BANKING

Question 1

Explain central bank’s function of ISSUE OF CURRENCY NOTES

Answer 1

1. Central bank has monopoly over issue of currency notes in the country
2. In order to inspire public confidence in paper currency . central bank keeps reserves of gold and silver for issuing currency notes
3. It is given monopoly to avoid over issue , maintain uniformity in currency and to give prestige to currency system

Question 2

Explain central bank function of BANKER TO THE GOVERNMENT

Answer 2

1. CB acts as a banker, agent and advisor to the govt
2. As banker. it receives and makes payment on behalf of govt.
3. It is the govt’s agent in financial matters
4. Advises the Government in matters relating to monetary and banking policies
5. manage national debt and issue of govt securities
6. represents Govt in internatioanl conference on monetary and banking matter

Question 3

Explain Banker’s bank

Answer 3

1. Acts as bank for all commercial banks in the country
2. when a com bank need funds, can obtain loans and rediscount its bills with the central bank
3. CB is called as ‘lender of last resort’
4. Com banks r required to keep a cash reserve with the central bank so as to control credit in the country
5. CB advises com banks on matters relating to their business

Question 4

Explain CREDIT CONTROL as a function of Central bank

Answer 4

1. Exercises both qualitative and quantitative control over credit granting capacity of com banks
2. In order to maintain stability in prices and foreign exchange
3. In absence of such control, com banks may lend too much or too little, they may end to wrong parties or for unproductive reasons, they may charge high rate of interest

Question 5

Explain DEVELOPMENTAL FUNCTIONS of central bank

Answer 5

In a developing country like India, Cb preforms several developmental functions like:

1. Controlling prices
2. Ensuring balanced regional development of the country
3. Creating special financial institutions for agriculture, transport, trade, industry, etc

Question 6

Explain CUSTODIAN OF FOREIGN CURRENCY RESRVES

Answer 6

1. CB -> sole custodian of foreign exchange, gold and other reserves
2. manages these reserves judiciously to overcome difficulty in balance of payment and to stabilize exchange rates
3. CB advises Govt to impose restriction on import and encourage exports to keep balance of payment in favor of the country