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प्रश्न
What is a ‘legal tender’? What is ‘fiat money’?
उत्तर
Legal tender refers to the currency notes and coins being issued by the monetary authorities of India (RBI and government of India) as a legal medium of payment. Fiat money derives its value only because of government order (fiat). The currency becomes fiat money when the government declares it to be the legal tender. This is not backed by reserves, but by faith or trust. This money does not have intrinsic value, i.e. the real value is not equivalent to the face value printed on the notes and coins.
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संबंधित प्रश्न
Money supply includes ______.
Who regulates money supply in India?
Money supply is a ______ concept.
______ are called legal tenders.
Initial deposits made by the people from their own resources are called ______.
The monetary policy generally targets to ensure ______.
Speculative demand for money is a function of ______.
Which among the following does not have the application of multiplier?
______ formulates the Monetary Policy in the economy.
“With an objective to reduce inflation, Reserve Bank of India may promote the commercial banks to park their surplus funds with it.”
Discuss the rationale behind the step taken by the Reserve Bank of India.
Read the following text carefully. Answer the given questions on the basis of the same and common understanding:
| On 30th September 2022, the Reserve Bank of India (RBI) raised Repo Rate for the fourth time in a row. The Monetary Policy Committee (MPC) decided to raise the policy rate by 50 basis points `(1 "basis point" =1/100 "th of a percent")`. After this announcement, the new repo rate stands at 5.9%, while the reverse repo rate continues to stand at 3.35%. Commercial banks borrow money from the Central Bank, when there is a shortage of funds. With the surge in the repo rate, borrowings by general public will become costlier. This is because, as RBI hikes its repo rate, it becomes costly for the banks to borrow short term funds from the Central Bank.
As a result, the banks hike the rates at which customers borrow money from them to compensate for the hike in the repo rate. This happens because banks offer loans to retail consumers at an interest rate which is generally, directly proportional to the repo rate. The increase of 0.50 percent in repo rate will lead. to a higher interest rates on loans for borrowers, implying that the Equated Monthly Instalments (EMIS) for repaying the existing loans will also increase. |
- Differentiate between repo rate and reverse repo rate.
- Outline and discuss the measure taken by the Monetary Policy Committee of Reserve Bank of India to control inflation.
As per the following news published in ‘The Hindu’ on 6th August, 2022:
'The Monetary Policy Committee (MPC) of the Reserve Bank of India raised the Repo Rate by 50 basis points.'
Identify and explain the likely cause and consequences behind this type of action taken by the Reserve Bank of India.
Discuss briefly, how this instrument helps in controlling credit, creation by commercial banks.
