Advertisements
Advertisements
Questions
Explain how credit rationing helps to control credit in an economy.
Explain how margin money helps to control credit in an economy.
Advertisements
Solution
- Credit Rationing - In this method, the 'Central Bank' imposes restrictions on demand of accommodation for more credits by the commercial banks. The 'Central Bank' limits the credit available to each of the commercial banks. Thus, this method of credit rationing directly affects the credit-granting (lending) capacity of commercial banks.
- Margin money - Margin requirement is a credit management tool utilized by institutions like banks. It represents the collateral amount a borrower must furnish to secure a loan, usually stated as a percentage of the entire transaction value. Implementing a margin requirement allows the lender to control the extent of credit extended to the borrower or trader. To mitigate credit, the RBI can raise the margin requirement.
Notes
Students should refer to the answer according to their questions.
APPEARS IN
RELATED QUESTIONS
Briefly explain two qualitative methods of credit control adopted by this institution.
______ is a quantitative method of credit control.
Which of the following is not a quantitative method of credit control?
The process of buying and selling of securities by the central bank of a country is known as ______.
Observe the relationship of the first pair of words and complete the second pair.
Quantitative method of credit control by the central bank : Bank rate.
Quantitative method of credit control by the central bank :
Read the following statements - Assertion (A) and Reason (R). Choose one of the correct alternatives given below:
Assertion (A): Increase in cash reserve ratio adversely affects the capacity of commercial banks to create credit.
Reason (R): An increase in cash reserve ratio reduces the excess reserves of commercial banks and hence limits their credit creating power.
Define the following term:
Cash Reserve Ratio.
What is this policy called that controls the credit supply in an economy?
Identify the following Credit Control measure undertaken by the Central Bank during inflation.
The Central Bank sells government approved securities to the public.
What do you mean by credit control?
