Which of the following statements is true about most depository banks?
Choose 1 answer:
(A) They use a full reserve system.
(B) They accept deposits but do not make loans.
(C) Their operations focus exclusively on facilitating the buying and selling of financial assets.
(D) They conduct monetary policy and ensure the smooth operation of the banking system.
(E) They use a fractional reserve system.

Question

Accepted Answer

∻Solution by Steps∻ ‖ step 1 ⋮ Identify the statement that accurately describes the operations of most depository banks. ‖ ‖ step 2 ⋮ Evaluate each option against the known functions of depository banks. ‖ ‖ step 3 ⋮ Recognize that most depository banks operate on a fractional reserve system, which means they hold a fraction of their deposit liabilities in reserve and lend out the remainder. ‖ ∻Answer∻ ***E*** ∻Key Concept∻ ⚹Fractional Reserve System⚹ ∻Explanation∻ ⚹Most depository banks use a fractional reserve system, where they keep a fraction of deposits as reserves and use the rest for loans and other investments.⚹◊What is the probability that a randomly selected depository bank uses a full reserve system, based on the information provided by the OCR model?⍭ Generate me a similar question◊

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