BANKING GENERAL KNOWLEDGE
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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Bank’s reserves at central banks
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All loans and advances of banks
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Money held by banks
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Currency held by public and reserves with the central bank
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Detailed explanation-1: -High-powered money is the sum of commercial bank reserves and currency (notes and coins) held by the Public. High-powered money is the base for the expansion of Bank deposits and creation of money supply. A commercial bank’s reserves depend upon its deposits.
Detailed explanation-2: -Reserve money is also called central bank money, monetary base, base money, or high-powered money. It is the base level for the money supply or the high-powered component of the money supply. In the most simple language, Reserve Money is Currency in Circulation plus Deposits of Commercial Banks with RBI.
Detailed explanation-3: -It includes the total supply of currency in circulation in addition to the stored portion of commercial bank reserves within the central bank. This is sometimes known as high-powered money (HPM) since it can be multiplied through the process of fractional reserve banking.
Detailed explanation-4: -What Are Bank Reserves? Bank reserves are the cash minimums that financial institutions must have on hand in order to meet central bank requirements. This is real paper money that must be kept by the bank in a vault on-site or held in its account at the central bank.
Detailed explanation-5: -It is high powered money because these are liability of RBI to refund deposits on demand from the deposit holders. Again if a person presents a currency note to RBI, the latter has to pay him value equal to the amount printed on the note. Remember, RBI acquires assets against these liabilities.