Asked by Jasmine Nacole on May 08, 2024
Verified
There is virtually no difference between
A) primary reserves and secondary reserves.
B) secondary reserves and required reserves.
C) required reserves and primary reserves.
Primary Reserves
Funds that financial institutions must hold in physical form, such as cash in vaults or deposits with central banks, as a measure of liquidity and financial stability.
Secondary Reserves
Liquid assets held by financial institutions as backup funds for unforeseen needs, not directly utilized in lending or investment.
Required Reserves
The minimum amount of funds that banks are required to hold in reserve against deposits, as mandated by central banks.
- Identify the effects of monetary policy decisions on financial institutions and markets.
Verified Answer
NY
Nathan YalungMay 11, 2024
Final Answer :
C
Explanation :
Required reserves refer to the percentage of customer deposits that banks are required to hold as reserves. Primary reserves refer to the most liquid assets held by banks, such as cash and deposits with the central bank, which can be used to meet short-term liquidity needs. There is a significant difference between primary reserves and secondary reserves. Secondary reserves are assets that can be converted into cash relatively quickly but are not as liquid as primary reserves. Therefore, the best choice is C as required reserves are different from primary reserves, but they can be similar to secondary reserves.
Learning Objectives
- Identify the effects of monetary policy decisions on financial institutions and markets.