Q.7. Out line the points of difference between the commercial banking and the central banking systems. (2003-04)
Or. Discuss the Commercial banks Vs Central bank. (2004-05)
Ans. The points of difference between a central bank and commercial bank are given below-
(i) The central bank is the apex banking institution in the country, which controls and regulates the commercial and other banks in the country.
(ii) The central bank is generally owned and managed by the state while the commercial banks may be state or privately owned institutions.
(iii) The commercial banks deals with the public directly but the central bank does not deal directly with the public. It deals with commercial banks and other institutions and the government of the countary.
(iv) The central bank is the custodian of the foreign exchange reserves of the country and I responsible for maintaining the stability of foreign exchange rates.
(v) The primary objective of a commercial banks is to earn profit or surplus, but the object of the central bank is not to earn profit, but to stimulate the economic growth the country and to create a stable monetary system in the economy.
Q.8. Sketch out the various functions of Reserve Bank of India (RBI). (2003-04)
Or. Discuss in brief the various functions that are performed by the banks. (2007-08)
Ans. Function of Reserve Bank of India: -
The RBI is the central bank of our country. As a central bank, it performs the following functions.
(i) Issue of Notes: -
Central bank of a country enjoys the monopoly or exclusive right for note issue. The currency notes issued by the central bank are declared unlimited legal tender throughout that country.
(ii) Government’s Banker Agent and Advisor: -
The central bank provides banking facilities of the government just as commercial banks render banking services to the public.
(iii) Banker’s Bank: -
The central bank acts as the bankers bank commercial banks are required to keep a certain portion of their total deposits in the form of cash reserves with the central bank because of statutory requirements.
(iv) Lender of the Last Resort: -
As a bankers bank, the central bank under takes to extend financial accommodation to commercial banks in items of their needs.
(v) National Clearing House: -
As bankers bank the central bank balance of all commercial banks. It is easier for member banks to adjust, their clams against each other in the books of central bank.
Q.9. What is inflation and what are the important factors affecting the price-inflation? (2004-05)
Or. Enumerate the reasons responsible for price inflation. (2007-08)
Ans. Inflation is defined as an economic process which denotes a substantial and rapid general increase in the level of price and consequent deterioration in the value of money over a period of time. Inflation represents a sustained rise in prices. Inflation is a sustained rise in price level over a period of time.
The important factors affecting the price inflation are-
(i) Increase in government expenditure public expenditure in India has shown an upward trend in India during last five decades.
(ii) Expansion of money supply.
(iii) Deficit financing.
(iv) Bank credit.
(v) Black money.
(vi) Population growth.
(vii) Over dependence on agriculture.
(viii) Natural calamities.
(ix) Dependence on imports.
(x) Miscellaneous factors.
Q. 10. What do you mean by the term inflation of money?
Discuss its affection:
(i) Industrialists.
(ii) Debtors and Creditors.
(iii) Consumers. (2006-07)
Ans. Inflation is generally understood as an economic process which denote a subtenant and rapid general increases in the level of price and consequent deterioration in the value of money over a period of time. In other words, inflation represents a sustained rise in prices. Crowder has defined inflation as a state in which the value of money is falling i.e. prices are rising. According Ed ward Shapiro” Recognizing the ambiguities our words contain we shall define inflation simply as a persistent and appreciable rise in the general level of prices”.
Thus inflation is sustained rise in price level over a period of time. It can be measured in terms of percentage increases in the price index as a rate percent per unit of time, say a month or a year.
Effect of Inflation: -
Inflation affects both production and distribution of income in a country. Rising is not a happy situation for any country. When the country is affected by inflation, the main effect, is that the rich become richer and the poor become poorer. When prices in general are rising, debtors businessman and corporate shareholders enjoy an improvement.
Inflation has the following Effects: -
(i) All producers, traders and speculators gain during inflation because of wind fall profit because the prices goods rise at a for greater rate than cost of production as wages, interest rates, insurance premium etc.
(ii) Inflation affect bably those persons living on past savings, fixed interests and rents such as pensions and other fixed income groups generally called the middle classes.
(iii) During inflation the working class also suffers since normally wages do not rise as much as the prices of those commodities and services which the workers by and also because of time lag between the rise in the price level and rise in wages.
(iv) Consumers also suffer heavily on account of rising prices. It gives rise to a sense of futility.