One of the main liabilities on the Fed's balance sheet is reserves. Which of the following is the best definition of that item?
A)Reserves represent foreign currencies held at the Fed.
B)Reserves are deposits that banks hold at the Fed.
C)Reserves represent gold and other precious metals held at the Fed.
D)Reserves represent loans that the Fed has made to other countries.
E)None of these is an appropriate definition.

Question

Quizplus · Accepted Answer

Reserves are deposits that banks hold at the Fed. These reserves are a liability on the Fed's balance sheet because they represent funds that the Fed owes to banks. Banks are required to hold a certain amount of reserves at the Fed, which can be used to meet their own obligations and to facilitate transactions with other banks.

One of the Main Liabilities on the Fed's Balance Sheet