English MCQs on Banking

What is the main way banks create money?

• Printing money

• Lending money from deposits

• Collecting taxes

• Issuing bonds

The fraction of deposits that banks must keep as reserves is called:

• Interest rate

• Reserve ratio

• Deposit ratio

• Credit multiplier

If the cash reserve ratio is 20% (0.20), the credit multiplier is:

• 5

• 10

• 20

• 50

The formula for the credit multiplier is:

• 1 × Reserve Ratio

• 1 – Reserve Ratio

• 1 / Reserve Ratio

• Reserve Ratio ÷ 1

When banks lend out money, the money lent is usually:

• Destroyed

• Spent and re-deposited

• Hidden

• Sent abroad

Which of the following best describes the process of credit creation?

• New deposits vanish after lending

• Deposits are multiplied through repeated lending

• Banks keep all deposits in vaults

• Only central banks lend money

If the reserve ratio is 10%, an initial deposit of R1,000 can lead to a maximum money supply of:

• R1,000

• R5,000

• R10,000

• R100,000

The credit multiplier effect depends on:

• Reserve ratio

• Government spending

• Tax rates

• Exchange rates

Why is lending considered money creation?

• It increases the total deposits in the banking system

• It reduces the money supply

• It destroys reserves

• It prints new notes

Which institution controls the reserve requirements of banks?

• Ministry of Finance

• Central Bank

• Commercial banks

• Private companies