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Question
The central bank acts as ______.
Options
Banker's bank
Banker to government
Both Banker's bank and Banker to government
Neither Banker's bank nor Banker to government
Solution
Both Banker's bank and Banker to government
Explanation:
The central bank, such as the Reserve Bank of India, performs both of these functions:
- Banker's bank: The central bank serves as a banker to commercial banks by lending, accepting deposits, and clearing transactions.
- Banker to the government: The central bank also serves as the government's banker, managing its finances, making loans, and handling public debt.
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