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Describe function of RBI in maintaining money in bank ( 5 marks)?
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Describe function of RBI in maintaining money in bank ( 5 marks)?
Function of RBI in maintaining money in bank

The Reserve Bank of India (RBI) is the central bank of India and is responsible for regulating the monetary policy of the country. One of its main functions is to maintain the stability of the banking system by ensuring that sufficient money is available in banks to meet the demand of customers.

Role of RBI in maintaining money in bank

1. Formulating Monetary Policy: RBI formulates the monetary policy of the country which aims at maintaining price stability and promoting economic growth. It decides the key interest rates, reserve ratios, and other monetary tools which have a direct impact on the availability of money in the banking system.

2. Regulating Banks: RBI is responsible for regulating and supervising banks in India. It ensures that banks maintain adequate capital and reserves to meet their obligations, and follow the guidelines and regulations set by the central bank. This helps to maintain the stability of the banking system and ensures that banks have sufficient funds to meet the demand of customers.

3. Controlling money supply: One of the key functions of RBI is to control the money supply in the economy. It does this by using various tools such as open market operations, cash reserve ratio, and statutory liquidity ratio. By controlling the money supply, RBI can ensure that there is sufficient money available in the banking system to meet the demand of customers.

4. Managing Foreign Exchange Reserves: RBI is responsible for managing the country's foreign exchange reserves. It ensures that there is sufficient foreign currency available to meet the demand of importers and exporters. This helps to maintain the stability of the currency and ensures that there is sufficient money available in the banking system.

5. Providing Lender of Last Resort: RBI acts as a lender of last resort for banks in times of financial distress. It provides loans to banks in order to help them meet their obligations and maintain the stability of the banking system. This ensures that banks have sufficient funds to meet the demand of customers and helps to maintain confidence in the banking system.

Conclusion

In conclusion, the RBI plays a crucial role in maintaining the stability of the banking system by ensuring that sufficient money is available in banks to meet the demand of customers. It regulates banks, controls the money supply, manages foreign exchange reserves, and acts as a lender of last resort. Its policies and actions have a direct impact on the availability of money in the banking system and the overall health of the economy.
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Read the source given below and answer the questions that follows:Banks use the major portion of the deposits to extend loans. There is a huge demand for loans for various economic activities. Banks make use of the deposits to meet the loan requirements of the people. In this way, banks mediate between those who have surplus funds (the depositors) and those who are in need of these funds (the borrowers). Banks charge a higher interest rate on loans than what they offer on deposits. A large number of transactions in our day-to-day activities involve credit in some form or the other. Credit (loan) refers to an agreement in which the lender supplies the borrower with money, goods or services in return for the promise of future payment. In rural areas, the main demand for credit is for crop production. Crop production involves considerable costs on seeds, fertilisers, pesticides, water, electricity, repair of equipment, etc. The various types of loans can be conveniently grouped as formal sector loans and informal sector loans. Among the former are loans from banks and cooperatives. The informal lenders include moneylenders, traders, employers, relatives and friends, etc. The Reserve Bank of India supervises the functioning of formal sources of loans. For instance, we have seen that the banks maintain a minimum cash balance out of the deposits they receive. The RBI monitors the banks in actually maintaining cash balance. There is no organisation which supervises the credit activities of lenders in the informal sector. They can lend at whatever interest rate they choose. There is no one to stop them from using unfair means to get their money back. Compared to the formal lenders, most of the informal lenders charge a much higher interest on loans. Thus, the cost to the borrower of informal loans is much higher. In recent years, people have tried out some newer ways of providing loans to the poor. The idea is to organise rural poor, in particular women, into small Self-Help Groups (SHGs) and pool (collect) their savings.Answer the following MCQs by choosing the most appropriate optionQ. Banks use the major portion of the deposits to

Read the source given below and answer the questions that follows:Banks use the major portion of the deposits to extend loans. There is a huge demand for loans for various economic activities. Banks make use of the deposits to meet the loan requirements of the people. In this way, banks mediate between those who have surplus funds (the depositors) and those who are in need of these funds (the borrowers). Banks charge a higher interest rate on loans than what they offer on deposits. A large number of transactions in our day-to-day activities involve credit in some form or the other. Credit (loan) refers to an agreement in which the lender supplies the borrower with money, goods or services in return for the promise of future payment. In rural areas, the main demand for credit is for crop production. Crop production involves considerable costs on seeds, fertilisers, pesticides, water, electricity, repair of equipment, etc. The various types of loans can be conveniently grouped as formal sector loans and informal sector loans. Among the former are loans from banks and cooperatives. The informal lenders include moneylenders, traders, employers, relatives and friends, etc. The Reserve Bank of India supervises the functioning of formal sources of loans. For instance, we have seen that the banks maintain a minimum cash balance out of the deposits they receive. The RBI monitors the banks in actually maintaining cash balance. There is no organisation which supervises the credit activities of lenders in the informal sector. They can lend at whatever interest rate they choose. There is no one to stop them from using unfair means to get their money back. Compared to the formal lenders, most of the informal lenders charge a much higher interest on loans. Thus, the cost to the borrower of informal loans is much higher. In recent years, people have tried out some newer ways of providing loans to the poor. The idea is to organise rural poor, in particular women, into small Self-Help Groups (SHGs) and pool (collect) their savings.Answer the following MCQs by choosing the most appropriate optionQ. An agreement in which the lender supplies the borrower with money, goods or services in return for the promise of future payment.

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