Question

State the meaning of a Bank.

Answer 1

Step 1: Read what the passage says:
The passage opens with a plain statement: any institution which accepts deposits from the public and advances loans is a bank.
It then splits banks into two groups, commercial banks and the Central Bank.
The question only asks for the meaning, so this opening line is what we need.

Step 2: Split the meaning into its two functions:
A bank does two linked jobs. First, it takes deposits from the public and keeps them safe.
Second, it uses these deposits to give loans to people who need money.
Banks also keep a small fraction of deposits as reserves, since all depositors do not ask for their money on the same day.

Step 3: Write the definition in one line:
Put both functions together: a bank is an institution that accepts deposits from the public and lends money to those who need it.

Final Answer:
A bank is an institution which accepts deposits from the public and advances loans.

Answer 2

Step 1: Understand what is being compared:
The passage names two kinds of banks: commercial banks and the Central Bank.
We need any two traits on which the two differ. Each trait should compare both banks, so the answer is clear.

Step 2: Trait 1: dealing with the public:
Commercial banks accept deposits from the public and give loans to the public.
The Central Bank does not deal directly with the public. Its dealings are with the government and with commercial banks.
So commercial banks serve households and firms, while the Central Bank serves the banking system.

Step 3: Trait 2: credit creation:
Commercial banks create credit. They lend out a part of deposits and keep a fraction as reserves.
The Central Bank does not create credit for profit. It is responsible for controlling credit creation in the economy, as the passage says.
It does this through tools such as the repo rate, CRR, SLR and open market operations.

Step 4: Check the number of points:
The question says any two traits, so two points are enough. Other valid traits are also accepted, for example profit motive versus public welfare, or note issue versus no note issue.

Final Answer:
Two traits that distinguish the Central Bank from commercial banks:
1. Commercial banks accept deposits and grant loans to the public, whereas the Central Bank does not deal directly with the public.
2. Commercial banks create credit, whereas the Central Bank controls credit creation in the economy.

Answer 3

Step 1: Understand the statement:
Open market operations mean buying and selling of government securities by the RBI in the open market.
We must show that this is a tool the RBI uses to regulate the money supply. A justification needs both directions: selling and buying.

Step 2: Case 1: RBI sells government securities:
Commercial banks and the public buy these securities and pay the RBI from their funds.
So the cash available with commercial banks falls. Their capacity to lend also falls.
Less lending means less credit creation, so the money supply in the economy goes down.

Step 3: Case 2: RBI buys government securities:
The RBI pays for the securities it buys. This payment flows into the accounts of commercial banks.
The cash with banks rises, and their capacity to lend rises too.
More lending means more credit creation, so the money supply in the economy goes up.

Step 4: Tie it to the aim of the RBI:
To control inflation the RBI sells securities and drains money. To fight a slowdown it buys securities and adds money.
Hence open market operation is a direct and flexible way to regulate the money supply, and the statement is justified.

Final Answer:
The statement is justified. By selling government securities the RBI reduces the funds and lending capacity of banks, so money supply falls. By buying them it raises the funds and lending capacity of banks, so money supply rises.