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What is the currency deposit ratio (cdr)?
- a)ratio of money held by the public in currency to that of money held in bank deposits
- b)ratio of money held by public in bank deposits to that of money held by public in currency
- c)ratio of money held in demand drafts to that of money held in treasury bonds
- d)none of the above
Correct answer is option 'A'. Can you explain this answer?
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What is the currency deposit ratio (cdr)?a)ratio of money held by the ...
The currency deposit ratio shows the amount of currency that people hold as a proportion of aggregate deposits.
An increase in cash deposit ratio leads to a decrease in money multiplier. An increase in deposit rates will induce depositors to deposit more, thereby leading to a decrease in Cash to Aggregate Deposit ratio. This will in turn lead to a rise in Money Multiplier.
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What is the currency deposit ratio (cdr)?a)ratio of money held by the ...
Explanation:
The Currency Deposit Ratio (CDR) is a financial ratio that measures the ratio of money held by the public in currency to that of money held in bank deposits. It is an important indicator of the preference of individuals and businesses to hold their wealth in the form of currency or bank deposits.
Significance:
The CDR provides insights into the liquidity preference of individuals and businesses, which can have implications for the monetary policy of a country. A high CDR indicates a greater preference for holding money in the form of currency, which could reduce the effectiveness of monetary policy measures aimed at stimulating economic growth. On the other hand, a low CDR suggests a greater preference for holding money in bank deposits, which could increase the effectiveness of monetary policy measures.
Calculation:
The Currency Deposit Ratio is calculated by dividing the currency held by the public by the bank deposits held by the public. The formula for calculating the CDR is as follows:
CDR = Currency Held by the Public / Bank Deposits Held by the Public
Interpretation:
The CDR is expressed as a ratio, and a value greater than 1 indicates that the public holds more money in currency than in bank deposits. Conversely, a value less than 1 indicates that the public holds more money in bank deposits than in currency.
Factors Affecting CDR:
Several factors can influence the CDR, including:
1. Economic conditions: During periods of economic uncertainty or instability, individuals and businesses may prefer to hold more money in the form of currency, leading to a higher CDR.
2. Interest rates: Higher interest rates on bank deposits can incentivize individuals and businesses to hold more money in bank deposits, leading to a lower CDR.
3. Inflation: High inflation rates can erode the value of currency over time, leading to a higher preference for holding money in bank deposits, resulting in a lower CDR.
Conclusion:
The Currency Deposit Ratio is an important financial ratio that measures the ratio of money held by the public in currency to that held in bank deposits. It provides insights into the liquidity preference of individuals and businesses and can have implications for monetary policy. By calculating the CDR, policymakers can assess the effectiveness of measures aimed at influencing the preference for holding money in currency or bank deposits.
The Currency Deposit Ratio (CDR) is a financial ratio that measures the ratio of money held by the public in currency to that of money held in bank deposits. It is an important indicator of the preference of individuals and businesses to hold their wealth in the form of currency or bank deposits.
Significance:
The CDR provides insights into the liquidity preference of individuals and businesses, which can have implications for the monetary policy of a country. A high CDR indicates a greater preference for holding money in the form of currency, which could reduce the effectiveness of monetary policy measures aimed at stimulating economic growth. On the other hand, a low CDR suggests a greater preference for holding money in bank deposits, which could increase the effectiveness of monetary policy measures.
Calculation:
The Currency Deposit Ratio is calculated by dividing the currency held by the public by the bank deposits held by the public. The formula for calculating the CDR is as follows:
CDR = Currency Held by the Public / Bank Deposits Held by the Public
Interpretation:
The CDR is expressed as a ratio, and a value greater than 1 indicates that the public holds more money in currency than in bank deposits. Conversely, a value less than 1 indicates that the public holds more money in bank deposits than in currency.
Factors Affecting CDR:
Several factors can influence the CDR, including:
1. Economic conditions: During periods of economic uncertainty or instability, individuals and businesses may prefer to hold more money in the form of currency, leading to a higher CDR.
2. Interest rates: Higher interest rates on bank deposits can incentivize individuals and businesses to hold more money in bank deposits, leading to a lower CDR.
3. Inflation: High inflation rates can erode the value of currency over time, leading to a higher preference for holding money in bank deposits, resulting in a lower CDR.
Conclusion:
The Currency Deposit Ratio is an important financial ratio that measures the ratio of money held by the public in currency to that held in bank deposits. It provides insights into the liquidity preference of individuals and businesses and can have implications for monetary policy. By calculating the CDR, policymakers can assess the effectiveness of measures aimed at influencing the preference for holding money in currency or bank deposits.
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What is the currency deposit ratio (cdr)?a)ratio of money held by the public in currency to that of money held in bank depositsb)ratio of money held by public in bank deposits to that of money held by public in currencyc)ratio of money held in demand drafts to that of money held in treasury bondsd)none of the aboveCorrect answer is option 'A'. Can you explain this answer?
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