Final answer:
d) Its transaction deposits plus its deposit in the Fed
A bank's legal reserves are primarily made up of its transaction deposits and its deposits with the Federal Reserve Bank, not the nonpersonal time deposits since they have a reserve ratio of zero.
Step-by-step explanation:
The question you've asked relates to what constitutes a bank's legal reserves. According to the Federal Reserve Board's Regulation D, a bank's legal reserves consist of the financial assets it must hold against its deposit liabilities, which include net transaction accounts, nonpersonal time deposits, and eurocurrency liabilities. However, since December 27, 1990, nonpersonal time deposits and eurocurrency liabilities have a reserve ratio of zero, meaning they are not part of a bank's required reserves. Therefore, a bank's legal reserves primarily consist of its vault cash (actual currency held by the bank) and any deposits in the Federal Reserve. This means the correct answer to your question is 'd) Its transaction deposits plus its deposit in the Fed', as these are the components that typically make up a bank's required reserves.
The legal reserves of a bank include its transaction deposits plus its deposit in the Fed. Transaction deposits refer to the money that individuals and businesses deposit into their bank accounts that can be withdrawn on demand. The deposit in the Fed refers to the funds that the bank holds at the Federal Reserve Bank as a part of the reserve requirement.