The law requires banks to maintain
A) fractional reserves in the form of deposit liabilities against their liquid assets.
B) fractional reserves in the form of federal securities against their outstanding loans.
C) fractional reserves in the form of cash in their vaults or deposits with the central bank against their deposit liabilities.
D) legal reserves in the form of gold against their outstanding loans.

Question

Quizplus · Accepted Answer

The law requires banks to maintain fractional reserves in the form of cash in their vaults or deposits with the central bank against their deposit liabilities. This is done to ensure that banks have enough funds to meet the demands of their depositors who may need to withdraw their money at any time. This reserve requirement also helps to prevent banks from overextending themselves in terms of lending, which can lead to financial instability.

The Law Requires Banks to Maintain