Suppose Banks Desire to Hold No Excess Reserves and That

question 103

Multiple Choice

Suppose banks desire to hold no excess reserves and that the Fed has set a reserve requirement of 10 percent. If you deposit $9,000 into First Jayhawk Bank,

• A)First Jayhawk's required reserves increase by $900.
• B)First Jayhawk will be able to lend out $8,100.
• C)First Jayhawk's assets and liabilities both will increase by $9,000.
• D)All of the above are correct.

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Definitions:

Maturity Risk Premium

The extra yield that investors demand to compensate for the risk of holding a bond until its maturity date.

T-bonds

Treasury bonds, long-term government debt securities with maturity periods typically over 20 years, offering interest payments semiannually.

Corporate Bonds

Debt securities issued by corporations to finance their operations, expansions, or projects, which pay fixed or variable interest rates to investors.

Yield To Maturity

A measure of the annualized return anticipated on a bond if the bond is held until its maturity date, accounting for current market price, par value, coupon interest rate, and time to maturity.