A banker operating under a system of fractional reserves
A)is exposed to potential bank runs.
B)must keep a prudent level of reserves.
C)must lend money carefully.
D)All of the above are correct.

Question

Quizplus · Accepted Answer

A banker operating under a fractional reserve system faces the risk of bank runs because they cannot meet all the withdrawal requests if all depositors withdraw their funds simultaneously. Therefore, they must maintain a prudent level of reserves to meet the demands of depositors. Additionally, they must carefully lend money to avoid default risk and maintain the profitability and stability of the bank. All of these factors make D the correct answer.

A Banker Operating Under a System of Fractional Reserves