Given below are two statements:
Statement I: Commercial banks have to maintain a minimum cash balance known as the cash reserve ratio.
Statement II: The Central Government changes the cash reserve ratio from time to time, which affects the funds banks can give as loans.
In the light of the above statements, choose the correct answer from the options given below:
Answer & explanation
Correct answer: option 3
The correct answer is Option (3) → Statement I is correct but Statement II is incorrect.
Statement I: Commercial banks have to maintain a minimum cash balance known as the cash reserve ratio. — Correct. Commercial banks must keep a minimum cash balance. This is known as the cash reserve ratio.
Statement II: The Central Government changes the cash reserve ratio from time to time, which affects the funds banks can give as loans. — Incorrect. The Reserve Bank of India changes the cash reserve ratio from time to time. The change affects the funds banks can give as loans.
NCERT (Pre-rationalised Edition): “3. Call Money: Call money is short term finance repayable on demand, with a maturity period of one day to fifteen days, used for inter-bank transactions. Commercial banks have to maintain a minimum cash balance known as cash reserve ratio. The Reserve Bank of India changes the cash reserve ratio from time to time which in turn affects the amount of funds available to be given as loans by commercial banks. Call money is a method by which banks borrow from each other to be able to maintain the cash reserve ratio. The interest rate paid on call money loans is known as the call rate. …” |