Learning Path
Question & Answer1
Understand Question2
Review Options3
Learn Explanation4
Explore TopicChoose the Best Answer
A
The percentage of deposits that a bank must hold as reserves
B
The total amount of capital a bank must maintain
C
The interest rate set by the central bank
D
The total number of branches a bank must operate
Understanding the Answer
Let's break down why this is correct
Answer
The reserve requirement ratio is the percentage of deposits that banks must hold in reserve and not lend out. This means that if a bank has $100 in deposits and the reserve requirement ratio is 10%, the bank must keep $10 in reserve and can lend out $90. This rule helps ensure that banks have enough money available for customers who want to withdraw their funds and helps maintain stability in the banking system. For example, if many customers suddenly want to take out their money, the bank needs to have enough reserves to meet those requests. By setting a reserve requirement ratio, regulators help control how much money banks can create through lending, which influences the overall economy.
Detailed Explanation
The reserve requirement ratio is the part of deposits that banks must keep safe. Other options are incorrect because Some might think this is about total money a bank has; This option sounds like it relates to bank rules.
Key Concepts
reserve requirement ratio
Topic
Bank Reserve Management
Difficulty
easy level question
Cognitive Level
understand
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