Financial Awareness - Risk, Stability & Emerging Finance
A bank has received a deposit of Rs. 1,00,000 and the CRR is 15%. What is the maximum amount of credit that can be created from this deposit?
A bank has received a deposit of Rs. 1,00,000 and the CRR is 15%. What is the maximum amount of credit that can be created from this deposit?
medium Q4 of 15
Step-by-Step Solution
Step 1: Calculate money multiplier
Money multiplier = 1 / CRR = 1 / 0.15 ≈ 6.66.Step 2: Calculate maximum credit creation
Maximum credit = Initial deposit × Money multiplier = Rs. 1,00,000 × 6.66 = Rs. 6,66,666 approximately.Final Answer:
Rs. 6,66,666 → Option AQuick Check:
Credit creation = deposit × (1 / CRR) ✅
Quick Trick: Multiply deposit by inverse of CRR for credit creation.
Common Mistakes:
- Using CRR as percentage without converting to decimal.
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