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Economics miscellaneous

  1. The reserves held by Commercial Banks over and above the statutory minimum, with the RBI are called
    1. Cash reserves
    2. Deposit reserves
    3. Excess reserves
    4. Momentary reserves
Correct Option: C

In banking, excess reserves are bank reserves in excess of the reserve requirement set by a central bank. They are reserves of cash more than the required amounts. Holding excess reserves has an opportunity cost if higher risk-adjusted interest can be earned by putting the funds elsewhere; the advantage of holding some funds in excess reserves is that doing so may provide enhanced liquidity and therefore more smooth operation of payment system.



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