BACHELOR OF BUSINESS ADMINISTRATION

Detailed explanation-1: -If there is an increase in the cash reserve ratio, a bank will a low lending capacity in terms of funds. Hence, banks will ask more people to open deposits in their bank accounts. Banks will also raise the interest rate and this step will discourage borrowers from applying for loans due to the increased interest rate.

Detailed explanation-2: -The higher the CRR, the lower is the liquidity with the banks and vice-versa. During high levels of inflation, attempts are made to reduce the flow of money in the economy. For this, RBI increases the CRR, lowering the loanable funds available with the banks.

Detailed explanation-3: -RBI increases the cash reserve ratio during periods of high inflation to restrict the banks’ money available for loans. It helps remove the excess cash from the economy and credit market.

Detailed explanation-4: -When the Federal Reserve decreases the reserve ratio, it lowers the amount of cash that banks are required to hold in reserves, allowing them to make more loans to consumers and businesses. This increases the nation’s money supply and expands the economy.

Detailed explanation-5: -Definition: Cash Reserve Ratio (CRR) is a specified minimum fraction of the total deposits of customers, which commercial banks have to hold as reserves either in cash or as deposits with the central bank. CRR is set according to the guidelines of the central bank of a country.