The Main Feature of Fractional Reserve Banking Is That Banks

question 177

Multiple Choice

The main feature of fractional reserve banking is that banks:

• A) lend out as little as possible to avoid becoming insolvent.
• B) keep most of its deposits in a vault in order for customers to have easy access to cash.
• C) keep a portion of deposits in reserves but lend out the rest.
• D) invest all of its deposits in a combination of stocks and bonds.

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Definitions:

FIFO

"First In, First Out," an inventory valuation method where goods first bought are the first to be sold, affecting the costs reported in the financial statements.

Gross Profit

The difference between revenue and the cost of goods sold before deducting selling, general, and administrative expenses.

Net Income

The net income of a company, which is calculated by deducting all costs and taxes from the total revenue.

Incidental Costs

Minor or secondary costs that are associated with purchasing or manufacturing a product but not directly allocable to production costs.