Question

1.) If it looks like a bank won't meet the Federal Reserve Bank's reserve requirement, normally it will first turn to the: (a) other member banks and borrow money at the federal funds rate. (b) Federal Reserve and borrow money at the discount rate. (c) open market and borrow money there. (d) Congress to borrow funds.

Answer 1

Answer: A. other member banks and borrow money at the federal funds rate

Explanation: The first thing a Bank will do when it won't be able to meet the federal reserve Bank's requirement, is to borrow money at the federal funds rate from other Banks.

Federal Reserve Bank's reserve requirement or cash reserve ratio, it the minimum amount of reserve a commercial bank is expected to hold. It is practice by most Central Banks in the world but not all. A Bank that has excess of the minimum is said to have surplus reserve.