1. If a bank has a reserve ratio of 8 percent, then a. government regulation req
ID: 2496099 • Letter: 1
Question
1. If a bank has a reserve ratio of 8 percent, then
a. government regulation requires the bank to use at least 8 percent of its deposits to make loans.
b. the bank’s ratio of loans to deposits is 8 percent.
c. the bank keeps 8 percent of its deposits as reserves and loans out the rest.
d. the bank keeps 8 percent of its assets as reserves and loans out the rest.
2. A bank has an 8 percent reserve requirement, $10,000 in deposits, and has loaned out all it can given the reserve requirement.
a. It has $80 in reserves and $9,920 in loans.
b. It has $800 in reserves and $9,200 in loans.
c. It has $1,250 in reserves and $8,750 in loans.
d. None of the above is correct.
Please explain the reason.
Explanation / Answer
1. Reserve requirements are requirements regarding the amount of funds that banks must hold in reserve against deposits made by their customers. This money must be in the bank's vaults or at the closest Federal Reserve bank.
Therfore C is Correct.
2. B is Correct as .08x10000=800 to be kept in reserve and 10000-800=9200 can be used to lend in terms of loans
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