Learning Path
Question & Answer1
Understand Question2
Review Options3
Learn Explanation4
Explore TopicChoose the Best Answer
A
Cash that banks hold to meet customer withdrawals
B
Loans that banks provide to customers
C
Investments made by banks in the stock market
D
Profits earned by banks during a fiscal year
Understanding the Answer
Let's break down why this is correct
Answer
Bank reserves are the money that banks keep on hand to meet customer withdrawals and other obligations. In the context of T-Accounts, which are used to track a bank's assets and liabilities, reserves appear on the left side as an asset. For example, if a bank has $1 million in deposits, it might keep $100,000 as reserves to ensure it can give customers their money when needed. This means that the remaining $900,000 can be used for loans or investments. By managing these reserves carefully, banks help maintain stability in the financial system while also earning interest from their loans.
Detailed Explanation
Bank reserves are the cash that banks keep on hand. Other options are incorrect because Some might think reserves are loans; Investments might seem like reserves, but they are different.
Key Concepts
bank reserves
Topic
T-Accounts and Bank Reserves
Difficulty
easy level question
Cognitive Level
understand
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