Question

In: Economics

Explain the structure and role of central bank in the financial stability of the country. Also...

Explain the structure and role of central bank in the financial stability of the country. Also give your opinion, whether central bank should be independent or not?

Solutions

Expert Solution

A central bank is an independent national authority that conducts monetary policy like contraction and expansion monetary policy, regulates banks, and provides financial services including economic research. Central bank's goals are to stabilize the nation's currency, keep unemployment reduced, and prevent inflation rate.

Functions of central banks are :

Trading function and development Function

Trading function Includes : -

1)Bank of issue: in this central bank have the right to issue the currency in every country of the world

2) Government’s banker, agent, and advisor: in this function central bank play a different function for the government as a banker, in this central bank perform the banking function for the government same as the commercial bank plays that role for the .general public

as an advisor, it gave the guidance related to money market capital market, etc

3) Custodian of cash reserves of commercial banks: in this function central bank keep some reserve of deposit amount by people as cash reserve because if any things happen then tey provide that money to banks as a part of loans

4) Custodian of international currency: as similar to above central bank also keep some reserve of international currency for the purpose, if any emergency happens he used that reserve

5)  Lender of last resort: it refers to the most main function of central bank that it   also lends money to commercial banks. Instead of rediscounting of bills, the central bank gives loans against treasury bills, government securities, and bills of exchange.

Developmental Functions includes:

1) Developing specialized financial institutions: Refer to the primary and main functions of the reserve bank for the economic development of a nation. The central bank establishes institutions that serve credit requirements of the agriculture sector like NABARD ( In India )  and other rural businesses. like IDBI( also in India )

2) Influencing money market and capital market: this Implies that reserve bank helps in controlling the financial markets, short term credit deals in Money market and long term credit deals in the capital market. The reserve bank maintains the country’s economic growth by controlling all the activities in money and capital markets.

Central Bank should always be independent because The idea is that Central Banks will be independent of political considerations and willing to keep inflation lower even if there are political costs to raising interest rates

For any query please comment


Related Solutions

What is the role of the central bank and financial institutions in improving the financial markets...
What is the role of the central bank and financial institutions in improving the financial markets in America? give an example
what is the role of the European central bank and European financial institutions in improving the...
what is the role of the European central bank and European financial institutions in improving the financial markets? ( name of cites required)
You are the economic advisor to the central bank of Norway and the country suffers an...
You are the economic advisor to the central bank of Norway and the country suffers an unexpected increase in unemployment. • Introduce briefly the economic situation of Norway. Find and present relevant data following the guidelines. Find out about recent course of monetary policy actions in the country following the guidelines. Describe and analyse the potential effects of an unexpected increase in unemployment on the different sectors and the aggregate performance of the country’s economy. • Consider some actions of...
a) The central bank is the lender of the last resort in any country. Why did...
a) The central bank is the lender of the last resort in any country. Why did Fed chairman Jerome Powell said “This is the time to use the great fiscal power of the United States to do what we can do to support the economy and try to get through this with as little damage to the longer-run productive capacity of the economy as possible’ on April 29, 2020 ? ( WSJ, April 29, 2020) Use the IS, LM curve...
When a central bank purchases the bonds of its country to ease stress on the government's...
When a central bank purchases the bonds of its country to ease stress on the government's budget, this is known as _____ and can lead to _____. Monetizing the debt; inflation Fiscal policy tightening; inflation Monetizing the debt; currency appreciation Fiscal policy tightening; currency appreciation
Should the Central Bank (FED) be independent from Executive Branch (the President) oversight? Would a country...
Should the Central Bank (FED) be independent from Executive Branch (the President) oversight? Would a country benefit from coordination between the central bank and the executive branch of government?
A. According to John Maynard Keynes, the demand for money in a country is determined entirely by that nation’s central bank.
A. According to John Maynard Keynes, the demand for money in a country is determined entirely by that nation’s central bank. the supply of money in a country is determined by the overall wealth of the citizens of that country. the interest rate adjusts to balance the supply of, and demand for, money. the interest rate adjusts to balance the supply of, and demand for, goods and services. B. While a television news reporter might state that “Today the Fed...
Describe structure, nature, role, assembly/formation and location of microtubules. Also name and describe the motor proteins...
Describe structure, nature, role, assembly/formation and location of microtubules. Also name and describe the motor proteins that associate with microtubules, as well as the energy source for the movement.
Explain and discuss the importance and the role of the related notes to the financial statements...
Explain and discuss the importance and the role of the related notes to the financial statements included in a financial statement
Explain the concept of financial risk and its role in asset valuation and financial decision making
Explain the concept of financial risk and its role in asset valuation and financial decision making
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT