Question

Commercial banks hold a tion of their deposits in cash in their vaults (or as deposits with the central bank). This tion is known as

A) The required reserve.
B) The excess reserve ratio.
C) The tional reserve.
D) The reserve ratio.
E) The target reserve.

Answer 1

Commercial banks must keep a portion of their deposits as cash, known as the reserve requirement, to fulfill withdrawal requests and meet other financial obligations as mandated by the Federal Reserve.

Step-by-step explanation:

Commercial banks are required to hold a portion of their deposits as cash in their vaults or at the central bank, which is known as the reserve requirement. This requirement ensures that banks have enough cash on hand to meet their customers' withdrawal requests and other financial obligations. The Federal Reserve sets this requirement as a way to manage the money supply and exercise control over the banking system.

Banks may also maintain excess reserves beyond the required level for additional security and liquidity. The content loaded question pertains to the definition of the reserve ratio that banks must adhere to under federal regulations.