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Finance and Accounting : Monetry - Central Bank - Research Paper Example
Author : torranceblanda
Finance & Accounting
Pages 23 (5773 words)
Introduction A central bank or a reserve bank is a public/ government owned institution which mainly issues currency, regulates the supply of money and also controls the country’s interest rate is also known as monetary authority. Its other duty includes overseeing the commercial banking system of their respected countries…
Reckless and fraudulent behaviors of other financial institutions and banks are prevented as the central banks have the supervisory powers (Padoa-Schioppa, 2002). The goals of central banks are generally specified as price stability, stable real growth, financial stability, interest rate and exchange rate stability. 1. Discuss briefly the five objectives of central banks. Following are the main five objectives of a central bank: Price Stability The objective of a central bank is to ensure the stability of the prices of the good and services in a country. Inflation will occur in case if central bank injects money into the economy by using different means and consequently if the money from the market is taken back by the bank it will result in to deflation. Central bank insures the price stability by eliminating the inflation and the deflation factors so the average price should neither fall nor rise on an average (Padoa-Schioppa, 2002). Stable Real Growth The importance of this objective of a central bank can be understood in a way that the whole economy is dependent on the stable real growth. Central bank has to ensure that the real growth should remain stable is further influenced by the price stability. ...