Question

1. Banks earn a profit by

   		charging an interest rate on their depositors' accounts.
   		keeping as many reserves on hand as possible.
   		making loans at a lower interest rate than the rate that they offer on their deposits.
   		making loans at a higher interest rate than the rates that they offer on their deposits.

2 points   

QUESTION 23

1. Required reserve ratios are the minimum amount of

   		reserves any one bank must hold as a percentage of its loans.
   		reserves any one bank must hold as a percentage of its deposits.
   		reserves any one bank must hold as a percentage of its total assets.
   		deposits any one bank must hold as a percentage of its reserves.

2 points   

QUESTION 24

1. The Fed is a central bank and as such

   		is where the Federal Government turns when it needs to borrow.
   		provides banking services to banks but not individuals.
   		does business only with the federal government.
   		provides banking services to individuals and firms.

Answer 1

It shall be noted that Banks earn profit by making loans at a higher interest rate than the rates that they offer on their deposit.

It shall further be noted that deposits are a liability of the bank and the loans are the assets to the bank. The margin that the bank earns as the differential interest rate is the profit that the bank earns from its business.

Hence, the correct answer is - making loans at a higher interest rate than the rates that they offer on their deposits

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Required Reserve ratio= Reserves maintained by banks with the Central Bank / Deposit liabilities

Hence, the correct answer is - reserves any one bank must hold as a percentage of its deposits

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The Federal Reserve, like most central banks, is designed to perform three important functions:

1) To provide banking services to commercial banks and other depository institutions, and to provide banking services to the federal government.

2) To promote the stability of the financial system

3) To conduct monetary policy

Thus, the correct answer is - provides banking services to banks but not individuals