What Are The Factors Which Determine Size Of The Cash Reserve?
The liquid asset of bank is called “Cash Reserve of Bank”. It is to be kept by the bank in order to meet the demands of the customers. It is very difficult to frame any rule for the fixation of Cash reserves by the bank. However following are the important factors which guide the banker to determine the size of Cash reserves. Size of Deposits: If the size of the deposits kept by the customers is large, then a large cash reserve has to be maintained. On the other hand small cash reserve will be required. Nature of clients: The banks will have to keep large reserves, if the clients of the banks are industrialists, brokers and businessmen, because their demand for cash will be also large. Nature of Account: If people keep major portion of their deposits in the current account then bank will have to keep large reserves in Cash. If major deposits are in savings or fixed account, the small reserves will be kept by the bank in cash. Use of Credit Instruments: If cheques and credit cards are u
