Money and Banking

Worksheet
1. Explain the process of money creation by commercial banks, giving a numerical
example.
2. State any 3 points of distinction between Central Bank and Commercial Banks.
3. Discuss the function of Central Bank as ‘Banker, Agent and Advisor’ to the
government.
4. Explain how open market operations are helpful in controlling credit creation.
5. Explain the ‘lender of last resort’ function of the Central Bank.
6. Describe the Bank of currency issue function of the Central Bank.
7. Explain the ‘banker’s banks function of Central Bank.
8. Explain how bank rate is helpful in controlling credit creation?
9. Calculate the total deposit created by commercial banks if reserve ratio is 10% and
primary deposit is Rs. 1250.
10. If total deposit created by commercial banks is Rs. 20,000 crores and the primary
deposits is Rs. 2,500 crores, what is the value of money multiplier and reserve ratio?
11. How does the central bank control credit with the help of repo rate?
12. Explain the role of cash reserve ratio in credit creation.
13. Explain the role of statutory liquidity ratio in increasing money supply.
14. How the following tools can be used for credit control by the central bank in an
economy:
a) Margin requirement
b) Repo Rate
c) Reverse Repo Rate
15. What are time deposits in banks?
16. What are primary deposits?
17. Define money supply and explain its components.
18. Give component of M1 as a measure of money supply.
19. What are demand deposits?
20. Explain standard of Deferred payments and Medium of exchange functions of money.