Join ExamsbookAnswer : 3. "fractional reserves"
Most modern Banking Systems are based on5
Q: Most modern Banking Systems are based on
- 1commodity moneyfalse
- 2100 percent reservesfalse
- 3fractional reservestrue
- 4money of intrinsic valuefalse
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Answer : 3. "fractional reserves"
Explanation :
Answer: C) fractional reserves Explanation: Most modern banking systems are based on Fractional reserves. Fractional-reserve banking is the practice whereby a bank accepts deposits, makes loans or investments, but is required to hold reserves equal to only a fraction of its deposit liabilities. Reserves are held as currency in the bank, or as balances in the bank's accounts at the central bank. 1. In a fractional reserve banking system banks can create money through the lending process. 2. A fractional reserve banking system is susceptible to bank panics. 3. Bank panics are a risk of fractional reserve banking, but are unlikely when banks are highly regulated and lend prudently.