Question

Which statement best summarizes the action of a bank that anticipates that its holdings of checkable deposits will grow in the future?

A. It will send the exact amount equal to its checkable deposits as reserves to the Federal Reserve Bank.
B. It will send an extra amount of reserves to the Federal Reserve Bank.
C. It will send the minimum amount of required as reserves to the Federal Reserve Bank.

Answer 1

A bank expecting growth in checkable deposits would send the minimum required reserves to the Federal Reserve Bank, fulfilling the reserve requirement while maximizing available funds for other uses.

Step-by-step explanation:

The action of a bank that anticipates growth in its holdings of checkable deposits is best summarized by the bank choosing to send the minimum amount required as reserves to the Federal Reserve Bank. This approach adheres to the reserve requirement while allowing the bank to utilize the rest of the deposits for loans and other investments. The reserve requirement is an important regulatory tool that impacts banking operations and overall money supply. Banks may also keep extra reserves to manage risks associated with economic conditions or to adhere to changes in government policy.