A local bank decides to expand and opens up new branches in neighboring states. This expansion allows it to:
A) further diversify risk.
B) decrease its reserve ratio.
C) provide less liquidity.
D) charge higher interest rates.

Question

Quizplus · Accepted Answer

By opening up new branches in neighboring states, the local bank is able to further diversify its risk. This means that if one region or state experiences a financial downturn, the bank's overall risk is spread out among multiple locations, reducing the impact of any one area's economic troubles. Decreasing the reserve ratio, providing less liquidity, and charging higher interest rates are not necessarily benefits of expanding into new states.

A Local Bank Decides to Expand and Opens Up New