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Question
The Central Bank is the apex monetary institution of the country. Explain its role of a custodian of foreign exchange reserves.
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Solution
As a custodian of the cash reserves of the commercial banks, the central bank maintains the cash reserves of the commercial banks. Every commercial bank has to keep a certain percentage of its cash reserves with the central bank by law.
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RELATED QUESTIONS
Define bank rate.
During deflation, the Central Bank usually ______.
In order to encourage investment in the economy, the central bank may ______.
Match the following and select the correct option:
| Column A | Column B | ||
| (i) | A rate of interest at which the central bank (RBI) lends money to member commercial banks to meet they long term needs. | A. | Cash Reserve Ratio |
| (ii) | A rate of interest at which RBI lends money to commercial banks to meet their short term needs. | B. | Statutory liquidity ratio |
| (iii) | A minimum percentage of total deposits kept by banks with the Central Bank. | C. | Repo rate |
| (iv) | A minimum percentage of total deposits to be kept by banks inform of liquid assets with themselves. | D. | Bank rate |
Differentiate between quantitative and qualitative methods of credit control.
Briefly explain the following credit control method adopted by the Central Bank.
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Which of the following statements are correct and which are incorrect? Give reasons.
- Central bank is a currency authority.
- Bank rate is a qualitative method of credit control.
- Quantitative methods regulate direction of credit.
- Bank rate is the rate at which commercial banks give loans to the public.
- Central bank should sell government securities when credit is to be expanded.
Who controls the credit supply in an economy?
What are quantitative methods of credit control?
Describe two quantitative credit control measures of the Central Bank.
