CA Foundation · Business Economics · Money Market
Which of the following is a key function of the money market from the viewpoint of monetary policy?
The money market acts as the channel for transmitting monetary policy. The central bank changes liquidity and short-term interest rates through money market operations like repo, and these changes then pass to banks, businesses and borrowers. Fiscal deficits, support prices and listing norms are outside its functions.
- AIt provides a channel through which the central bank's policy actions on liquidity and interest rates are transmitted to the economyCorrect
- BIt determines the fiscal deficit of the government for the year
- CIt sets the minimum support prices for agricultural produce
- DIt regulates the listing norms of companies on stock exchanges
Explanation
The central bank operates through the money market, using tools such as repo and reverse repo, so that changes in liquidity and short-term rates pass on to banks and borrowers. The other options are not functions of the money market: fiscal deficit, MSPs and listing norms are matters for the government or SEBI.
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