BANKING GENERAL KNOWLEDGE
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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1, 2 and 3
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2, 3 and 4
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1, 3 and 4
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1, 2 and 4
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Detailed explanation-1: -The money supply can be increased in an economy by purchasing government securities such as treasury bills and government bonds. The reverse happens when the central bank tightens the money supply, by selling securities on the open market, drawing liquid funds out of the banking system.
Detailed explanation-2: -Borrowing by the government from the Central Bank will increase the money supply in the economy, because it will be spent by the government on public. Example Direct benefit transfer Subsidies etc.
Detailed explanation-3: -The commercial banks will further reduce their lending rates increasing the volume of credit and money supply in the economy. The decrease in bank rate induces people to borrow more from the bank and this will have a positive effect on the money supply.
Detailed explanation-4: -RBI controls the commercial banks viavarious instruments like Statutory Liquidity Ratio (SLR), Cash Reserve Ratio (CRR), Bank Rate, Prime Lending (PLR), Repo Rate, Reverse Repo Rate and fixing the interest rates and deciding the nature of lending to various sectors.