Suppose, in a hypothetical economy, the cash reserve ratio is 20% and initial deposits are Rs.100. The value of money which a bank can use to give as a loan in the first round would be

80

The correct answer is Option (1) → 80

In a fractional reserve banking system, banks are required to keep a certain percentage of their deposits as reserves with the central bank. This percentage is called the Cash Reserve Ratio (CRR).

Given:

• Initial deposits = Rs. 100

• CRR = 20%

This means the bank must keep 20% of Rs. 100 = Rs. 20 as reserves and can use the remaining Rs. 80 for lending in the first round.