If a Bank Sells a $1,000 Security to the Fed

question 63

Multiple Choice

If a bank sells a $1,000 security to the Fed and the required reserve ratio is 10 percent, _____

• A) the bank has $1,000 in additional reserves, of which it can lend $800.
• B) the bank has $1,000 in additional reserves, of which it can lend $900.
• C) the bank has lost an asset and must reduce its loans.
• D) the bank has lost a liability.
• E) there is no change in excess reserves, since net assets do not change.

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Definitions:

Malkiel's Study

An academic research work that analyzes market trends, investor behavior, and the efficiency of financial markets, particularly known for supporting the random walk hypothesis.

Subsequent-year Period

A timeframe that follows the current year, used in forecasting and planning for future financial or operational activity.

Investment Company Assets

Assets held by a company that pools together money from many investors to purchase securities such as stocks, bonds, and other financial assets.

Mutual Funds

Investment vehicles that pool money from multiple investors to purchase a diversified portfolio of stocks, bonds, or other securities.