Asked by Ashia Arnold on May 08, 2024
Verified
The reserve ratio refers to
A) the proportion of assets held in the form of cash or deposits in the Federal Reserve.
B) the proportion of deposit liabilities that must be held in the form of cash or deposits in the Federal Reserve.
C) the proportion of reserves that must be held in the form of vault cash.
D) the proportion of reserves that can be loaned out.
Reserve Ratio
The fraction of depositors' balances that banks have to hold in reserve and not lend out.
Deposit Liabilities
The amounts of money that banks owe to their depositors, stemming from the bank accounts like savings, checking, and time deposits.
Federal Reserve
The central bank of the United States, responsible for setting monetary policy, supervising and regulating banks, and ensuring the stability of the financial system.
- Understand the concept of the reserve ratio and its implications for banks.
Verified Answer
PF
Phantom FantasyMay 13, 2024
Final Answer :
B
Explanation :
The reserve ratio refers to the proportion of deposit liabilities that must be held in the form of cash or deposits in the Federal Reserve. This requirement is set by the central bank (in the US, the Federal Reserve) and serves as a tool for influencing the money supply and controlling inflation. The reserve ratio is usually expressed as a percentage, and banks that fail to meet the requirement may incur penalties or be subject to additional regulations.
Learning Objectives
- Understand the concept of the reserve ratio and its implications for banks.