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प्रश्न
How money multiplier is related to Legal Reserve Ratio?
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उत्तर
- The relationship between the Money Multiplier and the Legal Reserve Ratio (LRR) can be expressed through the following formula:
Money Multiplier = `1/"LRR"` - The money multiplier is inversely related to the LRR. A greater LRR requires banks to maintain higher percentages of deposits as reserves, reducing their ability to lend and thus reducing the money multiplier. Conversely, a lower LRR allows banks to lend out more deposits, resulting in a bigger money multiplier.
For example, if the LRR is 10% (0.1), the money multiplier would be:
Money Multiplier = `1/0.1 = 10`
संबंधित प्रश्न
The creation of ______ is called credit creation.
What do you mean by credit creation by commercial banks?
Access to adequate and timely credit at affordable rates is critical for the rural poor to alleviate high cost debt and invest in livelihood opportunities. Despite the Government of India's best efforts, financial inclusion of the rural poor has been beset with multiple challenges. Lack of adequate banking infrastructure and human resources in rural areas, unplanned expansion leading to unviable bank branches and low levels of financial literacy amongst the rural populace have been some of the key challenges.
The most vulnerable communities, who often had no formal credit history or ability to provide collateral, have often been the worst affected. Inability to access loans from banks meant that the poorest had to resort to moneylenders for loans at unreasonably high rates of interest that invariably led them into a toxic debt trap.
In this context, the SHG-Bank Linkage programme, formalised by the National Bank for Agriculture and Rural Development (NABARD) in 1995, synthesizes 'formal financial systems' (in terms of a formal institution providing credit) with the 'informal sector' (comprising of rural poor with no formal credit history), has emerged as a preferred vehicle for providing financial services to the hitherto unbanked poor.
Community Based Repayment Mechanisms (CBRMs) have been institutionalised at branches involved in financing SHGs to monitor and ensure timely repayment of loans by SHGs. The number of SHGs with outstanding bank loans stands at nearly 5 million today, implying that the program has brought formal banking services to over 50 million women.
Why is it important to ensure access to cheap formal sector credit to the rural poor?
The ratio of total deposits that a commercial bank has to keep with Reserve Bank of India is called ______.
Match the following:
| Column I | Column II | ||
| A. | Primary deposits | (i) | Payable on demand |
| B. | Derivative deposits | (ii) | Deposits for a fixed period of time |
| C. | Demand deposits | (iii) | Cash deposits of people |
| D. | Term deposits | (iv) | Deposits created by banks (or loan deposits) |
Match the following:
| Column I | Column II | ||
| A. | Formula of Money Multiplier | (i) | Inverse |
| B. | Money multiplier = 4 | (ii) | Money multiplier = 10 |
| C. | Relationship between LRR and money multiplier | (iii) | LRR = 0.25 |
| D. | LRR = 0.1 | (iv) | `1/"LRR"` |
What is meant by credit creation?
What is meant by primary deposits?
What is the unique function of commercial banks in the money supply?
In the credit creation process, loans of one bank become ______.
