Which of the following statements is correct regarding the bank reserves?

I. These reserves are kept partly as cash and partly in the form of financial instruments.

II. Cash Reserves Ratio are deposits which commercial banks keep with the Reserve Bank of India.

Question

Question

This question was previously asked in

SSC CHSL Tier-I Exam 2022 Official Paper (Held On: 09 March, 2023 Shift 4)

Answer 1

The correct answer is Option 2.

Key Points

The first statement is generally true.
- Banks and financial institutions keep a certain percentage of their deposits as reserves to ensure that they have enough liquidity to meet their obligations.
- These reserves can be kept in the form of cash or financial instruments such as government securities, treasury bills, and other approved securities.
The second statement is also true.
- Cash Reserve Ratio (CRR) is the percentage of deposits that commercial banks are required to maintain as reserves with the RBI.
- The purpose of CRR is to control the amount of money that banks can lend to borrowers.
- When the RBI increases the CRR, banks have less money available to lend, which can help to control inflation.
- Conversely, when the RBI decreases the CRR, banks have more money available to lend, which can stimulate economic growth.