Banking 9 - Reserve Ratios Pt.2

Question 1

purpose of reserve requirements?

Answer 1

keeps the bank liquid

Question 2

liquidity?

Answer 2

when someone asks for cash, we have cash available to give them

Question 3

solvency?

Answer 3

are you assets larger than your liabilities

assets > liabilities = solvent

ability to settle debts

Question 4

is leverage more relevant to liquidity or solvency?

Answer 4

solvency

this is because leverage is about how much of a cushion is needed before insolvency occurs (before liabilities outrun assets)