Financial Awareness - Risk, Stability & Emerging Finance
A bank has Rs. 5,00,000 in deposits and the CRR is 8%. If the bank holds Rs. 60,000 as reserves, what is the amount of excess reserves?
A bank has Rs. 5,00,000 in deposits and the CRR is 8%. If the bank holds Rs. 60,000 as reserves, what is the amount of excess reserves?
hard Q10 of 15
Step-by-Step Solution
Step 1: Calculate required reserves
Required reserves = CRR × deposits = 8% × Rs. 5,00,000 = Rs. 40,000.Step 2: Calculate excess reserves
Excess reserves = Actual reserves - Required reserves = Rs. 60,000 - Rs. 40,000 = Rs. 20,000.Step 3: Analyze options
Only Rs. 20,000 correctly represents excess reserves.Final Answer:
Rs. 20,000 → Option BQuick Check:
Excess reserves = actual reserves minus required reserves ✅
Quick Trick: Excess reserves = actual reserves minus required reserves.
Common Mistakes:
- Confusing required reserves with excess reserves.
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