Understanding Assets and Liabilities of Central Bank

Understanding Assets and Liabilities of Central Bank

Different Liabilities of Central Bank

Deposits from Bank

Surplus funds with banks are deposited with Central Bank

So it is a liability for Central Bank

Currency and Coins held by Public

Currency Notes are issued by Central Bank

These are promises to bearer to the value equal to amt mentioned in note

So it is also liability

Vault Cash held with commercial banks

Cash held by different banks in locker is called Vault Cash

These are also liability for Central Bank as they have been issued by Central Bank

Diferent Assets OF Central Bank

Govt Securities

Government securities are like a loan to Governemnt

When Govt wants to print a currency, it gives securities to the Central Bank (called Govt Security)

against which Central Bank issues currency

So this Govt security is lika e loan by Central Bank to govt

Gold and Foreign Exchange

Central Bank purchases Gold and Foreign exchange from market against which it issues currency

Loan to Banks

Central Bank lends money to various commercial banks for which it earns interest

Since,it is loan given.it is an asset

What is High Powered Money or Monetary Base

The total liability of Central Bank is called high monetary money or monetary base

It includes following

Currency Notes in Circulation with Public

Vault Cash with Banks

Deposits held by Different banks with Central Bank

Deposits held by Government with Central Bank

NCERT Questions

No questions in this part

Other Books

Question 1

In the following questions, select the correct answers:

Which of the following will not be a liability of the central bank?

a. Deposits from Bank

b. Loans to Banks

c. Currency and Coins held by Public

d. Vault Cash held with commercial banks

Oswaal Questions

Question 1

Which of the following is not the function of the central bank?

a. Banking facilities to government

b. Banking facilities to public

c. Lending to government

d. Lending to commercial banks

Question 2

High Powered money consists of:

a. Curreny and coins held by public

b. Currency, cash reserves with banks and demand deposits

c. Currency held by public and cash reserves with banks

d. Currency and demand deposits