When we say that the Canadian banking system is fractional reserve system, it means:
A)chartered banks loan out only a small fraction of their deposits.
B)chartered banks have to keep a large percentage of their deposit to meet everyday cash withdrawals.
C)chartered banks loan out the entire deposits and do not have to meet their everyday cash withdrawal.
D)chartered banks loan out most of their deposits, keeping only a small percentage of their deposits to meet everyday cash withdrawals.

Question

Quizplus · Accepted Answer

In a fractional reserve system, banks are required to keep only a small percentage (fraction) of their deposits as reserves to meet everyday cash withdrawals. This allows the banks to loan out a larger portion of their deposits, hence keeping only a small percentage to meet cash withdrawals. Therefore, choice D is the best answer.

When We Say That the Canadian Banking System Is Fractional