CA Foundation Exam > CA Foundation Questions > Which of the following of credit control?a)Cr...
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Which of the following of credit control?
- a)Credit Rationing
- b)Change in Cash Reserves of Commercial Banks
- c)Publicity and Notifications
- d)Regulation of Consumer Credit.
Correct answer is option 'B'. Can you explain this answer?
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Verified Answer
Which of the following of credit control?a)Credit Rationingb)Change in...
Under this system the Central Bank controls credit by changing the Cash Reserves Ratio. For example—If the Commercial Banks have excessive cash reserves on the basis of which they are creating too much of credit which is harmful for the larger interest of the economy. So it will raise the cash reserve ratio which the Commercial Banks are required to maintain with the Central Bank.
This activity of the Central Bank will force the Commercial Banks to curtail the creation of credit in the economy. In this way by raising the cash reserve ratio of the Commercial Banks the Central Bank will be able to put an effective check on the inflationary expansion of credit in the economy.
Similarly, when the Central Bank desires that the Commercial Banks should increase the volume of credit in order to bring about an economic revival in the country. The Central Bank will lower down the Cash Reserve ratio with a view to expand the cash reserves of the Commercial Banks.
With this, the Commercial Banks will now be in a position to create more credit than what they were doing before. Thus, by varying the cash reserve ratio, the Central Bank can influence the creation of credit.
Most Upvoted Answer
Which of the following of credit control?a)Credit Rationingb)Change in...
The different instruments of credit control used by the Reserve Bank of India are Statutory Liquidity Ratio (SLR), Cash Reserve Ratio (CRR), the Bank Rate Policy, Selective Credit Control (SCC), Open Market Operations (OMOs).
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Which of the following of credit control?a)Credit Rationingb)Change in Cash Reserves of Commercial Banksc)Publicity and Notificationsd)Regulation of Consumer Credit.Correct answer is option 'B'. Can you explain this answer?
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