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The central bank uses 9 measures to control flow (credit flow) of money. It is divided into two QAUNTITATIVE MEASURES AND QUALITATIVE MEASURES.
In quantitative measures,central bank give re-discounting facilities to there member banks(commercial bank).1)Central bank give BANK RATE.when central bank increases bank rate,commercial may increase the rate of interest on borrowing and this will discourage business man to borrow money and investment will also decreases.2)Open market operation in which buying and selling of securities.3)veriable reserve ratio in which central bank ask to keep CRR at the rate of 6% and SLR(statutory liquid ratio) at 24% with them self.
In qualitative measures, central bank provide money to selected member banks and discard to banks who are responsible for unstable functioning of economy.1)Rationing credit. 2)Direct action. 3)Minimum secondary reserve ratio. 3)Regulation on consumer credit. 4)changes in MARGIN REQUIREMENT on securities loan. 5)moral suasion and publicity.
What else can I help you with?
How do central bank control the quantity of money in circulation?
Central banks control the quantity of money in circulation by printing more bills when the central storage is low and refraining from printing when the country is suffering from inflation.
What is the role of Central bank of Kenya?
supervise other member banks control the flow of money in the country
How can you control the liquidity in system with CRR?
With Cash Reserve Ratio the Commercial Banks can keep money in Central Bank. So that amount of money keeps intact coz the commercial bank do not retain that with themselves. So if in a case the commercial banks need money they can easily opt for the aforesaid invested money with central bank.
What are the ways the central bank can control the activities of the commercial bank?
explain four ways in which the central bank esercises control over commercial banks
Why is the supply of money in an economy not solely determined by central bank?
The supply of money IS controlled by the central bank. However, in some countries the politicians interfere with the Central Bank.
Why is the money supply curve vertical?
The money supply curve is vertical because the central bank has the ability to control the amount of money in circulation by adjusting interest rates and implementing monetary policy. This means that the supply of money is not determined by market forces, but rather by the decisions of the central bank.
How does the central banks control the interest rates?
Central banks control interest rates by altering the repo rate. Repo rate is the rate at which banks borrow money from the central bank. So if the central bank hikes the repo rate, the banks will automatically hike their lending rates. similarly if the central bank reduces the repo rate, banks will lower their lending rates too.
How does the central banks control the interest rate?
Central banks control interest rates by altering the repo rate. Repo rate is the rate at which banks borrow money from the central bank. So if the central bank hikes the repo rate, the banks will automatically hike their lending rates. similarly if the central bank reduces the repo rate, banks will lower their lending rates too.
What is the role of central bank?
The role of the central bank is to control all local banks in a country.
What is a bank repo rate?
A bank repo rate is the rate at which a central bank lends money to commercial banks in the event of a shortfall of funds. It is a tool used by central banks to control money supply in the economy. The repo rate influences interest rates for loans and deposits in the banking system.
What is the purpose of cash reserve ratio?
CRR stands for Cash Reserve Ratio. This is the amount of money banks have to deposit with the central bank and this amount depends on the amount of total deposits held by the bank. It is used the Central bank to control the amount of cashflow in the market and the amount of money the banks have for lending to the public
What do you mean by bank rate?
Bank rate, also referred to as the discount rate, or it is the rate of interests which a central bank charges on the loans and advances that it extends to commercial banks and other financial intermediaries. Changes in the bank rate are often used by central banks to control the money supply.
