Advertisements
Advertisements
Questions
State the impact of an increase in Cash Reserve Ratio on loanable funds.
What is the impact of an increase in Cash Reserve Ratio on loanable funds?
Advertisements
Solution
- An increase in the Cash Reserve Ratio (CRR) requires commercial banks to maintain a higher portion of their deposits as reserves with the Reserve Bank of India.
- This reduces the amount of money available to banks for lending, resulting in a fall in total loanable funds.
- As a result, bank's ability to lend to consumers and businesses decreases, thereby slowing economic activity.
RELATED QUESTIONS
Define bank rate.
Explain how credit rationing helps to control credit in an economy.
During deflation, the Central Bank usually ______.
In order to encourage investment in the economy, the central bank may ______.
Match the following and select the correct option:
| Column A | Column B | ||
| (i) | A rate of interest at which the central bank (RBI) lends money to member commercial banks to meet they long term needs. | A. | Cash Reserve Ratio |
| (ii) | A rate of interest at which RBI lends money to commercial banks to meet their short term needs. | B. | Statutory liquidity ratio |
| (iii) | A minimum percentage of total deposits kept by banks with the Central Bank. | C. | Repo rate |
| (iv) | A minimum percentage of total deposits to be kept by banks inform of liquid assets with themselves. | D. | Bank rate |
Give any two reasons as to why a country needs a central bank.
Define the following term:
Margin Requirements.
Explain the following function of the central bank of a country.
Fixation of margin requirement on secured loans.
Which of the following statements are correct and which are incorrect? Give reasons.
- Central bank is a currency authority.
- Bank rate is a qualitative method of credit control.
- Quantitative methods regulate direction of credit.
- Bank rate is the rate at which commercial banks give loans to the public.
- Central bank should sell government securities when credit is to be expanded.
Identify the following Credit Control measure undertaken by the Central Bank during inflation.
The Central Bank sells government approved securities to the public.
