Asked by Joshua Najera on May 12, 2024
Verified
An individual bank may legally loan out an amount equal to its
A) total net worth.
B) total vault cash.
C) total reserves.
D) excess reserves.
E) required reserves.
Excess Reserves
Excess reserves refer to the capital reserves held by a bank or financial institution in excess of what is required by regulations, guidelines, or central bank requirements.
Individual Bank
A financial institution that deals with consumers and businesses to offer deposit, loan, and investment services on an individual basis.
- Understand the importance of the deposit expansion multiplier within the banking sector.
Verified Answer
DP
Dylan PutmanMay 12, 2024
Final Answer :
D
Explanation :
An individual bank may legally loan out an amount equal to its excess reserves. Excess reserves are the amount of reserves that a bank holds above the required reserves set by the central bank. This is the amount that a bank can lend out to earn interest and make a profit.
Learning Objectives
- Understand the importance of the deposit expansion multiplier within the banking sector.