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Which of the following are the functions of central bank? -

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Question

Which of the following are the functions of central bank?

Options

  • Bank of issue

  • Banker's bank

  • Both bank of issue and banker's bank

  • None of the above

MCQ

Solution

Both bank of issue and banker's bank

Explanation:

A central bank's two main functions are:

  1. Bank of issue:
    To maintain control over the volume of currency and credit, the central bank is given the sole monopoly of issuing currency. These notes are accepted as legal tender across the country. It is required by law to maintain a reserve in the form of gold and foreign securities against the notes it issues.
  2. Banker's bank:
    The Central Bank keeps track of Commercial Bank cash balances and makes loans to them on-demand, much as the Commercial Bank does for its customers. A Central Bank has a relationship with the other Commercial Banks in the country that is nearly identical to the relationship that Commercial Banks have with the general public. As a result, the Central Bank is often known as the banker's bank. 
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Central Bank: Functions
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