Regarding bank balance sheets, why does a $1million deposit represent both an asset and an ability to the bank where it was deposited?
A. Because banks charge higher interest rates on loans than the interest rates they pay account holders for deposits
B. Simply to preserve the basic accounting principle that Assets = Liabilities + Net Worth It is as a result of the Fractional Reserve Banking system where even though the bank owes the money to the depositor, it can lend some of that money out Of borrowers.
D. Because of the ability of account holders to write checks against their deposits E It is a trick question, the Semillon is actually an asset and an addition to their Net Worth
Which of the following statements regarding bank reserve accounts is not true?
A. If a bank has inadequate reserves they would prefer to borrow money in the Federal Funds Market rather than in the Discount Market.
Banks are happiest, or consider themselves the most successful when they have excess reserves
C. the Federal Reserve dictates how much money must be in the bank's reserve account based on the amount of money deposited at the bank.
D. When a bank has to borrow money to cover inadequate reserves it can borrow from banks with excess reserves and it is just an overnight loan
E. If a bank has inadequate reserves they have the option of borrowing directly from the Federal Reserve to make sure they meet their required reserves