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Target Exam

CUET

Subject

Economics

Chapter

Macro Economics: Money and Banking

Question:

Read the following passage carefully and answer the questions given that below:

Money is the commonly accepted medium of exchange. The first and foremost role of money is that it acts as a medium of exchange. Economic exchanges without the mediation of money are referred to as barter exchanges. Central bank has several important functions. It issues the currency of the country. India got its central bank in 1935. Its name is the 'Reserve Bank of India'. It controls money supply of the country through various methods, like bank rate, open market operations and variations in reserve ratios. It acts as a banker to the government. It is the custodian of the foreign exchange reserves of the economy. It also acts as a bank to the banking system. Currency issued by the Central Bank can be held by the public or by the commercial banks, and is called the 'high-powered money' or 'reserve money' or 'monetary base' as it acts as a basis for credit creation.

Choose the incorrect from the following statements concerned with RBI:

Options:

It is the custodian of the foreign exchange reserves of the economy

It also acts as a Bank to the Banking System

It directly deals with the Public

It controls money supply of the country through various methods like bank rate, open market operations and variations in reserve ratios

Correct Answer:

It directly deals with the Public

Explanation:

The correct answer is Option (3) → It directly deals with the Public

While the RBI plays a crucial role in the Indian economy, it does not directly deal with the public in the same way commercial banks do.

  • Here's why: The RBI primarily functions as a regulator and supervisor of the banking system. It deals with commercial banks, financial institutions, and the government.
  • Individuals typically interact with commercial banks for their day-to-day banking needs like deposits, withdrawals, and loans.

The other statements are all accurate functions of the RBI:

  • Custodian of foreign exchange reserves: The RBI manages and oversees India's foreign exchange reserves.
  • Bank to the Banking System: The RBI provides various services to commercial banks, such as lending, clearing checks, and managing their reserves.
  • Controls money supply: The RBI uses tools like bank rate, open market operations, and reserve ratios to regulate the money supply in the economy.

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