BANKING GENERAL KNOWLEDGE
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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1 and 3
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Only 2
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1 and 2
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All the above
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Detailed explanation-1: -If a bank cannot lend, then it cannot create credit. In other words, the credit creation depends on the amount of loan that a bank grants. The size of the cash deposit is an important factor too. If a bank has a smaller cash base, then it has a lesser scope for creating credit.
Detailed explanation-2: -In open market operation, the central bank sells government securities to public through banks. This results in transfer of part of commercial bank deposits to central bank and reduces credit creation capacity of commercial banks.
Detailed explanation-3: -An increase in CRR, would mean that banks would be required to keep a greater portion in form of deposits with the central bank. This implies that the commercial banks are left with lesser amount of funds to lend out. Hence, the lending capacity of the banks reduces, leading to fall in the money supply.