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Question
The difference between the value of security and the amount of loan sanctioned against these securities is known as:
Options
Credit rationing
Margin requirement
Direct Action
Regulation of consumer credit
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Solution
Margin requirement
Explanation:
The disparity between the security's value and the approved loan amount against said securities is referred to as margin requirements. This serves as one of the qualitative instruments for credit control employed by the central bank.
RELATED QUESTIONS
Briefly explain two qualitative methods of credit control adopted by this institution.
Explain how credit rationing helps to control credit in an economy.
Observe the relationship of the first pair of words and complete the second pair.
Quantitative method of credit control by the central bank : Bank rate.
Quantitative method of credit control by the central bank :
Read the following statements - Assertion (A) and Reason (R). Choose one of the correct alternatives given below:
Assertion (A): Increase in cash reserve ratio adversely affects the capacity of commercial banks to create credit.
Reason (R): An increase in cash reserve ratio reduces the excess reserves of commercial banks and hence limits their credit creating power.
Define the following term:
Margin Requirements.
Briefly explain the following credit control methods adopted by the Central Bank.
Moral persuasion
Central bank is the lender of the last resort. Explain.
What are quantitative methods of credit control?
What is meant by Legal Reserve Ratio?
Give an example of margin requirements.
