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Thus speculative demand for money becomes very high so much so that when rate of interest declines to minimum, say 3% as shown in Fig., speculative demand for money becomes infinite . This pushes the economy into liquidity trap and the speculative demand curve becomes flat as shown in . Money is the most liquid of all assets because a person having money can convert it into anything he likes. Therefore, demand for money is the demand for liquidity. Broadly there are two main motives for holding money — transaction motive and speculation motive.
All other notes bear the signature of the RBI Governor. However, the agency of distribution of all notes and coins issued by the Government of India is the Reserve Bank of India. To provide banking https://1investing.in/ solutions to the state and central governments of the country. The essential objective for the Reserve Bank of India is to direct the different financial functions for India in the money market.
With advancement, the Bank’s centre has moved back to core central banking purposes such as Monetary Policy, Bank Supervision and Regulation, and Overseeing the Payments System. Reserve Bank of India or RBI is the central bank of India. It functions of rbi class 12 is the one who is responsible for the issue and supply of the Indian rupee. When we talk of economics and banking, RBI is the supreme body. It is basically responsible for the circulation and legalization of any type of currency in India.
The central bank acts as a Banker, Agent and a Financial advisor to the central government, and all the state government . Purchase and Sale of Securities- commercial banks also buys and sells the shares of all companies on behalf of their clients. Reserve Bank of India uses four alternative measures of money supply called as M1, M2, M3, and M4. Among these measures, M1is the most commonly used measure of money supply because its components are regarded as most liquid assets. Q.27. Write a short note on selective credit controls of RBI. Section 23 of the RBI Act, 1934, had mandated that the function of issuance of banknotes is to be conducted by the RBI through a separate department called the Issue Department.
Chapter Chosen
All the 4 activities mentioned above will help the Central Bank in controlling the money supply in the economy. In order to control the money supply in the economy, the Central Bank may ____. Another of the important functions of RBI is maintaining a reserve of foreign currencies that enables the RBI to deal with any crisis situation. Cooperative Banks- Cooperative Banks come under the dual regulation of RBI and the Government. Both the authorities have different fields to work on as RBI manages the banking-related functions and Central Government or State Government manages the management-related functions.
- Q.33. Discuss the role of Reserve Bank of India in economic development of India.
- RBI regulates the interest rate on NRI deposits, export credits , and a few other categories.
- The rate of interest on such deposits is generally Hai depending upon time period.
- Since the RBI holds reserves of commercial banks, it facilitates the clearing of cheques by transferring funds between banks.
2) Saving Deposit – The Basic type of account which allows customers side of a portion of income for the motive of earning some monetary return that is interested. Bank does not pay any interest on such deposits rather they charge a service charge for running these accounts. Briefly explain any three functions of Clearing House of RBI. Doubtlessly money helps in removing the difficulties of barter system as explained above. Q.31. Explain briefly how the Reserve Bank of India controls credit. To establish monetary relations with other countries of the world and international financial institution.
Explain the ‘unit of account/measure of value’ function. The shoemaker wants a loaf in exchange of his shoes but exchange value of a piece of loaf is but a fraction of a pair of shoes. Shoes cannot be sub-divided without destroying their values. Similarly, if a person wants to purchase cloth equal to the value of the half his cow, he cannot do so Without killing his cow. Thus lack of divisibility makes barter exchange impossible. Q.33. Discuss the role of Reserve Bank of India in economic development of India.
Structure and Functions of RBI
The role of the RBI in bank management is very unique. The primary objective of the RBI is to maintain financial stability in India. For more information about the objectives of RBI, connect with Vakilsearch. Some comprehensive and important influences of the RBI are to restructure the bank inspection process and stimulate the auditor’s role in the banking sector. Besides being the national bank for currency circulation, RBI has some other functions also.
All the commercial banks are regulated and supervised by Central Bank. Central Bank being Apex Bank, it acts as the banker to the other banks. It bears the same relationship with commercial banks as commercial banks maintain with the general public. Commercial banks buy and sell foreign exchange on behalf of their clients.
Holding money is equivalent to keeping a reserve of liquid assets because it can be easily converted into other things. People, therefore, normally wish to keep a part of their wealth in the form of money because savings in terms of goods is very difficult. Wheat or any other product which will command a value cannot be stored for a long period. The desire for money is known as liquidity preference. It is difficult to engage in contracts which involve future payments due to lack of any satisfactory unit.
Consumers compare the values of alternative purchases in terms of money. Producers compare the relative costliness of the factors of production in terms of money and also plan their output on the basis of the money yield. It is, therefore, highly important that the value of money should be stable. Another duty of a Central Bank is to see that the external value of currency is maintained.
Bankers to Central and State Government
E money is a credit to the account of the borrower and he can withdraw at any time, fully or partially. However, interest is charged on full amount irrespective of the amount withdrawn. Specified amount as a reserve, the remains are used to lend to those people who are in need in exchange for some interest. The rate of interest on such deposits is generally Hai depending upon time period. 3) Fixed Deposits – Understood deposit a particular amount is deposited for a fixed period of time. These accounts are maintained by Businessman for making a business transaction.
NBFCs, Primary Dealers and CICs also come under the regulation and supervision of RBI. Such research undertaken by RBI focuses on issues and problems arising at the national and international levels, having a critical impact on the Indian economy. Banks open their current account with RBI to maintain SLR and CRR. Moreover, when RBI came into force it takes over the functions of Government so far being performed by the Controller of Currency and from the Imperial Bank of India. The statutory status of the RBI is provided under the Reserve Bank of India Act of 1934, and become operational on April 1, 1935.
Banking: Commercial Banks and the Central Bank
To manage the monetary and credit system of the country. It cannot give interest on deposits on current account. There is a separate roule for clearing high value cheques of Rs. 1.00 lakh and above. Cheques drawn on banks in metropolitan cities are cleared on the same day. While deposit growth failed to keep pace and increased at less than three times to Rs2.10 trillion. In the present COVID-19 situation, many economists have raised their concerns that Indian economy may have to face a deflationary situation due to reduced economic activities in the country.
Advancement of the economy of India
When commercial banks fail to meet their financial requirements from other sources, the approach Central Bank to give loans and advances as Lender of Last Resort. Steven sends banks to discounting of approved securities and bills of exchange. A. Custodian of Cash Reserves- Commercial banks are required to keep a fixed percentage out of the deposits as the reserve is known as cash reserve ratio with Central Bank.
The affairs of RBI are governed by a central board of directors. To be the main banker for each bank around the nation and keep all the banking accounts of each scheduled bank. The RBI shall set up offices in Delhi, Kolkata, Madras, and Mumbai and may establish offices or branches at any other place in the country with the prior approval of the central government. The RBI was established in 1935, as per the Reserve Bank of India Act of 1934. It is located in Mumbai and is owned and regulated by the government of India. The directors of the Central Bank are engaged in regulating the operations of the RBI, which includes 21 members recruited through the Indian Government.
Vakilsearch is India’s largest provider of legal, secretarial, accounting, and compliance services. We have successfully worked with over 5 lakh customers, and have now registered over 10% of all the companies registered in India. To support national banking and other financial goals, the RBI shall promote and execute promotional activities. To safeguard the interest of every investor and offer economic and cost-efficient services to the public. To run the currency and credit systems of the nation to its benefit. A decrease in reverse repo rate will have an opposite effect.