Question

A Central Bank uses the following methods of credit control:
1. bank Rate Policy
2. Open Market Operations
3. Variable Reserve Ratio
4. Fixation of Margin Requirement
Which of the above methods are included in the category of quantitative methods of credit control ?

• A. 2 and 3
• B. 1 , 2 and 3
• C. 1 and 2
• D. 3 and 4

Answer 1

Answer: (B)

Instruments of quantitative credit control are Bank rate policy, open market operation, and variable reserve ratio. In fact, the rate at which RBI provides loans to the commercial bank is called the bank rate.
Open market operations imply deliberate direct sales and purchases of securities and bills in the market by the Central Bank on its own initiative to control the volume of credit.
While fixation of margin requirement is a qualitative control measure of credit control. the Central Bank is empowered to fix the margin and thereby fixes the minimized amount which the purchaser of securities may borrow against these securities.
This is a very effective selective device to control credit in the speculative sphere without limiting the availability of credit in other productive fields like industry, trade, agriculture, etc.