ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -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. Reserve requirements are a tool used by the central bank to increase or decrease the money supply in the economy and influence interest rates.

Detailed explanation-2: -Bank reserves are the cash minimums that financial institutions must have on hand in order to meet central bank requirements. This is real paper money that must be kept by the bank in a vault on-site or held in its account at the central bank.

Detailed explanation-3: -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-4: -Bank Reserves-Key takeaways The amount of assets that must be kept on hand to meet any withdrawals is known as a reserve requirement. There are three main types of bank reserves: required, excess, and legal.