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Functions of central bank

Issue of currency.
The central bank entrusted the
responsibility f issuing currency.
Central bank maintain certn amt of
reserve of gold and foreign
exchange. To support issue currency
& to maintain its value.
2 types
Cuurrency principle central bank is
supposed to bank to back issue of
currency equal amt of gold & foreign
currency.

Banking principle like comm bank ,


the central bank keep certain % of
gold & foreign currency for backing
entire note issue. Under this of note
issue with ltd amt of gold & foreign
currency reserves, de central bank
resorts to issue of more currency.

Act as a banker of govt.


Central bank act as banker to govt by
maintaining the a/cs of govt.revenue
r received by central bank &
payment also by central bank. when
the expense of the govt exeeds its
revenue central bank has to rescue
govt. Govt go 4 market borrowing for
long term requrmnts it needs central
bank. Ass banker to govt central
bank is able to provide govt financial
assistance.

Act as bankers bank

Central bank responsible for


devoplmnt of banking industry in
country. Central bank act as
custodian of the comml banks.
Comml banks r asked to maintain
certn % of their deposit with central
bank called as cash reserve. There is
cordinal relatnship between comml
bank & central bank. Money market
in country could be strengthened
when ther is healthy relatnship
between comml bank & central bank.

Lender of last resort

Central bank is said to lender last


resort when de comml bank
approach during financial crisis.
When a bank is exhausted all these
avenues bank will have ni option but
rely on central bank. Kind of a panic
is created & during such situations
central bank must save the comml
bank by discounting de bill. This act
of central bank is called lender of last
resort.

Arranges clearing house


facilities

Clearing house is one which arranges the


clearence of cheaques drawn on difft bank.
Central bank has its branch in all big cities
and these branches undertake clearing
house operation. If central bank does not
have branch , it deutes some other bank to
undertake Clearing house oprtn. In clearing
house chequ r handed to respective
branches &nexxt day fate of chequ is
informed to banks.when chequ is not
returned to Clearing house it is implied
that chequ is passed for payment , credit
will be given by the bank to its coustomer.

Custodian of foreign exchange

Central bank ha the responsibility to


maintain domestic value also foreign value
currency. central bank recieves foreign
currency not from govt also from other
comml banks. Central bank performes not
only the impt function of issuing currency
also regulates supply & maintain values.
Central bank supports govt in all its oprtn
by providing adequate funds. Central bank
is backbone of the economy & various
economic activities revolve around the
central bank. We can say that central bank
functions almost the heart of the economy.

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