Question

Explain the functions of central bank.

Hint:

Central banks control the economy's money supply, act as a lender to other banks, and are responsible for maintaining financial stability.

Answer 1

Step 1: Define a central bank.
A central bank is the financial institution that manages a nation's monetary system. It is responsible for regulating and overseeing the country's banking and financial systems.
Step 2: Discuss the primary functions of a central bank.
The functions of a central bank include: 1. Monetary Policy Control: The central bank controls the money supply in the economy through tools like interest rates, open market operations, and reserve requirements. 2. Issuer of Currency: The central bank is responsible for issuing the nation’s currency and ensuring its stability. 3. Lender of Last Resort: It provides emergency funding to commercial banks during times of financial crisis to maintain the stability of the banking system. 4. Banker's Bank: The central bank serves as the bank for commercial banks, holding reserves and facilitating inter-bank transactions. 5. Government’s Banker: It manages the government's accounts, facilitates public debt management, and supports the government’s financial operations.