Question

What the true about CRR (Cash Reserve Ratio)?

i. CRR is determined by a percentage of Net demand and time liabilities

ii. The amount specified as the CRR is held in cash and cash equivalents, is stored in bank vaults or parked with the RBI.

iii. CRR is a crucial monetary policy tool

iv. CRR is maintained to ensure that banks do not run out of cash to meet the payment demands of their depositors

A Only i, ii & iii Correct Answer Incorrect Answer
B Only i & iii & iv Correct Answer Incorrect Answer
C Only ii & iii Correct Answer Incorrect Answer
D Only ii, iii & iv Correct Answer Incorrect Answer
E All of the above are true Correct Answer Incorrect Answer

Solution

CRR Cash Reserve Ratio (CRR) is a specified minimum fraction of the total deposits of customers, which commercial banks have to hold as reserves either in cash or as deposits with the central bank. CRR is set according to the guidelines of the central bank of a country. CRR is important monetary tool as RBI can increase CRR to control high inflation. Increase in SLR will reduce the money supply in the system.

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