The amount of reserves that a chartered bank wishes to hold is equal to:
A)the amount of its demand deposits.
B)the sum of its demand deposits and time deposits.
C)its demand deposits multiplied by the desired reserve ratio.
D)none of the above.

Question

Quizplus · Accepted Answer

Chartered banks are required to hold a certain percentage of their demand deposits as reserves by the central bank, which is known as the required reserve ratio. However, they may choose to hold additional reserves as a precautionary measure. The amount of these additional reserves is determined by multiplying the bank's demand deposits by the desired reserve ratio, which is the percentage of deposits that the bank wishes to hold as reserves above the required amount. Therefore, the correct choice is C.

The Amount of Reserves That a Chartered Bank Wishes to Hold