BANKING AFFAIRS

Detailed explanation-1: -It refers to the amount of money in the form of reserve that needs to be kept with the central banks by the commercial banks. This amount is used for meeting the cash requirements of the users. Any fall in the CRR will lead to more credit creation. Excess reserve.

Detailed explanation-2: -All commercial banks create credit by advancing loans and purchasing securities. They lend money to the individuals as well as to the businesses out of deposits accepted from the public. Commercial banks are not allowed to use the entire amount of public deposits for lending purposes.

Detailed explanation-3: -By expanding their deposits, banks create credit in an economy. They do this by loaning a part of the deposits they have, therefore, generating money and funds for other people. Credit creation is a process where a bank uses a part of its customers’ deposits to offer loans to other individuals and businesses.

Detailed explanation-4: -Total deposits are the over all money including the primary deposits created by the commercial banks as a process of credit creation through its primary deposit. Total deposit= (1/ cash reserve ratio) x primary deposit.

Detailed explanation-5: -Credit creation is the most significant function of the commercial banks. Commercial banks accept deposits and lend loans and advances. In this process they create two types of deposits, namely primary deposits and derivative or active deposits.