Asked by
María Ruiz de Ojeda
on Nov 11, 2024
Verified
Banks want to minimize their holdings of excess reserves because:
A) they will be penalized by the Federal Reserve System if excess reserves are too high.
B) required reserves are also minimized when banks minimize their holdings of excess reserves.
C) the money multiplier becomes too large if the excess reserves are high.
D) they want to borrow more on the federal funds market.
E) excess reserves earn no interest.
Excess Reserves
Banks' reserves held at the central bank over and above the required minimum, which can influence the banks' ability to lend and thus affect the money supply.
Federal Reserve System
The central banking system of the United States, responsible for monetary policy, regulation of banks, and maintaining financial stability.
- Acknowledge the key importance of liquidity in the banking industry and the consequences of liquid assets on bank functionality.
- Comprehend the mechanisms through which banks generate income and the importance of the interest rate differential.
Verified Answer
KN
Learning Objectives
- Acknowledge the key importance of liquidity in the banking industry and the consequences of liquid assets on bank functionality.
- Comprehend the mechanisms through which banks generate income and the importance of the interest rate differential.