Functions and Operations of the Bangko Sentral

Central Bank
- A Central Bank may be referred to as a body corporate entrusted with the responsibility of
administering the monetary, banking, and credit system of the country with due regard to the
availability, use, and cost of money stability in the country.

Characteristics of a Central Bank

Publicly-owned
- These are varieties of ownership patterns for central banks, but government ownership is a
common factor.

Bank of currency issues and ultimate source of money

- All central banks perform the note issue function for the country. The notes are regulated in
their supply by the government, which may be represented by the monetary authority or by the
requirements of the budget.

Banker’s Bank
- The old central banks evolved partly from the need for some institution to become a bank for
bankers.

Custodian of the country’s reserves of foreign currencies

- Central banks naturally serve as the keeper of the country’s reserve of international
currencies.

Regulation of monetary and financial activities

- Most central banks are given the authority to regulate the operations of all banks and other
financial institutions in the country. This includes the supervision of banks and other financial
institutions to assure their solvency and to protect the general public.

Discount rate
- Is the interest rate Reserve Banks charge commercial banks for short-term loan. Federal
Reserve lending at the discount rate complements open market operations in achieving the
target federal funds rate and serves as a backup source of liquidity for commercial banks.

Reserve requirements
- Are the portions of deposits that banks must hold in cash, either in their vaults or on deposit at
a Reserve Bank. A decrease in reserve requirements is expansionary because it increases the
funds available in the banking system to lend to consumers and businesses.

Open market operations

- The buying and selling of U.S. government securities, has been a reliable tool. As we learned
earlier, this tool is directed by the FOMC and carried out by the Federal Reserve Bank of New
York.
I. TRUE OR FALSE

Answer the following questions TRUE or FALSE. Write the letter T if the statement is
correct and F if the statement is wrong. (2pts each)

1. The Bangko Sentral ng Pilipinas is not only engaged in central banking operations,
but also, it is a central monetary authority.

2. An increase in reserve requirements is expansionary because it increases the funds

available in the banking system to lend to consumers and businesses.

3. Federal Reserve lending at the discount rate complements open market operations
in achieving the target federal funds rate and serves as a backup source of liquidity
for commercial banks.

4. Central bank Implement the basis of monetary policy and

monopoly on the issue of banknotes

5. Reserve requirements are the portions of deposits that banks must hold in cash,
either in their vaults or on deposit at a Reserve Bank.

6. Most central banks are not given the authority to regulate the operations of all banks
and other financial institutions in the country.

7. Central banks naturally serve as the keeper of the country’s reserve of international
currencies.

8. The new central banks evolved partly from the need for some institution to become a
bank for bankers.

9. Discount rate is the interest rate for Reserve Banks charges on commercial banks
for long-term loans.

10. Open market operations in the buying and selling of U.S. government securities, has
been a reliable tool.
II. MULTIPLE CHOICES.
Encircle the letter that corresponds to your best answer. (2pts each)

1. These are varieties of ownership patterns for central banks, but government ownership
is a common factor.

a. Publicly-owned
b. Reserve requirements
c. Regulation of monetary and financial activities
d. Open market operations

2. Are the portions of deposits that banks must hold in cash, either in their vaults or on
deposit at a Reserve Bank.

a. Publicly-owned
b. Reserve requirements
c. Regulation of monetary and financial activities
d. Open market operations

3. This includes the supervision of banks and other financial institutions to assure their
solvency and to protect the general public.

a. Publicly-owned
b. Reserve requirements
c. Regulation of monetary and financial activities
d. Open market operations

4. The buying and selling of U.S. government securities, has been a reliable tool. As we
learned earlier, this tool is directed by the FOMC and carried out by the Federal
Reserve Bank of New York.

a. Publicly-owned
b. Reserve requirements
c. Regulation of monetary and financial activities
d. Open market operations

5. It is referred to as a body corporate entrusted with the responsibility of administering the

monetary, banking, and credit system of the country with due regard to the availability,
use, and cost of money stability in the country.

a. Bank of currency issues and ultimate source of money

b. Custodian of the country’s reserves of foreign currencies
c. Regulation of monetary and financial activities
d. Central Bank
III. Explanation

Answer the following questions. (5 pts. each)

1. What is the importance of Central Bank?

2. What are the different characteristics of Central Bank? Explain each.
3. What is a discount rate?
Answer Key

I. TRUE OR FALSE

1. T
2. F - decreases
3. T
4. T
5. T
6. F – are given
7. T
8. F – old central banks
9. F – short-term loans
10. T

II. MULTIPLE CHOICES

1. A
2. B
3. C
4. D
5. A