Learning Path
Question & Answer1
Understand Question2
Review Options3
Learn Explanation4
Explore TopicChoose the Best Answer
A
The minimum amount of funds that a bank must hold in reserve against customer deposits
B
The total amount of assets a bank can invest in securities
C
The surplus funds that a bank can lend to other banks
D
The total deposits that a bank has received from customers
Understanding the Answer
Let's break down why this is correct
Answer
Required reserves are the minimum amount of money that banks must hold in reserve and not lend out. This amount is set by the central bank and is usually a percentage of the bank's total deposits. For example, if a bank has $1 million in deposits and the required reserve ratio is 10%, the bank must keep $100,000 in reserve and can only lend out $900,000. Maintaining these reserves ensures that banks have enough funds to meet customer withdrawals and helps maintain stability in the financial system. By managing their reserves carefully, banks can balance between earning interest on loans and meeting regulatory requirements.
Detailed Explanation
Required reserves are the minimum money a bank must keep safe. Other options are incorrect because Some might think required reserves are about how much a bank can invest; People may confuse surplus funds with required reserves.
Key Concepts
required reserves
Topic
Bank Reserve Management
Difficulty
easy level question
Cognitive Level
understand
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