In the United States, the Federal Reserve sets the reserve requirement, which ba

Question

In the United States, the Federal Reserve sets the reserve requirement, which banks must meet through deposits at the Federal Reserve district banks and cash held at the bank. What does this requirement achieve? Check all that apply. Oa. It ensures that banks cannot hoard money by holding too many reserves. b. It means that a bank must have one dollar of deposits for every dollar it lends out. d. It helps to facilitate transfers of funds between banks when a customer from one bank writes a check to a customer of another bank.

Explanation / Answer

This reserve requirement is the percentage of total deposit that a bank has to keep and can not give in loans.

The following objectives are acheive by maintaining reserve requirement:

a) It endures banks can not hoard money by holding too many reserves thats why Federal requires bank to keep a portion of it with federal district banks.

c. It helps to prevent bank runs by reassuring public that banks will not make too many loans and run out of cash. This ensures liquidity of bannks.

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