Secondary Reserves Are So Called Because

question 49

Multiple Choice

Secondary reserves are so called because

• A)they can be converted into cash with low transactions costs.
• B)they are not easily converted into cash,and are,therefore,of secondary importance to banking firms.
• C)50% of these assets count toward meeting required reserves.
• D)they rank second to bank vault cash in importance of bank holdings.

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Definitions:

Basis Risk

The risk that the price of a futures contract may not move in tandem with the price of the underlying asset, leading to potential losses in a hedging strategy.

Basis

The spot price minus the futures price.

Short Hedger

An investor who enters into contracts or investment positions to reduce the risk of price decreases in an asset they currently own or plan to own.

Basis

In finance, the difference between the spot price of an asset and the future price, or the inverse, depending on the context.