+91-8076753736 support@wiredfaculty.com
logo
logo

Sponsor Area

Money And Banking

Question
CBSEENEC12013638
Wired Faculty App

Explain ‘banker to the government’ function of the central bank.
Or
Explain the role of reverse repo rate in controlling money supply.

Solution

Central Bank acts as Banker to the government in the following ways:
(i)The central bank is also a banker, agent and financial advisor to the government.
(ii)As a banker, it manages government accounts across the country. It buys and sells securities on behalf of the government as an agent of the government.
(iii)It helps the government in framing policies to regulate the money market by acting as an advisor to the government.
(iv) it also grants short term loans and credit to government.
or,

Reverse repo rate is the rate at which the RBI or the central bank borrows from the other commercial banks. It plays an effective role in controlling the money supply. For example, an increase in the average repo rate implies that the banks will get higher rate of interest from the RBI on their lendings. As a result the banks will lend more to the RBI and less to the public. Thus, resulting in a decrease in the money supply. Similarly, in the case the RBI decreases the reverse repo rate the banks will get a lower rate of interest on their borrowings. as result they can lend more to the public which will in turn increase the money supply.

Some More Questions From Money And Banking Chapter

What is High Powered Money?
or
Write short notes on the following:
High powered money.

What is liquidity trap?

What monetary system does India follow?

Define money supply?  

What are the alternative definitions of money supply in India?
or
Describe alternative measures of money supply as used by RBI in India.

What is ‘High Powered Money’? 

Mock Test Series

Mock Test Series

NCERT Sample Papers

Entrance Exams Preparation