Question

In a fractional reserve banking system
A) bank accepts deposits
B) bank accepts some loans
C) bank has some cash reserves
D) All the above

Answer 1

D) All of the above

The bank accepts deposit from the depositors. The bank use this deposit to extend loans but also keep reverse to return the depositor whenever they come to seek their money

Answer 2

The correct answer is (D) All the above.

• Fractional reserve banking is a practice in which a bank accepts deposits, provides loans, and invests, but is only required to retain reserves equivalent to a small percentage of its deposit liabilities.
• Only a fraction of bank deposits are secured by actual cash on hand and are accessible for withdrawal in fractional reserve banking.
• This is done to stimulate the economy by freeing up funds that can be lent to others.