In a fractional reserve banking system, banks hold only a fraction of their:
A) loans as reserves.
B) deposits as reserves.
C) currency as reserves.
D) monetary base.

Question

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In a fractional reserve banking system, banks are required to hold only a fraction of their deposits as reserves. This means that they can lend out the remaining portion of the deposits they receive. The reserve requirement is set by the central bank and varies across countries and banks. The reserves held by banks generally consist of currency and deposits with the central bank. Loans are not held as reserves as they are an asset for the bank. The monetary base includes currency and reserves, but banks only hold a fraction of their deposits as reserves.

In a Fractional Reserve Banking System, Banks Hold Only a Fraction