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Question
The ratio of total deposits that a commercial bank has to keep with Reserve Bank of India is called ______.
Options
Statutory liquidity ratio
Deposit ratio
Cash reserve ratio
Legal reserve ratio
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Solution
The ratio of total deposits that a commercial bank has to keep with Reserve Bank of India is called cash reserve ratio.
Explanation:
The Cash Reserve Ratio (CRR) is the proportion of total deposits a commercial bank must keep in reserve with the Reserve Bank of India (RBI). This requirement ensures that banks keep a percentage of their deposits as reserves to help control liquidity in the banking system.
RELATED QUESTIONS
Answer the following question.
What role does it play in determining the credit creation power of the banking system? Use a numerical illustration to explain.
Answer the following question.
Explain, using a numerical example, how a reduction in reserve deposit ratio, affects the credit creation power of the banking system.
Match the following and select the correct option.
| Column A | Column B | ||
| (i) | A deposit created by a customer | A. | Term deposit |
| (ii) | A deposit created by bank when loan is granted | B. | Demand deposits |
| (iii) | Deposits payable by bank on demand | C. | Initial deposit |
| (iv) | Deposits the amount of which can be withdrawn only after a fixed period of time | D. | Secondary deposit |
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?
How money multiplier is related to Legal Reserve Ratio?
What is the unique function of commercial banks in the money supply?
In the credit creation process, loans of one bank become ______.
A T-account shows that a ₹10,000 cash deposit increases ______.
