Money, Banking and the central Banking system - Central Banks - the functions of the central bank

9 important questions on Money, Banking and the central Banking system - Central Banks - the functions of the central bank

What is the objective of central banks?

Their objectives  are to maximize the national interest

What business does the central bank have with the government and commercial banks? How?

  • The central bank accepts deposits form and makes loans to, both the federal government and domestic commercial banks.
  • by buying bonds

What do we call the sum of the banknotes in circulation, and the deposits of the commercial banks?

The monetary base
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Who do cental banks allow to open accounts with them?

Domestic commercial banks

What are the four main duties of central banks?

  • To act as the bankers' bank (the bank for commercial banks)
  • to act as the government's bank
  • to issue currency
  • to conduct monetary policy  

What is the central banks greatest asset? And its greatest liability?

  • The government bonds are the central bank's greatest assets
  • The banknotes in circulation are the  central bank's greatest liabilities

2. What does the central bank do when the government need to borrow money? Always?

The  central bank buys short term treasury bills and long term bonds that the government issues when it wants to borrow money?

What does the central bank do about currency and counterfeiting?

It ensures that the supply of banknotes meets the public demands, which is a liability to the central bank.
to remember: these notes could be exchanged for gold
it also prevents counterfeiting.

4. What kinds on monetary policy does the central bank conduct?

  • Controlling interest rates
  • Controlling the quantity of money
  • Controlling the exchange rate
  • Controlling or a combination of these actions
  • Controlling occasionally intervene in the foreign exchange market to moderate fluctuations, by holding some foreign currency

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