Banking Awareness - Banking Acts, Reforms & Risk Management
Compared to the Base Rate system, MCLR is considered more effective mainly because it:
Compared to the Base Rate system, MCLR is considered more effective mainly because it:
medium Q5 of 15
Step-by-Step Solution
Step 1: Recall drawback of Base Rate
Base Rate was based on average cost.Step 2: Identify improvement under MCLR
MCLR uses marginal cost, making rates more responsive.Final Answer:
Reflects changes in cost of funds faster → Option AQuick Check:
Marginal cost reacts quicker than average cost ✅
Quick Trick: Speed of response differentiates MCLR.
Common Mistakes:
MISTAKES- Thinking MCLR removes bank-specific rates.
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