Statement 1: All financial institutions are banking institutions
Statement 1: All financial institutions are banking institutions.
Statement 2: Higher legal ratio means higher credit creation capacity of the Commercial Banks.
Alternatives:
(a) Both the Statements are true
(b) Both the Statements are false
(c) Statement 1 is true and Statement 2 is false
(d) Statement 2 is true and Statement 1 is false
Anurag Pathak Changed status to publish January 6, 2024
Ans – (b)
Statement 1 is false as all financial institutions are not banking institutions.
A financial institution to be a bank must accept deposits and advance the loans.
As far as accepting deposits, a financial institution must accept the demand deposits.
For example:- LIC is a financial institution but not a bank as it does not accept demand deposits.
Statement 2 is false, as credit creation is inversely related to the legal ratio. Thus lower the LRR higher the credit creation and vice-versa.
Anurag Pathak Changed status to publish January 6, 2024
