Match List-I with List-II:
| List-I | List-II | ||
|---|---|---|---|
| (A) | Sterilisation | (I) | Leads to an increase in money supply and may result in inflation |
| (B) | Deficit financing through central bank borrowing | (II) | Foreign assets held by the central bank of the country |
| (C) | Lender of last resort | (III) | Intervention by the monetary authority to keep the money supply stable against external shocks |
| (D) | Foreign exchange reserves | (IV) | Guarantee of solvency to commercial banks in a situation of liquidity crisis or bank runs |
Choose the correct answer from the options given below:
Answer & explanation
Correct answer: option 3
The correct answer is Option (3) → (A) - (III), (B) - (I), (C) - (IV), (D) - (II)
Each List-I term is a role or action of the central bank, described in List-II.
| List-I | List-II | Reason |
|---|---|---|
| (A) Sterilisation | (III) Intervention by the monetary authority to keep the money supply stable against external shocks | The RBI acts to keep money supply steady, for example when foreign exchange flows in. |
| (B) Deficit financing through central bank borrowing | (I) Leads to an increase in money supply and may result in inflation | Money borrowed from the RBI adds to money supply, which can raise prices. |
| (C) Lender of last resort | (IV) Guarantee of solvency to commercial banks in a situation of liquidity crisis or bank runs | The RBI stands ready to save banks that run short of funds. |
| (D) Foreign exchange reserves | (II) Foreign assets held by the central bank of the country | These are the foreign assets the RBI keeps. |
NCERT (2026-27): Glossary: “Sterilisation - Intervention by the monetary authority of a country in the money market to keep the money supply stable against exogenous or sometimes external shocks such as an increase in foreign exchange inflow.” Glossary: “Deficit financing through central bank borrowing - Financing of budget deficit by the government through borrowing money from the central bank. Leads to increase in money supply in an economy and may result in inflation.” Glossary: “Lender of last resort - The function of the monetary authority of a country in which it provides guarantee of solvency to commercial banks in a situation of liquidity crisis or bank runs.” Glossary: “Foreign exchange reserves - Foreign assets held by the central bank of the country.” |