Match each central bank monetary policy instrument with its correct definition or operational mechanism.
- Open Market OperationsThe buying and selling of government securities in the financial market to control money supply
- Bank Rate PolicyThe official interest rate at which the central bank rediscounts bills or lends to commercial banks
- Cash Reserve RatioThe minimum percentage of deposit liabilities commercial banks must maintain with the central bank
- Moral SuasionInformal persuasion, directives, and appeals used by the central bank to guide commercial bank lending
Answer
Open Market Operations matches with the buying and selling of government securities; Bank Rate Policy matches with the official interest rate for rediscounting bills; Cash Reserve Ratio matches with the minimum deposit percentage maintained at the central bank; Moral Suasion matches with informal persuasion and directives to guide lending.
Each instrument accurately aligns with its standard monetary policy classification and operational mechanism: Open Market Operations involve government securities trading; Bank Rate Policy refers to the central bank's lending rate; Cash Reserve Ratio dictates required central bank deposit reserves; and Moral Suasion relies on informal guidance and persuasion.
Step-by-Step Solution
Key Concept
Central Bank Monetary Policy Instruments