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Which of the following is not correct regarding the Cash Reserve Ratio (CRR)?
- a)It helps in regulating liquidity in market.
- b)Banks are not allowed to use the money reserved as CRR.
- c)It is maintained by banks itself.
- d)RBI decreases CRR to increase money supply in market
- e)None of the above
Correct answer is option 'C'. Can you explain this answer?
Most Upvoted Answer
Which of the following is not correct regarding the Cash Reserve Rati...
Explanation:
Cash Reserve Ratio (CRR)
CRR is a certain percentage of a bank's total deposits that it has to maintain with the Reserve Bank of India (RBI) in the form of cash. It is a crucial tool used by the central bank to regulate liquidity in the market.
Key Points:
- Regulating Liquidity: CRR helps in regulating liquidity in the market by controlling the amount of money that banks can lend out.
- Restriction on Usage: Banks are not allowed to use the money reserved as CRR for lending or investment purposes. It is kept aside and cannot be utilized by the banks.
- Maintenance: CRR is maintained by the banks themselves. They have to ensure that they meet the required CRR percentage by keeping the specified amount with the RBI.
- Impact on Money Supply: When the RBI decreases the CRR, it effectively increases the amount of money available for banks to lend. This, in turn, leads to an increase in money supply in the market.
Therefore, the statement "It is maintained by banks itself" is not correct. The banks have to maintain the required CRR with the RBI as per the regulations set by the central bank.
Cash Reserve Ratio (CRR)
CRR is a certain percentage of a bank's total deposits that it has to maintain with the Reserve Bank of India (RBI) in the form of cash. It is a crucial tool used by the central bank to regulate liquidity in the market.
Key Points:
- Regulating Liquidity: CRR helps in regulating liquidity in the market by controlling the amount of money that banks can lend out.
- Restriction on Usage: Banks are not allowed to use the money reserved as CRR for lending or investment purposes. It is kept aside and cannot be utilized by the banks.
- Maintenance: CRR is maintained by the banks themselves. They have to ensure that they meet the required CRR percentage by keeping the specified amount with the RBI.
- Impact on Money Supply: When the RBI decreases the CRR, it effectively increases the amount of money available for banks to lend. This, in turn, leads to an increase in money supply in the market.
Therefore, the statement "It is maintained by banks itself" is not correct. The banks have to maintain the required CRR with the RBI as per the regulations set by the central bank.
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Community Answer
Which of the following is not correct regarding the Cash Reserve Rati...
The correct answer is Option 3.
Hence, option 3 is incorrect.
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Which of the following is not correct regarding the Cash Reserve Ratio (CRR)?a)It helps in regulating liquidity in market.b)Banks are not allowed to use the money reserved as CRR.c)It is maintained by banks itself.d)RBI decreases CRR to increase money supply in markete)None of the aboveCorrect answer is option 'C'. Can you explain this answer?
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