When Can a Bank Make Loans

question 54

Multiple Choice

When can a bank make loans?

• A) when it has the minimum amount of required reserves
• B) only when it is confident that it can meet all the cash needs of depositors
• C) only when it has deposited all cash at the Federal Reserve
• D) when it has reserves greater than the amount of required reserves
• E) There is not enough information to solve this problem.

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Definitions:

Majority Rule

Majority rule is a decision-making principle whereby the choice of the greater number of participants in a group is accepted as the decision for the whole group.

One-Year Provision

A legal principle stating certain contracts must be in writing if they cannot be performed within one year of their making.

Main Purpose Doctrine

A legal principle that suggests a promise to pay another's debt is not subject to the statute of frauds if the guarantor's main purpose is to serve their own interests.

Suretyship Provision

A clause in a contract that involves a third party (the surety), who agrees to fulfill the obligations of a debtor to a creditor, should the debtor fail to fulfill their contractual obligations.