Indian Economy Quiz 7

RBI buys and sells government securities or bonds to control the money supply and interest rates. To increase the money supply, the RBI will purchase bonds from banks, which injects money into the banking system. It will sell bonds to reduce the money supply. Statutory Liquidity Ratio (SLR) is a minimum percentage of deposits that a commercial bank has to maintain in the form of liquid cash, gold or other securities.

When buying and selling of goods and services takes place within the geographical boundaries of a country, it is referred to as internal trade or domestic trade.

Gross domestic product (GDP) at factor cost is GDP at market prices minus net indirect taxes plus subsidies.

A free good is a good that is not scarce, and therefore is available without limit. A free good is available in as great a quantity as desired with zero opportunity cost to society.

Export diversification refers to the move from “traditional” to “non-traditional” exports. Diversification helps countries to hedge against adverse terms of trade shocks by stabilizing export revenues.

Interest rates are determined by RBI who actively commit to maintaining a target interest rate. They do so by intervening directly in the open market through open market operations (OMO), buying or selling Treasury securities to influence short-term rates.

Bank rate is the rate charged by the central bank (RBI) for lending funds to commercial banks. Lower bank rates can help to expand the economy by lowering the cost of funds for borrowers, and higher bank rates help to reign in the economy when inflation is higher than desired.

Bank rate is the rate charged on the loans offered by the Central bank to the commercial banks without any collateral. It is also considered as the rate at which the central bank discounts the bills of the commercial banks. Bank rate is a quantitative credit control measure under the monetary policy of the government as it controls the overall supply of money in the economy.

The Government of India (Ministry of Finance) has the sole right to mint coins. The responsibility for coinage vests with the Government of India in terms of the Coinage Act 1906. The Reserve Bank puts the coins into circulation on behalf of the Government of India.

Open market operations refer to the selling and purchasing of treasury bills and government securities by the central bank of any country (RBI) in order to regulate money supply in the economy.