Money and Banking Test - 6

The correct answer is 'A '- Bank Rate. The important quantitative methods of credit control is (a) bank rate. The methods used by the central bank to regulate the flows of credit into particular directions of the economy are called qualitative or selective methods of credit control. Unlike the quantitative methods, which affect the total volume of credit, the qualitative methods affect the types of credit, extended by the commercial banks; they affect the composition rather than the size of credit in the economy.

B: Reserve Bank of India

In India, monetary policy is announced by the Reserve Bank of India (RBI). The RBI is the central bank of India and is responsible for implementing and managing monetary policy in the country.

Monetary policy refers to the actions taken by the central bank to influence the supply and demand of money in the economy, with the aim of achieving certain macroeconomic objectives such as price stability, full employment, and economic growth. The RBI uses various tools, such as changing the interest rates, altering the reserve requirements for banks, and engaging in open market operations, to implement monetary policy in India.

The Ministry of Finance is responsible for managing the government 's finances, including preparing the annual budget, mobilizing financial resources, and formulating fiscal policy. The Planning Commission is a government body that is responsible for formulating the country 's five-year plans and for coordinating the development activities of various sectors of the economy. The government refers to the executive branch of government, which is responsible for implementing the policies and laws of the country.

C: Central Bank coming to the rescue of banks in times of financial crisis

The term "lender of last resort "refers to the central bank 's role in providing financial assistance to banks in times of financial crisis. When banks are facing a liquidity crisis, they may not be able to meet the demand for cash from their depositors or meet their other financial obligations. In such cases, the central bank can act as a lender of last resort by providing the necessary funds to the banks to help them meet their obligations and avoid a financial collapse.

This function is typically exercised by the central bank through the use of discount window facilities, which allow banks to borrow funds from the central bank at a specific interest rate. The central bank serves as a lender of last resort to help stabilize the financial system and prevent a financial crisis from spreading and causing wider economic damage.

The government can also provide financial assistance to sick industries, but this is not related to the role of the central bank as a lender of last resort. Similarly, commercial banks may provide financial assistance to cooperative banks, but this is not the same as the central bank serving as a lender of last resort.

A: Reduces

When the bank rate increases, the demand for loans tends to reduce. The bank rate is the interest rate at which the central bank of a country lends money to commercial banks. When the bank rate is increased, it becomes more expensive for banks to borrow from the central bank, which in turn increases the cost of borrowing for customers. As a result, the demand for loans tends to decrease as customers are less willing to borrow at higher interest rates.

This is because higher interest rates increase the cost of borrowing for businesses and households, which can reduce their ability and willingness to take out loans. Higher interest rates may also reduce the demand for loans by reducing the demand for investment and consumption, as higher borrowing costs can make such activities less attractive.

However, the impact of a change in the bank rate on the demand for loans may not be the same in all cases and may depend on a variety of factors such as the overall economic conditions, the availability of alternative sources of financing, and the creditworthiness of the borrowers.

The Monetary Policy regulates the supply of money and the cost and availability of credit in the economy. It deals with both the lending and borrowing rates of interest for commercial banks. The Monetary Policy aims to maintain price stability, full employment and economic growth.

Qualitative or selective measures are those which are directed towards the particular use of credit and not its total volume in other words qualitative of selective measures are generally meant to regulate credit for specific purposes here except changes in cash reserve ratio all other are are qualitative measures as they are subject to regulate money supply for particular purpose while CRR is one of the quantitative measures which is meant for controlling the credit it the entire banking system hence option B is the correct answer

The correct answer is 'C '- Changes in Margin Requirements. Changes in Margin Requirements is a qualitative or selective method of credit control, and cannot be used as an instrument of quantitative control of credit by the central Bank. The methods used by the central bank to influence the total volume of credit in the banking system, without any regard for the use to which it is put, are called quantitative or general methods of credit control. These methods regulate the lending ability of the financial sector of the whole economy and do not discriminate among the various sectors of the economy. The important quantitative methods of credit control are- (a) bank rate, (b) open market operations, and (c) cash-reserve ratio.

D: Minimum Reserve System

The Reserve Bank of India (RBI) follows the minimum reserve system for issuing currency notes. Under this system, the RBI is required to maintain a certain minimum amount of gold and foreign exchange reserves as a backing for the notes it issues. The RBI can issue currency notes up to a certain limit, known as the statutory liquidity ratio (SLR), based on the value of these reserves.

In the minimum reserve system, the RBI can issue notes up to a certain limit based on the value of its reserves, but it is not required to hold reserves in proportion to the amount of notes it issues. This allows the RBI to have some flexibility in issuing currency notes to meet the demand for cash in the economy.

The fixed fiduciary system, proportional reserve system, and percentage reserve system are other systems that have been used by central banks to issue currency notes. However, they are no longer in use in modern times. The fixed fiduciary system required the central bank to maintain a fixed amount of reserves for every unit of currency issued, while the proportional reserve system required the central bank to hold reserves in proportion to the amount of notes issued. The percentage reserve system required the central bank to hold a certain percentage of its deposits as reserves.

D: 1 Rupee note

The Reserve Bank of India (RBI) is responsible for issuing and distributing currency notes in India. The RBI issues notes in denominations of 1, 2, 5, 10, 20, 50, 100, 500, and 2000 rupees. The RBI does not issue the 1 rupee note, which is issued by the Government of India through the Ministry of Finance.

The 1 rupee note is the only currency note in India that is not issued by the RBI. All other currency notes in India are issued by the RBI, which is the central bank of the country. The RBI is responsible for managing the country 's monetary policy, including the issuance and circulation of currency notes.

B) The Reserve Bank of India (RBI) can use a variety of tools to decrease bank credit in the economy. These tools include:

• Lowering the Bank Rate: The bank rate is the interest rate at which the RBI lends money to commercial banks. By lowering the bank rate, the RBI can make it less expensive for banks to borrow from the central bank, which can reduce the supply of credit in the economy.

• Increasing the Bank Rate: By increasing the bank rate, the RBI can make it more expensive for banks to borrow from the central bank, which can reduce the supply of credit in the economy.

• Lowering the CRR: The cash reserve ratio (CRR) is the percentage of deposits that commercial banks are required to hold with the RBI as a reserve. By lowering the CRR, the RBI can increase the amount of money that commercial banks have available to lend, which can increase the supply of credit in the economy.

The RBI can use these tools in combination or individually to achieve its monetary policy objectives, such as maintaining price stability, full employment, and economic growth.