Economics pptx Reserve ratio economics

1. Reseve Ratio| Margin
requirement

2. Points to cover
What is
reseve ratio
How Bank
Reserves
WorkExcess
ReserveInadequat
e Reserve
Effect of reserve
ratio on money
supply
Money multiplier
What is margin
requirement
How does margin
requirement effect
money supply

3. What is reserve
ratio
The fraction of total
deposits that a bank holds
as reserves is called the
reserve rato
The central bank of any
country set the minimum
Reserve the bank must hold
called reserve requirement

4. How bank Reserves
work
The reserve rate has
ranged from zero to 10% of
bank deposits
This is real paper money
that must be kept by the
bank in a vault on-site or
held in its account at the
central bank.
Bank reserves are primarily
an antidote to panic

5. How bank Reserves work
• During the pandemic of 2020, the Federal
Reserve reduced the reserve requirements
to 0%.

6. Excess Reserve
• Excess reserves are capital reserves held by a
bank or financial institution in excess of what is
required by regulators, creditors, or internal
controls.

7. Inadequate Reserve Are the capital reserves held by a
bank or financial institution in less
in quantity of what is required by
regulators, creditors, or internal
controls.
Sometimes the bank lower the
reserve requirement to influence
money supply

8. Effect of reserve ratio
on money supply
If the central bank decides to lower the reserve
ratio through an expansionary monetary policy
Commercial banks are required to keep less cash
on hand and are able to increase the number of
loans to give consumers and businesses.
This increases the money supply, economic
growth and the rate of inflation

9. Money multiplier
• The Money Multiplier refers to how an initial
deposit can lead to a bigger final increase in
the total money supply.

10. What is margin
requirement Margin Requirement is the
percentage of marginable
securities that an investor
must pay for with his/her
own cash.
It Is a qualitative method of
credit control adopted by the
central bank in order to
stabilize the economy from
inflation or deflation.

11. How does
margin
requirement
effect money
supply
In case of inflation, the
margin requirement is
increased so that demand
for loans are decreased
In case of deflation,
margin requirements are
decreased so that demand
for loans are increased.

12. Example
• Person mortgages his house worth one crore
rupees with the bank for a loan of 80 lakh rupees
. The margin requirement in this case will be 20
lakh rupees.