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Answer

Correct Option is Both 1 and 2

"The capital adequacy ratio (CAR) is a measurement of a bank's available capital expressed as a percentage of the bank's risk-weighted credit exposures. The capital adequacy ratio, also known as capital-to-risk weighted assets ratio (CRAR), is used to protect depositors, and promote the stability and efficiency of the financial systems around the world. The reason minimum capital adequacy ratios (CARs) are critical is to make sure that banks have enough cushion to absorb a reasonable amount of losses before they become insolvent and consequently lose depositors’ funds. The capital adequacy ratios ensure the efficiency and stability of a nation’s financial system by lowering the risk of banks becoming insolvent. Generally, a bank with a high capital adequacy ratio is considered safe and likely to meet its financial obligations

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