Question

Read the extract and answer the following questions.

The Central Bank of a country is called ‘central’ because it is the apex institution of the entire banking system of the country. The Central Bank has a very important role in ‘stabilising’ the economy. All the other banks in the economy are subject to control from this bank. The Central Bank itself is subject of the overall control of the government.

‘RBI provides a convenient and economical device for settling interbank claims.’ Justify the statement with a valid reason.

Answer 1

The RBI functions as a clearing house for commercial banks by facilitating the settlement of inter-bank transactions. It adjusts the balances in the accounts of banks instead of requiring the physical movement of cash.