DSSSB -28 August 2019 (Shift-2)
General Knowledge
Easy
Which of the following is not a method adopted by RBI to maintain the liquidity of the economy?
Appeared in: DSSSB -28 August 2019 (Shift-2)
Explanation
- The Reserve Bank of India (RBI) does not participate in the buying or selling of company shares on the stock market as a tool for managing the economy's liquidity.
- Trading in equities is the domain of investors and is regulated by the Securities and Exchange Board of India (SEBI), not the RBI.
- The RBI's operations are focused on debt instruments (like government bonds) and bank reserve requirements to maintain financial stability, which is distinct from speculating on or investing in corporate ownership.
Why Other Options Were Wrong
- Option A: The Repo Rate is a key policy rate used by the RBI to lend money to commercial banks, thereby controlling the cost of credit and managing liquidity.
- Option C: Buying and selling government bonds, known as Open Market Operations (OMOs), is a primary and frequently used tool by the RBI to inject or absorb liquidity from the financial system.
- Option D: The Cash Reserve Ratio (CRR) is a mandatory percentage of a bank's deposits that must be kept with the RBI. Adjusting the CRR is a direct way to alter the amount of lendable funds in the banking system.
Related Visual
Clinical Relevance
- Nursing practice connection: This is primarily an exam-oriented knowledge point with limited direct bedside application, so retain RBI's Monetary Policy Tools for Liquidity Management as background academic context rather than a clinical decision trigger.
- Understanding the RBI's tools is essential for financial literacy. These policies influence loan interest rates (e.g., home, car), fixed deposit returns, and the overall rate of inflation, affecting every citizen's purchasing power.
- The distinction between the RBI's role and the stock market is fundamental. The RBI ensures systemic stability, while the stock market is a platform for capital formation and wealth creation through risk-taking.
- What if? If the RBI were to trade shares, it would create a massive conflict of interest. It could potentially manipulate markets, favor certain companies, and its role as an impartial financial regulator would be compromised.
How to Approach the Question
- First, recognize that the question asks for what is not a method, which requires you to identify the outlier among the options.
- Second, recall the primary function of a central bank like the RBI: to manage the country's money supply, control inflation, and ensure the stability of the banking system.
- Third, evaluate each option. 'Repo rate', 'Govt. Bonds', and 'Cash Reserve Ratio' are all classic central banking terms related to interest rates, government debt, and bank reserves.
- Fourth, analyze the option 'Buying/Selling of shares'. This relates to the stock market and corporate ownership. This activity is fundamentally different from managing the overall money supply.
- Conclude that trading shares is not a function of the RBI for liquidity management, making it the correct answer.
Concept Tested & Keywords
- Concept Tested: RBI's Monetary Policy Tools for Liquidity Management
- Stem keywords: RBI, liquidity, economy
- Lead-in keywords: not a method
- Negative lead-in flag: Question asks to identify the option that is NOT a method used by the RBI.
Question ID
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Practise the full DSSSB -28 August 2019 (Shift-2)
Attempt every question from this paper in a timed mock, then review the full solution for each one.
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