A-1 Bank Initially Has No Excess Reserves

question 306

Multiple Choice

A-1 bank initially has no excess reserves.If the desired reserve ratio is 10 percent and a new deposit of $10,000 is made in A-1,then A-1

• A)is required to hold the deposit in its reserves.
• B)can immediately loan a multiple of the $10,000.
• C)can immediately loan $9,000.
• D)can immediately loan $100,000.
• E)can immediately loan $10,000.

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Definitions:

Earnings Growth

An increase in a company's net income over a specified period, indicating financial health and profitability.

Shareholder Value

The value delivered to shareholders because of management's ability to grow earnings, dividends, and share price.

RAP

Regulatory Accounting Principles, which are guidelines for accounting practices in the insurance industry.

Loan Charge-offs

The process by which a bank or other financial institution removes a loan from its balance sheet after determining that it will not be repaid and is, therefore, uncollectible.