Instruments of credit control, Managerial Economics

Assignment Help:

INSTRUMENTS OF CREDIT CONTROL

The central bank employs several instruments to control aggregate credit in the country. While some instruments like the open market operations minimum legal cash reserves ratio and the bank rate policy are indirect and traditional ,other like the rationing of credit and direct credit control are new having been evolved recently. According to De Kock . the following are the nine principal instruments which are generally employed by central bank to control credit in the economy.

1. The lowering on raising of the discount and interest rate with a view to lowering or raising money rates generally and encouraging the expansion or contraction of credit.

2. The buying or selling of securities or bills of exchange in the open market with a view to putting additional funds into the market or withdrawing funds there from and thus expanding or contracting credit.

3. The relationing of credit as an alternative or addition to raising discount interest rates.

4. The taking of direct action either in the form coercive measured against any offending bank or other financial institution or in the form of directives issued to banks generally concerning their lending and investment operations, in order to assist the central bank in controlling the quantity of credit as well as securing a better qualitative distribution of credit.

5. The lowering or raising of the minimum cash reserves to be maintained by the commercial banks as an additional means of enabling the central bank to expand or contract their capacity to create credit.

6. The imposition of minimum secondary reserves requirements to maintained by the commercial banks in the form of government securities and other specified assets in order to restrict their capacity to extend credit for general business purposes.

7. The regulation of the terms and conditions under which credit repayable in instalments may be granted for purchasing or carrying consumers durable goods as a means of exercising some direct control over the volume of outstanding consumer credit.

8. The regulation of margin requirements in connection with purchases of stock exchange securities, as an instrument for exercising some direct control over the volume of credit used in the security markets and .

9. The use of moral suasion and publicity to achieve the desired objectives

10. These instruments may now be studied in greater detail.


Related Discussions:- Instruments of credit control

Pigou effect, The pigou effect, also called the real balance effect, is nam...

The pigou effect, also called the real balance effect, is named after the well known Cambridge school economist Arthur Cecil pigou who had first clearly formulated the relationship

Merits of direct taxes, Merits of direct taxes a.  They satisfy the pr...

Merits of direct taxes a.  They satisfy the principle of equity as they are easily matched to the tax payers capacity to pay once assessed. b.  They satisfy the principles

How advertising expenditure must remain the same, Advertising expenditure m...

Advertising expenditure must remain the same If advertising expenditure of a firm increases, consumers may be tempted to buy more of its product. Hence the advertising expendit

Price elasticity of supply, Price Elasticity of Supply Price Elasticit...

Price Elasticity of Supply Price Elasticity of supply measures the degree of responsiveness of quantity supplied to changes in  price.  The co-efficient of the elasticity of s

What is the socially optimal market price, Consider a manufactured good who...

Consider a manufactured good whose production process generates pollution. The annual demand for the good is given by Qd=100-3P. The annual market supply is given by Qs=P. In both

Infant industry argument - reason for protection, Infant Industry Argument ...

Infant Industry Argument Advocates of this maintain that if an industry is just developing, with a good chance of success once it is established and reaping economies of sale,

A cost-push inflation , A cost-push inflation have as a result of workers' ...

A cost-push inflation have as a result of workers' attempts to push up their wages. Thus, inflation does not have to be monetary phenomenon." Is this statement true, false, or unce

Original model again, Thinking about modifications in the model again: Go b...

Thinking about modifications in the model again: Go back to the original model again, but add a marginal propensity to invest, this is, suppose  that I = f ( i and Y). The MPI is d

Dumping - reason for protection, Dumping If goods are sold on a foreig...

Dumping If goods are sold on a foreign market below their cost of production this is referred to as dumping.  This may be undertaken either by a foreign monopolist, using high

Average propensity to consume, Average Propensity to Consume The avera...

Average Propensity to Consume The average Propensity to Consume [APC] is defined as the fraction of aggregate national income which is devoted to consumption.  If consumptio

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd