The worked question on this page is original educational practice. It is not represented as a question from an official previous-year examination paper.
01 / UNDERSTANDING
Review the question
Develop an original purchase-and-sale calculation whose solution states both the net effect and its limits. A transaction with the opposite direction tests whether the mechanism is understood. An original checkpoint is: What is the net settlement-balance effect of the two stated operations? Supported answer: An addition of 25 units. Explain the decisive fact, then alter one condition and solve again. This is an original practice method, not a claim that the question appeared in an official past paper.
02 / UNDERSTANDING
The concept in context
The immediate liquidity effect does not guarantee a proportional increase in lending, output or inflation. A useful study check is to identify the buyer, seller and payment direction, then separate immediate settlement from broader transmission. Explain why the method fits the stated facts before applying it to a changed situation.
03 / UNDERSTANDING
A worked learning case
A central bank purchases securities worth 40 from the banking sector in an invented balance-sheet exercise. It credits banks’ settlement balances by 40 and receives securities of the same transaction value. An outright sale of 15 would move the opposite way. Combining only these two operations gives a net addition of 25 to settlement balances.
ORIGINAL EDUCATIONAL PRACTICE
Try it before you check.
What is the net settlement-balance effect of the two stated operations?
Show the answer and reasoning
An addition of 25 units.
The purchase injects 40 and the sale withdraws 15 in this simplified exercise. Netting these specified flows gives 40 minus 15, or 25. The calculation excludes other liquidity factors. It also does not imply that bank credit will rise by exactly 25, because lending decisions involve demand, risk and balance-sheet constraints.
Two traps to watch for.
- Reversing the liquidity direction of a central-bank purchase.
- Equating reserve creation with an identical increase in bank lending.
YOUR TOPIC-SPECIFIC LEARNING MAP
Learn from the attempt
Identify the buyer, seller and payment direction.
Net the specified liquidity additions and withdrawals.
Separate immediate settlement from broader transmission.
Explain the idea, apply it to a new situation, then check what changed in your reasoning.
BANKERS TUTORIAL · SOURCE NOTES
Keep the source alongside your notes.
Official links provide subject context and authoritative reference material. This guide’s explanation, scenario and question are original Bankers Tutorial learning content.
- www.ncert.nic.in https://www.ncert.nic.in/textbook/pdf/leec103.pdf
- rbi.org.in https://rbi.org.in/scripts/PublicationsView.aspx?Id=18086
For RBI preparation, check the current official notice before relying on changing dates, rules or examination requirements.
