ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -Excess reserves refer to the cash held by a bank or other financial institution above the reserve requirement that an authority sets. The amount of excess reserves is equal to the total reserves reduced by the required reserves.

Detailed explanation-2: -Excess reserves-cash funds held by banks over and above the Federal Reserve’s requirements-have grown dramatically since the financial crisis. Holding excess reserves is now much more attractive to banks because the cost of doing so is lower now that the Federal Reserve pays interest on those reserves.

Detailed explanation-3: -Bank reserves are the minimal amounts of cash that banks are required to keep on hand in case of unexpected demand. Excess reserves are the additional cash that a bank keeps on hand and declines to loan out.

Detailed explanation-4: -There are two types of bank reserves: required reserves and excess reserves. The required reserves are the percentage of deposits the institution must have in cash holdings and deposit balances to abide by the regulations of the Federal Reserve.

Detailed explanation-5: -Actual reserves are amounts of money that the bank actually has on hand at any given moment. This includes amounts in the bank’s vault, as well as in the Federal Reserve. This amount might differ from the amount that banks are required to hold.