Economics Part B

Reserve ratio

Understanding What is Reserve ratio

The ratio between the total cash held in the bank's safe and the balances deposited in it in current accounts. For example: if bank holds $50k and the balance of current accounts is $100k , the reserve ration is one half (1/2).

The banks are required to maintain a reserve ratio set by the central bank. In other words, the reserve ratio limits the amount of loans the bank is permitted to provide its customers.

Reserve ratio540Reserve ratio