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| 1. |
Explain the ‘banker’s banks' and‘ supervisor’ function of the centraI bank. |
| Answer» Solution :‘Banker’s banks' and‘ supervisor’(i) It is the custodian of their cash reserves. Banks of the country are REQUIRED to keep a certain percentage of their deposits with the central bank; and in this way the central bank is the ultimate holder of the cash reserves of commercial banks, (ii) Central bank is lender of last resort. WHENEVER banks are short of funds, they can take loans from the central bank and get their trade bills discounted. The central bank is a SOURCE of great strength to the banking SYSTEM, (iii) It acts as a bank of central clearance, settlements and transfers. Its moral persuasion is usually very EFFECTIVE so far as commercial banks are concerned. | |