Money and banking

Indian Economic System(CSC)

Title

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Indian Economy - Understanding the basics of Indian economic system

Consider the following components of money supply in India

1. Currency in circulation.

2. Banker’s deposits with the RBI

3. Other deposits with the RBI

4. Demand deposits of banks

Which of the above are the components of Reserve Money?

l and 3

l, 2 and 3

1, 2 and 4

1, 2, 3 and 4

Only codes 1,2&3 are correct.

Reserve money (M0) = Currency in Circulation + Bankers' Deposits with RBI + 'Other' Deposits with RBI. Among these components, the most important one is currency in circulation. It includes notes in circulation, rupee coins and small coins.
Among these components, the most important one is currency in circulation. It includes notes in circulation, rupee coins and small coins.
“Currency in circulation’ includes notes in circulation, rupee coins and small coins. Rupee coins and small coins in the balance sheet of the Reserve Bank of India include ten-rupee coins issued since October 1969, two rupee-coins issued since November 1982 and five-rupee coins issued since November 1985. Currency with the public is arrived at after deducting cash with banks from total currency in circulation, as reported by RBI.”
The other two components are small in size. To understand the relative importance of the three components, look into the data shown in the coming part.
Bankers’ Deposits with the RBI represent balances maintained by banks in the current account with the Reserve Bank mainly for maintaining Cash Reserve Ratio (CRR) and as working funds for clearing adjustments.
Other Deposits with the Reserve Bank for the purpose of monetary compilation includes deposits from foreign central banks, multilateral institutions, financial institutions etc.

Hence option 2nd is correct.

By: Abhipedia