Question : Which of the following statements is correct regarding the bank reserves?
I. These reserves are kept partly as cash and partly in the form of financial instruments.
II. Cash Reserves Ratio are deposits that commercial banks keep with the Reserve Bank of India.
Option 1: Only II
Option 2: Both I and II
Option 3: Only I
Option 4: Neither I nor II
Correct Answer: Both I and II
Solution : The correct option is Both I and II.
Bank reserves include both cash held by banks and deposits with the central bank. Commercial banks hold reserves to meet withdrawal demands and to comply with reserve requirements set by regulatory authorities. These reserves can be held in the form of physical currency (cash) or as deposits with the central bank.
The Cash Reserve Ratio (CRR) is the portion of a bank's deposits that is mandated by the central bank to be kept as reserves in the form of cash. It is one of the methods used by central banks to control the money supply in the economy.
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