L1/P2: Banking-Monetary Policy Introduction, CRR, SLR, OMO
Mrunal Patel・2 minutes read
Money was invented to solve the barter system's flaw of double coincidence of wants, evolving from terracotta coins to modern-day paper currency. Financial intermediaries facilitate the circular flow of money between households and businesses, with monetary policies like CRR and SLR controlling inflation and deflation.
Insights
- Money was invented to solve the issue of the double coincidence of wants in trading, leading to the evolution of various forms of currency throughout history, such as terracotta coins, metallic coins, and paper currency.
- Proper management of Cash Reserve Ratio (CRR) and Statutory Liquidity Ratio (SLR) is crucial for financial stability, ensuring banks can meet withdrawal demands while complying with regulations, preventing bank runs, and maintaining liquidity.
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Recent questions
What was the flaw of the barter system?
The flaw of the barter system was the double coincidence of wants, requiring both parties to have desired items for trade.
How did money evolve over time?
Money evolved from terracotta coins to metallic coins and paper currency.
What is the role of financial intermediaries?
Financial intermediaries facilitate the flow of money between households and businesses.
How does the Central Bank combat inflation?
The Central Bank combats inflation through a tight money policy.
What are the key components of monetary policy?
The key components of monetary policy include Reserve Ratio (CRR and SLR) and Open Market Operations.
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