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6 essential methods of credit control

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These days’ regulation and control of volume of credit is the most important function of central bank. The volume of credit is an essential part of money supply.

What are the limitations on credit creation in a bank?

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Though banks would like to have an unlimited capacity to create credit so as to add to their profit income, in practice they face several hurdles in doing so. These limitations manifest themselves in converting additional credit creation into a non-profitable activity. Thus, a bank would keep creating additional credit so long as:-

Write a brief note on the term credit creation by Banks

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The banks add to the aggregate means of payments available to the market. The contribution of banks to money supply is in the form of bank deposits. Broadly speaking, these deposits may be divided into two categories, namely cash deposits and credit deposits.

What are the important methods of credit control ?

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The various methods or instruments of credit control used by the central bank can be broadly classified into two categories: (a) quantitative or general methods, and (b) qualitative or selective methods.

What are the essential objectives of credit control ?

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Credit control is the regulation of credit by the central bank for achieving some definite objectives. Modern economy is a credit economy because credit has come to play a major role in setting all kinds of monetary and business transactions in the modern economic system.

What are the limitations of credit creation?

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Theoretically, the banking system can create unlimited amount of credit through expansion of deposits. However, in reality, the powers of banks to create multiple credit or deposits arc subject to a number of limitations as explained below:

What do you mean by the term credit creation ?

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A bank differs from other financial institutions because it can create credit. Banks have the ability to expand their demand deposits as a multiple of their cash reserves. This is because of the fact that demand deposits of the banks serve as the principal medium of exchange, and, in this way, the banks manage the […]

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