banking reforms in EU
Answer: b) International capital market

Q.58. A promissory note is a:
a) Bill requiring acceptance
b) Bill not requiring acceptance
c) Long-term bond
d) Insurance contract
Answer: b) Bill not requiring acceptance

Q.59. The IRDA Act, 1999 permitted commercial banks to enter:
a) Mutual funds
b) Insurance business
c) Stock exchanges
d) Forex market
Answer: b) Insurance business

Q.60. Price stability is:
a) Not an objective of RBI
b) An objective of RBI monetary policy
c) Only a fiscal policy tool
d) Related to SEBI
Answer: b) An objective of RBI monetary policy