The Following Is the Balance Sheet of the Whole Banking

question 96

Multiple Choice

The following is the balance sheet of the whole banking system (all figures are in $billions) :

-Refer to the information above to answer this question.Assume that the target reserve ratio is 5 percent.If the commercial banking system were to actually lend the maximum amount that it is able to lend,what would be the result?

• A)Reserves and deposits will increase by that amount.
• B)Excess reserves will drop to $38 billion.
• C)Excess reserves will drop to $2 billion.
• D)Excess reserves will be reduced to zero.
• E)Reserves and deposits will decrease by that amount.

---

Definitions:

Transaction Motive

Refers to the need to hold cash for the purpose of conducting daily business transactions and operations.

Lockbox System

A service provided by banks to process payments by collecting and depositing checks into the company's account quickly.

NPV

Net Present Value (NPV) is a method used in capital budgeting to determine the value of an investment by calculating the present value of expected future cash flows using a specific discount rate.

Cash Concentration Accounts

Bank accounts used by companies to concentrate cash from multiple accounts into one for efficient management and utilization.