Q. 104.5( 2 Votes )

Explain the funct

Answer :

A central bank is the apex banking institution that controls the entire banking system of a country. The Reserve Bank of India is the central bank of India. It controls the money supply in an economy. Its objective is social welfare.


a. Lender of last resort:


● When the commercial banks have used all their resources to meet their financial needs, they resort to the central bank of the country in times of liquidity crisis.


● As a lender of last resort, the central bank gives them financial accommodation.


● This is done either by redeeming their eligible securities or bills of exchange. or by providing loans against their securities.


● This saves the bank from any possible case of failure and avoids a breakdown.


b. Banker to the Government:


● A central bank is a bank to the government.


● It performs all the banking functions as provided by the commercial banks to the customers.


● The government has deposits kept in the central bank.


● The central bank undertakes all the interbank transfers of the government.


● It provides agency services to the government and manages public debt.


● It provides advisory services regarding money and capital market, economic policy, etc.


c. Authority of currency issue -


● The central bank of a country has the sole authority to issue currency in our country.


● It leads to uniformity in the system of the issuance of currency and promotes efficiency in the financial system.


● It also gives more control to the central bank over the supply of money.


d. Banker’s bank:


● Central Bank keeps the cash balance of the commercial banks and issues loans as per the requirement.


● It is similar to the activities that a commercial bank performs for its customers.


● The relation between a central bank and a commercial is just like the relationship between a commercial bank and the general public.


e. Supervision:


● Central Bank acts as a supervisor for all the commercial banks of a country.


● The supervision is done in the form of licensing of the commercial bank, expansion, and opening of new branches, mergers, and liquidation of the banks.


Rate this question :

How useful is this solution?
We strive to provide quality solutions. Please rate us to serve you better.
Try our Mini CourseMaster Important Topics in 7 DaysLearn from IITians, NITians, Doctors & Academic Experts
Dedicated counsellor for each student
24X7 Doubt Resolution
Daily Report Card
Detailed Performance Evaluation
caricature
view all courses
RELATED QUESTIONS :

Explain how 'ReveEconomics - Board Papers

Explain the role Economics - Board Papers

Explain howEconomics - Board Papers

Explain theEconomics - Board Papers