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Ans – (a) Explanation:- Why only a fraction of deposits are kept as Cash Reserves? Banks keep a fraction of deposits as Cash Reserves because a prudent banker, by his experience, knows two things: (i) All the depositors do not…

Ans – (b) Explanation:- Money Multiplier:-  The money multiplier is the number by which total deposits can increase due to a given change in deposits. It is inversely related to the legal reserve ratio. In other words, Money Multiplier is…

Ans – Explanation:- Money created = ₹ 1,000 Primary Deposits = ₹ 250 Money Created = Primary Deposits × deposit multiplier Deposit Multiplier = Money created/Primary Deposits Deposit Multiplier = 1,000/250 Deposit Multiplier = 4 Times Deposit Multiplier = 1/LRR…

Ans – (b) Explanation:- The central bank is not the banker to the public. It does not deal with the public directly. It is the apex body of the financial institutions and regulates the commercial banks. It is the banker…

Ans – (c) Explanation:- Deposits are liabilities of banks as it belong to the general public Commercial banks create money by offering the loan to the general public and depositing it into a new demand deposit. Commercial banks accept deposits…

Ans – (c) Explanation:- Extending loans to the commercial bank does not come under the supervisor function of the RBI. Extending loans to the commercial bank comes under the credit controlling function of the central bank.

Ans – (a) Solution:- Money Multiplier = 1/LRR Money Multiplier = 1/20% Money Multiplier = 100/20 = 5 times Total Credit Creation = Initial Deposits Money Multiplier Total Credit Creation = 2,000 5 Total Credit Creation = ₹ 10,000

Ans – (b) Explanation:- Banker to the Government:- The Reserve Bank of India acts as a banker, agent, and financial advisor to the Central Government and all the State Governments. As a banker, it carries out all banking business of…

Ans – (b) Explanation:- Fiscal Deficit is the policy of the government to control the money supply in the country. Bank rate and Cash Reserve Ratio are the monetary policy of the reserve bank of india cotnrol the credit creation…

Ans – (b) Explanation:- (a) Statutory Liquidity Ratio is fixed by the Central bank in the case of India by the Reserve Bank of India (b) The Ministry of Finance of Government of India issues 1 rupee note and coins…