Theory and Practice of Central Banking: Evolution
Chapter notes, video classes, MCQ practice tests and quick-revision one-liners for Central Banking (Elective) — CAIIB.
One-liners from this chapter
Free sample — 8 of 65 rapid-fire Q&A cards.
What is the primary goal of a central bank operating under an inflation targeting framework?
The central bank publicly commits to achieving a specific inflation rate or range as its primary goal and adjusts interest rates to keep inflation near that target.
Which central banking function involves providing emergency liquidity to distressed banks during financial panics?
Lender of last resort function of the central bank.
How does inflation targeting differ from an exchange-rate targeting regime?
Inflation targeting focuses on a domestic price stability goal managed through interest rate adjustments, whereas exchange-rate targeting (currency pegging) subordinates monetary policy to maintaining a fixed value of the currency against another.
At what rate does a central bank typically extend lender-of-last-resort support to prevent moral hazard?
At a penal rate of interest with rigorous balance sheet scrutiny.
What distinguishes the monetarist approach to monetary policy from inflation targeting?
The monetarist approach controls the growth rate of the money supply as its operating target, while inflation targeting directly commits to a numerical inflation goal and uses interest rates as the primary instrument.
What is the statutory dividend rate paid by the Federal Reserve System to its member banks?
Six percent on member banks' capital investment.
Why is a central bank considered the 'lender of last resort' in the financial system?
A central bank acts as lender of last resort by providing emergency liquidity to solvent but illiquid banks, thereby preventing temporary funding shortfalls from becoming systemic financial crises.
What happens to the Federal Reserve's surplus earnings after paying the statutory dividend to member banks?
Remaining surplus is remitted to the US Treasury.
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