Question

What is a central bank? What are its distinguishing characteristics and primary functions? explain in a few short sentences

Answer 1

The Central bank can be defined as the main institution of monetary banking system of any Nation. The name of Central Bank of different nation is different but their function is same.

The characteristics of the Central Bank.

It is the bank of the Government of the country and also the banks of the all commericial banks.

It conducts monetary policy.

It controls the inflation rate.

It also affect the exchange rate and interest rate.

Function of the Central Bank.

1. Currency issue.

The Central Bank issue the new currency.

2.

Banker of the Government; This bank accept deposit from the government and give loans also.

3.

Banker;'s bank and supervisor;

This is the bank of the all commercial banks.

4.

Open market operation;

This bank affect money supply by selling and buying bonds in the market and therefore affect the money supply in the country.

5.

Exchange rate control.

This bank control the exchange rate indirectly by affecting the interest rate and money supply.

6.

Lender of last resort;

When commercial banks are not able to find loan from another bank due to bad gooodwill, then it is Central Bank which provide loans and therefore it is known as the lender of the last resort.