Which of the following explains why a bank holds reserves?
I. Banks are required by law to hold reserves.
II. To meet depositors' currency withdrawals
III. To use them to make loans to households
A) I only
B) II only
C) I and II
D) I, II, and III
E) I and III

Question

Quizplus · Accepted Answer

Banks are required by law to hold reserves as a safety measure to ensure they have enough liquidity to meet depositors' demands for currency withdrawals. Reserves are not directly used to make loans; instead, they are held to meet withdrawal demands and regulatory requirements.

Which of the Following Explains Why a Bank Holds Reserves