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Question

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

A

zero

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B

fractional

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C

whole

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D

partial

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Solution

The correct option is B fractional
Fractional reserve banking is a system followed by banks wherein they keep a percentage of deposits as cash with themselves. The remaining percentage is used to hand out loans to borrowers.

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

Q. Why does the Reserve Bank of India require banks to hold back a portion of their deposits as cash with themselves?

Why do banks keep a small portion of deposits as cash with themselves?

Q. Why do banks keep a small proportion of the deposits as cash with themselves?

Q. Which of the following statements about banking operations is correct as they help banks to run their shops?
A. The public holds as much currency (M) as it desires to hold with it and therefore any additional money earned by it is placed in the form of deposits with banks.
B. The banks lend all the deposits received by them from public up to the minimum legal cash reserve ratio requirement determined by the RBI. It means banks do not keep any excess cash reserves with themselves.
C. The minimum legal Cash Reserve ratio is set by the RBI.
D. Bank's assets are only in the form of Cash Reserves and loans and its liabilities comprise only of the demand deposits.

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