The Financial System

Question 1

Commercial banks, savings and loan institutions, credit unions, and insurance companies are all examples of what type of financial system?

Answer 1

Financial Intermediaries

Question 2

What are reserves?

Answer 2

Bank’s money holdings. Reserves are held to meet demand for cash on the part of depositors and to honor checks drawn upon the bank.

Question 3

What is the “required reserve ratio”?

Answer 3

This is what amount of reserves a bank must hold is based on. The ratio is a number from 0 to 1.00 and determines the level of reserve holdings relative to the bank’s deposits.

Question 4

What are required reserves?

Answer 4

Amount a bank is legally obligated to hold. calculated by multiplying the required reserve ratio by amount of deposits.

Question 5

Required reserve ratio x deposits = ?

Answer 5

Required Reserves

Question 6

What are “Excess Reserves” ?

Answer 6

Difference between the amount of reserves a bank holds and what it is required to held.

Question 7

When are greater excess reserves held?

Answer 7

During time of financial uncertainty

Question 8

A banking system in which only a fraction of bank deposits are backed by actual cash-on-hand and are available for withdrawal. This is done to expand the economy by freeing up capital that can be loaned out to other parties.

Answer 8

Fractional reserves