Reading Comprehension Passages Flashcards

Passage: 'The credit-deposit (CD) ratio measures the proportion of deposits a bank lends out. A very high CD ratio may signal overleveraging, while a very low ratio suggests underutilisation of resources.' Which inference is CORRECT based on the passage?

Answer: An optimal CD ratio balances lending activity with resource efficiency

Since both extremes—too high or too low—are flagged as problematic, the passage implies an optimal balance is ideal.

A passage reads: 'Inflation erodes the purchasing power of money, disproportionately affecting fixed-income earners and those with savings in low-interest accounts.' The word 'disproportionately' implies that inflation:

Answer: Harms certain groups more than others

'Disproportionately' means unequally or to a greater degree, indicating that fixed-income earners and savers are harder hit by inflation.

Passage: 'Account aggregators act as intermediaries that allow customers to share their financial data securely across institutions, fostering a more informed credit assessment process.' What is the role of account aggregators?

Answer: They facilitate secure sharing of financial data between institutions

The passage describes account aggregators as intermediaries enabling secure financial data sharing across institutions.

A passage states: 'The Kisan Credit Card (KCC) scheme provides short-term credit to farmers for crop cultivation, post-harvest expenses, and allied activities at concessional interest rates.' What is the PRIMARY purpose of KCC?

Answer: Offering subsidised credit for agricultural and allied needs of farmers

The passage states KCC provides short-term, concessional credit to farmers for cultivation and related activities.

Passage: 'Digital lending platforms leverage alternative data—such as utility bill payments and e-commerce transaction history—to assess creditworthiness of borrowers who lack formal credit histories.' What PROBLEM do digital lenders address?

Answer: The difficulty in assessing creditworthiness of borrowers without traditional credit histories

Digital lenders use alternative data to evaluate borrowers who cannot be assessed through traditional credit histories.

A passage reads: 'Moral hazard arises when entities take on excessive risk, knowing they will be protected from the consequences by another party—such as a government bailout.' In banking, which scenario BEST illustrates moral hazard?

Answer: A bank making reckless loans assuming the government will rescue it if it fails

Moral hazard occurs when a bank takes undue risks, assuming external protection (like a bailout) will cover the downside.

Passage: 'The concept of 'too big to fail' suggests that certain banks are so systemically important that their collapse would trigger catastrophic consequences for the broader economy, justifying government intervention.' What does this passage imply about large banks?

Answer: The systemic importance of large banks may result in preferential treatment during crises

The passage implies that systemically important banks may receive government intervention due to the catastrophic risks their failure would pose.