IBPS Reading Comprehension 5 — Questions and Answers
Question 1: Passage: 'Green bonds are debt instruments issued to raise capital specifically for environmentally beneficial projects such as renewable energy and sustainable infrastructure. Their growing popularity reflects increasing investor demand for socially responsible investment options.' What distinguishes green bonds from conventional bonds?
- They offer higher returns than regular bonds
- Proceeds are earmarked for environmentally beneficial projects (Correct answer)
- They are issued only by governments
- They carry no credit risk
Correct answer: Proceeds are earmarked for environmentally beneficial projects
The passage specifies that green bonds raise capital 'specifically for environmentally beneficial projects,' distinguishing them from conventional bonds.
Question 2: Read: 'The IBPS PO examination tests candidates on their ability to comprehend dense financial texts, identify central themes, and draw logical inferences. Success depends not merely on vocabulary but on the capacity to reason analytically under time pressure.' According to the passage, what is essential for success in the reading comprehension section?
- Memorizing financial terminology only
- Analytical reasoning and comprehension under time pressure (Correct answer)
- Speed reading without comprehension
- Familiarity with banking regulations only
Correct answer: Analytical reasoning and comprehension under time pressure
The passage emphasizes analytical reasoning and comprehension under time pressure as key success factors, beyond mere vocabulary.
Question 3: Passage: 'Inflation erodes the purchasing power of money, meaning that a fixed sum of money buys fewer goods and services over time. Central banks combat inflation by raising interest rates, which discourages borrowing and cools consumer spending.' How do higher interest rates reduce inflation according to the passage?
- By increasing government spending
- By encouraging more borrowing
- By discouraging borrowing and cooling consumer spending (Correct answer)
- By directly reducing commodity prices
Correct answer: By discouraging borrowing and cooling consumer spending
The passage states higher interest rates discourage borrowing and cool consumer spending, thereby combating inflation.
Question 4: A passage reads: 'Deposit insurance schemes protect small depositors by guaranteeing repayment of deposits up to a specified limit in the event of bank failure. In India, the Deposit Insurance and Credit Guarantee Corporation insures deposits up to ₹5 lakh per depositor per bank.' Who primarily benefits from deposit insurance according to the passage?
- Large institutional investors
- Small depositors (Correct answer)
- Bank shareholders
- Foreign currency depositors
Correct answer: Small depositors
The passage explicitly states that deposit insurance schemes protect 'small depositors' by guaranteeing repayment.
Question 5: Passage: 'Venture capital fuels innovation by providing equity financing to early-stage companies with high growth potential but limited access to traditional bank credit. Unlike debt financing, venture capital does not require repayment but dilutes the founders' ownership stake.' What is a key difference between venture capital and debt financing?
- Venture capital requires regular interest payments
- Venture capital dilutes ownership rather than requiring repayment (Correct answer)
- Debt financing dilutes ownership stake
- Both require collateral from borrowers
Correct answer: Venture capital dilutes ownership rather than requiring repayment
The passage contrasts venture capital (dilutes ownership, no repayment) with debt financing (requires repayment).
Question 6: Read: 'Quantitative easing involves a central bank purchasing long-term securities from the open market to increase money supply and stimulate economic activity. Critics warn that prolonged QE can lead to asset price inflation and currency devaluation.' What risk do critics associate with prolonged quantitative easing?
- Deflationary spiral
- Asset price inflation and currency devaluation (Correct answer)
- Reduction in money supply
- Excessive tightening of credit
Correct answer: Asset price inflation and currency devaluation
The passage states critics warn that prolonged QE can lead to asset price inflation and currency devaluation.
Question 7: Passage: 'The marginal standing facility allows banks to borrow overnight funds from the RBI at a rate higher than the repo rate by pledging government securities. It serves as an emergency window, providing a safety valve against acute liquidity shortfalls.' The MSF rate being higher than the repo rate suggests:
- Banks prefer MSF over repo for routine borrowing
- MSF is designed to be a last resort, not routine funding (Correct answer)
- MSF reduces the cost of bank borrowing
- MSF is available only to foreign banks
Correct answer: MSF is designed to be a last resort, not routine funding
The higher rate and description as an 'emergency window' and 'safety valve' indicate MSF is for last-resort use, not routine borrowing.
