Suppose Bank ABC Has a Target Reserve Ratio of 2

question 1

Multiple Choice

Suppose Bank ABC has a target reserve ratio of 2%.If Bank ABC receives a new deposit of $50 million it will immediately find itself with

• A)no excess cash reserves.
• B)excess cash reserves of $1 million.
• C)excess cash reserves of $10 million.
• D)excess cash reserves of $49 million.
• E)excess cash reserves of $49.5 million.

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Definitions:

Expected Return

The average of all possible investment returns, each weighted by its probability of occurrence.

Standard Deviation

A measure of the amount of variation or dispersion of a set of values, used in statistics to quantify the degree of difference from the average.

Beta

A metric indicating the level of fluctuation or inherent risk in a security or portfolio relative to the overall market.

Market Risk

The potential for investors to lose money due to fluctuations in market prices.