Gujarat BoardEnglish MediumSTD 12 CommerceEconomicsBANKING AND MONETARY POLICY2 Marks
Question
Explain the functions of a central bank in short.
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Answer
Definition:
R. P. Kent defines a central bank as “the institution charged with the responsibility of managing the expansion and contraction of the volume of money in the interest of the general public welfare.”Meaning:
A central bank is a bank that manages, evaluates and regulates the banking activity in a country.
All the countries in the world have a central bank.
In India, $RBI$ i/e. Reserve Bank of India is the Central bank.
Functions of central bank:
$(a)$ Central bank protects the interest and rights of customers of all banks.
$(b)$ Central bank maintains financial stability for better economy by regulating all. the financial transactions of the country.
$(c)$ Central bank has the authority to maintain the value of currency in a country.
$(d)$ Central bank also makes monetary policy whose rules apply to all the banks in a country.
$(e)$ Central bank helps, regulates and promotes the entire money market and banking sector. Money market is where financial instruments like Treasury bills, commercial paper, etc. with high liquidity and very short term maturities are traded.
$(f)$ Central bank also provides financial advice and suggestions to the government of a country.
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