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Questions and Answers
What are excess reserves in the context of a bank's operations?
What are excess reserves in the context of a bank's operations?
- Funds set aside for long-term investments
- Assets used to meet the bank’s obligations to shareholders
- Insurance against the costs associated with deposit outflows (correct)
- Cash kept on hand for daily transactions
Why do banks want to hold more excess reserves when the costs associated with deposit outflows are higher?
Why do banks want to hold more excess reserves when the costs associated with deposit outflows are higher?
- To increase liquidity management efficiency
- To attract more depositors
- To invest in riskier assets
- To mitigate the impact of potential deposit outflows (correct)
What is the purpose of liquidity management for a bank?
What is the purpose of liquidity management for a bank?
- To minimize the number of deposit outflows
- To maximize profits from excess reserves
- To invest in long-term assets
- To acquire sufficiently liquid assets to meet the bank’s obligations to depositors (correct)
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