(The figures in this questions are imaginary). We suppose that Cash Reserve Ratio (CRR) in countrys economy is 10% . The banking system wish a cash deposits of Rs. 1000 Crore, creates total deposits of Rs. 10, 000 Crores. The Reserve Bank wishes that bank should create more deposits. Which among the following step will be taken by the Reserve Bank?

BANKING GENERAL KNOWLEDGE

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Question [CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]

(The figures in this questions are imaginary). We suppose that Cash Reserve Ratio (CRR) in country’s economy is 10% . The banking system wish a cash deposits of Rs. 1000 Crore, creates total deposits of Rs. 10, 000 Crores. The Reserve Bank wishes that bank should create more deposits. Which among the following step will be taken by the Reserve Bank?

A	It will lower the Cash Reserve Ratio
B	It will raise the Cash Reserve Ratio
C	It will increase the Margin Requirements
D	It will start selling Government Securities

Explanation:

Detailed explanation-1: -Solution. If reserve ratio is 10% and primary deposit is ₹1, 250 crores, the total deposit created by commercial banks will be ₹12, 500 crores.

Detailed explanation-2: -If the reserve requirement is 10%, then the money supply reserve multiplier is 10 and the money supply should be 10 times reserves.

Detailed explanation-3: -The Cash Reserve Ratio (CRR) refers to the share of Net Demand and Time Liabilities that banks have to hold as balances with the RBI. The objective of CRR is to keep inflation under control. During high inflation in the economy, the central bank raises the CRR to lower the bank’s loanable funds.

Detailed explanation-4: -If the required reserve ratio is 10 percent this means that banks must hold 10 percent of their deposits as required reserves. If deposits are $20 million, then $2 million ($20 million x . 10) must be held as required reserves.

There is 1 question to complete.