Lesson eLearning

Which of the following is NOT a tool used by the Reserve Bank of India to control the money supply?

medium MCQ 2 marks Class 12 · Economics · Money and Banking
  1. Cash reserve ratio (CRR)
  2. Statutory liquidity ratio (SLR)
  3. Open market operations
  4. Foreign exchange reserves
Answer
Foreign exchange reserves

The correct answer is Foreign exchange reserves — Conclusion: Foreign exchange reserves are not a primary tool for controlling money supply.

Step-by-step solution

  1. The RBI uses monetary policy instruments such as CRR, SLR, and open market operations to influence the money supply.
  2. Foreign exchange reserves are held to manage the external balance and influence exchange rates, not directly to control domestic money supply.
  3. Hence, foreign exchange reserves are not a tool for money supply control.
  4. Therefore, the correct answer is "Foreign exchange reserves."
  5. Conclusion: Foreign exchange reserves are not a primary tool for controlling money supply.
Common mistake: Assuming all RBI holdings influence domestic money supply

Concept tested: RBI monetary tools

Published · How this solution was prepared and checked

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