Question

1) Understand the objective of central banks

2) Describe the features of an effective central bank

Answer 1

1. A central bank is the Apex institution of a country and plays a very vital role in the economy. The objectives of central bank includes the following-

a. A high level of employment

b.Moderate long-term interest rates

c. Expand economy's growth potential

d. Maintain price stability

e. Preserving the integrity of country's financial institutions.

2. The characteristics of an effective Central Bank are as follows-

a. Single Organization: The central bank is single in every country and is unique. No other central bank can be established and it doesn't compete with any other bank in the country.

b.Legal Entity: The central bank is established through special ordinance of the government, and thus has legal entity. It gives central bank special 'dignity'.

c. Note Issuing Authority: a central bank has sole responsibility of issuing currency and to control the volume of currency in the county.

d.Bank to the Government: The central bank conducts the banking facilities of the government and also acts as a fiscal agent. It receives and disburses payments on behalf of the government and also advances loans to the government.

e. Banker's Bank: The central bank acts as a banker to other banks. It is also the custodian of cash reserves of commercial banks.

f. Controller of Credit: The central bank controls and regulate the credit in the country according to varying economic conditions.