When the bank rate rises, short-term interest rates rise consequently. (ii) Commercial banks are not prejudiced against rediscounting their eligible securities with the central bank. No method, taken alone, can produce effective results. (iii) It is suitable when only marginal changes are desired in the cash reserves of the commercial banks. In its capacity as ‘lender of last resort’, the central bank helps the commercial banks by rediscounting the first class bills (i.e., by advancing loans against approved securities). It will reduce the market rates of interest, make the bank credit cheaper, encourage the businessmen to borrow, and invest, push up the level of economic activity and the price level. HRM MCQ Sem I Human Resource Management Scribd Com. Financial Service B.Com. So the success of this policy depends on the existence of a well-developed securities market in the economy. VII. They will curtail their existing stocks of finished goods and also reduce their orders with the industrialists. This means Rs.10 of reserves would be required to support Rs.100 of deposit and the credit multiplier is 10 (i.e., 1/10% =10). The large sales of long-term securities and the resultant diversion from long- term to short-term securities will lower the prices and raise the interest rates of long-term securities. A slight carelessness in its use may produce harmful results for the economy. As a result of their strong financial position, the commercial banks do not approach the central bank for financial accommodation. Control Valves Multiple Choice Questions Question 1 When a valve is installed in a process with where the differential pressure (drop) across the … (iii) The bank rate reflects the credit situation and economic condition in the country. ibps banking awareness amp ga high priority topics studyplan. (iii) To avoid discriminatory effect of the use of variable cash reserve ratio, the central banks in some underdeveloped countries have decided to enforce additional reserve requirements against any future increase in deposits. Oct 21, 2020 • Nikita Khetan. (iii) Most of the commercial banks in the underdeveloped countries are in the habit of keeping excess cash reserves over and above the minimum requirements. (ii) Sufficient quantity of eligible securities should exist with the central bank. In Figure 1, DD is the community’s demand for money curve. Learn about interview questions and interview process for 276 companies. Though the bank rate policy suffers from serious limitations and though it has not proved very effective in both developed and underdeveloped countries. PreserveArticles.com: Preserving Your Articles for Eternity, 15 Multiple Choice Questions and Answers on Nationalism in India, Multiple Choice Questions and Answers on Popular Struggles and Movements, 50 multiple choice questions with answers, Multiple Choice Questions and Answers on Manufacturing Industries, Multiple Choice Questions and Answers on National Economy. Mcq Questions On Budgetary Control Home North South University. This method seeks to check the excessive demand for durable consumer goods and, thereby, to control the prices of these goods. For example, the selling of securities by the central bank will contract the volume of credit and generate a deflationary situation, thus reducing the domestic price level. (D) The Constitution Sixth Amendment Act. (c) It reduces fluctuations in the market prices of securities. The method of variable cash reserve ratio, on the other hand, is more direct and drastic in its effects without any unfavourable repercussion on the prices of government securities. our books collection hosts in multiple locations, allowing you to get the most less latency time to download any of our books like this one. Every risk has 100% likelihood. Control over marginal requirements means control over down payments that must be made in buying securities on credit. Chapter 17: Control accounts: Multiple Choice Questions: Multiple Choice Questions This activity contains 51 questions. A change in the bank rate leads to a corresponding change in the other interest rates of the market. The non-banking financial institutions are not required to maintain cash reserves with the central bank. McQ is a … When the central bank purchases securities aggressively, it increases their prices and thereby lowers their yields. 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