The reserves of financial institutions:
a. Are the largest liability in a financial institution's balance sheet.
b. Are assets that financial institutions try to maximize.
c. Are assets that financial institution's try to keep at the legal limit.
d. Are made up mainly of government securities and high quality corporate bonds.
e. Include the liability called Borrowing from the central bank.
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 quantity of real loanable funds per time period and the nominal value of the domestic currency in the context of the Three-Sector-Model?
a. The quantity of real loanable funds per time period rises, and nominal value of the domestic currency falls.
b. There is not enough information to determine what happens to these two macroeconomic variables.
c. The quantity of real loanable funds per time period rises, and nominal value of the domestic currency rises.
d. The quantity of real loanable funds per time period rises, and nominal value of the domestic currency remains the same.
e. The quantity of real loanable funds per time period falls, and nominal value of the domestic currency rises.
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