Banks Do Not Need to Keep All of Their Deposits

question 241

Multiple Choice

Banks do not need to keep all of their deposits on hand as reserves because

• A)only a fraction of deposits are withdrawn at any one time.
• B)FDIC protects banks from excessive withdrawal demands.
• C)there is too much risk of bank robberies.
• D)they can always generate new reserves through the money creation process.

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Definitions:

Purchased

Refers to goods or services obtained by paying money or its equivalent.

Master Budget

A comprehensive financial planning document that includes all of an organization's budgets, combining sales, production, and financial budgets to project overall financial activities.

Cash Budget

A financial plan that estimates cash inflows and outflows over a specific period, often used by companies to manage liquidity and ensure sufficient cash on hand.

Control Purposes

The use of various management and accounting mechanisms to monitor, manage, and optimize the performance and efficiency of an organization.