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Banking & Monetary Policy

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Home/Indian Economy/Banking & Monetary Policy/Page 8

Mains Answer Writing Latest Questions

Saumya R
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Saumya RBegginer
Asked: July 20, 2024In:
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How do factors like globalization,technological change ,and the rise of digital currencies affect the implementation of monetary policy ?

question
  1. Anita Dhruw
    Anita Dhruw Legend

    This has however been made a challenge by the factors of globalization, technological change and the increased flexibility presented by the digital currencies. Here's how they influence it: 1. Globalization: Globalization has also brought about the integration of economy across nation and made the wRead more

    This has however been made a challenge by the factors of globalization, technological change and the increased flexibility presented by the digital currencies. Here’s how they influence it:

    1. Globalization:

    Globalization has also brought about the integration of economy across nation and made the world an economic unit. Coming as new factors beyond the control of central entities are foreign investments, differences in export/import, global economic crises, and others. Inflation or unemployment may have less to do with the central monetary policy since activities in the economy and those on international supply chains become subject to forces beyond interest rates, exchange rates, and the Central Bank’s influence on regulation.

    2. Technological Change:

    Thus, skill-biased technology change and productivity technologies in the labor markets have undergone some severe changes with shifting automation and AI.

    This would pose problems to the normality of the institutional money stock instruments intended to govern employment and inflation rates. For instance, job loss in certain sectors through the use of technology will continue to persist even when interest rates that should spur employment have been set. More importantly, FinTech is proliferating the ability of public access to credits and banking services in a way that could limit the role of the central bank in the financial system.

    3. Digital Currencies:

    Digital currencies, in particular the decentralized type such as bitcoin, disrupts the traditional monetary systems as these are determined outside the realm of the central bank.

    As such cryptocurrencies can now float around without necessarily requiring a central bank’s first-hand involvement, they can now threaten to decrease the power of monetary policy .

    Central Bank Digital Currencies (CBDCs) is what the central banks currently view as an answer to the question for resuming the control and stability of a rapidly developing digital financial sector.

     On balance, therefore, integration, technological revolution, and crypto currencies pose challenges to the conduct of meaningful monetary policy warranting innovative adjustments by the central banks.

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Sourajit Deb
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Sourajit DebBegginer
Asked: July 20, 2024In: , ,
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A recent error from a company named Crowdstrike caused a widespread disruption in various sector globally, including aviation, banking, telecommunications, hospitals etc. According to RBI, there was no monumental impact on the financial sector. Discuss.

  1. Mohd Zaid ullah
    Mohd Zaid ullah Begginer

    A "CrowdStrike update anomaly" refers to unexpected issues that may arise during the process of updating CrowdStrike's cybersecurity solutions. CrowdStrike provides endpoint protection services delivered through cloud-based platforms, ensuring continuous updates to defend against evolving cyber threRead more

    A “CrowdStrike update anomaly” refers to unexpected issues that may arise during the process of updating CrowdStrike’s cybersecurity solutions. CrowdStrike provides endpoint protection services delivered through cloud-based platforms, ensuring continuous updates to defend against evolving cyber threats. An update anomaly could manifest in several ways: updates failing to deploy correctly due to network issues or configuration errors, introducing performance or stability problems on certain systems, potentially compromising security by inadvertently introducing vulnerabilities, or causing disruptions for end-users. Addressing such anomalies involves rigorous testing of updates across various environments before deployment, swift identification and resolution of issues post-update, and transparent communication with users to mitigate impacts and ensure ongoing protection. CrowdStrike and similar companies prioritize maintaining robust security and operational integrity throughout the update cycle to safeguard endpoints effectively.

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Nidhi Jain
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Nidhi JainBegginer
Asked: July 21, 2024In:
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  1. Anita Dhruw
    Anita Dhruw Legend

    Following role do commercial banks play in implementing monetary policy:- 1. Interest Rate Transmission: In most countries, the commercial banks lend money and accept deposits at rates that are attached to their country's central bank rate; borrowers and savers have the influence over the amount theRead more

    Following role do commercial banks play in implementing
    monetary policy:-

    1. Interest Rate Transmission: In most countries, the commercial banks lend money and accept deposits at rates that are attached to their country’s central bank rate; borrowers and savers have the influence over the amount they are willing to borrow or save within the economy.

     

    2. Credit Availability: With regard to some policies from the central banks, commercial banks regulate credit supply in businesses and consumers by changing their lending policies.

     

    3. Open Market Operations (OMOs): The holders of OMOs are the commercial banks, shareholder deposits commercial banks are in the buying and selling government securities that have repercussions in the liquidity of the banking sector.

     

    4. Reserve Requirements: All the commercial banks together should maintain the balance through reserves which the Central Bank has provided. Thus, any change in these requirements will determine the range to which the banks can provide money.

     

    5. Money Supply Management: Using money obtained from borrowing, deposits they hold and through managing their required reserves, commercial banks help in realization of other monetary policy objectives as needed, say controlling inflation or boosting growth.

     

    6. Economic Stabilization: Relaying the central bank policies or goals, it’s a responsibility of commercial banks to curb consumption, investments amongst other related economic activities.

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ritu sharma
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ritu sharmaBegginer
Asked: July 21, 2024In:
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question
  1. Neetika Walter
    Neetika Walter Begginer

    Monetary Policy is a macroeconomic policy decision taken by the central bank to manage interest rate and money supply with the aim to meet various macroeconomic goals. These set of actions are of two types: expansionary or contractionary. Decreasing money supply and increasing interest rates indicatRead more

    Monetary Policy is a macroeconomic policy decision taken by the central bank to manage interest rate and money supply with the aim to meet various macroeconomic goals. These set of actions are of two types: expansionary or contractionary. Decreasing money supply and increasing interest rates indicate a contractionary monetary policy. The opposite of this is an expansionary policy, which stimulates economic activity and accordingly affect employment and inflation. In India, the RBI uses a plethora of tools to implement the monetary policy. These include bank rate policy, credit control policy, open market operations, Statutory Liquidity Ratio, and Cash Reserve Ratio. The Main Liquidity Management Tool, Fine Tuning Operations, Marginal Standing Facility Rate, Liquidity Adjustment Facility, and Standing Deposit Facility Rate are other methods used by the central bank to achieve its macroeconomic goals. Each of these tools help the apex bank in bringing changes in the interest rate, or liquidity conditions in the market. For example, to spur economy, the RBI buys bonds through open market operations to boost liquidity and reduce interest rate. This is achieved through monetary policy. In India, the six-member Monetary Policy Committee, headed by the RBI Governor, meets once every quarter to decide on the policy.

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MEHNAAZ HAWA
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MEHNAAZ HAWABegginer
Asked: July 21, 2024In: , , , , , , , ,
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Elaborate on the comparison between Foreign Exchange Regulation Act and Foreign Exchange Management Act.  What are the major differences between the two Acts and suggest changes, if any, that are required.

femaferaforeign exchangeforeign lawsinternational financesmanagement of foreign exchangeregulation of foreign income
  1. Ritika Sharma.1
    Ritika Sharma.1 Begginer

    Here are some major differences between the Foreign Exchange Regulation Act and the Foreign Exchange Management Act: FERA and FEMA manage India's foreign currency and payments differently. In 1973, the Indian Parliament passed FERA, which took effect on January 1, 1974, to manage and save foreign cuRead more

    Here are some major differences between the Foreign Exchange Regulation Act and the Foreign Exchange Management Act:

    1. FERA and FEMA manage India’s foreign currency and payments differently. In 1973, the Indian Parliament passed FERA, which took effect on January 1, 1974, to manage and save foreign currency at a time of low reserves. FEMA replaced the restricted FERA framework on June 1, 2000, after Parliament authorized it in 1999 to facilitate orderly foreign currency management.
    2. FERA’s rigorous restrictions reflected the economy and focused on foreign currency management and conservation. A complex 81-section law defined “Authorized persons” carefully and based residence status on citizenship. FERA violations were criminal crimes that carried the possibility of jail and barred legal representation. In addition, infractions were non-compoundable and could not be addressed outside of court.
    3. However, FEMA’s free and flexible regulation reflected India’s 1990s liberalization ambitions. With just 49 parts, FEMA’s structure is simpler and defines “Authorized persons,” including banks. The past six months of presence in India determines FEMA resident status, not citizenship. FEMA violations are civil infractions punishable by fines, but failure to pay may lead to incarceration. In contrast to FERA, breaches may be settled and the accused can be represented. FEMA added specific directors and courts to streamline appeals compared to FERA Supreme Court appeals.
    4. FERA’s cautious approach needed RBI approval for FX transactions, limiting operational flexibility. This regulation was repealed by FEMA, making currency transactions easier. FEMA also included information technology requirements to support a modernizing economy, unlike FERA. FERA to FEMA represents India’s transformation from a controlled to a liberalized and growth-oriented economy.
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Anonymous
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Anonymous
Asked: July 21, 2024In:
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  1. Anita Dhruw
    Anita Dhruw Legend

    Monetary policy may be quite effective in influencing income distribution and wealth distribution by a change in interest rates, asset prices and even employment rates.   If an economy is scaled by the Central Bank with the help of declining interest rates, then wealthy people benefit the most.Read more

    Monetary policy may be quite effective in influencing income distribution and wealth distribution by a change in interest rates, asset prices and even employment rates.

     

    If an economy is scaled by the Central Bank with the help of declining interest rates, then wealthy people benefit the most. This is so because, with lower rates, borrowing becomes cheaper and thus, investors invest more in things like stocks, real estate, and other assets, which, are expected to rise in value. Owners of such assets experience an upward social mobility and a widening of the social disparity. On the other hand, possibly, small investors, who have less money invested, will not immediately notice such advantages.

     

    • Also, regions of expansionary monetary policies open employment opportunities but not all the employment opportunities lower income gap. The dominant employment in high-wage-generating activities like finance or technology industries might expand more than low-wage occupation hence widening the gap in wages.

     

    While the dampening effect of expansionary monetary policy or an increase in the interest rate to tame inflation may prove particularly lethal to lower-income earners, not to mention perhaps restricted credit due to high cost of borrowing, measures put in place to control inflation may slow down job creation, especially in areas where low wage earners work.

     

    In conclusion, monetary policy works in the general economy, and it deepens income and wealth inequality since its winners are the high-income earners while its losers are the low-income earners.

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Anjali Varandani
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Anjali VarandaniBegginer
Asked: July 21, 2024In:
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  1. Yogita Gupta
    Yogita Gupta Begginer

    Monetary policy can influence income inequality and wealth distribution through its effects on interest rates, asset prices, and economic activity. Interest Rates Borrowing and Saving: Lower interest rates reduce borrowing costs, benefiting those with access to credit, often higher-income individualRead more

    Monetary policy can influence income inequality and wealth distribution through its effects on interest rates, asset prices, and economic activity.

    Interest Rates

    • Borrowing and Saving: Lower interest rates reduce borrowing costs, benefiting those with access to credit, often higher-income individuals and businesses. Meanwhile, savers, who are typically middle or lower-income, earn less on their savings.
    • Debt Burden: Lower rates can reduce debt burdens, freeing up income for consumption or investment, primarily benefiting those who already have debt.

    Asset Prices

    • Stock Market and Real Estate: Expansionary monetary policy, like lowering interest rates, often boosts asset prices such as stocks and real estate. Wealthier individuals, who are more likely to own these assets, experience greater increases in wealth.

    Economic Activity

    • Employment and Wages: Lower interest rates can stimulate economic activity, potentially leading to job creation and wage increases. However, the benefits might not be evenly distributed, often favouring higher-skilled workers more.

    Overall, while monetary policy can support economic growth, it can also exacerbate income and wealth inequality by disproportionately benefiting those with greater access to financial assets and credit.

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