Question

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.

• A. Only (A)
• B. Both (A) and (C)
• C. Only (C)
• D. All (A), (B), (C) and (D)

Answer 1

The correct option is D All (A), (B), (C) and (D)

All the statements are correct.

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 since RBI is an apex bank.
D. Bank's assets are only in the form of Cash Reserves and loans and its liabilities comprise only of the demand deposits. Demand deposits refers to the amount which is lent by the commercial bank in respect to its cash reserve.