Match each commercial banking regulatory tool or deposit mechanism on the left with its corresponding operational role in credit creation on the right.
- Cash Reserve Ratio (CRR)The statutory minimum fraction of deposits held with the Central Bank, setting the theoretical ceiling on loan expansion.
- Derivative DepositA bank balance created directly when a commercial institution grants a credit facility to a borrower.
- Liquidity RatioThe proportion of total assets required to be kept in near-cash form to satisfy daily customer cash withdrawals.
- Primary DepositAn initial cash lodgment by a depositor that forms the reserve foundation for credit multiplication.
Answer
Cash Reserve Ratio (CRR) matches the statutory minimum fraction held with the Central Bank; Derivative Deposit matches the bank balance created through credit extension; Liquidity Ratio matches the asset proportion held in near-cash form for daily withdrawals; Primary Deposit matches the initial cash lodgment by a depositor.
Each concept accurately pairs with its function: Cash Reserve Ratio sets mandatory reserves at the central bank; derivative deposit reflects bank balances born out of credit creation; liquidity ratio enforces operational cash readiness; primary deposit supplies initial reserves.
Step-by-Step Solution
Key Concept
Commercial Banking Deposit Types and Regulatory Constraints on Credit Creation