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The pivotal position in the Indian money market is adorned by

The pivotal position in the Indian money market is adorned by

Looking for the answer to the question below related to Financial Management ?

The pivotal position in the Indian money market is adorned by

 Options:

A. Commercial bank
B. non banking financial companies
C. RBI
D. none of these

The Correct Answer Is:

  • C. RBI

The Indian money market plays a crucial role in the overall financial system of the country, and it involves a complex interplay of various financial institutions and regulatory bodies. The pivotal position in the Indian money market is indeed adorned by the Reserve Bank of India (RBI), and this choice is correct for several reasons.

The Reserve Bank of India (RBI) is the central bank of India, and it is tasked with the responsibility of formulating and implementing the monetary policy of the country. The Indian money market is a key component of the broader financial system, and it is primarily concerned with the lending and borrowing of short-term funds. The RBI exercises significant control and authority over this market for the following reasons:

  1. Monetary Policy Regulation: The primary objective of the RBI is to maintain price stability in the economy while fostering economic growth. To achieve this, the RBI uses various monetary policy tools, such as the repo rate, reverse repo rate, and cash reserve ratio (CRR). These tools directly impact the interest rates in the money market, making the RBI the ultimate authority in determining the cost of borrowing and lending for financial institutions in the market.
  2. Lender of Last Resort: In times of financial distress, the RBI acts as a lender of last resort to provide liquidity support to financial institutions, including commercial banks and non-banking financial companies (NBFCs). This role is crucial in maintaining stability in the money market, as it ensures that institutions facing liquidity shortages can access funds to meet their obligations.
  3. Regulatory Oversight: The RBI has the authority to regulate and supervise all entities operating in the money market. It prescribes prudential norms, capital adequacy requirements, and other regulations to ensure the soundness and stability of financial institutions. This regulatory oversight extends to both commercial banks and NBFCs.

Now, let’s examine why the other options are not the correct choices:

A. Commercial Banks:

While commercial banks are significant players in the Indian money market, they do not hold the pivotal position. They are participants in the market and operate under the regulatory framework set by the RBI.

Commercial banks play a crucial role in channelizing funds between savers and borrowers in the market, but they do not have the authority to formulate monetary policy or act as lenders of last resort.

B. Non-Banking Financial Companies (NBFCs):

NBFCs are important intermediaries in the money market, but they do not occupy the pivotal position held by the RBI. NBFCs are subject to regulatory oversight by the RBI, but they are not responsible for monetary policy formulation or acting as lenders of last resort. Their activities are largely complementary to those of commercial banks.

D. None of These:

This option is incorrect because, as explained above, the RBI does indeed occupy the pivotal position in the Indian money market due to its role in monetary policy formulation, being the lender of last resort, and its regulatory authority over all participants in the market.

In summary, the Reserve Bank of India (RBI) rightfully holds the pivotal position in the Indian money market. Its multifaceted role in formulating monetary policy, acting as a lender of last resort, and regulating financial institutions in the market gives it unparalleled influence and authority.

While commercial banks and NBFCs are vital components of the money market, they operate within the framework set by the RBI, which underscores the central bank’s pivotal role in the Indian financial system.

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