Question

How does the practice of fractional reserve banking affect banks?

OA. It ensures that banks always have cash reserves equal to their
OB. It allows banks to keep only a small percentage of their deposits in
OC. It gives banks the freedom to change interest rates on loans at
total deposits.
reserve.
any time.
OD. It prevents banks from profiting off loans they provide with
deposited funds.

Answer 1

Step-by-step explanation:

It allows banks to keep only a small percentage of their

Answer 2

It allows banks to keep only a small percentage of their deposits in reserve.

Step-by-step explanation:

A fractional reserve system requires commercial banks to maintain only a percentage of their customer deposits at their custody at any time. It means that at any time, only a fraction of deposits will have physical cash backing. The commercial banks' regulator determines the fraction or percentage of deposits to be maintained.

The reserves maintained services to cater to regular and any abnormal withdrawals. Commercial banks usually loan out the other fraction to other customers. Reserves are also a monetary policy tool.