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CMA Foundation · Fundamentals of Business Economics and Management · Money and Banking

Which of the following is a feature that distinguishes a commercial bank from a central bank?

Accepting deposits from the public and lending them to earn profit distinguishes a commercial bank. Central banks do not operate mainly for profit; they control money supply, act as lender of last resort and frame monetary policy, which are not commercial banking functions.

  1. AIt controls the money supply and credit for the whole economy
  2. BIt accepts deposits from the public and lends them to earn profitCorrect
  3. CIt acts as the lender of last resort to all banks
  4. DIt formulates the monetary policy of the country

Explanation

Commercial banks work for profit by accepting public deposits and giving loans. Controlling money supply, acting as lender of last resort and framing monetary policy are central bank functions, so those options are wrong.

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