Assertion (A) : A well developed money market is the basis for an effective monetary policy. It is in the money market that the Central Bank comes into contact with the financial sectors of the economy as a whole and it is through the liquidity in the market that influence the cost and availability of credit. Reasoning (R) : A well organised money market is an essential condition for the successful operation of the Central Banking policies, and for holding the conditions of liquidity within the bounds of what the monetary authorities consider desirable.
(A) is true and (R) offers correct explanation to (A)
Assertion (A): monetary policy works through the money market. The central bank's tools such as the policy rate, open market operations and reserve requirements first change liquidity in the money market, which then alters the cost and availability of credit in the economy. So (A) is true.
Reasoning (R): central banking policies can succeed only if the money market is organised and integrated, so that changes in liquidity and rates are transmitted quickly; the central bank uses it to keep liquidity at the level it considers desirable. So (R) is true.
Since an organised money market is exactly the channel that makes central banking policy effective, (R) explains why a well developed money market is the basis of effective monetary policy in (A).
Hence, the answer is (A) is true and (R) offers correct explanation to (A).
Similar Questions
What is Call Money ?
Identify the incorrect statement(s), regarding money market, among the following :
(a) The call money market deals in short term finance repayable on demand, with a maturity period varying from one day to 14 days.
(b) Treasury bills are instruments of short-term borrowing by the Government of India, issued as promissory notes under discount.
(c) A reduction in the repo rate helps banks to get money at a cheaper rate.
(d) Money market mutual funds invest money in specifically, high-quality and very short maturity-based money market instruments.
Codes :
LIBOR term is used for :
Important Questions from Money Market
The interest rate at which the Reserve Bank absorbs liquidity from banks under the Liquidity Adjustment Facility (LAF), on an overnight basis, against the collateral of eligible government securities, is called _____.
When the general interest rate reaches a very low level, which of the following statements will be correct?
Which of the following statements are true in context of efficient market?
A. Equilibrium rates of return will prevail
B. Investor cannot earn a positive return
C. Volatility will be very high
D. Securities of listed firms sell at their fair values
E. Investors are generally risk-averse
Choose the most appropriate answer from the options given below:
The words 'Bulls and Bears' are associated with
In economics dictionary, what is the full form of NSDL?
