ECONOMICS
MONEY
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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True
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False
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Either A or B
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None of the above
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Detailed explanation-1: -The reserve requirement is the formula used to compute the amount of a depository institutions required reserves. Although banks are engaged in a number of different activities, the primary one is lending money, which they mainly get from investors who purchase stock in banks.
Detailed explanation-2: -The required reserve ratio can be calculated by simply dividing the amount of money a bank is required to hold in reserve by the amount of money it has on deposit. For example, if a bank has $10 million in deposits and $500, 000 are required to be held in reserve, then the required reserve ratio would be 1/20 or 5%.
Detailed explanation-3: -The Federal Reserve Act authorizes the Board to establish reserve requirements within specified ranges for purposes of implementing monetary policy on certain types of deposits and other liabilities of depository institutions.
Detailed explanation-4: -Formulas: Total Reserves = Cash in vault + Deposits at Fed. Excess Reserves are used by banks to: make loans.