Asked by Katherin Mejia on Jul 22, 2024
Verified
Which statement is true?
A) Banks get a significant part of their total revenue from interest on their primary reserves.
B) Banks try to carry as much in excess reserves as they possibly can.
C) Only a small fraction of the nation's banks are subject to the reserve requirements of the Federal Reserve.
D) The banks have received interest on their reserves since October,2008.
Primary Reserves
Assets that are held by banks that are readily available to meet immediate withdrawal demands, such as cash and deposits with central banks.
Excess Reserves
Funds that banks hold over and above the required minimum reserves specified by central banking authorities, which can be loaned out or invested.
Reserve Requirements
The minimum amount of reserves that banks must hold against deposits, set by central banks to ensure liquidity and control the money supply.
- Analyze the effects of monetary policy maneuvers on the dynamics of financial markets and institutions.
Verified Answer
PN
Pham Nguyen Dinh Hai (K14 DN)Jul 28, 2024
Final Answer :
D
Explanation :
The statement "The banks have received interest on their reserves since October,2008" is true. This is in reference to the Federal Reserve's policy to pay interest on both required and excess reserves held by banks since October 2008. Option A is incorrect because banks do not get a significant part of their total revenue from interest on their primary reserves, as these reserves are typically held to meet reserve requirements and not primarily for earning interest. Option B is also incorrect because banks try to hold only the required reserves and minimize excess reserves. Option C is incorrect because all banks in the US are subject to reserve requirements of the Federal Reserve.
Learning Objectives
- Analyze the effects of monetary policy maneuvers on the dynamics of financial markets and institutions.