Skip to content

CMA Foundation · Fundamentals of Business Economics and Management · Money and Banking

Banks in an economy have net demand and time liabilities of Rs 800 crore. The RBI raises the cash reserve ratio from 4% to 5.5% with no other change. By how much must the banks' cash balances with the RBI increase to comply, assuming they were exactly meeting the earlier requirement?

Banks must add Rs 12 crore. The CRR rises by 1.5 percentage points, and 1.5% of net demand and time liabilities of Rs 800 crore equals Rs 12 crore. The total requirement at 5.5% is Rs 44 crore, but only the increase is asked.

  1. ARs 8 crore
  2. BRs 12 croreCorrect
  3. CRs 32 crore
  4. DRs 44 crore

Explanation

The change in CRR is 5.5% - 4% = 1.5 percentage points. Additional reserves = 1.5% of Rs 800 crore = Rs 12 crore. Rs 44 crore is the total required at 5.5%, and Rs 32 crore is the earlier requirement at 4%, so neither is the increase. Rs 8 crore is only 1% of liabilities.

Did you get it right without looking?

One question tells you little. A timed set on Money and Banking shows your real accuracy, how long you take and where you lose marks.

Practise Money and BankingFree diagnostic mock

More Money and Banking questions