The banks are required to keep some reserves in liquid form with the central bank. What are they called?
The banks are required to keep some reserves in liquid form with the central bank. What are they called?
Solution
Option 1: Cash Reserve Ratio -> Reserves maintained with the central bank in liquid cash form.
Option 2: Statutory Liquidity Ratio -> Liquid assets maintained by banks themselves, not with central bank.
Option 3: Bank Rate -> Interest rate for central bank lending to commercial banks.
Option 4: Reverse Repo -> Rate at which central bank borrows from commercial banks.
Hence, Cash Reserve Ratio -> CRR is the percentage of net demand and time liabilities (deposits) that commercial banks are required to maintain as reserves in liquid cash form with the central bank. This is a monetary policy tool used to control money supply and liquidity in the banking system. When CRR increases, banks have less money to lend, reducing liquidity; when it decreases, more funds are available for lending. -> correct
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