UP Board Solutions Class 10 Commerce Chapter 12 Central Bank Reserve Bank of India

Central Bank: Reserve Bank Of India Objective Type Questions (1 Mark)

 

Question 1. Reserve Bank of India is the:
(a) Commercial Bank of India
(b) Foreign Exchange Bank of India
(c) Central Bank of India
(d) Rural Bank of Indian
Answer: (c) Central Bank of India
In simple words: The Reserve Bank of India (RBI) functions as the central banking institution of the country, responsible for monetary policy and financial stability.

🎯 Exam Tip: Knowing the primary role of the RBI as the Central Bank is fundamental for understanding India's financial system.

 

Question 2. The main object of the Reserve Bank of India is to stabilise:
(a) Exchange Rates and Internal Prices
(b) Issuing Notes
(c) Credit Control
(d) None of these
Answer: (a) Exchange Rates and Internal Prices
In simple words: A key objective of the RBI is to maintain stability in both the country's exchange rates and its domestic price levels through various policy measures.

🎯 Exam Tip: Understanding the RBI's stabilization objectives highlights its role in macroeconomic management and controlling inflation.

 

Question 3. The Reserve Bank Act was passed in:
(a) 1929
(b) 1930
(c) 1931
(d)1932
Answer: (a) 1929
In simple words: The legislative framework for the establishment of the Reserve Bank of India was enacted with the passing of the Reserve Bank Act in 1929.

🎯 Exam Tip: Recalling the year of the RBI Act is important for historical context of India's central banking system.

 

Question 4. NACSF set-up in
(a) 1950
(b) 1952
(c) 1954
(d) 1956
Answer: (d) 1956
In simple words: The National Agricultural Credit (Long Term Operations) Fund, often abbreviated as NACSF, was established in 1956 to provide financial support for agricultural development.

🎯 Exam Tip: Students should remember the establishment year of key financial institutions and funds like NACSF for general knowledge and historical timelines.

 

Question 5. Reserve Bank started functioning from .......
(a) 1st April 1932
(b) 1st April 1935
(c) 1st January 1932
(d) 1st January 1935
Answer: (b) 1st April 1935
In simple words: The Reserve Bank of India officially commenced its operations on April 1, 1935, following the passing of the Reserve Bank of India Act.

🎯 Exam Tip: The start date of RBI's functioning is a crucial date to remember when studying the history of Indian banking.

Central Bank: Reserve Bank Of India Definite Answer Type Questions (1 Mark)

 

Question 1. Name the factors in which economic development of the country depends.
Answer: Effective control of money and credit.
In simple words: A nation's economic progress largely relies on how well its monetary supply and credit availability are managed and regulated.

🎯 Exam Tip: This question emphasizes the crucial role of monetary and credit policy in fostering economic growth.

 

Question 2. Write the name of the banker of the banks.
Answer: Reserve Bank of India.
In simple words: The Reserve Bank of India acts as the banker to all commercial banks, providing them with financial services and managing their accounts.

🎯 Exam Tip: The "banker of banks" function is a core responsibility of any central bank, ensuring stability and liquidity in the banking system.

 

Question 3. In which year Reserve Bank of India started issuing notes with a monopoly?
Answer: 1st April 1935.
In simple words: The Reserve Bank of India gained the sole authority to issue currency notes, commencing this function from April 1, 1935.

🎯 Exam Tip: The date when RBI gained note-issuing monopoly is significant for understanding its powers and functions.

 

Question 4. In which year Reserve Bank of India was nationalised?
Answer: 1948.
In simple words: The Reserve Bank of India transitioned from a privately-owned institution to a state-owned one in the year 1948.

🎯 Exam Tip: The year of nationalization marks a crucial shift in the ownership and operational control of the RBI, aligning it more closely with government policy.

 

Question 5. Write the name of representative bank of Reserve Bank of India.
Answer: State Bank of India.
In simple words: The State Bank of India often acts as an agent for the Reserve Bank of India, especially in areas where RBI itself does not have a branch.

🎯 Exam Tip: Understanding the agency relationship between RBI and SBI is important for knowing how central banking functions are executed across the country.

Central Bank: Reserve Bank Of India Very Short Answer Type Questions (2 Marks)

 

Question 1. Point out two main functions of the Reserve Bank of India.
Answer:
- Issue of notes
- Sale and purchase of foreign exchange.
In simple words: Two core functions of the RBI include managing the issuance of currency notes and overseeing the buying and selling of foreign exchange to stabilize the economy.

🎯 Exam Tip: These two functions are fundamental powers of the RBI, essential for maintaining monetary control and managing external trade.

 

Question 2. What is a Scheduled Bank?
Answer: A Scheduled Bank is one which satisfies the following conditions:
- Its paid-up capital and reserve should not be less than Rs. 5 lacs.
- Its policy should not be contrary to the interest of the depositors.
In simple words: A Scheduled Bank is a financial institution listed in the Second Schedule of the RBI Act, meeting specific capital requirements and operating in the best interest of its depositors.

🎯 Exam Tip: Clearly defining "Scheduled Bank" and its criteria is key for understanding the regulatory classifications within the Indian banking sector.

 

Question 3. Give two characteristics of Reserve Bank of India.
Answer: The main characteristics of Central Bank are as follows:
- They are not primarily profit-seeking enterprise.
- They are subject to close control and participation by the national government.
In simple words: The RBI primarily operates for public welfare and economic stability rather than profit, and it functions under the close supervision and influence of the government.

🎯 Exam Tip: Highlighting these characteristics helps distinguish the RBI from commercial banks and emphasizes its public service mandate.

 

Question 4. What is Non-Scheduled Bank?
Answer: The non-scheduled banks are those banks which are not included in the second schedule of Reserve Bank of India Act. These banks are generally small local banks whose paid-up capital and reserves are less than Rs. 5 lacs. These banks have to keep a certain percentage of their deposits with the Reserve Bank of India in the form of cash reserve. The Reserve Bank of India provides all the facilities to these banks also, which it provides to Scheduled Banks.
In simple words: Non-Scheduled Banks are smaller banks not listed in the RBI Act's Second Schedule, typically having lower capital, but still subject to some RBI regulations regarding cash reserves and receive certain facilities.

🎯 Exam Tip: Differentiating between scheduled and non-scheduled banks helps in understanding the tiered structure and regulatory oversight within the banking industry.

 

Question 5. Give two main central banking functions of Reserve Bank of India.
Answer: Two main central banking functions of the Reserve Bank of India are as follows:
- Issue of Notes.
- Sale and Purchase of Foreign Exchange.
In simple words: The RBI's core central banking roles include being the sole issuer of currency and managing the country's foreign exchange reserves and transactions.

🎯 Exam Tip: These two functions are critical for the RBI's role in controlling money supply and managing the nation's international economic relations.

Central Bank: Reserve Bank Of India Short Answer Type Questions (4 Marks)

 

Question 1. Distinguish between Central Bank and Commercial Banks.
Answer: Difference between Central Bank and Commercial Banks.

In simple words: The Central Bank (like RBI) supervises the entire banking system, focuses on monetary policy and public welfare, and is the sole issuer of currency, whereas Commercial Banks are profit-driven entities that serve the general public and are regulated by the Central Bank.

🎯 Exam Tip: A clear, comparative understanding of the roles, objectives, and functions of Central vs. Commercial Banks is essential for analyzing the banking structure.

 

Question 2. Give four prohibited functions of Reserve Bank of India.
Answer: Prohibited functions of Reserve Bank of India are as follows:
1. The Reserve Bank of India can neither buy its own shares nor can it buy shares of other banks or commercial firms.
2. The Reserve Bank of India cannot buy immoral prosperity, barring its own premises, nor can it grant loans against the securities of any such immovable property.
3. The Reserve Bank of India cannot grant a loan to any party without proper security.
4. The Reserve Bank of India cannot give interest to its depositors on their deposits.
In simple words: The RBI is restricted from engaging in commercial activities like buying shares or speculative property, giving unsecured loans, or paying interest on deposits, ensuring its focus remains on monetary stability and regulation rather than profit-making.

🎯 Exam Tip: Knowing the prohibited functions helps in understanding the strict regulatory framework under which the RBI operates to maintain its integrity and neutrality.

Central Bank: Reserve Bank Of India Long Answer Type Questions (8 Marks)

 

Question 1. What do you understand by the Central Bank? Discuss the main functions of the Reserve Bank of India. Or Describe the functions of Reserve Bank of India as a Central Bank of India. Or Write two main functions of the Reserve Bank of India.
Answer: Central Bank: The Central Bank is an institution which is charged with the responsibility of managing the expansion and contraction of the volume of money in the interest of general public welfare. This is the apex bank in the banking system of any country normally assigned with the responsibility of issuing notes and also with the supervision of the banking system. Functions of the Reserve Bank of India: In India, the Central Bank, the Reserve Bank of India performs the following functions:
- Central Banking Functions,
- General Banking Functions.
Central Banking Functions: The following are some of the central banking functions of Reserve Bank of India:
1. Issue of Notes: The Reserve Bank of India has been given the monopoly of the issue of banknotes from 1st April 1935. The bank has the power to issue notes of Rs. 2, Rs. 5, Rs. 10, Rs. 20, Rs. 50, Rs. 100, Rs. 500 and Rs. 1,000. Notes of Re. 1 are issued by the Government of India. The Re. 1 notes are issued as a subsidiary to Re. 1 coins.
2. Banker's Bank: Reserve Bank is called banker's bank because it provides services and facilities to other banks in a similar manner as a commercial bank provides services and facilities to the general public. The banks which are affiliated to the Reserve Bank may get a loan from it at the time of need. It re- discounts their bills and provides help at the time of need.
3. Government's Banker: The Reserve Bank also acts as a banker to the central and State Governments by keeping their money. It also carries out their exchange remittance and other banking operations, besides managing public debt. The bank also transfers the reserve from one place to another, makes payments according to the instructions provided by the Government and accepts deposits on their behalf. The bank also engages itself in floating loan treasury bills on behalf of the Central and State Governments.
4. Sale and Purchase of Foreign Exchange: Sale and purchase of foreign exchange is very important function of the Reserve Bank whereby it assists in the smooth flow of foreign trade.
5. Credit Control: Monetary system of the country is stabilised through credit control which is very essential for the prosperity of the trade and industry of the country. The Reserve Bank expands and contracts credit according to the need of the country.
6. Clearing House Facility: The Reserve Bank acts as Clearing House for commercial banks. Transactions of member banks are settled through this facility of the clearinghouse. All the banks maintain their accounts with the Reserve Bank. These banks do not pay off their liabilities in cash. All the claims and counterclaims are settled with the minimum use of cash. The representatives of various banks meet each other every day at Clearing House and exchange their credit documents to settle their accounts.
General Banking Functions: The Reserve Bank of India, in addition to its Central Banking functions, also performs following general banking functions:
1. The Reserve Bank of India accepts deposits from the Government of India and the State Governments but it pays no interest on such deposits.
2. The Reserve Bank of India re-discounts the commercial bills and promissory notes tendered by the Scheduled Banks.
3. The bank gives loans to its member banks for a maximum period of 90 days.
4. The Reserve Bank of India can borrow from any Scheduled Bank or Foreign Bank for a period not exceeding 30 days.
5. The Reserve Bank of India can buy and sell securities of Central and State Governments.
6. The Reserve Bank of India can keep in custody gold, silver, diamonds and other securities etc. for safety purposes.
7. The bank can open its account with Central Bank of other countries or with International Bank.
8. The Reserve Bank of India arranges for Industrial Finance.
9. The Reserve Bank of India controls credit in the country.
10. The Reserve Bank of India can borrow from the Central Government or State Governments for a period not exceeding 90 days.
In simple words: A Central Bank is the supreme monetary authority of a country, responsible for controlling money supply, regulating banks, and managing currency. The RBI, as India's Central Bank, performs functions like issuing notes, acting as a banker to the government and other banks, controlling credit, and managing foreign exchange, alongside other general banking tasks.

🎯 Exam Tip: A comprehensive answer covering both the definition of a Central Bank and the detailed functions of the RBI is crucial for high scores in long answer questions.

 

Question 2. Give the main characteristics of Reserve Bank of India.
Answer: Characteristics of Reserve Bank of India: Reserve Bank of India has the following two characteristics: 1. Non-Profit Seeking Enterprise: The motive of Central Bank is not to earn profit as in the case of other Commercial Banks and business organizations. The Central Bank has to work for the benefit of the country whether it gains or loss. When the government is not the owner of Central Bank, then the dividend which is to be paid to shareholders is fixed by law so that the bank does not indulge in any activity which is unhealthy for the country for earning more profits.
2. Control and Participation of the Government: The main object of the government is to make the life of its citizens happy. The economic development of a country depends upon the principles of the government. For every scheme of welfare and development, proper economic management is required. For achieving the desired results of these objects there has to be cooperation and coordination between the government and the Central Bank.
Another important object of Central Bank is to control the monetary and credit system of the country. Now almost all the countries have nationalised Central Banks because it is possible that proper co-ordination and co-operation between the government and Central Bank may lack if a Central Bank is an independent organisation.
In simple words: The Reserve Bank of India is characterized by its primary objective of public welfare and economic stability over profit, and its close operational ties and coordination with the national government to achieve macroeconomic goals.

🎯 Exam Tip: Emphasize the unique nature of the RBI as a public institution and its relationship with the government, which sets it apart from private enterprises.

 

Question 3. How the Reserve Bank of India was originated? Explain.
Answer: Origin of Reserve Bank of India: In the year 1921, Imperial Bank of India was established by the Government. Main functions of Imperial Bank involved banker to the government and the banker's bank, besides functioning as a commercial bank. Still, there was a general feeling that it lacked in certain respects because of which it could not be called as Central Bank in the proper way.
Certain drawbacks of Imperial Bank were as follows:
1. Monetary system prevailing in the country lacked elasticity as the power of issuing notes was not conferred on the Imperial Bank. The power of issuing the notes was the sole prerogative of the Government of India.
2. Though the Bank functioned as banker's bank and the banker to the Government, it also functioned as commercial bank used to compete with other commercial banks.
3. Imperial Bank did not exercise any control over money and credit as all the banks used to keep their own reserves.
4. No power was vested in the Imperial Bank to make arrangement for finances for foreign trade.
No commendable success could be achieved by the Imperial Bank in its functioning as Central Bank of the country. In the year 1925, Hilton Young Commission was asked by the Government of India to express its views on the subject. The Commission opined in favour of the establishment of a new Central Bank for the country. Without exercising any function in the nature of a commercial bank.
Pursuant to this, the government of India introduced a bill, but it could not be passed on account of differences amongst the Members of Legislature. In the year 1929, again a plea was raised by the Central Banking Enquiry Committee, supporting the establishment of Reserve Bank. Finally, the Reserve Bank of India Act, 1934 was passed, empowering the functioning of Reserve Bank from 1st of April, 1935.
In simple words: The Reserve Bank of India originated from the need for a dedicated central bank, as the existing Imperial Bank of India had limitations. Following recommendations from the Hilton Young Commission and the Central Banking Enquiry Committee, the Reserve Bank of India Act was passed in 1934, leading to the RBI's establishment and operation from April 1, 1935.

🎯 Exam Tip: Understanding the historical context, the role of commissions, and the evolution from the Imperial Bank to the RBI is crucial for questions on its origin.