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Question
What is meant by Legal Reserve Ratio?
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Solution
- Legal Reserve Ratio (LRR) is the minimum ratio of deposits, legally required to be kept as cash reserves.
- The LRR is fixed by the Central Bank.
RELATED QUESTIONS
Which of the following is a selective/qualitative method of credit control.
Explain how credit rationing helps to control credit in an economy.
During deflation, the Central Bank usually ______.
Which of the following is not a quantitative method of credit control?
The process of buying and selling of securities by the central bank of a country is known as ______.
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 |
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 :
During inflation, the central bank usually:
Give any two reasons as to why a country needs a central bank.
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Differentiate between quantitative and qualitative methods of credit control.
Define the following term:
Margin Requirements.
Briefly explain the following credit control methods adopted by the Central Bank.
Moral persuasion
Identify the following Credit Control measure undertaken by the Central Bank during inflation.
The Central Bank sells government approved securities to the public.
Identify the following Credit Control measures undertaken by the Central Bank during inflation.
The Central Bank increases the rate at which it lends to the Commercial Bank.
Define moral persuasion.
Give an example of margin requirements.
Describe two quantitative credit control measures of the Central Bank.
