Read the passage carefully and answer the question based on the passage:
Role of Money
In modern economics, money plays a very crucial role as medium of exchange, unit of account, store of value and standard of deffered payment. The banking system, a cornerstone of financial markets, facilitates the creation and circulation of money.
Commercial banks accept deposits from the public and provide loans. A fraction of the deposits are kept by the commercial banks as reserves and the rest is lent out. This amplifies the money supply in the economy through the 'Multiplier Effect'. The RBI as central Bank regulates the money supply through monetary policy tools. These tools influence the credit availability and overall liquidity in the system, impacting inflation, growth and employment.
Which of the following are major functions of commercial banks?
Answer & explanation
Correct answer: option 3
The correct answer is Option (3) → Granting Loans and accepting deposits.
According to the passage, commercial banks perform two key roles:
-
Accept deposits from the public.
-
Provide loans, using the deposited funds, which helps expand the money supply through the multiplier effect.
These are the core functions of commercial banks.
Why the other options are incorrect:
-
Controlling money supply – This is a function of the Reserve Bank of India (RBI), not commercial banks.
-
Printing of currency notes – Only the RBI is authorized to print currency notes in India.
-
Regulator of financial market – This is primarily the role of regulatory bodies like RBI and SEBI, not commercial banks.