A Bank Has $200 of Reserves and $4,000 of Deposits

question 27

Multiple Choice

A bank has $200 of reserves and $4,000 of deposits. It is just meeting its desired reserves and has no excess reserves. Thus the desired reserve ratio is

• A) 10 per cent.
• B) 5 per cent.
• C) $200.
• D) 25 per cent.
• E) 20 per cent.

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Definitions:

Acid-Test

A financial metric that assesses a company's ability to pay its current liabilities with its quick assets (cash, marketable securities, and receivables).

Operating Segment

An operating segment is a component of a business that engages in business activities from which it may earn revenues and incur expenses, whose operating results are regularly reviewed by the entity's chief operating decision maker.

GAAP

Generally Accepted Accounting Principles, a framework of accounting standards, rules, and conventions used in the United States for financial reporting.

Reportable Segments

Distinct parts of a business that are specifically identified for reporting purposes due to their operations’ financial results being regularly reviewed by the company's decision-makers.