Reserve requirement tax is defined as:
A)the cost of holding reserves when the central bank pays no-or below market-interest on these balances
B)the benefits of holding reserves when the central bank pays above market interest on these balances
C)the tax paid on liquidating near-cash assets
D)the tax benefit received from liquidating near-cash assets

Question

Quizplus · Accepted Answer

Reserve requirement tax refers to the cost incurred by banks for holding reserves with the central bank when they receive little or no interest on these balances. It is called a tax because it is similar to a tax on banks' deposits with the central bank. Hence, option A is the correct option. The other options are not relevant to the definition of reserve requirement tax.

Reserve Requirement Tax Is Defined As