Question

Question 10 of 10

How does the practice of fractional reserve banking affect banks?
A. It allows banks to keep only a small percentage of their deposits in
reserve.
B. It ensures that banks always have cash reserves equal to their
total deposits.
C. It gives banks the freedom to change interest rates on loans at any
time.
D. It prevents banks from profiting off loans they provide with
deposited funds.

Answer 1

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

reserve.

Step-by-step explanation:

Fractional reserve banking allows banks to only hold fraction deposits as reserve and use most of it to gain interests as loans.