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If CRR = 40 per cent, with deposits of Rs 100, our bank will need to keep
- a)Rs 60 as cash reserves
- b)Rs 40 as cash reserves
- c)Rs 20 as cash reserves
- d)Rs 100 as cash reserves
Correct answer is option 'B'. Can you explain this answer?
Verified Answer
If CRR = 40 per cent, with deposits of Rs 100, our bank will need to ...
- The RBI decides a certain percentage of deposits which every bank must keep as reserves. This is done to ensure that no bank is ‘over lending’. This is a legal requirement and is binding on the banks.
- This is called the ‘Required Reserve Ratio’ or the ‘Reserve Ratio’ or ‘Cash Reserve Ratio’ (CRR).Cash Reserve Ratio (CRR) = Percentage of deposits which a bank must keep as cash reserves with itself. Apart from the CRR, banks are also required to keep some reserves in liquid form in the short term. This ratio is called Statutory Liquidity Ratio or SLR.
Most Upvoted Answer
If CRR = 40 per cent, with deposits of Rs 100, our bank will need to ...
Calculation of Cash Reserves:
Given:
CRR = 40%
Deposits = Rs 100
Calculation:
- CRR is the percentage of deposits that banks are required to keep with the central bank.
- In this case, the CRR is 40%, so the bank needs to keep 40% of its deposits as cash reserves.
Formula:
Cash Reserves = CRR * Deposits
Substitute the given values:
Cash Reserves = 40% * Rs 100
Cash Reserves = 0.40 * Rs 100
Cash Reserves = Rs 40
Therefore, the bank will need to keep Rs 40 as cash reserves to comply with the 40% CRR requirement. Hence, option 'B' is the correct answer.
Given:
CRR = 40%
Deposits = Rs 100
Calculation:
- CRR is the percentage of deposits that banks are required to keep with the central bank.
- In this case, the CRR is 40%, so the bank needs to keep 40% of its deposits as cash reserves.
Formula:
Cash Reserves = CRR * Deposits
Substitute the given values:
Cash Reserves = 40% * Rs 100
Cash Reserves = 0.40 * Rs 100
Cash Reserves = Rs 40
Therefore, the bank will need to keep Rs 40 as cash reserves to comply with the 40% CRR requirement. Hence, option 'B' is the correct answer.
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If CRR = 40 per cent, with deposits of Rs 100, our bank will need to keepa) Rs 60 as cash reservesb) Rs 40 as cash reservesc) Rs 20 as cash reservesd) Rs 100 as cash reservesCorrect answer is option 'B'. Can you explain this answer?
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