If a Bank Has $200,000 of Demand Deposits, a Desired

question 70

Multiple Choice

If a bank has $200,000 of demand deposits, a desired reserve ratio of 20 percent, and it holds $80000 in reserves, then the maximum deposit outflow it can sustain without altering its balance sheet is ________.

• A) $50000
• B) $40000
• C) $30000
• D) $25000

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Definitions:

Net Realizable Value

The value of an asset that can be realized upon its sale minus a reasonable estimate of the costs associated with either its sale or disposal.

Equity Securities

Financial instruments that represent ownership in a corporation, such as stocks, granting holders a proportion of the corporation's assets and profits.

Preferred Stocks

A class of ownership in a corporation with a higher claim on assets and earnings than common stock, usually with dividends that are paid out before common stock dividends.

Common Stocks

Common stocks represent units of ownership in a corporation, providing voting rights and entitling the shareholder to a share of the company's success through dividends and/or capital appreciation.