[Solved] What is the primary function of the Cash Reserve Ratio (CRR) in the credit creation process? — Ans: To ensure banks maintain a minimum reserve with the RBI to control liquidity | Financial Awareness

Financial Awareness - Risk, Stability & Emerging Finance

What is the primary function of the Cash Reserve Ratio (CRR) in the credit creation process?

ATo ensure banks maintain a minimum reserve with the RBI to control liquidity

BTo determine the interest rate banks charge on loans

CTo set the maximum limit on bank deposits

DTo regulate the foreign exchange reserves of banks

Step-by-Step Solution

Step 1: Understand the role of CRR
CRR mandates banks to keep a certain percentage of deposits as reserves with RBI to control money supply and liquidity.
Step 2: Analyze options
Only the option stating CRR ensures minimum reserves with RBI to control liquidity correctly describes its primary function.
Final Answer:
To ensure banks maintain a minimum reserve with the RBI to control liquidity → Option A
Quick Check:
CRR function = maintain minimum reserves with RBI ✅

Quick Trick: CRR controls liquidity by mandating reserves with RBI.

Common Mistakes:

Master "Risk, Stability & Emerging Finance" in Financial Awareness

Start learning the concept with an interactive lesson.

More Financial Awareness Quizzes

What is the primary function of the Cash Reserve Ratio (CRR) in the credit creation process?