BANKING GENERAL KNOWLEDGE
|
Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
|
|
|
Reserve requirements apply to the M1 and M2 money supply
|
|
|
Reserve requirements are the most important factor in bank lending.
|
|
|
Reserve requirements do not change very often.
|
|
|
If reserve requirements are low, banks must keep back more money and therefore have less to lend.
|
Detailed explanation-1: -What is not true about the reserve requirement? Banks have less money to lend out if the reserve requirement is lowered.
Detailed explanation-2: -There are several reasons why reserve requirements are not frequently changed, the most important of which is that open market operations provide a much more precise tool for implementing monetary policy.
Detailed explanation-3: -The higher the reserve requirement, the less profit a bank makes with its money. Changing the reserve requirement is expensive for banks. It forces them to modify their procedures. As a result, the Fed Board rarely changes the reserve requirement.
Detailed explanation-4: -The required reserve ratio is the ratio of money that a commercial bank must hold in reserve to the amount of money it has on deposit. This money, which is the required bank reserves, is held on reserve and is not allowed to be used in lending or investing activities.