Which of the following statements is true?
A)Only about 10% of reserves are held as deposits with the Fed.
B)About 90% of banks meet their reserve requirements with vault cash.
C)Large banks may not use vault cash to meet their reserve requirements.
D)All banks must keep at least half of their required reserves on deposit at a Federal Reserve bank.

Question

Quizplus · Accepted Answer

According to the Federal Reserve, "Vault cash" is defined as "Currency held by banks and other depository institutions in their vaults or in commercial bank vaults." Many banks use vault cash to meet their reserve requirements, meaning that option B is the only true statement. Option A is incorrect because, according to the Federal Reserve, as of March 2021, the average reserve balance held at the Fed was about 30% of total required reserves. Option C is incorrect because there are no restrictions on the types of assets that can be used to meet reserve requirements. Finally, option D is incorrect because the exact reserve requirement for banks is determined based on a number of factors, including the size of the bank's net transaction accounts (i.e., checking accounts).

Which of the Following Statements Is True