Learning Path
Question & Answer1
Understand Question2
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Explore TopicChoose the Best Answer
A
True
B
False
Understanding the Answer
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Answer
When a bank needs to meet its reserve requirements, it can borrow money from the central bank. This borrowing helps the bank maintain enough reserves to satisfy regulations without having to sell off other assets, which could hurt its liquidity. For example, if a bank has $1 million in deposits but needs to keep $100,000 on reserve, it can borrow that $100,000 from the central bank. This way, the bank can meet its requirements while still having cash available for loans and other activities. Overall, borrowing from the central bank helps banks manage their reserves effectively without losing financial stability.
Detailed Explanation
This statement is true. Other options are incorrect because This answer is based on the idea that borrowing affects liquidity.
Key Concepts
Bank reserve management
Liquidity management
Monetary policy implications
Topic
Bank Reserve Management
Difficulty
medium level question
Cognitive Level
understand
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