Explain the role of required reserve .

Question

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Answer 1

Question

Definition Definition Capital reserves held by banks or financial institutions over and above the reserves that are required to be maintained by the regulator toward its liabilities and for internal controls. For commercial banks, excess reserve is the amount over the standard reserve as decided by the central bank. These excess reserve funds are available in the form of cash and cash equivalents.

Chapter 12, Problem 1QP

To determine

Explain the role of required reserve.

Expert Solution & Answer

Explanation of Solution

The required reserve creates the banking system a ‘fractional reserve’ and the banks can lend only excess reserves. If the loans are deposited back to the bank, then the banking system can make further excess reserve and offer more loans and so on. The money multiplier can be calculated using the following formula.

Money multiplier=1Reserve requirment

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Answer 2

Question

Definition Definition Capital reserves held by banks or financial institutions over and above the reserves that are required to be maintained by the regulator toward its liabilities and for internal controls. For commercial banks, excess reserve is the amount over the standard reserve as decided by the central bank. These excess reserve funds are available in the form of cash and cash equivalents.

Chapter 12, Problem 1QP

To determine

Explain the role of required reserve.

Expert Solution & Answer

Explanation of Solution

The required reserve creates the banking system a ‘fractional reserve’ and the banks can lend only excess reserves. If the loans are deposited back to the bank, then the banking system can make further excess reserve and offer more loans and so on. The money multiplier can be calculated using the following formula.

Money multiplier=1Reserve requirment

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Answer 3

Question

Definition Definition Capital reserves held by banks or financial institutions over and above the reserves that are required to be maintained by the regulator toward its liabilities and for internal controls. For commercial banks, excess reserve is the amount over the standard reserve as decided by the central bank. These excess reserve funds are available in the form of cash and cash equivalents.

Chapter 12, Problem 1QP

To determine

Explain the role of required reserve.

Expert Solution & Answer

Explanation of Solution

The required reserve creates the banking system a ‘fractional reserve’ and the banks can lend only excess reserves. If the loans are deposited back to the bank, then the banking system can make further excess reserve and offer more loans and so on. The money multiplier can be calculated using the following formula.

Money multiplier=1Reserve requirment

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Answer 4

Question

Definition Definition Capital reserves held by banks or financial institutions over and above the reserves that are required to be maintained by the regulator toward its liabilities and for internal controls. For commercial banks, excess reserve is the amount over the standard reserve as decided by the central bank. These excess reserve funds are available in the form of cash and cash equivalents.

Chapter 12, Problem 1QP

To determine

Explain the role of required reserve.

Expert Solution & Answer

Explanation of Solution

The required reserve creates the banking system a ‘fractional reserve’ and the banks can lend only excess reserves. If the loans are deposited back to the bank, then the banking system can make further excess reserve and offer more loans and so on. The money multiplier can be calculated using the following formula.

Money multiplier=1Reserve requirment

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Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!

Answer 5

Chapter 12, Problem 1QP

To determine

Explain the role of required reserve.

Expert Solution & Answer

Explanation of Solution

The required reserve creates the banking system a ‘fractional reserve’ and the banks can lend only excess reserves. If the loans are deposited back to the bank, then the banking system can make further excess reserve and offer more loans and so on. The money multiplier can be calculated using the following formula.

Money multiplier=1Reserve requirment

Answer 6

Chapter 12, Problem 1QP

To determine

Explain the role of required reserve.

Expert Solution & Answer

Explanation of Solution

The required reserve creates the banking system a ‘fractional reserve’ and the banks can lend only excess reserves. If the loans are deposited back to the bank, then the banking system can make further excess reserve and offer more loans and so on. The money multiplier can be calculated using the following formula.

Money multiplier=1Reserve requirment

Answer 7

Chapter 12, Problem 1QP

To determine

Explain the role of required reserve.

Answer 8

Expert Solution & Answer

Explanation of Solution

The required reserve creates the banking system a ‘fractional reserve’ and the banks can lend only excess reserves. If the loans are deposited back to the bank, then the banking system can make further excess reserve and offer more loans and so on. The money multiplier can be calculated using the following formula.

Money multiplier=1Reserve requirment