According to Application 8.1, "Questions and Answers about Reserves and Loans," which of the following statements is FALSE?
A) The Federal Reserve specifies the prime rate for each type of financial institution.
B) Financial depository institutions keep adequate currency in their vaults to serve customers, and not excessive amounts because of security risks.
C) Banks can borrow from a Federal Reserve Bank or from other banks through the Federal Funds market.
D) A financial depository institution averages deposits and reserves over a period of time rather than daily when determining whether it meets its reserve requirement.

Question

Quizplus · Accepted Answer

The Federal Reserve does not specify the prime rate for each type of financial institution. The prime rate is determined by individual banks and is often influenced by the Federal Reserve's policies, but it is not directly set by the Federal Reserve for each financial institution.