The Cash Reserve Ratio refers to
- A.the share of Net Demand and Time Liabilities that banks have to hold as liquid assets
- B.the share of Net Demand and Time Liabilities that banks have to hold as balances with the RBI
- C.the share of Net Demand and Time Liabilities that banks have to hold as part of their cash reserves
- D.the ratio of cash holding to reserves of banks
Correct answer
Explanation
The correct answer is B, the share of Net Demand and Time Liabilities that banks have to hold as balances with the RBI. The Cash Reserve Ratio (CRR) is the part of a bank's net demand and time liabilities (mainly its deposits) that it must keep as cash balances with the Reserve Bank of India. Banks earn no interest on this money and cannot lend it out. The RBI sets the CRR under Section 42 of the RBI Act, 1934, and uses it as a tool of monetary policy: raising it sucks money out of the banking system and checks inflation, while cutting it releases money for lending. Option A is wrong because holding a share of liabilities as liquid assets such as cash, gold and approved government securities, kept by the bank itself, is the Statutory Liquidity Ratio (SLR), set under the Banking Regulation Act, 1949. Option C is wrong because cash a bank keeps in its own vaults does not count towards CRR; only balances with the RBI do. Option D is wrong because it is not a ratio of cash to reserves at all. Exam tip: CRR is kept with the RBI in cash and earns nothing; SLR is kept by the bank itself in cash, gold or government securities.
Practice Questions
View allThe Fourteenth Finance Commission assigned different weights to the following parameters for distribution of tax proceeds to the States :
1. Income distance
2. Population
3. Demographic changes
4. Area
Arrange the aforesaid parameters in descending order in terms of their weights.
- A.1-2-3-4
- B.1-2-4-3
- C.1-3-2-4
- D.4-3-2-1
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Income distance had the highest weight, followed by population, area and demographic change. The Fourteenth Finance Commission, chaired by Y.V.
Read the full explanation →Which one of the following statements for a firm's equilibrium in Perfect Competition is not correct ?
- A.The market price must be greater or equal to average variable cost in the short run.
- B.The market price must be equal to marginal cost.
- C.The market price must be equal to average cost in the long run.
- D.The marginal cost decreases at the equilibrium output.
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This statement is not correct, because at the equilibrium of a competitive firm marginal cost must be rising. A firm in perfect competition is a price taker, so the price it gets equals its marginal revenue.
Read the full explanation →Plan allocation in agriculture and irrigation as percentage of total plan outlay was highest in :
- A.Seventh Five-Year Plan
- B.Third Five-Year Plan
- C.First Five-Year Plan
- D.Second Five-Year Plan
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The First Plan (1951 to 1956) gave agriculture, community development and irrigation about a third of its outlay, the highest share in any Indian plan.
Read the full explanation →Which of the following is not included in the Capital Account of the Balance of Payments of a country?
- A.Foreign Direct Investment
- B.Commercial Borrowing
- C.Invisibles
- D.External Assistance
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Invisibles are part of the current account of the balance of payments, not the capital account. The balance of payments records all of a country's transactions with the rest of the world and has two main parts.
Read the full explanation →Which one among the following was the focus of the Twelfth Five-Year Plan?
- A.Sustainable and Inclusive Growth
- B.Social Justice and Equality
- C.Food, Work and Productivity
- D.Attainment of Self-reliance
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The Twelfth Five-Year Plan (2012-17) had the theme "Faster, More Inclusive and Sustainable Growth". It continued the inclusive-growth idea of the Eleventh Plan (2007-12), whose theme was "Towards Faster and More Inclusive Growth", and added sustainability as a stated goal.
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