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Short Questions and Answer:

Q.1. Name the India’s Central Bank.

Ans:   India’s Central Bank is the Reserve Bank of India. 

Q.2. What is the main function of money in an economic system?

Ans:   The main function of money is to facilitate the exchange of goods and services i.e., to lessen the time and effort required to carry on trade.

 Q.3. How can money be defined?

Ans:   Money can be defined as anything that is generally acceptable as a means of exchange and acts as a measure and as a store of value.

Q.4. What is the basic characteristic of money?

Ans:   The basic characteristic of money is general acceptability.

Q.5. What is legal tender money?

Ans:   Legal tender money is the money which every individual is bound to accept in exchange of goods and services or in discharge of debts.

Q.6. What is barter exchange?

Ans:   Direct exchange of goods against goods without use of money is called barter exchange.

Q.7. What is meant by High Powered Money?

Ans:   Total liability of the monetary authority of the country, RBI, is called the monetary base or high powered money. It is the money created or produced by RBI and government of India.

Q.8. What is banking?       

Ans:   Banking is defined as ‘accepting for purpose of lending or investments of deposit of money from the public repayable on demand or otherwise and withdrawal by cheque, draft, and order or otherwise.’

Q.9. Two types of banks exists in every country Central bank and commercial banks. What are Commercial Banks?

Ans:   A commercial bank is a financial institution, which performs the functions of accepting deposits from the general public and giving loans for investment, with the aim of earning profit.

Q.10. RBI is the central bank of India. What do you mean by a central bank?

Ans:   The central bank is the apex institution of monetary system of a country. It is banker to the other banks and to the Government; it issues notes, controls money supply and credit, and maintains monetary stability.

Q.11. How does central bank acts as banker to the Government?

Ans:   The Government keeps their balances in the current account with the central bank. Similarly, central bank accepts receipts and makes payment on behalf of the Government.

Q.12. Explain the function of collection and publication of data.

Ans:   Central Bank has also been entrusted with the tasks of collection and compilation of statistical information, relating to banking and other financial sectors of economy.

Q.13. What governs note issuing in India? 

Ans:   Note issuing is governed by the Minimum Reserve System. The entire currency issued, has the backing of minimum gold reserve.

Q.14. What are primary deposits?

Ans:   Primary deposits are cash deposits with the commercial banks by the people.

Q.15. What is secondary deposits?

Ans:   Deposits that arise on account of loans by the banks to the people are called secondary deposits.

Q.16. What is selective credit control?

Ans:    It refers to the discriminatory policy of the central bank in favour of certain sectors of the economy.

Q.17. What do you mean by Cash Reserve Ratio (CRR)?

Ans:    Every commercial bank, under law, has to deposit with Central bank a minimum percentage of its demand and its deposits. This percentage is called as CRR. A high CRR means more reserves and fewer loans.

 By changing CRR, Central bank controls the lending capacity and credit availability of banks. Recently, RBI has raised CRR from 5.5% to 6% w.e.f. March 3, 2007 in order to control inflation. In case of deflation, RBI decreases the CRR.

 Q.18. What are the difficulties associated with the barter system of exchange?

Ans:   Following are the difficulties associated with the barter system:

a.    Lack of double coincidence of wants

b.   Lack of common measure of values

c.    Indivisibility of commodities

d.   Difficulty of storage and transfer of wealth 

Q.19. Mention the types of loans and advances made by banks.

Ans:   The types of loans and advances made by banks are:

a.    Cash credit

b.   Demand Loans

c.    Short-term loans

d.   Overdraft

 Q.20. What are the functions of a Central Bank?

Ans:    The functions of Central Bank are as follows:

a.    Issuing of currency

b.   Banker to government

c.    Banker’s bank and supervisor

d.   Controller of credit and money supply

e.   Custodian of foreign exchange                                                                                                                                                       Next

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