Central Bank Functions Quiz

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What is the main function of the central bank in controlling inflation and deflation?

Printing more notes than necessary

Controlling the credit creation power of commercial banks (correct)

Encouraging banks to lend more freely

Lowering the interest rates significantly

Which policy involves controlling the cost and quantity of credit by the central bank?

Printing more currency notes

Reducing the reserve ratios of commercial banks

Bank rate policy (correct)

Encouraging unregulated lending

Why does the central bank have a monopoly on note issue?

To control the banking system (correct)

To increase the cost of printing notes

To encourage banks to print their own notes

To reduce government profits from printing notes

What is the purpose of qualitative methods employed by the central bank?

To control the use and direction of credit Signup and view all the answers

How does the central bank try to stabilize economic activity in a country?

By controlling credit creation by commercial banks Signup and view all the answers

What gives the central bank elasticity to the monetary system?

Restricting or expanding the supply of cash based on economic requirements Signup and view all the answers

What is the primary role of the central bank in relation to foreign exchange reserves?

Managing foreign exchange reserves of the country Signup and view all the answers

In managing exchange control operations, the central bank supplies foreign currencies primarily to:

Importers Signup and view all the answers

What does the central bank do to bring stability in foreign exchange rates?

Fixing exchange rates within narrow limits Signup and view all the answers

What is the role of the central bank in relation to gold reserves?

Buying gold at international prices Signup and view all the answers

How does the central bank facilitate clearing of cheques among commercial banks?

By operating a separate department known as the 'clearing house' Signup and view all the answers

What is a key function of the central bank acting as a clearing house for commercial banks?

Settling mutual claims of commercial banks Signup and view all the answers

What is one of the core functions of central banks in any country?

Issuing national currency Signup and view all the answers

What traditional banking operations does the central bank perform for the government?

Managing and administering national debt Signup and view all the answers

Which institution controls a country's monetary policy?

Central Bank Signup and view all the answers

In what capacity does the central bank function as the custodian of government money and wealth?

As the official agent for gold and foreign exchange matters Signup and view all the answers

What is a key mandate of most central banks?

Ensuring financial system stability Signup and view all the answers

What role does the central bank play in advising the government?

Guiding on economic and money matters Signup and view all the answers

Which of the following is NOT typically a mandate of a central bank?

Conducting military operations Signup and view all the answers

How does the central bank intervene in the foreign exchange markets?

By influencing the exchange value of the domestic currency Signup and view all the answers

What distinguishes the Bank of Canada from the European Central Bank in terms of monetary policy?

Bank of Canada manages the monetary policy for a group of countries Signup and view all the answers

What is one key purpose of managing monetary policy according to the text?

Achieving price stability Signup and view all the answers

What kind of short-term loans does the central bank provide to the government?

Short-term loans for a period not exceeding 90 days Signup and view all the answers

Why do central banks operate as bankers to the state according to the text?

Due to an intimate connection between public finance and monetary affairs Signup and view all the answers

What is one of the functions of the central bank in relation to commercial banks?

Holding reserves for commercial banks Signup and view all the answers

How does centralizing cash reserves in the central bank benefit the banking system?

Provides stability during financial crises Signup and view all the answers

What enables the central bank to transfer funds between commercial banks?

Cash reserves held by the central bank Signup and view all the answers

In what way can the central bank control credit creation by commercial banks?

Adjusting cash reserve requirements Signup and view all the answers

How does keeping cash reserves with the central bank benefit commercial banks during financial crises?

Access to additional temporary funds Signup and view all the answers

What role does the central bank play in facilitating cheque clearances between banks?

Transferring funds based on cash reserves Signup and view all the answers