BANKING GENERAL KNOWLEDGE
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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1 and 2
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1 and 3
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Only 3
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All the above
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Detailed explanation-1: -Cash reserve ratio or CRR is a part of the RBI’s monetary policy, which helps eliminate liquidity risk and regulate money supply in the economy. In case the CRR rate is increased, the ease in which banks can issue loans decreases and hence, interest rates increase.
Detailed explanation-2: -When the RBI decides to increase the Cash Reserve Ratio, the amount of money that is available with the banks reduces. This is the RBI’s way of controlling the excess flow of money in the economy.
Detailed explanation-3: -A high value of CRR forces banks to keep more reserves and hence helps increase the value of reserve deposit ratio, thus diminishing the value of the money multiplier and money supply or liquidity in the economy.
Detailed explanation-4: -At the time of high inflation, the government needs to ensure that excess money is not available in the economy. To that extent, RBI increases the Cash Reserve Ratio and the amount of money that is available with the banks reduces.