Credit Creation

Q.

Explain the functions of a commercial bank.

Q.

What role of RBI is known as lender of last resort?

Q.

Commercial banks create money by way of:

1. Demand deposits

2. Time deposits

3. Treasury bills

4. Bill of exchange

Q.

Do you consider a commercial bank ‘creator of money’ in the economy’?

Q.

If the commercial banks buy government securities, their capacity to create credit is reduced. Do you agree?

Q.

The system followed by banks wherein they keep a percentage of deposits as cash with themselves is called:

1. None of the above

2. Whole reserve banking

3. Zero reserve banking

4. Fractional reserve banking

Q.

Maximum credit that the commercial banks can legally create depends on their:

1. Statutory liquidity ratio

2. Term deposits

3. Cash reserves with the RBI

4. Gold reserves

Q.

What are primary deposits?

Q.

What is meant by 'official reserve transactions'? Discuss their importance in the Balance of Payments.

Q.

Which of the following is not concerned with banking organisations?

1. Bank rate

2. Credit creation

3. Fiscal deficit

4. Cash reserve ratio

Q. The system followed by banks wherein they keep a percentage of deposits as cash with themselves is called reserve banking.

1. zero
2. fractional
3. whole
4. partial

Q.

Maximum credit that the commercial banks can legally create is indicated by:

1. $\frac{1}{\text{CRR}}\times \frac{1}{\text{Cash Reserves with the RBI}}$

2. $\frac{1}{\text{SLR}}$

3. $\frac{1}{\text{CRR}}\times \text{Total deposits}$

4. $\frac{1}{\text{CRR}}\times \text{Cash reserves with the RBI}$

Q. Bank deposits of cash by depositors are called deposits.

1. primary
2. secondary
3. tertiary
4. demand

Q.

If, at the end of the credit creation process, we have total deposits of 50, 000, and initial deposits were 10, 000, what is the amount of primary deposits?

1. 50, 000

2. 60, 000

3. 40, 000

4. 10, 000

Q.

If the multiplier is 4 and the total deposits are 1, 00, 000, calculate the primary deposits.

1. 25, 000

2. 10, 000

3. 75, 000

4. 50, 000

Q.

ADR stands for?

Q.

If the multiplier is 4 and the total deposits are 1, 00, 000, calculate the secondary deposits.

1. 75, 000

2. 50, 000

3. 25, 000

4. 10, 000

Q. Distinguish between primary deposits and derivative deposits.

Q. What are 'demand deposits' ?

1. Deposits with banks kept for at least 10 yrs
2. Deposits with bank which can be withdrawn on demand
3. Deposits in bank in form of jewellery only
4. Deposits with banks kept for at least 5 yrs

Q. Give reasons or explain the following statements:

1. Commercial banks provide agency functions to earn profits.
2. Overdraft facility is provided to current account holders.
3. Saving account deposits are usually opened by salaried class.
4. Rate of interest on fixed deposit is high.

Q. Formal sources of credit do not include _____.

1. banks
2. cooperative societies
3. employers
4. none of the above

Q.

Bank deposits of cash by depositors is called:

1. Secondary deposits

2. Tertiary deposits

3. None of the above

4. Primary deposits

Q. Which of the following is an innovative mechanism adopted by banks to meet the targets fixed for lending to priority sector by the Banks?

1. Buying and Selling of Priority Sector Lending Certification
2. Adoption of Core Banking Solution
3. Sale of Kisan Vikas patra
4. Inter Bank Participation Certificates

Q.

Derivative deposits are:

1. Primary deposits

2. Secondary deposits

3. Tertiary deposits

4. None of the above

Q. State whether the following statements are True or False.
1. Commercial banks are the backbone of modern economy.
2. The saving bank deposit can be opened with a small amount.
3. Credit money is created by the central bank of a country.
4. There is no difference between primary deposit and secondary deposit of a commercial bank.

Q.

If, at the end of the credit creation process, we have total deposits of 50, 000, and initial deposits were 10, 000, what is the amount of secondary deposits?

1. 60, 000

2. 10, 000

3. 50, 000

4. 40, 000

Q. Why do we say that commercial banks create money while we also say that the central bank has the sole right to issue currency ? Explain. What is the likely impact of money creation by the commercial banks on national income ?

Q. Commercial bank creates credit.

1. True
2. False

Q. Give reason or Explain
A Central Bank may take "Direct Action" against the defaulting Commercial Banks.

Q. The central bank works as a friend, philosopher and guide to commercial banks.

1. True
2. False