Q. National currency settlement systems often involve a central bank. Which one of the following is likely an important role of the central bank in facilitating national currency settlement system?

[A] Setting interest rates for loans and deposits offered by commercial banks.

[B] Maintaining a record of all transactions happening within the system.

[C] Managing the foreign exchange reserves of the nation.

[D] Approving or denying individual bank transfers based on regulatory compliance.

Answer: B
Notes:

Explanation – In a national currency settlement system, the central bank plays a crucial role. Maintaining a record of all transactions happening within the system is one of the important roles played by the central bank in facilitating national currency settlement system. This role is essential because it ensures the smooth and secure clearing and settlement of transactions, which is fundamental to the stability and efficiency of the financial system. The central bank acts as a central ledger, ensuring transparency, accountability, and finality of settlements. This record allows for reconciliation, identification of potential errors, and overall monitoring of the system’s health. The responsibility for regulating transactions in the national currency system with another country in India primarily falls under the jurisdiction of the Reserve Bank of India (RBI). The RBI operates under the framework provided by the Foreign Exchange Management Act (FEMA), 1999.

Source: The Hindu

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