CAIIB · CB

Theory and Practice of Central Banking

Chapter notes, video classes, MCQ practice tests and quick-revision one-liners for Central Banking (Elective) — CAIIB.

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One-liners from this chapter

Free sample — 8 of 66 rapid-fire Q&A cards.

What is the primary distinction between a central bank and a commercial bank?

A central bank is a banker to the government and commercial banks, focused on monetary stability rather than profit, while a commercial bank accepts public deposits and extends credit for profit.

What is 'helicopter money' as an unconventional monetary policy tool?

Direct money transfer to public to stimulate spending and inflation.

Which act governs the establishment and functioning of the Reserve Bank of India?

The Reserve Bank of India Act, 1934 governs the establishment, constitution, and functions of the RBI as India's central bank.

What is the 'announcement effect' in the context of monetary policy?

Market reaction to anticipated central bank policy changes before implementation.

What does the term 'lender of last resort' mean in the context of central banking?

It means the central bank provides emergency liquidity to solvent but illiquid commercial banks during financial stress, preventing systemic collapse by lending against good collateral at a penalty rate.

What is 'sterilization' in the context of foreign exchange intervention?

Offsetting domestic money supply impact of forex interventions using OMOs.

What is the 'Bagehot Principle' associated with the lender of last resort function?

Walter Bagehot's principle states that a central bank should lend freely to solvent institutions against good collateral but at a high (penalty) interest rate during a crisis.

What is the 'bank rate' and how does it differ from the repo rate in India?

Bank rate is the rate RBI lends without collateral; repo requires collateral.

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