ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -Economics 504. The required reserve ratio gives the percent of deposits that banks must hold as reserves. It is the ratio of required reserves to deposits. If the required reserve ratio is 10 percent this means that banks must hold 10 percent of their deposits as required reserves.

Detailed explanation-2: -The Federal Reserve requires banks and other depository institutions to hold a minimum level of reserves against their liabilities. Currently, the marginal reserve requirement equals 10 percent of a bank’s demand and checking deposits.

Detailed explanation-3: -banks must keep 20 percent of each deposit and then can lend out the rest. As borrowers pay back loans, or banks get additional deposits, banks can continue to lend out money.

Detailed explanation-4: -Key Takeaways Reserve requirements are the amount of funds that a bank holds in reserve to ensure that it is able to meet liabilities in case of sudden withdrawals.

Detailed explanation-5: -In the U.S., the Federal Reserve dictates the amount of cash, called the reserve ratio, that each bank must maintain. Historically, the reserve rate has ranged from zero to 10% of bank deposits. Bank reserves are the minimal amounts of cash that banks are required to keep on hand in case of unexpected demand.