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प्रश्न
What is meant by the following function of the Central bank:
Lender of the last resort
With reference to the Central Bank, explain the following:
Lender of the last resort
Explain the following function of the Central Bank:
Lender of the last resort.
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उत्तर १
If a commercial bank fails to meet its financial requirements from other sources, it can approach the Central Bank as a last resort for loans and advances. The Central Bank supports these banks by discounting approved securities and bills of exchange, or by providing loans against their securities. By providing temporary financial support, the Central Bank prevents the country’s financial system from collapsing. Direct lending to commercial banks is the lender-of-last-resort function of the Central Bank.
उत्तर २
- Preserving Confidence: A lender of last resort can give investors and depositors peace of mind that their money is safe, even during financial downturns. This can keep a problem from getting worse.
- Preventing Contagion: By giving money to a bank that is having trouble, the central bank can stop ‘contagion,’ which is when problems at one bank can spread to other banks that are linked to it. This containment helps keep the effects of financial problems from spreading too far.
Notes
Students should refer to the answer according to their question and preferred marks.
संबंधित प्रश्न
Explain the ‘bank of issue’ function of a central bank.
Currency is issued by the central bank, yet we say that commercial banks create money. Explain. How is this money creation by commercial banks likely to affect the national income? Explain
How can Reserve Bank of India help in bringing down the foreign exchange rate which is very high?
______ is the main function of Central Bank.
Identify which of the following is not a function of the Reserve Bank of India?
What is meant by the following function of the central bank?
Clearing house
Read the following hypothetical case study carefully and answer the questions follow on the basis of the same.
Agricultural Developmental Bank of Pakistan uses the production function approach for measuring bank outputs and costs. A translog cost function is estimated to provide an assessment of the bank's scale and scope efficiency, and to quantify the extent to which its production costs are sensitive to the size and output mix. Results show that the bank enjoys both overall and product-specific economies of scale and, therefore, there exists scope for the bank to expand its operations at a declining average cost. Even though bank branches in all size categories enjoy economies of scale, the extent of such economies is larger for branches operating at a smaller scale of production. This implies that as the bank branches grow larger in size in terms of both loan and deposit accounts, they move closer to attaining increasing returns to a factor. It is also shown that the marginal costs of servicing both loan and deposit accounts decline as bank branches grow larger in size in terms of either the number of loans or the number of deposits. This confirms that branches operating at a larger scale of production have attained greater cost-efficiency in terms of servicing the loan and deposit accounts.
Economies of scale is larger for which type of bank.
Read the following hypothetical case study carefully and answer the questions follow on the basis of the same.
Agricultural Developmental Bank of Pakistan uses the production function approach for measuring bank outputs and costs. A translog cost function is estimated to provide an assessment of the bank's scale and scope efficiency, and to quantify the extent to which its production costs are sensitive to the size and output mix. Results show that the bank enjoys both overall and product-specific economies of scale and, therefore, there exists scope for the bank to expand its operations at a declining average cost. Even though bank branches in all size categories enjoy economies of scale, the extent of such economies is larger for branches operating at a smaller scale of production. This implies that as the bank branches grow larger in size in terms of both loan and deposit accounts, they move closer to attaining increasing returns to a factor. It is also shown that the marginal costs of servicing both loan and deposit accounts decline as bank branches grow larger in size in terms of either the number of loans or the number of deposits. This confirms that branches operating at a larger scale of production have attained greater cost-efficiency in terms of servicing the loan and deposit accounts.
When the banks grow in size, they move closer to achieving ______ returns to factor.
Which of the following is not the function of the central bank?
In the Indian economy, ______ are issued by the Reserve Bank of India and acts as legal tender money.
- Coins of all denomination
- Currency notes of various denominations, except one rupee note
- Demand deposits
