GK
BANKING AWARENESS AND SEBI
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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RBI changes the CRR. Which of the following is correct in this connection?
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increase in CRR does not affect the liquidity position
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decrease in CRR does not affect the liquidity position
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increase in CRR increases the liquidity position within Indian banks
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reduction in CRR increases the liquidity position within Indian banks
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Explanation:
Detailed explanation-1: -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-2: -Thus, when inflation (price rise) is positive, the raising of CRR reduces available funds with the banks to lend, and hence reduces the circulation of money in the economy.
Detailed explanation-3: -CRR refers to the percentage of deposits banks have to keep as reserve (in cash). This reserve sum is not available for banks for lending and thus if the CRR increases, banks will have less money to lend.
There is 1 question to complete.