IEcoS (Economic Services) Indian Economics Money and Banking-Commercial Banks Terms and Persons (Page 27 of 51)

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Minimum Reserve System

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The Minimum Reserve System is the currency issue system followed by the RBI at present. It was adopted in 1956. The Minimum Reserve System which requires the RBI to keep a minimum reserve of Rs 200 crores comprising foreign currencies, gold coin and gold bullion (minimum of Rs 115 crore in the form of gold) . There is no limit for the RBI to issue currencies by keeping this minimum reserve.

Mobile Wallet

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A mobile wallet is a virtual wallet that stores card payment information on a mobile device. It carries credit card or debit card information in a digital form in mobile devices.

Monetary Transmission Mechanism

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Monetary Transmission Mechanism or monetary transmission refers to the process by which a central bank՚s monetary policy signals (like repo rate) are passed on, through financial system to influence the businesses and households. There are many monetary policy signals by the RBI; the most powerful one is the repo rate. When repo rate is changed, it brings changes in the overall interest rate in the economy as well. As a result of a decrease in repo rate, the interest rate on loans by banks also changes and this encourages consumption and investment activities of businesses and households. Both consumption and investment are often financed by borrowings from banks. As the repo rate brings changes in market interest rate, the repo rate channel is often referred as interest rate channel of monetary transmission. Repo rate Interest rate Consumption, Investment Output Growth Interest rate is the main channel of monetary policy transmission. Similarly, there is credit channel, asset price channel, confidence channel etc. An interesting development in recent times is that often, central banks gives certain communications in the form of guidelines which are aimed to create certain effects in the financial market. Monetary policy transmission mechanism in IndiaIn the Indian scenario, the momentary policy transmission is heavily depending upon the repo rate. The repo rate is the anchor rate in determining the interest rate in the economy (of the banking system) . Now, how far a change in repo rate can bring a corresponding change in interest rate by banks depends upon the financial conditions of the banking system as well. In this respect, the banking system holds the center stage in India՚s monetary policy transmission.