class-2
PROCESS OF MONEY CREATION:
DEPOSIT (Rs) | LOANS (Rs) | Cash Reserve (Rs) LRR = 21.50% CRR-3.50%
SLR-18% |
|
Initial Deposit | |||
Round 1 | |||
Round 2 | |||
Round 3 | |||
– | |||
– | |||
– | |||
Total |
Total deposit=Initial Deposit * Money Multiplier
Money Multiplier = 1/LRR
QUESTIONS: BASED ON MONEY CREATION
- Explain the process of money creation by the commercial banks with the help of a numerical example.
- Calculate the total deposit created by commercial banks if reserve ratio is 10% and primary deposit is Rs. 1250 crores.
- If total deposit created by commercial banks is Rs. 20,000 crores and the primary deposit is Rs. 2,500 crores, what is the value of money multiplier and reserve ratio?
- Explain the components of legal reserve ratio.
- \Explain the distinction between SLR and LRR. CENTRAL BANK
FUNCTIONS OF RBI CURRENCY AUTHORITY (BANK OF ISSUE)
BANKER TO THE GOVT.
BANKER’S BANK SUPERVISOR & CONTROLLOR
CUSTODIAN OF FOREIGN EXCHANGE RESERVE
CONTROLLER OF MONEY SUPPLY & CREDIT
CUSTODIAN OF CASH RESERVE LENDER OF THE LAST RESORT Supervise for Licensing, expansion, liquidity of assets, mgt, merging etc. i. Repo (Repurchase) Rate ii. Reverse Repo Rate iii. Bank Rate (Discount Rate) iv.LRR (CRR + SLR) v. Margin Requirement vi. Open Market Operations vii.MSF INSTRUMENTS FOR CREDIT CONTROL: Moral Suasion Selective Credit Control Quantitative Vs Qualitative Repo (Repurchase) Rate ii. Reverse Repo Rate iii. Bank Rate (Discount Rate) iv.LRR (CRR + SLR) v. Margin Requirement vi. Open Market Operations vii.MSF INSTRUMENTS FOR CREDIT CONTROL: Moral Suasion Selective Credit Control Quantitative Vs Qualitative - CURRENCY AUTHORITY (BANK OF ISSUE)
Sole authority to publish Except one rupee notes + coin.
Monetary liability.
Obliged to back the currency with assets (Gold, foreign currency, govt. security) of equal value for public confidence.
Govt. can borrow money from RBI (deficit financing) after selling treasury bills, or Security (Gold, Foreign exchange)
Advantages:
i.This function Provide uniformity in note circulation.
ii.provide power to RBI for influencing money supply.
iii.Government supervise & have control over the central bank for issuing notes.
iv.Ensures public faith in the currency system.
v.Helps in stabilisation value (internal & external) of currency.
- BANKER TO THE GOVT.
Works as Banker , Agent, financial advisor for C. Gov., State Gov.
RBI as BANKER for Govt.:
- Does all banking business for Govt.
- Maintain current account.
- Does banking operation: Make payment, receive deposits.
- Provide loans after receiving treasury bills.
As financial advisor- For Govt on economic financial and monetary matters.
RBI as an agent to manage for public debt.