Functions of Central Banks Banker to Government

Here are some notes on the functions of central banks as a banker to the government, with multiple choice questions and answers:

Functions of Central Banks as Banker to the Government

  • Holding the government’s deposits: The central bank holds the government’s cash balances, such as tax revenue and treasury bonds.
  • Making payments on behalf of the government: The central bank makes payments on behalf of the government, such as salaries, pensions, and social security benefits.
  • Providing loans to the government: The central bank may provide loans to the government, especially during times of financial distress.
  • Managing the government’s debt: The central bank manages the government’s debt, such as issuing and redeeming bonds.
  • Advising the government on economic and financial matters: The central bank may advise the government on economic and financial matters, such as monetary policy and fiscal policy.

Multiple Choice Questions

  1. Which of the following is not a function of a central bank as a banker to the government?
    • Holding the government’s deposits
    • Making payments on behalf of the government
    • Providing loans to the government
    • Managing the government’s debt
    • Issuing currency
    • Answer: Issuing currency
  2. The central bank provides loans to the government at a:
    • Discount rate
    • Prime rate
    • Commercial rate
    • Policy rate
    • Answer: Discount rate
  3. The central bank advises the government on:
    • Monetary policy
    • Fiscal policy
    • Both monetary and fiscal policy
    • Economic development
    • All of the above
    • Answer: All of the above

Answers

  1. The answer is Issuing currency. The central bank is responsible for issuing currency, but this is not a function of a central bank as a banker to the government.
  2. The answer is Discount rate. The discount rate is the interest rate that the central bank charges to commercial banks for loans.
  3. The answer is All of the above. The central bank advises the government on monetary policy, fiscal policy, economic development, and other economic and financial matters.