Learning Path
Question & Answer1
Understand Question2
Review Options3
Learn Explanation4
Explore TopicChoose the Best Answer
A
Excess Reserves
B
Required Reserves
C
Total Reserves
D
Liquid Reserves
Understanding the Answer
Let's break down why this is correct
Answer
In banking, the smallest amount of money a bank must keep on hand is called the required reserves. This amount is set by regulators to make sure banks can cover withdrawals and other obligations. The required reserves are calculated as a percentage of a bank’s deposits. For example, if a bank has $10 million in deposits and the reserve requirement is 10 %, it must hold $1 million in reserves. This rule helps keep the banking system stable.
Detailed Explanation
Required reserves are the minimum amount a bank must keep, as set by regulators. Other options are incorrect because Excess reserves are the extra cash banks keep beyond the required level; Total reserves include both required and excess reserves, so they are more than the minimum.
Key Concepts
Commercial Bank Reserves
Reserve Requirements
Banking Regulations
Topic
Commercial Bank Reserves
Difficulty
medium level question
Cognitive Level
understand
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