A Bank Finds Itself Short of Required Reserves and Therefore

question 60

Multiple Choice

A bank finds itself short of required reserves and therefore borrows from another commercial bank. The interest rate on this loan is

• A) zero.
• B) the prime rate.
• C) the discount rate.
• D) the federal funds rate.
• E) the required reserve ratio.

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Definitions:

Cash Flows

The comprehensive total of cash and similar to cash assets transferred into and from a business.

Payback Period

The duration needed to recoup the funds spent on an investment.

Initial Cost

The initial expenditure involved in starting a project, purchasing an asset, or initiating an investment.

Net Cash Inflows

The amount of cash that a company receives during a specific period, minus the amount of cash outflows.