BBA 1st Year Business Environment FEMA Long Question Answer

(i) One for the slack season, (April-September].

(ii) One for the busy season, (October-March

In accordance with the agricultural cycles.

Objectives of Monetary Policy

In the present day economy, the objectives of monetary policy are:

1. Neutrality of money is only a technical device.

2. Price, stability, preventing changes in general price-level.

3. Exchange rate stability by using interest rate mechanism.

4. Promotion of economic growth, by raising financial resources.

5. Maintenance of high level of employment, by raising the level of investment.

Scope of Monetary Policy

The area of economic transactions and the macroeconomic variables that monetary authorities can influence is said to be the scope of monetary policy. The scope of monetary policy by and large depends upon two factors:

(i) The level of monetary economy.

(ii) The level of development of the capital market.

The entire economic activities are covered by the monetary policy in an eëonomy. All the economic transactions in such an economy are carried out with money as the main medium of exchange. Suppose if the monetary policy work by simply changing the price level, it can affect all the economic activities such as production, consumption, savings and investment and foreign trade. Employment, general price level, GDP and the foreign exchange are said to influence monetary policy.

A developing capital marked is one which has the following features:

(i) A large number of financially strong commercial banks, financial institutions, credit organisations and short term bill market.

(ii) A major part of financial transactions are routed through the capital markets.

(iii) The working capital of various sub-markets is inter-linked and inter-dependent.

(iv) The commodity sector is highly sensitive to the changes in the capital market.

It is important that the bank rates and cash reserve ratio work through the commercial banks. Therefore for a wide spread impact of monetary policy on the eco’iomy, it is essential that the capital sub markets have strong financial links with the commercial banks.

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