Question

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Q. EXPLAIN CREDIT CREATION RATIO..​

Answer 1

Answer:

Credit creation separates a bank from other financial institutions. In simple terms, credit creation is the expansion of deposits. And, banks can expand their demand deposits as a multiple of their cash reserves because demand deposits serve as the principal medium of exchange.

Explanation:

⭐ Total Credit Creation = Original Deposit * Credit Multiplier Coefficient. Credit multiplier coefficient= 1 / r where r = cash reserve requirement also called as Cash Reserve Ratio (CRR) Credit multiplier co-efficient = 1/10% = 1/ (10/100) = 10. Total credit created = 10,000 *10 = 100000.

Answer 2

Answer:

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