Question

Identify the incorrect statement with reference to Cash Reserve Ratio (CRR):

• A. It is a certain percentage of demand and time deposit liabilities that every bank must keep as cash reserves with the Central Bank.
• B. It is fixed by the Central Bank.
• C. It is not binding on the commercial banks.
• D. It is a tool used by the Central Bank to control the credit creation in the economy.

Hint:

CRR is a mandatory tool used by the Central Bank to regulate liquidity and credit in the economy. It is binding on all commercial banks.

Answer 1

The Correct Option is C

The Cash Reserve Ratio (CRR) dictates the mandatory proportion of a commercial bank's demand and time liabilities that must be held as reserves with the Central Bank, thereby maintaining liquidity and regulating the money supply.
Option (C): This option is erroneous because CRR is a compulsory requirement for all commercial banks, enforced by Central Bank regulations. 
Options (A), (B), and (D): These options are accurate as they correctly define CRR and its function in monetary policy and credit management.