Qualitative Credit Control

Qualitative Credit Control - multiple of the original cash...

Info icon This preview shows page 1. Sign up to view the full content.

View Full Document Right Arrow Icon
Qualitative Credit Control : Sometimes quantitative credit control measures are inadequate or are likely to be harmful. Quantitative methods apply uniformly and to the same extent to all bankers. But if the central bank finds that only a few or specific bankers are misbehaving then it has to apply qualitative methods to individual bankers. These may be in the form of special reserve requirement, moral appeal and advise or even direct action against defaulting bankers. Money Multiplier: It has been observed in a previous section that commercial banks can make total credit supply which is a certain
Image of page 1
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: multiple of the original cash deposits. The extent to which such an expansion of credit can be made is called money multiplier. It is a reciprocal of the reserve requirement (which represents the tendency of people to withdraw cash). If the reserve requirement (RR) is 10 percent, the multiplier value is 10, and if RR = 8 percent, the multiplier value will be 12.5. Similarly, when RR=12 percent, the multiplier will be 8.33 Money Multiplier = 1/RR = 1/0.1 = 10, 1/0.08 = 12.6, 1/0.12 = 8.3. Money multiplier thus varies inversely with the value of RR....
View Full Document

{[ snackBarMessage ]}

What students are saying

  • Left Quote Icon

    As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

    Student Picture

    Kiran Temple University Fox School of Business ‘17, Course Hero Intern

  • Left Quote Icon

    I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

    Student Picture

    Dana University of Pennsylvania ‘17, Course Hero Intern

  • Left Quote Icon

    The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

    Student Picture

    Jill Tulane University ‘16, Course Hero Intern