Which of the following is a bank required to do in the United States?
A. Avoid lending money to people who want to start a business
B. Invest money in the stock market
C. Keep a portion of the money deposited available to account holders
D. Lend money to people regardless of how likely they are to pay it back
My answer is C.
I agree
Yes, you and John are correct. :)
Thank you both.
Your answer is correct. A bank in the United States is required to keep a portion of the money deposited by account holders available for withdrawal. This requirement is known as the reserve requirement and is mandated by the Federal Reserve.
To arrive at this answer, you can eliminate options A, B, and D using the process of elimination and then analyze the remaining option. Here's an explanation of why the other options are incorrect:
Option A: Avoid lending money to people who want to start a business
Banks are encouraged to lend money to individuals who want to start businesses. They play a significant role in supporting entrepreneurial activities and economic growth. Thus, this option is incorrect.
Option B: Invest money in the stock market
While banks can choose to invest money in the stock market, they are not required to do so. Investing in the stock market is a decision made based on the bank's risk appetite and business strategy. Therefore, this option is also incorrect.
Option D: Lend money to people regardless of how likely they are to pay it back
Banks evaluate the creditworthiness and ability of borrowers to repay loans before lending money. They assess factors like credit history, income, and debt obligations to determine the risk associated with lending. Therefore, this option is inaccurate.
Considering the remaining option, C: Keep a portion of the money deposited available to account holders, it aligns with the concept of maintaining reserve requirements imposed by the Federal Reserve. Banks are required to have a certain percentage of the money deposited available as a reserve to ensure liquidity and stability in the financial system. This option is the correct answer.