CA Foundation · Business Economics · Money Market
Which of the following is a key function of the money market in an economy?
The money market gives the central bank a mechanism to influence liquidity and short-term interest rates, which is how monetary policy is transmitted. Long-term finance and equity issues belong to the capital market, and commodity prices are not fixed by the money market.
- AProviding long-term finance for fixed assets
- BProviding a mechanism for the central bank to influence liquidity and short-term interest ratesCorrect
- CFixing the prices of consumer goods
- DIssuing equity shares to the public
Explanation
The money market is the channel through which the central bank carries out monetary policy, because its operations alter liquidity and short-term rates. Long-term finance and equity issues belong to the capital market, and the money market does not fix prices of consumer goods.
Did you get it right without looking?
One question tells you little. A timed set on Money Market shows your real accuracy, how long you take and where you lose marks.
More Money Market questions
- Given: M1 = ₹12,000 crore; time deposits with banks = ₹18,000 crore; post office savings bank deposits = ₹1,500 crore; total post office dep…
- In the RBI's classification of money supply, which of the following correctly defines M1 (narrow money)?
- In the liquidity trap case of the Keynesian money market, what does the money demand curve look like and what is the effect of increasing mo…
- Under the monetary policy framework in India, the policy repo rate is 6.50%. The Standing Deposit Facility (SDF) rate is set 25 basis points…
- Ramesh, a trader in Indore, keeps an extra amount of cash at home so that he can meet an unexpected hospital bill or a sudden repair of his …
- Which feature best distinguishes a Repo from an outright sale of a government security in the money market?