Reserves are defined as

Question

Quizplus · Accepted Answer

Reserves are the funds held by a bank that are required by law or by the bank's own policies to be kept on hand to meet potential withdrawals from depositors. The sum of vault cash and deposits at Federal Reserve banks makes up the total reserves of a bank. Option A is incorrect because reserves are not limited to just cash in bank vaults. Option B is incorrect because money in Federal Reserve accounts is only a component of bank reserves. Option D is incorrect because the total amount of money a bank must hold is determined by various factors such as regulatory requirements, risk management, and business decisions, and is not synonymous with reserves. Option E is also incorrect because ten percent of demand deposit liabilities is a regulatory requirement for reserves, but it does not define what reserves are.

Reserves Are Defined as