Volatile deposits:
A) are the largest source of funds for smaller banks.
B) equal the difference between actual current deposits and the base estimate of core deposits.
C) reduce reserve requirements.
D) are a low cost source of funds.
E) all of the above

Question

Quizplus · Accepted Answer

Volatile deposits are those which are likely to be withdrawn quickly, such as large corporate or public funds, and do not provide a stable source of funding for banks. The base estimate of core deposits is used to calculate the amount of required reserves, so the difference between actual current deposits and this estimate is important in determining a bank's reserve requirements. Volatile deposits are not a reliable source of funding and can increase a bank's risk, so they are not considered a low cost source of funds.

Volatile Deposits