A Bank Has a Reserve Requirement of 0

question 11

Multiple Choice

A bank has a reserve requirement of 0.08. If it has demand deposits of $200,000 and is holding $4,000 in reserves:

• A)all the bank's reserves are excess reserves.
• B)the bank is not meeting its reserve requirement.
• C)the bank is holding $2,000 in excess reserves.
• D)the bank could extend additional loans and still meet its reserve requirement.

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Definitions:

International Financial Reporting Standards (IFRS)

A set of accounting standards designed to bring consistency to accounting language, practices, and statements across the globe.

Net Operating Working Capital

A financial metric that calculates the difference between a company's operating current assets and its operating current liabilities.

Current Assets

Assets on a balance sheet expected to be converted into cash, sold, or consumed within one year or the business cycle, whichever is longer.

Current Liabilities

Current Liabilities are a company's debts or obligations that are due to be paid to creditors within one year, including accounts payable, short-term loans, and other short-term financial obligations.