Q.
Definition of Reserve Ratio/Cash Reserve Ratio/Cash Reserve Requirement
(May’12, June’13).
Reserve
Ratio/Cash Reserve Ratio/Cash Reserve Requirement:
A Cash Reserve Ratio, also known as the Reserve Requirement is a regulation set
by Central bank (Bangladesh Bank) which dictates the minimum amount (reserves)
that a commercial bank (in some cases, any bank) must be held to customer notes
and deposits. In simpler terms this is the amount the bank must surrender
with/to the Central (governing) Bank.It is a
percentage of bank reserves to deposits and notes. Cash reserve ratio is also
known as liquidity ratio or cash asset ratio and is utilized as a tool
(sometimes) in monetary policy and as a tool to influence the country’s
interest rates, borrowing and economy.
For example, if
the reserve ratio in the Bangladesh is determined by the central bank to be
11%, this means all banks must have 11% of their depositors' money on reserve
in the bank. So, if a bank has deposits of 1 billion, it is required to have
110 million on reserve.
Q. Definition of 'Floating Exchange Rate' (Nov’10, May’12, Dec'13).
Floating
Exchange Rate: A country's exchange rate regime where
its currency is set by the foreign-exchange market through supply and demand
for that particular currency relative to other currencies. Thus, floating
exchange rates change freely and are determined by trading in the forex market.
This is in contrast to a "fixed exchange rate" regime.
Q.
What is Cost-Push Inflation (June’13)?
Cost-Push
Inflation: When companies costs go up, they need to increase
prices to maintain their profit margins. Increased costs can include things
such as wages, taxes, or increased costs of imports.
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