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With reference to Cash Reserve Ratio (CRR) in India, consider the following statements:
1. It is a monetary policy tool used by RBI to control the liquidity in the banking sector.
2. Banks earn a certain amount of return on money reserved as CRR.
3. The CRR requires every commercial bank to have reserves in terms of cash and gold.
Which of the statements given above is/are correct?
1. It is a monetary policy tool used by RBI to control the liquidity in the banking sector.
2. Banks earn a certain amount of return on money reserved as CRR.
3. The CRR requires every commercial bank to have reserves in terms of cash and gold.
Which of the statements given above is/are correct?
- a)1 only
- b)1 and 2 only
- c)3 only
- d)1 and 3 only
Correct answer is option 'A'. Can you explain this answer?
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Most Upvoted Answer
With reference to Cash Reserve Ratio(CRR) in India, consider the follo...
CRR is the Cash reserve ratio. As the name suggests, it only deals with cash and no other form of monetary tool. It earns no interest
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With reference to Cash Reserve Ratio(CRR) in India, consider the follo...
Explanation:
Cash Reserve Ratio (CRR)
1. It is a monetary policy tool used by RBI to control the liquidity in the banking sector.
- CRR is the percentage of a bank's total deposit that needs to be kept with the Reserve Bank of India (RBI) in the form of cash reserves.
- By changing the CRR, the RBI can control the amount of liquidity that banks have at their disposal.
- Increasing the CRR reduces the amount of funds available for banks to lend, thus reducing liquidity in the system, while decreasing the CRR has the opposite effect.
2. Banks earn a certain amount of return on money reserved as CRR.
- Banks do not earn any interest on the amount kept as CRR with the RBI.
- It is a non-interest-bearing account, which means banks do not earn any returns on these reserves.
3. The CRR requires every commercial bank to have reserves in terms of cash and gold.
- The CRR is specifically in the form of cash reserves that banks need to maintain with the RBI.
- Banks also need to maintain a certain amount of Statutory Liquidity Ratio (SLR) in the form of cash, gold, or approved securities, but it is separate from the CRR.
Therefore, the correct statement is:
a) 1 only
Cash Reserve Ratio (CRR)
1. It is a monetary policy tool used by RBI to control the liquidity in the banking sector.
- CRR is the percentage of a bank's total deposit that needs to be kept with the Reserve Bank of India (RBI) in the form of cash reserves.
- By changing the CRR, the RBI can control the amount of liquidity that banks have at their disposal.
- Increasing the CRR reduces the amount of funds available for banks to lend, thus reducing liquidity in the system, while decreasing the CRR has the opposite effect.
2. Banks earn a certain amount of return on money reserved as CRR.
- Banks do not earn any interest on the amount kept as CRR with the RBI.
- It is a non-interest-bearing account, which means banks do not earn any returns on these reserves.
3. The CRR requires every commercial bank to have reserves in terms of cash and gold.
- The CRR is specifically in the form of cash reserves that banks need to maintain with the RBI.
- Banks also need to maintain a certain amount of Statutory Liquidity Ratio (SLR) in the form of cash, gold, or approved securities, but it is separate from the CRR.
Therefore, the correct statement is:
a) 1 only
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With reference to Cash Reserve Ratio(CRR) in India, consider the followingstatements:1. It is a monetary policy tool used by RBIto control the liquidity in the bankingsector.2. Banks earn a certain amount of returnon money reserved as CRR.3. The CRR requires every commercialbank to have reserves in terms of cashand gold.Which of the statements given above is/arecorrect?a)1 onlyb)1 and 2 onlyc)3 onlyd)1 and 3 onlyCorrect answer is option 'A'. Can you explain this answer?
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