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Managerial Economics Essay

2736 words - 11 pages

10. C-GDP
1. Concept of Demand Schedule: The inverse relationship between the price and the quantity demanded for the commodity per time period is called as the demand schedule for the commodity.
3. Various forms of Market Structure: The various forms of market structure are: Perfect Competition, Imperfect Competition and Monopoly
We can measure national income either at the ...view middle of the document...

The environment for open market operations is quite favorable because the government securities market is fairly developed in the country. At present, the RBI is authorized to conduct purchase and sale operations in government securities, treasury bills another approved securities.
Open Market Operations have both monetary policy and fiscal policy goals. Their multiple objectives include (a) To control the amount of and changes in bank credit and monetary supply through controlling the reserve base of banks, (b) To make bank rate policy more effective, (c) To maintain stability in government securities market, (d) To support government borrowing programme, (e) To smoothen the seasonal flow of funds in the bank credit market.

2. The Bank rate: The bank rate is also known as discount rate. It is the rate at which the central bank discounts, or more accurately rediscounts, eligible bills. In a broader sense it refers to the minimum rate at which the central bank provides financial accommodation to commercial banks in the discharge of its function as the lender of the last resort. The bank rate is the basic cost of refinance and rediscounting facilities.
3. Direct Regulation of Interest Rates: It is expected that change in bank rate will bring a change in all market rates of interest in the same direction. But when the bank rate loses its significance in regulating market rates, the RBI is compelled to directly regulate interest rates on bank deposits and credit.
4. Cash Reserve Ratio: The CRR refers to the cash which banks have to maintain with the RBI as a certain percentage of their demand and time liabilities. In the late 1982s there was a rapid growth of liquidity which resulted in higher inflation and thus the CRR was raised to its maximum limit of 15%, which resulted in higher interest rate and liquidity crunch in early 1990s when Prime Lending Rate was raised to as high as 17%.
ROLES OF RBI: RBI plays most important role in:
1. Securing monetary stability in India and
2. Operating the currency and credit system of the country.
Apart from these two roles, RBI being the central monetary authority plays a very significant role in the Indian Economy.
Guarantor of Price Stability
Being the monetary authority of the economy, RBI is responsible for implementing, formulating and monitoring the monetary policy of India. Keeping this authority in mind the RBI is required to maintain price stability price stability and ensure adequate flow of credit to productive sectors.
Regulator and Supervisor of the Financial System
The Supreme financial body sets down broad parameters of banking operations within which the country’s banking and financial system operates. This reasonably helps in maintaining public confidence in the system. It in turn protects depositor’s interest and provides lucrative banking services to the public.
Manager of Exchange Control
The RBI is responsible for managing the Foreign Exchange Management Act, 1999. It is...

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