Question : Through the process of _______ commercial banks are able to create credit, which is in far excess of the initial deposits.
Option 1: Advancing loans
Option 2: Money creation
Option 3: Accepting deposits
Option 4: None of these
Correct Answer: Money creation
Solution : The correct answer is (b) Money creation
Through the process of money creation, commercial banks are able to create credit that is in far excess of the initial deposits. When banks receive deposits from customers, they are able to lend out a portion of those deposits while keeping a fraction as reserves. This lending activity effectively creates new money in the form of credit, which expands the money supply beyond the initial deposits. Therefore, money creation is the process through which commercial banks generate credit in excess of the initial deposits.
Question : The reverse repo rate is the rate at which Central Bank:
Option 1: Lends money to commercial banks short-term
Option 2: Lends money to commercial banks for long-term
Option 3: Accepts deposits from commercial banks
Question : The process of creating credit money by commercial banks is known as ___________.
Option 1: Credit creation
Option 2: Credit control
Option 3: Credit extension
Option 4: Credit allocation
Question : Which of the following is not the function of a commercial bank?
Option 1: Accepting deposits
Option 2: Money supply
Option 3: Agency function
Option 4: Credit creation
Question : Which of the following is not a primary function of commercial banks?
Option 1: Transfer of funds
Option 2: Creation of credit
Option 3: Lending loans to the public
Option 4: Receiving deposits from the public
Question : Commercial banks can create money by:
Option 1: Printing currency notes and coins
Option 2: Lending out the deposits they receive
Option 3: Receiving deposits from customers
Option 4: All of the above
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