Question : ________ is exercised through discussions, letters, and speeches to banks.
Option 1: Moral suasion
Option 2: Selective credit control
Option 3: Margin requirement
Option 4: Open market operation
Correct Answer: Moral suasion
Solution : The correct answer is (a) Moral suasion.
Moral suasion is a non-coercive policy tool used by central banks to influence the behavior of commercial banks. It is often exercised through discussions, letters, and speeches to banks. The central bank may, for example, urge banks to lend less money to businesses or individuals, or to lend at higher interest rates.
Selective credit control, margin requirement, and open market operation are all quantitative tools used by central banks to control the money supply. They are not exercised through discussions, letters, and speeches to banks.
