Which financial innovation allows banks to avoid reserve requirements and to pay interest on deposits? A....

Which financial innovation allows banks to avoid reserve requirements and to pay interest on deposits?

	A.	Money market funds
	B.	Sweep accounts
	C.	Both money market funds and sweep accounts

Expert Solution

The following financial innovation allows banks to avoid reserve requirements and to pay interest on deposits:

C. Both money market funds and sweep accounts

Money Market Funds are short-term debt funds that invest only in highly liquid money market instruments with an average maturity of one year. These funds offer high liquidity with a very low level of risk.

A Sweep account is an account held at a bank or other financial institution where the funds that exceed or fall short of a certain level, are automatically transferred from an account, having a very low rate of interest, into a higher interest -earning investment account at the end of each business day. An auto -sweep account generates more interest to customers.

Both money market funds and sweep accounts allows banks to avoid reserve requirements and to pay interest on deposits and it is possible because of change in technology. As these two types of financial innovation generates high level of interest with low level of risks, banks can avoid reserve requirements.

Rahul Sunny answered 9 months ago

If British banks pay 2% interest and American banks pay 5% interest on deposits, is there...

If British banks pay 2% interest and American banks pay 5% interest on deposits, is there a risk-free way you could make a profit? What factors you have to consider?

The Federal Reserve pays interest on the reserve deposits banks hold with the Fed. Explain if...

The Federal Reserve pays interest on the reserve deposits banks hold with the Fed. Explain if and how the banks could earn any profit without cost in the following situations by taking advantage of differences in the Discount rate, Federal funds rate and interest paid on reserves. Banks would just borrow/lend each other or from the Fed or hold reserves in their account. A. The discount rate is 2%, the effective federal funds rate is 2.5% and the interest paid...

If the Federal Reserve increases the interest rate on bank deposits at the Fed, banks will...

If the Federal Reserve increases the interest rate on bank deposits at the Fed, banks will want to hold Select one: a. fewer reserves, so the reserve ratio will rise. b. more reserves, so the reserve ratio will rise. c. fewer reserves, so the reserve ratio will fall. d. more reserves, so the reserve ratio will fall.

Are you for or against central banks’ imposing reserve requirements for banks? Justify your answer please

Why does the Federal Reserve impose capital requirements on commercial banks?

QUESTION 14 Which of the following describes the Financial Services Modernization Act? A. Allows banks to...

QUESTION 14 Which of the following describes the Financial Services Modernization Act? A. Allows banks to offer insurance and stock brokerage services. B. Requires banks to disclose their privacy policies to consumers. C. Requires banks to inform consumers how they can “opt out” of having their confidential information released to other companies. D. Requires banks to develop policies that will prevent unauthorized access of customers’ confidential information. E. All of these.

Create an argument for which monetary policy (reserve requirements, Federal Funds rate, or interest rate) is...

Create an argument for which monetary policy (reserve requirements, Federal Funds rate, or interest rate) is the most significant in helping the Federal Reserve positively influence the economy. It must compare and contrast each one and explain why it is the most successful. yes i refer to that

13.Most consumer deposits in banks are insured by the FDIC A.True B.False 14.If the reserve requirement...

13.Most consumer deposits in banks are insured by the FDIC A.True B.False 14.If the reserve requirement increased from 10% to 20% that would A.Create more money B.Create Less Money C.Have no impact on Money 15.The Fed takes direction from the President and Congress A.True B.False 16.What is the Federal Reserve? A.It's the Central Bank of the United States B.It's a private offshore bank for wealthy people C.The bank for savings and loans D.The central bank for New York 17.What is...

Define or discuss briefly: a.Federal Reserve branch banks b.Central banks c.Open market operations d.Reserve requirements Class...

Define or discuss briefly: a.Federal Reserve branch banks b.Central banks c.Open market operations d.Reserve requirements Class of Finance Please answer by type-in text

Reserve requirements effectively impose a tax on bank deposits that reduce profits. Why does this tax...

Reserve requirements effectively impose a tax on bank deposits that reduce profits. Why does this tax increase as interest rates rise? A. States tend to increase franchise fees on banks as interest rates rise B. As interest rates rise, banks could earn more money by lending reserves to borrowers. These profits are limited by the reserve requirement, and the foregone profits increase as the interest rate rises. C. The Fed always increases the reserve requirement as interest rates rise D....

Question