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All financial institutions have to maintain a certain quantity of liquid assets with themselves , these reserves are known as  A. Cash Reserve Ratio  B. Foreign reserves  C. Statutory Liquidity Ratio  D. Debt to GDP Ratio

Question

All financial institutions have to maintain a certain quantity of liquid assets with themselves , these reserves are known as  A. Cash Reserve Ratio  B. Foreign reserves  C. Statutory Liquidity Ratio  D. Debt to GDP Ratio

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Solution

The correct answer is C. Statutory Liquidity Ratio.

Here's a step-by-step explanation:

  1. Financial institutions are required to hold a certain amount of liquid assets. Liquid assets are assets that can be easily converted into cash.

  2. This requirement is a regulatory measure, intended to ensure that the financial institution has enough cash on hand to meet its short-term obligations.

  3. This reserve of liquid assets is known as the Statutory Liquidity Ratio (SLR).

  4. The SLR is determined by the central bank of a country. In India, for example, the Reserve Bank of India sets the SLR.

  5. The Cash Reserve Ratio (Option A) is a different type of reserve requirement that dictates the minimum amount of cash that banks must hold as reserves.

  6. Foreign reserves (Option B) refer to the foreign currency deposits and bonds held by a country's central bank.

  7. The Debt to GDP Ratio (Option D) is a measure of a country's federal debt in relation to its gross domestic product. It's not a type of reserve.

So, the correct answer to the question "All financial institutions have to maintain a certain quantity of liquid assets with themselves, these reserves are known as" is C. Statutory Liquidity Ratio.

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