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Ans – (a) Explanation:- Central Bank enjoys the sole monopoly of issuing currency. That’s why the central bank is also known as the bank of issue. Currency Authority (or Bank of Issue):- The Central Bank has the sole authority for…

Ans – (a) Explanation:- Lender of the Last Resort:- When commercial banks fail to meet their financial requirements from other sources, i.e., in case of a financial emergency, they approach the central bank to give loans and advances as lender…

Ans – (b) Explanation:- Assertion (A) is correct as the Currency held by the public is a monetary liability of the Reserve Bank of India as the Central Bank is obliged to back the currency with assets of equal value…

Ans – (b) Explanation:- Assertion (A) is correct as credit creation comes to an end when total cash reserves become equal to the initial deposit. Reason (R) is alos correct as money multiplier is determined by LRR. But Reason (R)…

Ans – (a) Explanation:- Clearing House:- As the central bank holds the cash reserves of all the commercial banks, it becomes easier and more convenient for it to act as their clearing house. All commercial banks have their accounts with…

Ans – (b) Assertion (A) is correct as the Reserve Bank of India has the power to influence the money supply in the economy with the help of different monetary policies. Reason (R) is also correct as RBI is the…

Ans – (a) Explanation:- Why only a fraction of deposits are kept as Cash Reserves? Banks keep a fraction of deposits as Cash Reserves because a prudent banker, by his experience, knows two things: (i) All the depositors do not…

Ans – (b) Explanation:- Money Multiplier:-  The money multiplier is the number by which total deposits can increase due to a given change in deposits. It is inversely related to the legal reserve ratio. In other words, Money Multiplier is…

Ans – Explanation:- Money created = ₹ 1,000 Primary Deposits = ₹ 250 Money Created = Primary Deposits × deposit multiplier Deposit Multiplier = Money created/Primary Deposits Deposit Multiplier = 1,000/250 Deposit Multiplier = 4 Times Deposit Multiplier = 1/LRR…

Ans – (b) Explanation:- The central bank is not the banker to the public. It does not deal with the public directly. It is the apex body of the financial institutions and regulates the commercial banks. It is the banker…