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Hello friends..i m a fresher.i have completed my PG in political science and preparing with this subject only. Plzz advise me the useful books to read for political science and international relations in hindi medium only.. Thanxx in anticipation..
SLR helps in curbing undue credit expansion while at the same time compelling FIs to invest in Gsecs thus providing credit to govt..CRR is mainly for liquidity control since Banks keep their prescribed 4% "hard cash" in vaults thus creating a sort of emergency fund which can be used in situations like bank runs.So clearly they have their own unique features and utilities in the banking system.
Credit expansion??Do you mean to say that one needs to prevent banks making investment in slightly higher risk based investment to get good returns on their capital?
Hello friends..i m a fresher.i have completed my PG in political science and preparing with this subject only. Plzz advise me the useful books to read for political science and international relations in hindi medium only.. Thanxx in anticipation..
Undue credit expansion means lending more than what is reqd not only does it lead to the fear of NPAs but can also lead to a sub prime situation.Other than that if banks lend everything they have then again there's no reserve money left and can lead to a bank run as I have mentioned!Plus excessive credit creation can lead to inflation due to added liquidity.And yes there are prudential norms set by RBI governing investments of banks in equity,debt and money markets.
Real flows consists of factor services from the owner of factor services to the producers and flow of goods and services to the producer to buyers of those goods and services.
what is the difference between the usage of SLR and CRR. I know how their properties differ. But why is SLR >> CRR?? Why do we need 2 different mechanisms??(Why not merge both of them into one??)
Through crr, rbi mainly focuses on money supply (this money earns no interest at all), while slr deals with mainly managing of govt. fiscal deficit (apart from other objectives),(also slr earns interest).
now the question is why they dont merge them into one?
make an assumption that there is no seperate regulations of crr
suppose a situation, in which there is very high govt. fiscal deficit then govt can easily curb it through slr (asking banks to invest in govt. securities in order to curb there deficit) if this practice kept on going then there is increase in inflation in the economy and we have already made the assumption that there is no seperate crr to curb money supply.
results- 1. high inflation. 2. pillars of fiscal consolidation fails. 3.prices shoots up.
therefore we need a seperate crr and slr in order to manage both money supply and fiscal consolidation respectively as in many situations they are having undesired impacts to another.
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Comments
Thanxx in anticipation..
now the question is why they dont merge them into one?
make an assumption that there is no seperate regulations of crr
suppose a situation, in which there is very high govt. fiscal deficit then govt can easily curb it through slr
(asking banks to invest in govt. securities in order to curb there deficit) if this practice kept on going then there is increase in inflation in the economy and we have already made the assumption that there is no seperate crr to curb money supply.
results- 1. high inflation.
2. pillars of fiscal consolidation fails.
3.prices shoots up.
therefore we need a seperate crr and slr in order to manage both money supply and fiscal consolidation respectively as in many situations they are having undesired impacts to another.