Commercial Banks and Their Functions

What is the primary function of commercial banks as described in the document?

• To solely manage government funds

• To accept deposits and grant loans for profit

• To issue currency

• To provide investment advice

How do commercial banks contribute to the economy according to the text?

• By only providing loans to the government

• By collecting savings from the household sector and lending to the productive sector

• By limiting the amount of money in circulation

• By refusing to accept deposits

Which of the following describes the 'spread' in banking terms?

• The interest rate charged on loans

• The difference between the borrowing rate and the lending rate

• The total amount of deposits in a bank

• The cash reserves kept by a bank

What does the Money Multiplier indicate in the banking system?

• The total number of banks operating in an economy

• The relationship between the legal reserve ratio and total deposits created

• The number of transactions a bank can process

• The interest rates applied to different types of deposits

Why is the Central Bank considered the 'Apex' body in the banking system?

• It is the only bank that deals with the public.

• It manages and regulates the entire banking structure and monetary policy.

• It has the highest number of branches.

• It only issues currency.

In the context of the Central Bank's functions, what does the term 'Lender of the Last Resort' mean?

• The last bank a customer approaches for loans

• The Central Bank providing funds to commercial banks in distress

• The final option for investment advice

• The highest interest rate offered by a bank

Which instrument can the Central Bank use to control the money supply by affecting the cost of borrowing?

• Demand deposits

• Money Multiplier

• Repo Rate

• Savings account interest

What happens when the Central Bank raises the Cash Reserve Ratio (CRR)?

• It increases the bank's ability to create credit.

• It decreases the amount of money banks can lend.

• It has no impact on the lending capacity of banks.

• It encourages banks to lower interest rates.

Which of the following best describes 'Moral Suasion' used by the Central Bank?

• Using legal measures to enforce banking regulations.

• Persuading banks to align their actions with Central Bank policies through discussions and hints.

• Imposing fines on banks for non-compliance.

• Offering incentives for banks to increase lending.

Why is it important for banks to maintain a Legal Reserve Ratio (LRR)?

• To maximize profits

• To ensure liquidity and stability in the banking system

• To reduce the number of transactions

• To increase the interest rates on deposits