Question

Which of the following statements are correct and which are incorrect? Give reasons.

1. Central bank is a currency authority.
2. Bank rate is a qualitative method of credit control.
3. Quantitative methods regulate direction of credit.
4. Bank rate is the rate at which commercial banks give loans to the public.
5. Central bank should sell government securities when credit is to be expanded.

Answer 1

1. Correct
   Reason: The central bank is the authority in charge of issuing currency in the country. It regulates the money supply and ensures that the currency remains stable.
2. Incorrect
   Reason: Bank rates are a quantitative form of credit control. It refers to the interest rate at which the central bank lends to commercial banks, which influences the total money supply.
3. Incorrect
   Reason: Quantitative methods control the volume of credit, not the direction. Margin limitations and selective credit control are two qualitative approaches for directing credit to particular sectors.
4. Incorrect
   Reason: The bank rate refers to the rate at which the central bank lends to commercial banks rather than the general population. Commercial banks utilise this rate to determine their lending rates.
5. Incorrect
   Reason: The central bank sells government securities to limit the economy's credit and liquidity. The central bank often purchases government assets to expand credit, pushing funds into the financial sector.