Question

State whether the following statements are TRUE or FALSE.

1. Credit rationing is quantitative credit control measure of Central bank.
2. Regulation of Consumer Credit is a quantitative credit control measure of Central Bank.
3. Bank Rate is the selective credit control measure used by the Central Bank of the country.
4. Central Bank also performs commercial banking business.
5. The main objective of a Central Bank is to earn profit.

Answer 1

1. Credit rationing is quantitative credit control measure of Central bank. - False
Explanation:
Credit rationing is a qualitative method and not a quantitative method. In other words, it affects the direction and flow of credit. Under this, the Central Bank fixes the credit limit for different business activities in the economy. No commercial bank can exceed the prescribed credit limits. The main aim of loan credit rationing is to restrict the flow of credit towards speculative activities.

2. Regulation of Consumer Credit is a quantitative credit control measure of Central Bank. - False
Explanation:
Regulation of Consumer Credit is a qualitative method and not a quantitative as it regulates the credit extended to the consumers for the purchase of consumer durables. The monthly instalments or down payment amounts are altered in order to liberalise or restrict credit in the hands of a consumer.

3. Bank Rate is the selective credit control measure used by the Central Bank of the country. - False
Explanation:
Bank Rate refers to the rate of interest at which the central bank lends money to the commercial banks or the rate at which the central bank discounts the bills of the commercial banks. This is classified as a quantitative measure of credit control since it directly affects the market interest rate and thereby the money supply in the economy.

4. Central Bank also performs commercial banking business. - False
Explanation:
Commercial banking business implies accepting deposits from and lending deposits to the general public. The Central bank does not deal directly with the general public and does not perform any of the commercial banking functions.

5. The main objective of a Central Bank is to earn profit. - False
Explanation:
The central bank is the apex institution of a country's monetary system. The main objective of this bank is to regulate and control the activities of all the commercial banks and other financial institutions of the country. However, profit making is not the main objective of the central bank.