Assertion (A): Commercial Banks keep only a fraction of deposits as Cash Reserves and use the remaining deposits for giving loans, etc.
Assertion (A): Commercial Banks keep only a fraction of deposits as Cash Reserves and use the remaining deposits for giving loans, etc.
Reason (R): All the depositors of Commercial Banks do not approach the banks for withdrawal of money at the same time and also they do not withdraw the entire amount in one go. Moreover, there is a constant flow of new deposits into the banks.
Alternatives:
(a) Both Assertion (A) and Reason (R) are True and Reason (R) is the correct explanation of Assertion (A).
(b) Both Assertion (A) and Reason (R) are True and Reason (R) is not the correct explanation of Assertion (A).
(c) Assertion (A) is True but Reason (R) is False
(d) Assertion (A) is False but Reason (R) is True
Anurag Pathak Changed status to publish January 5, 2024
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 approach the banks for withdrawal of money at the same time and also they do not withdraw the entire amount in one go.
(ii) There is a constant flow of new deposits into the banks.
Thus, Assertion (A) and Reason (R) is correct and Reason (R) is the correct explanation of Assertion (A).
Anurag Pathak Changed status to publish January 5, 2024
