Which of the following terms indicates a mechanism used by commercial banks for providing credit to the government ?

examrobotsa's picture

Submitted by examrobotsa on

Q: 16 (IAS/2010)
Which of the following terms indicates a mechanism used by commercial banks for providing credit to the government ?

question_subject: 

Economics

question_exam: 

IAS

stats: 

0,162,323,63,114,146,162

keywords: 

{'commercial banks': [0, 0, 1, 1], 'cash credit ratio': [0, 0, 1, 0], 'statutory liquidity ratio': [0, 0, 1, 0], 'liquidity adjustment facility': [0, 0, 1, 0], 'debt service obligation': [0, 0, 1, 0], 'credit': [0, 2, 4, 6], 'terms': [0, 0, 1, 0], 'government': [5, 0, 0, 1], 'mechanism': [0, 0, 2, 7]}

SLR stands for Statutory Liquidity Ratio. It is the percentage of deposits that banks are required to maintain in the form of liquid assets, such as cash, gold, and government securities. SLR is one of the tools used by the central bank to control the expansion of credit by commercial banks. By changing the SLR, the central bank can control the amount of funds that the banks can lend. If the SLR is high, the banks will have to maintain a larger portion of their deposits as liquid assets, which means they will have less money available to lend. On the other hand, if the SLR is low, banks will have more funds available to lend. The SLR is set by the central bank as a means of regulating the money supply in the economy.