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| Topic: |
Business
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| Number of pages / Number of words: |
6 / 1548 |
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The reserve ratio stipulates how much a bank is required to keep in reserves relative to what is in deposits. If a bank has a reserve ratio of 15%, the required reserve on $10 million in deposits is $1.5 million. The required reserve ratio is dictated to be certain banks do run out of cash on hand to meet the demand for withdrawals...
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The money not required in be on hand is then loaned out to customers, which in turn, increases the money supply.
The Discount Rate
The Federal Reserve Bank is a lender of money to commercial banks. When commercial banks borrow from the district central bank with a promissory note, the interest charged is referred to as the discount rate...
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