Quatitatitive measures of credit control are also called general measures of credit control. These measures refer to the methods which are used to direct the total volume of credit in the banks. These measures consists of the following methods
- Bank rate: it means the rate of interest at which central bank discounts the bills of the commercial banks. If central bank wants to expand the credit then central bank will reduce the bank rate. Reduce bank rate will reduce the cost of borrowing of the commercial banks who in turn charge low rate of interest from their borrowers. This means the price of credit will decrease. Business community will borrow more money which leads to more investment, production, generate more employment and income in hands of people. Thus the purchasing power of people will increase and aggregate demand will also increase. While on the other hand if there is the situation of inflation means there is increase in the general price level central bank will contract the credit by increasing the bank rate. Increased bank rate will increase the cost of borrowing of the commercial banks who in turn charge high rate of interest from their borrowers. This means the price of credit will increase. Business community will discouraged to borrow money which leads to fall in investment, production, employment and income in hands of people. Thus the purchasing power of people will decrease and aggregate demand also decrease which will solve the situation of inflation. The present bank rate is 9 %.
- Open market operations: it means buying and selling of securities of central bank in the open market. If the central bank wants to expand the credit then it would purchase the securities from the commercial banks. Which will in turn generate the money supply in the market and if the central bank contract the credit then this means it will sell the securities to the commercial banks which in turn reduce the money supply with the commercial banks.
Qualitatitive measures of credit control are also called selective measures of credit control. These measures refers to the measures which are directed towards the particular use of credit not its total volume. These measures consist of the following methods.
- Margin requirement: if the central bank increases its margin then it will reduce the money supply and on the other hand if the central bank decrease its margin then it will increase the money supply.
- Issue directions: the central bank also issue directions to the commercial banks in oral or written form which the commercial banks have to follow.
- Credit rationing: the central bank also rations the credit given by the commercial banks.
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- Moral suasion: is morally implied on the commercial banks to follow the rules and regulations by the central banks.
- Direct action: if the commercial banks don’t follow the rules and regulations of the central bank then central bank can take direct action against the commercial banks.
There are two methods of economics
- Deductive method
- Inductive method
Deductive method- classical economists favour this method. It is also known as hypothetical or abstract or priori or analytical method. Under this method there are following steps: Continue reading
Today I will discuss the meaning of very important term related to financial institutions like banks. The term is NPA and the full form of NPA is “Non-performing Asset”. Now a days we are daily reading or listening that banks NPAs are increasing on regular basis. Let us understand the meaning of NPA.
As the name suggests, it is that asset which is non performing or in other words which is not giving any return or even the principal amount. Continue reading
Posted in Banking
An external factor which affects the business environment means the factor beyond the control of business. These can be broadly classified into micro and macro environment.
Micro Business Environment: It means the forces which are immediate close to the business organization and influence its functioning. It affects different firms in different ways depending upon its circumstances. Micro environment consists of following parameters: Continue reading
Meaning: Business ethics refers to the standards and principles which govern the business activities. It means doing business activities with rational thinking and honesty. A business requires ethics for its success. Now a days availability of proper safety measures for employees, satisfaction of consumers and protection of environment are modern business standards. Continue reading
The word social security originated in USA in 1935. It means to help the people when they are unemployed and exposed to risk such as sickness, accidents, old age, maternity etc.
Scope of Social security:
It is in form of maternity benefits, health insurance, voluntary and compulsory insurance, provident fund schemes. These social security programs vary from country to country but have the following three common characteristics: Continue reading
Economics is considered as science of wealth as it is a study of the factors which are responsible for wealth generation. Thus in Economics we study a body of knowledge which relates to wealth. Economics as a science of wealth Economist Adam Smith, J. B. Say, John Mill, F. A. Walker and Riccardo. Adam Smith is known as a Father of Modern Economics and 1776, he has written a book called “An Enquiry into Nature and causes of wealth of Nation”. Continue reading
Human wants are unlimited and the resources to satisfy these wants are scarce. Every individual tries to satisfy more and more of his wants. The scarcity of resources in relation to wants give rise to the problem “how to use limited resources to get maximum satisfaction”. This give rise to problem of choice which means we have to select the best alternative among all. The central problems of an economy is further divided into four following basics problems: Continue reading
Posted in Economics
It is a predetermined cost, as it is determined in advance what should be the cost of production. When standard cost is used for the purpose of cost control it is known as standard costing. Now the question arises what is standard cost? Standard cost means cost based on the technical estimate of material, labour, overhead for a specific period of time under specific working condition. Continue reading