what to ask sume question

You must to clear ur question
 

as from my point of view nabeel is trying to coat example of RBI (that it can manufacture money).....

this relates to credit creation function of bank...i think .....

Originally posted by : Sneha.... sunshine
	this relates to credit creation function of bank...i think .....

correct....

ok. thanx... i wont be able to understand the meaning of this line...

AGREE WITH SIVARAM

i also agree

This is Credit Creation and Limitations of a Bank

For more detailed answer follow below mentioned link:-

https://www.indiastudychannel.com/resources/108889-Credit-Creation-Limitations-Bank.aspx

Originally posted by : Vikrant
	Originally posted by : Sneha.... sunshine this relates to credit creation function of bank...i think ..... correct....

yes exactly this is right 

for easy understanding

suppose u have 1000 rupees u deposit in bank and u know that bank will make loan out of this money(after maintaining CRR) to another person and if the other person(after getting loan) makes a payment by check then it will be deposited in another bank and the 2nd bank can also make loan out of the money(after maintaining CRR) so this proces(credit creation) will continue this the CRR at each stage reduce it to minimum

credit creation depends upon the CRR(cash reserve ratio) higher the ratio lesser the cash deposited in the next bank

suppose CRR is 10%

                         deposited in              credit given                                                                                                           1st bank             1000                             900                                                                                                                 2nd bank             900                              810                                                                                                                 3rd bank              810                              729 and so on (at each stage credit is created and total credit created out of 1000 at 10% CRR will be 10000

hope u understand not sure weather i made it clear or not :)

for deeper understanding read about money supply(M1 M2 M3measures of money supply)

It means banks not only provide finance to the world at large for their day to day business and personal activities, but also using the multiplier effect, utilises the money to the extent that its own possible limitations get shortnend at that point.

agree with sneha and pulkit's reply !!!

thanx sir..... i have understood....