Finance, Forex and Investments

How reserve bank of India works?

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1. RBI is the highest authority on monetary policy in India.It controls the amount of money (currency) floating in the market. 1. It controls the money in the market by dictating the interest rates (Bank Rate etc) 2. Statutory Liquidity Ratio ( amount of money with banks that they have to invest in govt bonds) 3. Cash Reserve Ratio (amount of money banks have to keep in cash and not invest any where) 4. RBI is the Govt's bank. It issues currency on behalf of the govt. 5. It holds the govt's money 6. It buys and sells govt bonds (also used to pull out money from the system by selling the bonds to big investors at attractive prices or to infuse money by buying bonds from market) 7. Controls the exchange rates by buying and selling Rupees to prevent extreme fluctuations in the exchnge rate for the Rupee. 8. It regulates the entire banking sector-issues licences, audits banking operations, monitors banking regulations, suggests and makes changes in banking policies it can control 9. RBI performs the clearing of funds between banks when there is a funds transfer/cheque/drafts and other types of payments by operating clearing houses at major cities and towns. Where RBI clearing house is unavailable, SBI acts as the clearing house. 10. It is also a bank's bank. It lends money to banks.
2. The Reserve Bank of India was established on April 1, 1935 in accordance with the provisions of the Reserve Bank of India Act, 1934..to regulate the issue of Bank Notes and keeping of reserves with a view to securing monetary stability in India and generally to operate the currency and credit system of the country to its advantage. Reserve Bank Formulatess, implements and monitors the monetary policy. Objective: maintaining price stability and ensuring adequate flow of credit to productive sectors.Banker to the Government: performs merchant banking function for the central and the state governments; also acts as their banker. Banker to banks: maintains banking accounts of all scheduled banks. Prescribes broad parameters of banking operations within which the country's banking and financial system functions. Objective: maintain public confidence in the system, protect depositors' interest and provide cost-effective banking services to the public. Manages the Foreign Exchange Management Act, 1999. Objective: to facilitate external trade and payment and promote orderly development and maintenance of foreign exchange market in India.Issues and exchanges or destroys currency and coins not fit for circulation. Objective: to give the public adequate quantity of supplies of currency notes and coins and in good quality. Developmental role