Scenario 11-2 A Bank's Assets Consist of $1 000 000 in Total

question 15

Multiple Choice

Scenario 11-2
A bank's assets consist of $1 000 000 in total reserves, $2 100 000 in loans, and a building worth $1 200 000. Its liabilities and capital consist of $3 000 000 in demand deposits and $1 300 000 in capital.
-Refer to Scenario 11-2.If the bank desires to keep reserves equal to one-third of deposits,what is the level of the bank's excess reserves and how much money could the excess reserves be used to create in the banking system as a result?

• A)Excess reserves are $300 000 and could be used to create $300 000 in the banking system.
• B)Excess reserves are zero and could not be used to create any money in the banking system.
• C)Excess reserves are $700 000 and could be used to create $2 100 000 in the banking system.
• D)Excess reserves are $300 000 and could be used to create $900 000 in the banking system.

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Definitions:

Security Interest

A legal claim or right on property as collateral to secure the performance of an obligation, usually the repayment of a debt.

Attached

Being joined or associated with something else, typically in the context of legal or official documents and properties.

Perfected

In legal terms, this refers to the completion of all necessary legal steps to enforce one's rights to an asset or interest.

Internationalization

The process of designing products, services, and content to facilitate their adaptation to various languages and cultures.