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Role of RBI Video Lecture | Indian Economy for UPSC CSE

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FAQs on Role of RBI Video Lecture - Indian Economy for UPSC CSE

1. What is the role of RBI in the Indian economy?
Ans. The Reserve Bank of India (RBI) plays a crucial role in the Indian economy. It is responsible for regulating and supervising the country's banking system, issuing currency, and managing foreign exchange reserves. The RBI also formulates and implements monetary policies to maintain price stability and control inflation. Additionally, it acts as the banker to the government and provides financial services to commercial banks and the public.
2. How does the RBI regulate the banking system?
Ans. The RBI regulates the banking system in India through various mechanisms. It issues licenses to banks, sets capital requirements, and establishes guidelines for their functioning. It also conducts regular inspections and audits to ensure compliance with regulations. The RBI monitors liquidity in the system, controls interest rates, and sets guidelines for lending and borrowing. It also acts as the lender of last resort, providing liquidity support to banks when needed.
3. What is the significance of the RBI's control over the money supply?
Ans. The RBI's control over the money supply is crucial for maintaining price stability and controlling inflation. By adjusting key policy rates, such as the repo rate, the RBI influences the cost of borrowing for banks, which in turn affects interest rates in the economy. This, in turn, impacts investment, consumption, and overall economic activity. Through its open market operations and reserve requirements, the RBI also controls the availability of money in the system, ensuring it is in line with the desired economic objectives.
4. How does the RBI manage foreign exchange reserves?
Ans. The RBI manages foreign exchange reserves to maintain stability in the external value of the Indian rupee. It actively participates in the foreign exchange market, buying and selling currencies to maintain an orderly exchange rate. The RBI accumulates foreign exchange reserves by purchasing foreign currencies, such as the US dollar, through various channels. These reserves act as a cushion during times of economic volatility and help stabilize the value of the Indian rupee.
5. How does the RBI support the government's financial activities?
Ans. The RBI acts as the banker to the government and supports its financial activities in several ways. It manages the government's bank accounts, processes its receipts and payments, and facilitates the issuance and redemption of government securities. The RBI also provides short-term loans to the government to bridge temporary mismatches in cash flows. Additionally, it advises the government on various financial matters, including debt management, fiscal policies, and international transactions.
165 videos|297 docs|142 tests

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