Q. Which of the following are the sources of income for the Reserve Bank of India?
Buying and selling Government bonds
Buying and selling foreign currency
Pension fund management
Lending to private companies
Printing and distributing currency notes
Select the correct answer using the code given below:
✅ Correct Answer: D. I, II and V
Explanation:
Option I. Correct: Open market operations, through which the RBI buys or sells government bonds to regulate the money supply, serve as a key source of income. In addition to earning interest on these bonds, the RBI can also gain from favourable movements in bond prices.
Option II. Correct : As per the Foreign Exchange Management Act, 1999 (FEMA), the RBI is responsible for managing the country’s foreign exchange reserves and ensuring external stability. The RBI’s activities in the foreign exchange market also contribute to its profits. For example, it may purchase U.S. dollars at lower rates and sell them at higher rates later.
Option III. Incorrect: The Reserve Bank of India (RBI) does not manage pension funds. Pension fund management in India is regulated and overseen by the Pension Fund Regulatory and Development Authority (PFRDA).
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Option IV. Incorrect: The RBI does not directly lend to private companies in India. It lends money mainly to commercial banks and financial institutions, which in turn lend to private companies and individuals.
Option V. Correct: The RBI Act, 1934, designates the Reserve Bank of India as the sole authority to issue banknotes in India. While the RBI bears the printing costs, it earns seigniorage, the profit arising from the difference between the face value of the currency and its production cost, which also acts as one of the sources of income of the RBI.
