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Explain the measures of money supply in India?
MEASURES OF MONEY SUPPLY IN INDIAThe Reserve Bank of India defines the monetary aggregates as:Reserve Money (M0): Currency in circulation + Bankers' deposits with the RBI + 'Other' deposits with the RBI = Net RBI credit to the Government + RBI credit to the commercial sector + RBI's claims on banks + RBI's net foreign assets + Government's currency liabilities to the public - RBI's net non-monetary liabilities.M1: Currency with the public + Deposit money of the public (Demand deposits with the banking system + 'Other' deposits with the RBI).M2: M1 + Savings deposits with Post office savings banks.M3: M1+ Time deposits with the banking system = Net bank credit to the Government + Bank credit to the commercial sector + Net foreign exchange assets of the banking sector + Government's currency liabilities to the public - Net non-monetary liabilities of the banking sector (Other than Time Deposits).M4: M3 + All deposits with post office savings banks (excluding National Savings Certificates).
Role of rbi in Indian economy?
Role of RBI in Indian economyIssuer of currency - Except for issuing one rupee notes and coins, RBI is the sole authority for the issue of currency in India. The Indian government issues one rupee notes and coins. Major currency is in the form of RBI notes, such as notes in the denominations of two, five, ten, twenty, fifty, one hundred, five hundred, and one thousand. Earlier, notes of higher denominations were also issued. But, these notes were demonetized to discourage users from indulging in black-market operations.RBI has two departments - the Issue department and Banking department. The issue department is dedicated to issuing currency. All the currency issued is the monetary liability of RBI that is backed by assets of equal value held by this department. Assets consist of gold, coin, bullion, foreign securities, rupee coins, and the government�s rupee securities. The department acquires these assets whenever required by issuing currency. The conditions governing the composition of these assets determine the nature of the currency standard that prevails in India.The Banking department of RBI looks after the banking operations. It takes care of the currency in circulation and its withdrawal from circulation. Issuing new currency is known as expansion of currency and withdrawal of currency is known as contraction of currency.Banker to the Government - RBI acts as banker, both to the central government and state governments. It manages all the banking transactions of the government involving the receipt and payment of money. In addition, RBI remits exchange and performs other banking operations.RBI provides short-term credit to the central government. Such credit helps the government to meet any shortfalls in its receipts over its disbursements. RBI also provides short term credit to state governments as advances.RBI also manages all new issues of government loans, servicing the government debt outstanding, and nurturing the market for government�s securities. RBI advises the government on banking and financial subjects, international finance, financing of five-year plans, mobilizing resources, and banking legislation.Managing Government Securities - Various financial institutions such as commercial banks are required by law to invest specified minimum proportions of their total assets/liabilities in government securities. RBI administers these investments of institutions.The other responsibilities of RBI regarding these securities are to ensure -Smooth functioning of the marketReadily available to potential buyersEasily available in large numbersUndisturbed maturity-structure of interest rates because of excess or deficit supplyNot subject to quick and huge fluctuationsReasonable liquidity of investmentsGood reception of the new issues of government loansBanker to Other Banks - The role of RBI as a banker to other banks is as follows:Holds some of the cash reserves of banksLends funds for short periodProvides centralized clearing and quick remittance facilitiesRBI has the authority to statutorily ensure that the scheduled commercial banks deposit a stipulated ratio of their total net liabilities. This ratio is known as cash reserve ratio [CRR]. However, banks can use these deposits to meet their temporary requirements for interbank clearing as the maintenance of CRR is calculated based on the average balance over a period.Controller of Money Supply and Credit - In a planned economy, the central bank plays an important role in controlling the paper currency system and inflationary tendency. RBI has to regulate the claims of competing banks on money supply and credit. RBI also needs to meet the credit requirements of the rest of the banking system.RBI needs to ensure promotion of maximum output, and maintain price stability and a high rate of economic growth. To perform these functions effectively, RBI uses several control instruments such as -Open Market OperationsChanges in statutory reserve requirements for banksLending policies towards banksControl over interest rate structureStatutory liquidity ration of banksExchange Manager and Controller - RBI manages exchange control, and represents India as a member of the international Monetary Fund [IMF]. Exchange control was first imposed on India in September 1939 when World War II started and continues till date. Exchange control was imposed on both receipts and payments of foreign exchange.According to foreign exchange regulations, all foreign exchange receipts, whether on account of export earnings, investment earnings, or capital receipts, whether of private or government accounts, must be sold to RBI either directly or through authorized dealers. Most commercial banks are authorized dealers of RBI.Publisher of Monetary Data and Other Data - RBI maintains and provides all essential banking and other economic data, formulating and critically evaluating the economic policies in India. In order to perform this function, RBI collects, collates and publishes data regularly. Users can avail this data in the weekly statements, the RBI monthly bulletin, annual report on currency and finance, and other periodic publications.Promotional Role of RBI - Promotion of commercial bankingPromotion of cooperative bankingPromotion of industrial financePromotion of export financePromotion of credit to weaker sectionsPromotion of credit guaranteesPromotion of differential rate of interest schemePromotion of credit to priority sections including rural & agricultural sector.....
What is capital account convertibility?
In India, the foreign exchange transactions (transactions in dollars, pounds, or any other currency) are broadly classified into two accounts: current account transactions and capital account transactions. If an Indian citizen needs foreign exchange of smaller amounts, say $3,000, for travelling abroad or for educational purposes, she/he can obtain the same from a bank or a money-changer. This is a "current account transaction". But, if someone wants to import plant and machinery or invest abroad, and needs a large amount of foreign exchange, say $1 million, the importer will have to first obtain the permission of the Reserve Bank of India (RBI). If approved, this becomes a "capital account transaction". This means that any domestic or foreign investor has to seek the permission from a regulatory authority, like the RBI, before carrying out any financial transactions or change of ownership of assets that comes under the capital account. Of course there are a whole range of financial transactions on the capital account that may be freed form such restrictions, asis the case in India today. But this is still not the same as full capital account convertibility.By "Capital Account Convertibility" (or CAC in short), we mean "the freedom to convert the local financial assets into foreign financial assets and vice-versa at market determined rates of exchange. It is associated with the changes of ownership in foreign/domestic financial assets and liabilities and embodies the creation and liquidation of claims on, or by the rest of the world. …" (Report of the Committee on Capital Account Convertibility, RBI, 1997) Thus, in simpler terms, it means that irrespective of whether one is a resident or non-resident of India one's assets and liabilities can be freely (i.e. without permission of any regulatory authority) denominated (or cashed) in any currency and easily interchanged between that currency and the Rupee.
What are the tools and techniques used by RBI for monetary control?
techniques of monetary control of rbi
What is organised and unorganised market?
In this market, there are number of money lenders, indigeneous bankers,traders ect. who lend money to the public,indigeneious bankers also collect deposit from public . There are also privet finance companies ,chitty fund etc,whose activites are not collected by the RBI ,recontly ,the RBI has taken steps to bring privet finance company and chitty funds under it stricts control by issuing non banking financial companies directions (1998).
What is the role of RBI in forex?
The Reserve Bank of India (RBI) plays a crucial role in the foreign exchange (forex) market by regulating and managing the country's forex reserves, ensuring stability in the currency exchange rates. It formulates and implements policies related to foreign exchange under the Foreign Exchange Management Act (FEMA), 1999. Additionally, the RBI acts as the custodian of India's foreign exchange reserves, intervenes in the forex market to curb excessive volatility, and facilitates external trade and payments. Through these actions, the RBI aims to maintain the overall stability of the Indian economy.
Role of RBI in Foreign exchange market?
1)It helps the bank in stabilizing the external value of currency. 2)It helps in pursuing a coordinated policy towards the balance of payments situation of the country.
Discuss the role of RBI in money market?
to keep liquidity in financial markets
How can you obtain money exchange licence in India for small money exchange of the tourists?
Can any one tell me what is the process to get a RBI license for setting up a small Money Exchange to buy and sell foreign exchange.
Where do you cash in foreign money?
RBI
What are the functions of RBI?
1. Currency issue 2. Banker's Bank 3. Government Bank 4. Credit Control 5. Foreign Exchange Reserve
What are rbi's functions?
1. Currency issue 2. Banker's Bank 3. Government Bank 4. Credit Control 5. Foreign Exchange Reserve
What are function of rbi?
1. Currency issue 2. Banker's Bank 3. Government Bank 4. Credit Control 5. Foreign Exchange Reserve
Who carries out open market operation in India?
rbi
What do you mean Full Fledged Money Changer (FFMC)?
First and foremost, it is critical to comprehend the meaning of this word. Foreign cash can be purchased from Indian citizens and non-residents by an authorised firm known as a Full Fledged Money Changer (FFMC), who can then sell it only to tourists and business visitors. Section 10 of the Foreign Exchange Management Act 1999 states that only licensed money changers are allowed to operate foreign exchange operations and offer the necessary exchange services in the country. In an effort to lessen the challenges experienced by foreign tourists and visitors, several companies and hotels have also been granted registration to deal in foreign currency notes, coins, and traveler’s checks in compliance with the RBI’s often issued recommendations. No one is permitted to carry out or market exchange activities without a current exchange licence issued by the RBI. If someone operates an exchange office without a valid license, they risk legal action. The benefits of FFMC The benefits of Full Fledged Money Changer are explained below: Foreign currency sales facilities and services can be provided by an AMC licensee. An FFMC licensee has the authority to offer collection certificates for foreign currency notes and traveller’s checks from both residents and non-residents. An FFMC licensee may handle foreign exchange operations for international tourists visiting India. An AMC licensee may use the current exchange rate to settle foreign currency, coins, and traveller’s checks.
What is the role of rbi in banking?
government securities
Why drawal of foreign exchange prohibited for Nepal and Bhutan?
The withdrawal of foreign exchange for Nepal and Bhutan is prohibited primarily due to the restrictions imposed by the Reserve Bank of India (RBI). This regulation is part of India's effort to manage foreign exchange reserves and maintain financial stability. Additionally, both Nepal and Bhutan have a close economic relationship with India, and the restrictions help to regulate trade and financial transactions between these nations. The policy aims to ensure that foreign currency is used judiciously and to prevent illegal outflows.
