Question

If currency is CU and deposits are DD, then what would be currency deposit ratio?

• A. CU/DD
• B. DD/CU
• C. DD × CU
• D. None of these

Hint:

The currency deposit ratio helps to understand the liquidity in the economy, showing the public's preference for holding currency versus making deposits.

Answer 1

The Correct Option is A

Step 1: Understanding currency deposit ratio.
The currency deposit ratio is a financial term that refers to the ratio of currency (CU) held by the public to the deposits (DD) in banks. It is used to assess the liquidity in the economy. A high ratio indicates that the public prefers holding cash over making deposits in the bank.

Step 2: Analyzing the options.
(A) CU/DD: Correct. The currency deposit ratio is calculated by dividing the currency (CU) by the deposits (DD).
(B) DD/CU: This is incorrect as it represents the inverse of the currency deposit ratio.
(C) DD × CU: This is incorrect, as the currency deposit ratio is a simple division, not multiplication.
(D) None of these: This is incorrect because the correct answer is (A).

Step 3: Conclusion.
The currency deposit ratio is calculated as CU/DD. Therefore, the correct answer is (A) CU/DD.