Identify the correct pair of statements from the following column I and
column II.
Column I Column II
A Open market (i) Qualitative measure
ooerations
B Margin requirement (ii) Minimum ratio of total bank
deposits which they have to keep
with themselves
C Banker's bank (iii) Function of Central bank
D Reserve re.quirement (iv) Sale and Purchase of Securities
Answers
Explanations:
1. The Central Bank is the apex institution of a country's monetary system. It regulates and controls the activities of all the commercial banks and other financial institutions of the country.
2. Central Bank acts as a clearing house for the commercial banks. As a clearing house it settles inter-bank claims, reducing the need for cash reserves by the commercial banks.
3. Statutory Liquidity Ratio (SLR) is defined as the minimum percentage of assets, such as gold, cash or securities, which must be maintained by the commercial banks with the Central Bank. Central Bank uses it as a measure of credit control in the economy. High SLR implies lesser funds left for advancing credit. Thus, increasing SLR implies credit control by the central bank.
4. Direct action refers to the actions taken by central banks against commercial banks which fail to adhere to the directions of the bank. It is used as a selective credit control measure.
5. Open Market Operations refer to the buying and selling of securities either to the public or to the commercial banks in an open market.