What is fractional reserve banking?
A) Borrowers are required to repay only a fraction of the amount loaned to them.
B) Banks are required to hold only a set proportion of total deposits in reserve.
C) The actual amount that a borrower receives is a fraction of the loan value that must be repaid.
D) Banks are required to hold only a fraction of their reserves at the central bank.

Question

Quizplus · Accepted Answer

Fractional reserve banking refers to the banking system where banks are required to hold only a set proportion of their total deposits in reserve, allowing them to lend out the remainder. This system is fundamental to modern banking, enabling banks to extend credit and create money through the lending process.

What Is Fractional Reserve Banking