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Question

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

A

Zero reserve banking

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B

Fractional reserve banking

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C

Whole reserve banking

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D

None of the above

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Solution

The correct option is B
Fractional reserve banking

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

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

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

Q. With the help of cash reserve deposited by commercial banks with Central bank commercial banks can _______________.

Q. The ratio of total deposits that a commercial bank has to keep with Reserve Bank of India is called:

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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