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    Question

    Consider the following statements:

    1.  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

    2.  CAR is decided by each individual bank.

    Which of the statements given above is/are correct?

    A 1 only Correct Answer Incorrect Answer
    B 2 only Correct Answer Incorrect Answer
    C Both 1 and 2 Correct Answer Incorrect Answer
    D Neither 1 nor 2 Correct Answer Incorrect Answer

    Solution

    Statement 1 is correct : 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. Statement 2 is incorrect : It is decided by central banks and bank regulators to prevent commercial banks from taking excess leverage and becoming insolvent in the process

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