Commercial Applications
Which of the following is/are correct statement(s)?
Statement 1: The Central Bank can influence the country's economy by adjusting the Cash Reserve Ratio (CRR).
Statement 2: Commercial banks can issue currency notes as long as they meet the reserve requirements set by the Central Bank.
- Only Statement 1 is true
- Only Statement 2 is true
- Both statements are true
- Both statements are false
Banking
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Answer
Only Statement 1 is true
Reason — Statement 1 is TRUE — CRR is a quantitative tool of credit control. An increase in CRR reduces the credit-granting capacity of commercial banks, while a decrease expands it; thereby influencing money supply in the economy. Statement 2 is FALSE — only the central bank has the monopoly over issue of currency notes. Commercial banks cannot issue notes under any circumstances.
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