Class 12 Exam > Class 12 Questions > Choose the correct statement fromgiven below....
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Choose the correct statement from given below.
- a)Commercial banks create credit out of primary deposits.
- b)Money multiplier is directly related to legal reserve ratio.
- c)Central bank of the country is not authorised to maintain foreign exchange reserve.
- d)All of the above
Correct answer is option 'A'. Can you explain this answer?
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Choose the correct statement fromgiven below.a)Commercial banks create...
Explanation:
a) Commercial banks create credit out of primary deposits:
- When people deposit their money in banks, it becomes a primary deposit
- Commercial banks use the primary deposits to give loans to people
- These loans become secondary deposits
- Thus, commercial banks create credit out of primary deposits
b) Money multiplier is directly related to legal reserve ratio:
- Money multiplier is the ratio of the amount of money created by banks to the amount of primary deposits
- Legal reserve ratio is the percentage of primary deposits that banks are required to keep as reserves
- Money multiplier is directly related to legal reserve ratio, meaning that as legal reserve ratio increases, money multiplier decreases
c) Central bank of the country is not authorised to maintain foreign exchange reserve:
- This statement is incorrect
- Central bank of the country is authorized to maintain foreign exchange reserve
- Foreign exchange reserve is the reserve of foreign currency held by the central bank for the purpose of international trade and to maintain the exchange rate of the country's currency
d) All of the above:
- This option is incorrect as statement c) is incorrect
- The correct option is a) Commercial banks create credit out of primary deposits.
a) Commercial banks create credit out of primary deposits:
- When people deposit their money in banks, it becomes a primary deposit
- Commercial banks use the primary deposits to give loans to people
- These loans become secondary deposits
- Thus, commercial banks create credit out of primary deposits
b) Money multiplier is directly related to legal reserve ratio:
- Money multiplier is the ratio of the amount of money created by banks to the amount of primary deposits
- Legal reserve ratio is the percentage of primary deposits that banks are required to keep as reserves
- Money multiplier is directly related to legal reserve ratio, meaning that as legal reserve ratio increases, money multiplier decreases
c) Central bank of the country is not authorised to maintain foreign exchange reserve:
- This statement is incorrect
- Central bank of the country is authorized to maintain foreign exchange reserve
- Foreign exchange reserve is the reserve of foreign currency held by the central bank for the purpose of international trade and to maintain the exchange rate of the country's currency
d) All of the above:
- This option is incorrect as statement c) is incorrect
- The correct option is a) Commercial banks create credit out of primary deposits.
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Choose the correct statement fromgiven below.a)Commercial banks create...
Commercial banks create currency out of the total amount deposit that they receive from the customers.
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Choose the correct statement fromgiven below.a)Commercial banks create credit out of primary deposits.b)Money multiplier is directly related to legal reserve ratio.c)Central bank of the country is not authorised to maintain foreign exchange reserve.d)All of the aboveCorrect answer is option 'A'. Can you explain this answer?
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