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Ans – (d) Explanation:- A fall in the repo rate decreases the cost of borrowing from the central bank. It encourages commercial banks to decrease their lending rates which encourages borrowers to take loans. It leads to the creation of…

Ans – (c) Solution:- Deposit Creation = Initial Deposit × 1/LRR ₹ 10,000 = Initial Deposit × 1/40% Initial Deposit = 10,000 × 40/100 Initial Deposit = 4,000 Crores

Ans – (d) Explanation:- Money or credit creation is one of the most important activities of commercial banks. Through the process of money creation, commercial banks are able to create credit, which is in far excess of the initial or…

Ans – (d) Explanation:- Statutory Liquidity Ratio (SLR): It refers to a minimum percentage of net demand and time liabilities that commercial banks are required to maintain with themselves. SLR is maintained in the form of designated liquid assets such…

Ans – (b) Explanation:- Repo (Repurchase Rate): The repo rate is the rate at which the central bank of a country (RBI in the case of India) lends money to commercial banks to meet their short-term needs. The central bank…

Ans – (b) Explanation:- Through the process of money creation, commercial banks can create credit, which is in far excess of the initial or Primary Deposits. The deposits held by Banks are used for giving loans. Commercial banks grant loans…

Ans – (a) Explanation:- The central bank is an apex body that controls, operates, regulates, and directs the entire banking and monetary structure of the country. It is generally owned and governed by the government. It operates in the public…

Ans – (c) Explanation:- Margin Requirements:- Margin is the difference between the amount of the loan and the market value of the security offered by the borrower against the loan. If the margin fixed by the Central Bank is 40%,…

Ans – (c) Explanation:- Open Market Operations:- Open market operations (OMO) refer to the buying and selling of government securities by the Central Bank from/to the public and commercial banks. RBI is authorised to sell or purchase treasury bills and…

Ans – (a) Explanation:- A commercial bank is an institution that performs the functions of accepting deposits, granting loans, and making investments, to earn profits. The functions performed by commercial banks can be broadly categorised under two heads. (i) Primary…