Bank reserves can be viewed as:
a. Profitable assets in a bank's portfolio.
b. Taxes on profits.
c. Assets that all banks should have in excess, if they want relatively high profits and relatively low risks.
d. All the above.
Question 2
Assume that the central bank increases the reserve requirement. If the nation has highly mobile international capital markets and a flexible exchange rate system, what happens to the real risk-free interest rate and net nonreserve-related international borrowing/lending in the context of the Three-Sector-Model?
a. The real risk-free interest rate rises, and net nonreserve-related international borrowing/lending becomes more positive (or less negative).
b. There is not enough information to determine what happens to these two macroeconomic variables.
c. The real risk-free interest rate and net nonreserve-related international borrowing/lending remain the same.
d. The real risk-free interest rate rises, and net nonreserve-related international borrowing/lending becomes more negative (or less positive).
e. The real risk-free interest rate falls, and net nonreserve-related international borrowing/lending becomes more negative (or less positive).
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