Question
UPSC Prelims 2018 Question:
Consider the following statements
- Capital Adequacy Ratio (CAR) is the amount that banks have to maintain in the form of their own funds to offset any loss that banks incur if the account-holders fail to repay dues.
- CAR is decided by each individual bank.
Which of the statements given above is/are correct?
Answer (Detailed Solution Below)
Option 1: 1 only
Detailed Solution
Explanation:
- Capital Adequacy Ratio (CAR) is the ratio of a bank's capital in relation to its risk weighted assets and current liabilities. .
- It is decided by central banks and bank regulators to prevent commercial banks from taking excess leverage and becoming insolvent in the process. So, statement 1 is correct and statement 2 is not correct.
Therefore, option (1) is the correct answer.
Subject: Economics | Money and Banking
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