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Explain Why a Bank Would Not Like to Hold Excess

question 149

Essay

Explain why a bank would not like to hold excess reserves.


Definitions:

Time Spread

A strategy in options trading that involves buying and selling options on the same asset with the same strike price but different expiration dates.

Put

An option contract giving the owner the right, but not the obligation, to sell a specified amount of an underlying asset at a set price within a specified time.

Put Contract

A financial contract giving the holder the right, but not the obligation, to sell a specific amount of an underlying asset at a set price within a specific time.

Put Premium

The price that an investor pays for the right, but not the obligation, to sell a security at a specified price before a certain date.

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