Question

Which of the following are considered primary functions of a Central bank ?
a. Regulating the money supply
b. Supervising commercial banks
c. Setting interest rates
d. Managing government revenue collection
State the correct answer using the codes given below.

• A. a and b only
• B. a and c only
• C. a, b and c only
• D. All of the above

Hint:

While typically revenue collection is a fiscal function, be aware that definitions of a central bank's primary functions might vary slightly depending on the specific economic system or the perspective being considered in the question.

Answer 1

The Correct Option is D

Analyzing the Functions of a Central Bank

Step 1: Analyzing Statement (a)

Statement: Regulating the money supply
This is one of the primary roles of a central bank. It uses tools such as:

• Open market operations
• Reserve requirements
• The discount rate

✓ Statement (a) is correct.

Step 2: Analyzing Statement (b)

Statement: Supervising commercial banks
Central banks ensure the stability and integrity of the banking system by:

• Regulating banking operations
• Protecting depositors’ interests
• Maintaining financial discipline

✓ Statement (b) is correct.

Step 3: Analyzing Statement (c)

Statement: Setting interest rates
Central banks use interest rates as a tool to:

• Control inflation
• Stabilize the currency
• Influence economic growth

✓ Statement (c) is correct.

Step 4: Analyzing Statement (d)

Statement: Managing government revenue collection
While central banks do not directly collect taxes, they:

• Manage government accounts
• Assist in public debt management (e.g., issuing bonds)

✓ Statement (d) is broadly correct.

Conclusion:
All four statements (a, b, c, and d) are correct.
Therefore, the correct answer is: (4) All of the above