📚 Learning Guide
Bank Reserve Management
medium

A bank can simply borrow from the central bank to meet its reserve requirements without affecting its overall liquidity position.

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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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