Reading the various functions and the preamble of the RBI, we understand that the Reserve Bank of India,

RBI, plays a crucial role in the economic development of India.

Firstly, the RBI is the entity responsible for making and regulating the production of the Indian currency.
Without an adequate supply of clean and genuine notes, the transactions that accrue through notes may
not be as easy or viable. The RBI has to make sure that there is enough to make transactions take place
but so much that the value of the rupee gets dissolved.

Banks are a vital part of the Indian economy. The RBI is known as the ‘banker of banks’. This is because
every bank must have an account with the RBI. The RBI has certain criteria, such as the Cash Reserve
Ratio (CRR). The commercial banks also take loans from the RBI in times of need. This option ensures
that a commercial bank also has someone to borrow money from in times of need, instead of financial
issues resulting in the closure of the commercial banks. By supporting banks, the RBI aids in the
development of the economy.

Insurance

Ensuring that various institutions follow regulations put in place is also an important role of the RBI.
They have the ability to impose penalties and aid troubled institutions.

The RBI provides the Indian economy with stability by making, for the most part, what may seem like
slight changes in various ways and facets. For instance, they adjust the repo and reverse repo rates to
influence the money supply in the economy. Another way the RBI controls liquidity is by issuing
government securities and even buying them back. Taking action to either increase or reduce the money
supply in the economy is crucial because, if left unchecked, it can lead to an economic crisis. However, if
done right, it can lead to a steady and stable increase in the inflation rate. It provides the nation's citizens
with consistent monetary policy frameworks, which reduces an obstacle in the way of new businesses and
encourages the formation of new businesses.

Furthermore, the RBI looks at the value of the Indian rupee in the foreign exchange market. This value
can directly affect the imports and exports of the nation. Often, people see an increase in the value of the
rupee as a good thing, however, it is not so simple, and the RBI knows this. If the value of the rupee
increases in the foreign exchange market, that means that the same price from Indian exporters is now
more expensive for buyers from other nations, that can lead to reduced exports and ultimately impact the
development of the economy.

Implementing and forming schemes and regulations that aid the development of various socioeconomic
groups, which will ultimately lead to economic growth, is also a role of the RBI. Priority sector lending,
for example, is where banks are mandated to, at varying degrees, give out a percentage of their loans to
sectors such as agriculture so that they have access to adequate credit. Another example of this is the
Kidan Credit Card Scheme. Leans taken under this scheme are given a reduced interest rate as compared
to the market rate of return. Additionally, if the farmer is able to make prompt repayment of the loan,
there will be a further reduction in the interest rate on top of the initial reduction, both of which are
provided by the RBI. Pradhan Mantri Jan Dhan Yojana (PMJDY) is a step towards financial inclusion as
it has the goal of providing every household in India with a bank account. The more people take part in
the markets of the Indian economy, the better it is for the economic development of this nation.

Additionally, the RBI also actively takes part in research. They try to understand various aspects of the
economy, individually or collectively, and publish the work for everyone to benefit. An example of this is
how their regulations affect the activities of a certain entity and whether the regulation has the intended
effect on the economy or not. They look at activities outside the nation and analyse how they can affect
India. Through research, the RBI can know better what is to be done in the future to aid the Indian
economy in developing.

Question 2

The role of the money market in India is to provide a market that allows people to buy and sell
short- term investments in large volumes. In this short term refers to a period of one year or
loss.

The presence of this kind of market can aid parties who want to invest but at the same time
remain fairly liquid. Additionally, the money market provides these parties with a relatively safe
option to invest in as banks and even the government provides the public instruments to invest
in. As the government is a part of the market it also provides the government, more specifically,
the RBI to use the money market to exercise its monetary policies and affect how liquid the
market is and as a result affect other things such as inflation.

The money market also provides other interest rate setters like the bank a reference to set their
interest rates as well.

Given below is a list of various instruments present in the money market and their explanations:

● Commercial Paper - This instrument can have a maturing period from 7 days to 1 year. It
is typically issued to raise working capital for corporate parties by the corporate parties. It
is also important to note that this instrument is issued at a discount to face value.

● Treasury Bills - It has a maturing period of three specific timeframes. 91 days, 182 days
and almost a year at 364 days. It is issued by the government. In this instrument, people
make money by gaining the difference between the discounted price and the face value.

● Commercial Bills - These are also issued at a discount and have a maturing period of 30
to 180 days. Like Commercial papers they are issued by commercial parties as a source
for their working capital requirements.

● Certificate of Deposits - It has a maturity period of 7 days to 1 year like the commercial
papers. Unlike commercial pacers however, these are usually issued by financial parties.
This instrument is also available with a longer maturing period as well.

● Repurchase Agreement - This instrument is sold to be bought back again at an already

decided price and date. It is issued by banks and financial parties.