Question

Match List - I (Activity of bank) with List - II (Function/ performed) and select the correct answer using the codes given below the lists:

List - I (Activity of bank)	List - II (Function performed)
A. Bank of Issue	1. Provision of liquidity to the financial institution which is facing difficulty in getting credit. Generally, the lender is the central bank.
B. Custodian of foreign balances of the country	2. Government delegates the right to print currency notes
C. Lender of last resort	3. It maintains both gold and foreign currencies as reserves
D. Controller of credit	4. It controls credit operation of commercial banks

• A. 1, 3, 2, 4
• B. 2, 4, 1, 3
• C. 1, 4, 2, 3
• D. 2, 3, 1, 4

Answer 1

Answer: (D)

2, 3, 1, 4

(i) Bank of Issue:
Government delegates the right to print currency notes to the central bank. In India, the RBI acts as the currency authority. As such, it has the monopoly of issuing currency of all denominations except one rupee notes.
(ii) Custodian of foreign balances:
The central bank keeps and manages the foreign exchange reserves of the country. It is an official reservoir of gold and foreign currency.
(iii) Lender of last resort:
De Kock regards this function as a sine qua non of central banking. By granting accommodation in the form of rediscounts and collateral advances to commercial banks, bill brokers and dealers or other financial institutions, the central bank acts as the lender of the last resort.
(iv) Controller of credit:
The most important function of the central bank is to control the credit creation power of commercial bank in order to control inflationary and deflationary pressures within the economy.