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Economics · Class 12 Commerce

Ch 4Banking and Monetary Policy — Class 12 Economics, concept-first.

A commercial bank is a financial institution licensed to accept deposits from the public and to grant loans and advances for the purpose of earning profit. Commercial banks act as intermediaries between savers and borrowers, and their smooth functioning is central to any modern economy — the Gujarat Std-12 Economics sy…

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Key concepts

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Functions of the Reserve Bank of India

The Reserve Bank of India is India's central bank, standing apart from every commercial, cooperative and regional rural bank because its purpose is to regulate the whole banking and monetary system rather than earn a pro…

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Chapter contents

The NCERT structure, section by section. Open a section to see its questions, then read the concept-first solution.

1

Commercial Banks: Meaning and Functions

A commercial bank is a financial institution licensed to accept deposits from the public and to grant loans and advances for the purpose of earning profit.

2

Credit Creation by Commercial Banks

Commercial banks do not keep the entire amount of a deposit idle in their vaults. Under the fractional reserve system, a bank keeps only a fraction of every deposit as a reserve (the Legal Reserve Rat…

3

Reserve Bank of India (RBI): Role and Functions

The Reserve Bank of India (RBI) is India's central bank, established on 1 April 1935 under the Reserve Bank of India Act, 1934, and nationalised in 1949.

4

Monetary Policy: Meaning and Objectives

Monetary policy is the policy formulated and implemented by the RBI to regulate the supply of money and the availability and cost of credit in the economy, in order to achieve defined macroeconomic go…

5

Quantitative Tools of Monetary Policy

Quantitative (general) tools of monetary policy act on the total volume of credit in the economy, without distinguishing between its uses.

6

Qualitative (Selective) Tools of Monetary Policy

Qualitative (selective) tools of monetary policy do not change the total volume of credit; instead, they direct credit toward or away from particular sectors or uses.

Exercises

+Show 10 questions10 questions
  1. Q3Which of the following is NOT a primary function of a commercial bank? (a) Accepting deposits from the public (b) Granting loans and advance…Free
  2. Q4Distinguish between a primary deposit and a derivative deposit.Free
  3. Q5The LRR is 25% and Bank A receives a fresh deposit of ₹8,000. Show the first three rounds of credit creation and find the total credit creat…Free
  4. Q6State any four functions of the Reserve Bank of India.Preview
  5. Q7In India, the policy repo rate is decided by: (a) The Central Government (b) The Monetary Policy Committee (MPC) of the RBI (c) The Securiti…Preview
  6. Q8Distinguish between CRR and SLR.Preview
  7. Q9Explain the meaning of Repo Rate and Reverse Repo Rate, and state the effect of a rise in each on the money supply.Preview
  8. Q10What is meant by Open Market Operations (OMO)? Explain, with an example, how an OMO sale affects the credit-creating capacity of the banking…Preview
  9. Q11Explain any four objectives of monetary policy.Preview
  10. Q12The RBI raises the CRR from 10% to 20%. If the primary deposit in the banking system is ₹1,00,000, find the total credit-creating capacity o…Preview

Sample & Board Papers

Sample papers and previous-year board questions for this subject.

+Show 20 questions20 questions
  1. Q1Where was the first real bank established in the world? (a) France (b) U.S.A. (c) Norway (d) SpainPreview
  2. Q2Explain the meaning of Repo rate and Reverse Repo rate.Preview
  3. Q3State the difference between a commercial bank and a central bank.Preview
  4. Q4Explain monetary functions of 'Reserve Bank of India'. OR Write a short note on 'Bank rate'.Preview
  5. Q5In which year was RBI nationalized? (a) (A) 1949 (b) (B) 1969 (c) (C) 1935 (d) (D) 1955Preview
  6. Q6From the below mentioned, which instrument is included in qualitative measures of credit control? (a) (A) Repo Rate (b) (B) Bank Rate (c) (C…Preview
  7. Q7What is Reverse Repo Rate?Preview
  8. Q8What do you mean by recurring deposit?Preview
  9. Q9Explain any three monetary functions of Reserve Bank of India.Preview
  10. Q10Explain the qualitative tools of monetary policy.Preview
  11. Q11Which account of commercial bank possesses more liquidity? (a) Saving account (b) Fixed Deposit account (c) Current account (d) Recurring ac…Preview
  12. Q12Who is the custodian of India's reserves of foreign currencies? (a) Foreign ministry of Government of India (b) N.S.S.O. (c) R.B.I. (d) Fina…Preview
  13. Q13State the formula of credit creation.Preview
  14. Q14What is recurring deposit?Preview
  15. Q15Explain any two non-monetary functions of RBI.Preview
  16. Q16Explain the quantitative measures of monetary policy of R.B.I. [Any 5]Preview
  17. Q17What is the name of Apex Bank of India? (a) UBI (b) PNB (c) SBI (d) RBIPreview
  18. Q18Give the full form of RTGS.Preview
  19. Q19Give the meaning of Repo Rate and Reverse Repo Rate.Preview
  20. Q20State the names of qualitative measures of monetary policy of RBI.Preview

More questions

+Show 2 questions2 questions
  1. Example 1The Legal Reserve Ratio (LRR) fixed by the RBI is 20% and a bank receives a fresh primary deposit of ₹10,000. Calculate (i) the credit multi…Free
  2. Example 2If the CRR fixed by the RBI is 10% and a commercial bank receives a primary deposit of ₹5,000, find the total credit the banking system can…Preview